Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of Northern Funds shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from Northern Funds or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Funds’ website (northerntrust.com) and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you have already elected to receive your shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from Northern Funds electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if your account is held directly with Northern Funds, by calling the Northern Funds Center at 800-595-9111 or by sending an e-mail request to: [email protected]. You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, please contact your financial intermediary to continue receiving paper copies of your shareholder reports. If you invest directly with Northern Funds, you can inform Northern Funds that you wish to continue receiving paper copies of your shareholder reports by calling the Northern Funds Center at 800-595-9111 or by sending an e-mail request to: [email protected]. Your election to receive reports in paper will apply to all Northern Funds you hold in your account at the financial intermediary or through an account with Northern Funds. You must provide separate instructions to each of your financial intermediaries. NORTHERN FIXED INCOME FUNDS SEMI-ANNUAL REPORT SEPTEMBER 30, 2019
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NORTHERN FIXED INCOME FUNDS...Futures contracts 13 16 — Net changes in unrealized appreciation (depreciation) on: Investments 3,135 14,476 61,313 Investments in affiliates ——
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Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of NorthernFunds shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from NorthernFunds or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Funds’ website(northerntrust.com) and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive your shareholder reports electronically, you will not be affected by this change and you need not takeany action. You may elect to receive shareholder reports and other communications from Northern Funds electronically at any time bycontacting your financial intermediary (such as a broker-dealer or bank) or, if your account is held directly with Northern Funds, by calling theNorthern Funds Center at 800-595-9111 or by sending an e-mail request to: [email protected].
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, please contact your financialintermediary to continue receiving paper copies of your shareholder reports. If you invest directly with Northern Funds, you can inform NorthernFunds that you wish to continue receiving paper copies of your shareholder reports by calling the Northern Funds Center at 800-595-9111 orby sending an e-mail request to: [email protected]. Your election to receive reports in paper will apply to all Northern Funds you holdin your account at the financial intermediary or through an account with Northern Funds. You must provide separate instructions to each of yourfinancial intermediaries.
N O R T H E R N F I X E D I N C O M E F U N D S
S E M I - A N N UA L R E P O R T
S E P T E M B E R 3 0 , 2 019
2 STATEMENTS OF ASSETS AND LIABILITIES
4 STATEMENTS OF OPERATIONS
6 STATEMENTS OF CHANGES IN NET ASSETS
8 FINANCIAL HIGHLIGHTS
16 SCHEDULES OF INVESTMENTS
16 CORE BOND FUNDTicker Symbol: NOCBX
25 FIXED INCOME FUNDTicker Symbol: NOFIX
35 HIGH YIELD FIXED INCOME FUNDTicker Symbol: NHFIX
45 SHORT BOND FUNDTicker Symbol: BSBAX
53 SHORT-INTERMEDIATE U.S. GOVERNMENTFUNDTicker Symbol: NSIUX
73 ULTRA-SHORT FIXED INCOME FUNDTicker Symbol: NUSFX
87 U.S. GOVERNMENT FUNDTicker Symbol: NOUGX
89 NOTES TO THE FINANCIAL STATEMENTS
99 FUND EXPENSES
101 APPROVAL OF MANAGEMENT AGREEMENT
108 FOR MORE INFORMATION
This report has been prepared for the generalinformation of Northern Funds shareholders. Itis not authorized for distribution to prospectiveinvestors unless accompanied or preceded bya current Northern Funds summary prospectusor prospectus, which contains more completeinformation about a fund’s investmentobjectives, risks, fees and expenses. Investorsare reminded to read a summary prospectusor prospectus carefully before investing orsending money.
Northern Funds are distributed by Northern FundsDistributors, LLC, Three Canal Plaza, Suite 100,Portland, Maine 04101, not affiliated with NorthernTrust.
NOT FDIC INSURED
May lose value / No bank guarantee
F I X E D I N C O M E F U N D S
TA B L E O F C O N T E N T S
NORTHERN FUNDS SEMIANNUAL REPORT 1 FIXED INCOME FUNDS
Amounts in thousands, except per share data
COREBONDFUND
FIXEDINCOME
FUND
ASSETS:
Investments, at value $200,329 $828,691
Investments in affiliates, at value 4,630 5,599
Foreign currencies, at value (cost $153) — —
Interest income receivable 810 4,207
Dividend income receivable 27 136
Receivable for foreign tax reclaims 14 1
Receivable for securities sold 3,854 9,592
Receivable for fund shares sold 249 639
Receivable from investment adviser 4 13
Prepaid and other assets 4 5
Total Assets 209,921 848,883LIABILITIES:
Payable for securities purchased 3,718 —
Payable for when-issued securities 1,231 10,487
Payable for variation margin on futures contracts — —
Payable for fund shares redeemed 17 2,466
Distributions payable to shareholders 79 371
Payable to affiliates:
Management fees 13 59
Custody fees 2 17
Shareholder servicing fees 4 60
Transfer agent fees 13 54
Trustee fees 4 14
Accrued other liabilities 30 26
Total Liabilities 5,111 13,554Net Assets $204,810 $835,329ANALYSIS OF NET ASSETS:
Capital stock $202,996 $839,117
Distributable earnings 1,814 (3,788)
Net Assets $204,810 $835,329Shares Outstanding ($.0001 par value, unlimited authorization) 19,445 80,471Net Asset Value, Redemption and Offering Price Per Share $10.53 $10.38
Investments, at cost $196,422 $813,742
Investments in affiliates, at cost 4,630 5,599
F I X E D I N C O M E F U N D S
S TAT E M E N T S O F A S S E T S A N D L I A B I L I T I E S
See Notes to the Financial Statements.
FIXED INCOME FUNDS 2 NORTHERN FUNDS SEMIANNUAL REPORT
Net change in unrealized appreciation (depreciation) 3,135 3,374 14,476 12,505 61,313 (22,549) 3,150 5,455
Net Increase in Net Assets Resulting from Operations 12,110 9,643 46,104 38,569 156,309 140,801 8,673 14,012CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets resulting from capital share transactions (59,444) (12,932) (46,090) (339,498) (69,695) 335,998 (29,327) (63,771)
Net Increase (Decrease) in Net Assets Resulting from Capital ShareTransactions (59,444) (12,932) (46,090) (339,498) (69,695) 335,998 (29,327) (63,771)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2019, (UNAUDITED)OR THE FISCAL YEAR ENDED MARCH 31, 2019
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 7 FIXED INCOME FUNDS
C O R E BO N D F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $10.08 $10.02 $10.15 $10.40 $10.62 $10.27INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.12 0.28 0.26 0.19 0.20 0.20Net realized and unrealized gains (losses) 0.47 0.08 (0.11) (0.15) (0.10) 0.42
Total from Investment Operations 0.59 0.36 0.15 0.04 0.10 0.62
LESS DISTRIBUTIONS PAID:
From net investment income (0.14) (0.30) (0.28) (0.22) (0.22) (0.21)From net realized gains — — — (0.07) (0.10) (0.06)
Total Distributions Paid (0.14) (0.30) (0.28) (0.29) (0.32) (0.27)
Net Asset Value, End of Period $10.53 $10.08 $10.02 $10.15 $10.40 $10.62
Total Return(1) 5.91% 3.75% 1.45% 0.36% 1.00% 6.04%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $204,810 $255,171 $266,835 $259,951 $246,818 $223,549Ratio to average net assets of:(2)
Expenses, net of reimbursements and credits(3) 0.41% 0.41% 0.41% 0.40% 0.41% 0.40%Expenses, before reimbursements and credits 0.47% 0.46% 0.46% 0.46% 0.45% 0.53%Net investment income, net of reimbursements and credits(3) 2.54% 2.91% 2.49% 1.87% 1.92% 1.86%Net investment income, before reimbursements and credits 2.48% 2.86% 2.44% 1.81% 1.88% 1.73%
(1) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investmentat net asset value at the end of the period. The total return is not annualized for periods less than one year.
(2) Annualized for periods less than one year.(3) 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 $9,000, $11,000, $18,000, $57,000, $32,000 and $5,000, whichrepresent less than 0.01, less than 0.01, less than 0.01, 0.02, less than 0.01 and 0.005 percent of average net assets for the six months ended September 30,2019 and the fiscal years ended March 31, 2019, 2018, 2017, 2016 and 2015, respectively. Absent the additional reimbursements, net investment income andreimbursements would have been decreased and net expenses would have been increased by a corresponding amount.
F I X E D I N C O M E F U N D S
F I N A N C I A L H I G H L I G H T S
See Notes to the Financial Statements.
FIXED INCOME FUNDS 8 NORTHERN FUNDS SEMIANNUAL REPORT
F I X E D I N C O M E F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $9.97 $9.94 $10.12 $10.23 $10.53 $10.24INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.15 0.32 0.31 0.24 0.25 0.29Net realized and unrealized gains (losses) 0.42 0.06 (0.16) (0.08) (0.20) 0.30
Total from Investment Operations 0.57 0.38 0.15 0.16 0.05 0.59
LESS DISTRIBUTIONS PAID:
From net investment income(1) (0.16) (0.35) (0.33) (0.27) (0.28) (0.30)From net realized gains — — — — (0.07) —
Total Distributions Paid (0.16) (0.35) (0.33) (0.27) (0.35) (0.30)
Net Asset Value, End of Period $10.38 $9.97 $9.94 $10.12 $10.23 $10.53
Total Return(2) 5.72% 3.98% 1.38% 1.58% 0.53% 5.78%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $835,329 $848,130 $1,190,331 $1,180,510 $1,352,637 $1,929,692Ratio to average net assets of:(3)
Expenses, net of reimbursements and credits(4) 0.45% 0.45% 0.45% 0.45% 0.45% 0.45%Expenses, before reimbursements and credits 0.49% 0.48% 0.48% 0.48% 0.47% 0.52%Net investment income, net of reimbursements and credits(4) 2.88% 3.41% 2.95% 2.40% 2.52% 2.69%Net investment income, before reimbursements and credits 2.84% 3.38% 2.92% 2.37% 2.50% 2.62%
(1) Distributions to shareholders from net investment income include amounts related to foreign currency transactions, which are treated as ordinary income for federalincome tax purposes.
(2) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investmentat net asset value at the end of the period. The total return is not annualized for periods less than one year.
(3) Annualized for periods less than one year.(4) 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 $35,000, $32,000, $81,000, $207,000, $148,000 and $35,000, whichrepresent less than 0.01, less than 0.01, less than 0.01, 0.02, less than 0.01 and 0.005 percent of average net assets for the six months ended September 30,2019 and the fiscal years ended March 31, 2019, 2018, 2017, 2016 and 2015, respectively. Absent the additional reimbursements, net investment income andreimbursements would have been decreased and net expenses would have been increased by a corresponding amount.
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 9 FIXED INCOME FUNDS
H I G H Y I E L D F I X E D I N C O M E F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $6.60 $6.72 $6.84 $6.42 $7.12 $7.61INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.42 0.42 0.40 0.39 0.43Net realized and unrealized gains (losses) 0.06 (0.12) (0.12) 0.42 (0.70) (0.35)
Total from Investment Operations 0.27 0.30 0.30 0.82 (0.31) 0.08
LESS DISTRIBUTIONS PAID:
From net investment income(1) (0.21) (0.42) (0.42) (0.40) (0.39) (0.43)From net realized gains — — — — — (0.14)
Total Distributions Paid (0.21) (0.42) (0.42) (0.40) (0.39) (0.57)
Net Asset Value, End of Period $6.66 $6.60 $6.72 $6.84 $6.42 $7.12
Total Return(2) 4.13% 4.64% 4.32% 13.07% (4.38)% 1.04%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $3,763,149 $3,795,975 $3,556,517 $4,431,999 $5,124,426 $5,350,702Ratio to average net assets of:(3)
Expenses, net of reimbursements and credits(4) 0.78% 0.78% 0.80% 0.80% 0.80% 0.80%Expenses, before reimbursements and credits 0.81% 0.81% 0.81% 0.81% 0.81% 0.85%Net investment income, net of reimbursements and credits(4) 6.31% 6.34% 6.00% 5.98% 5.83% 5.75%Net investment income, before reimbursements and credits 6.28% 6.31% 5.99% 5.97% 5.82% 5.70%
(1) Distributions to shareholders from net investment income include amounts related to foreign currency transactions, which are treated as ordinary income for federalincome tax purposes.
(2) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investmentat net asset value at the end of the period. The total return is not annualized for periods less than one year.
(3) Annualized for periods less than one year.(4) 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 $45,000, $198,000, $196,000, $261,000, $236,000 and $47,000, whichrepresent less than 0.01, less than 0.01, less than 0.01, less than 0.01, less than 0.005 and less than 0.005 percent of average net assets for the six months endedSeptember 30, 2019 and the fiscal years ended March 31, 2019, 2018, 2017, 2016 and 2015, respectively. Absent the additional reimbursements, netinvestment income and reimbursements would have been decreased and net expenses would have been increased by a corresponding amount.
F I X E D I N C O M E F U N D S
F I N A N C I A L H I G H L I G H T S c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 10 NORTHERN FUNDS SEMIANNUAL REPORT
S H O R T BO N D F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $18.67 $18.60 $18.85 $18.86 $19.03 $19.12INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.24 0.49 0.34 0.27 0.24 0.23Net realized and unrealized gains (losses) 0.18 0.07 (0.25) — (0.16) (0.08)
Total from Investment Operations 0.42 0.56 0.09 0.27 0.08 0.15
LESS DISTRIBUTIONS PAID:
From net investment income (0.24) (0.49) (0.34) (0.28) (0.25) (0.24)Total Distributions Paid (0.24) (0.49) (0.34) (0.28) (0.25) (0.24)
Net Asset Value, End of Period $18.85 $18.67 $18.60 $18.85 $18.86 $19.03
Total Return(1) 2.32% 3.07% 0.45% 1.45% 0.42% 0.80%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $399,022 $424,702 $487,524 $494,467 $560,650 $697,075Ratio to average net assets of:(2)
Expenses, net of reimbursements and credits(3) 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%Expenses, before reimbursements and credits 0.44% 0.43% 0.43% 0.43% 0.42% 0.49%Net investment income, net of reimbursements and credits(3) 2.54% 2.65% 1.79% 1.43% 1.25% 1.21%Net investment income, before reimbursements and credits 2.50% 2.62% 1.76% 1.40% 1.23% 1.12%
(1) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investmentat net asset value at the end of the period. The total return is not annualized for periods less than one year.
(2) Annualized for periods less than one year.(3) 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 $3,000, $11,000, $13,000, $29,000, $25,000 and $6,000 whichrepresent less than 0.01, less than 0.01, less than 0.01, less than 0.01, 0.005 and 0.005 percent of average net assets for the six months ended September 30,2019 and the fiscal years ended March 31, 2019, 2018, 2017, 2016 and 2015, respectively. Absent the additional reimbursements, net investment income andreimbursements would have been decreased and net expenses would have been increased by a corresponding amount.
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 11 FIXED INCOME FUNDS
S H O R T - I N T E R M E D I AT E U . S . G OV E R N M E N T F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $9.60 $9.61 $9.81 $9.97 $9.89 $9.77INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.21 0.13 0.07 0.06 0.05Net realized and unrealized gains (losses) 0.19 0.02 (0.18) (0.15) 0.08 0.12
Total from Investment Operations 0.27 0.23 (0.05) (0.08) 0.14 0.17
LESS DISTRIBUTIONS PAID:
From net investment income (0.09) (0.24) (0.15) (0.08) (0.06) (0.05)Total Distributions Paid (0.09) (0.24) (0.15) (0.08) (0.06) (0.05)
Net Asset Value, End of Period $9.78 $9.60 $9.61 $9.81 $9.97 $9.89
Total Return(1) 2.77% 2.47% (0.55)% (0.74)% 1.38% 1.75%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $56,061 $60,828 $113,917 $132,812 $166,362 $182,241Ratio to average net assets of:(2)
Expenses, net of reimbursements and credits 0.42%(3) 0.42%(3) 0.41%(3) 0.41%(3) 0.41%(3) 0.41%Expenses, before reimbursements and credits 0.63% 0.57% 0.51% 0.49% 0.47% 0.54%Net investment income, net of reimbursements and credits 1.67%(3) 2.30%(3) 1.32%(3) 0.71%(3) 0.55%(3) 0.47%Net investment income, before reimbursements and credits 1.46% 2.15% 1.22% 0.63% 0.49% 0.34%
(1) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investmentat net asset value at the end of the period. The total return is not annualized for periods less than one year.
(2) Annualized for periods less than one year.(3) 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 $4,000, $8,000, $14,000, $31,000 and $16,000, which represent less than0.01, 0.01, 0.01, 0.02 and less than 0.01 percent of average net assets for the six months ended September 30, 2019 and the fiscal years ended March 31,2019, 2018, 2017 and 2016, respectively. Absent the additional reimbursements, net investment income and reimbursements would have been decreased and netexpenses would have been increased by a corresponding amount.
F I X E D I N C O M E F U N D S
F I N A N C I A L H I G H L I G H T S c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 12 NORTHERN FUNDS SEMIANNUAL REPORT
TA X - A DVA N TAG E D U LT R A - S H O R T F I X E D I N C O M E F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $10.14 $10.09 $10.13 $10.12 $10.15 $10.16INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.15 0.10 0.08 0.07 0.06Net realized and unrealized gains (losses) 0.03 0.05 (0.04) 0.01 (0.03) (0.01)
Total from Investment Operations 0.11 0.20 0.06 0.09 0.04 0.05
LESS DISTRIBUTIONS PAID:
From net investment income (0.08) (0.15) (0.10) (0.08) (0.07) (0.05)From net realized gains — — —(1) — —(1) (0.01)
Total Distributions Paid (0.08) (0.15) (0.10) (0.08) (0.07) (0.06)
Net Asset Value, End of Period $10.17 $10.14 $10.09 $10.13 $10.12 $10.15
Total Return(2) 1.12% 2.06% 0.60% 0.94% 0.41% 0.52%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $3,841,394 $4,008,207 $3,908,876 $3,544,536 $3,370,160 $3,181,724Ratio to average net assets of:(3)
Expenses, net of reimbursements and credits 0.25%(4) 0.25%(4) 0.25%(4) 0.25%(4) 0.25% 0.25%(4)
Expenses, before reimbursements and credits 0.26% 0.26% 0.26% 0.26% 0.26% 0.30%Net investment income, net of reimbursements and credits 1.63%(4) 1.55%(4) 1.00%(4) 0.84%(4) 0.66% 0.55%(4)
Net investment income, before reimbursements and credits 1.62% 1.54% 0.99% 0.83% 0.65% 0.50%Portfolio Turnover Rate 37.19% 62.06% 54.39% 51.98% 52.48% 131.54%(5)
(1) Per share amounts were less than $0.01 per share.(2) 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.(3) Annualized for periods less than one year.(4) 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 $66,000, $81,000, $72,000, $64,000 and $1,000, which represent lessthan 0.01, less than 0.01, less than 0.01, less than 0.01 and less than 0.005 percent of average net assets for the six months ended September 30, 2019 and forthe fiscal years ended March 31, 2019, 2018, 2017 and 2015, respectively. Absent the additional reimbursements, net investment income and reimbursementswould have been decreased and net expenses would have been increased by a corresponding amount.
(5) Portfolio Turnover would have been 59.34% with the exclusion of short-term investments.
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 13 FIXED INCOME FUNDS
U LT R A - S H O R T F I X E D I N C O M E F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $10.19 $10.15 $10.21 $10.18 $10.21 $10.22INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.13 0.23 0.15 0.12 0.09 0.08Net realized and unrealized gains (losses) 0.06 0.04 (0.06) 0.03 (0.02) —(1)
Total from Investment Operations 0.19 0.27 0.09 0.15 0.07 0.08
LESS DISTRIBUTIONS PAID:
From net investment income (0.13) (0.23) (0.15) (0.12) (0.09) (0.08)From net realized gains — —(1) —(1) — (0.01) (0.01)
Total Distributions Paid (0.13) (0.23) (0.15) (0.12) (0.10) (0.09)
Net Asset Value, End of Period $10.25 $10.19 $10.15 $10.21 $10.18 $10.21
Total Return(2) 1.84% 2.75% 0.96% 1.45% 0.70% 0.77%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $2,382,395 $2,424,799 $2,590,298 $2,207,740 $1,542,582 $1,611,089Ratio to average net assets of:(3)
Expenses, net of reimbursements and credits(4) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%Expenses, before reimbursements and credits 0.27% 0.27% 0.26% 0.26% 0.26% 0.31%Net investment income, net of reimbursements and credits(4) 2.47% 2.30% 1.51% 1.15% 0.90% 0.75%Net investment income, before reimbursements and credits 2.45% 2.28% 1.50% 1.14% 0.89% 0.69%
(1) Per share amounts were less than $0.01 per share.(2) 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.(3) Annualized for periods less than one year.(4) 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 $19,000, $44,000, $56,000 and $74,000, which represent less than 0.01percent of average net assets for the six months ended September 30, 2019 and for the fiscal years ended March 31, 2019, 2018 and 2017, and approximately$42,000 and $6,000, which represent less than 0.005 percent of average net assets for the fiscal years ended March 31, 2016 and 2015, respectively. Absentthe additional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increased by acorresponding amount.
F I X E D I N C O M E F U N D S
F I N A N C I A L H I G H L I G H T S c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 14 NORTHERN FUNDS SEMIANNUAL REPORT
U . S . G OV E R N M E N T F U N D
Selected per share data
SIXMONTHS
ENDEDSEP 30,
2019(UNAUDITED)
FISCALYEAR
ENDEDMAR 31,
2019
FISCALYEAR
ENDEDMAR 31,
2018
FISCALYEAR
ENDEDMAR 31,
2017
FISCALYEAR
ENDEDMAR 31,
2016
FISCALYEAR
ENDEDMAR 31,
2015Net Asset Value, Beginning of Period $9.50 $9.43 $9.64 $9.87 $9.76 $9.53INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.09 0.21 0.14 0.09 0.08 0.08Net realized and unrealized gains (losses) 0.28 0.09 (0.20) (0.21) 0.11 0.23
Total from Investment Operations 0.37 0.30 (0.06) (0.12) 0.19 0.31
LESS DISTRIBUTIONS PAID:
From net investment income (0.09) (0.23) (0.15) (0.11) (0.08) (0.08)Total Distributions Paid (0.09) (0.23) (0.15) (0.11) (0.08) (0.08)
Net Asset Value, End of Period $9.78 $9.50 $9.43 $9.64 $9.87 $9.76
Total Return(1) 3.85% 3.29% (0.62)% (1.26)% 1.99% 3.24%SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $34,707 $36,008 $22,927 $24,013 $25,826 $29,043Ratio to average net assets of:(2)
Expenses, net of reimbursements and credits 0.43%(3) 0.47%(3) 0.47%(3) 0.45%(3) 0.44%(3) 0.43%Expenses, before reimbursements and credits 0.75% 0.93% 0.90% 0.90% 0.81% 0.98%Net investment income, net of reimbursements and credits 1.67%(3) 2.33%(3) 1.41%(3) 0.94%(3) 0.83%(3) 0.78%Net investment income, before reimbursements and credits 1.35% 1.87% 0.98% 0.49% 0.46% 0.23%
(1) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investmentat net asset value at the end of the period. The total return is not annualized for periods less than one year.
(2) Annualized for periods less than one year.(3) 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 $1,000, $4,000, $3,000, $4,000 and $2,000, which represent less than0.01, 0.01, less than 0.01, 0.02 and less than 0.01 percent of average net assets for the six months ended September 30, 2019 and the fiscal years endedMarch 31, 2019, 2018, 2017 and 2016, respectively. Absent the additional reimbursements, net investment income and reimbursements would have beendecreased and net expenses would have been increased by a corresponding amount.
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 15 FIXED INCOME FUNDS
PRINCIPALAMOUNT
(000S)VALUE(000S)
A S S E T - BAC K E D S E C U R I T I E S – 6 . 3 %
Commercial Mortgage-Backed Securities – 5.1%
BANK, Series 2019-BN16, Class A4
4.01%, 2/15/52 $1,000 $1,125
BENCHMARK Mortgage Trust, Series2018-B2, Class A2
3.66%, 2/15/51 765 797
BENCHMARK Mortgage Trust, Series2018-B6, Class A2
4.20%, 10/10/51 1,500 1,606
DBJPM Mortgage Trust, Series2016-C3, Class A5
2.89%, 8/10/49 1,000 1,036
JP Morgan Chase CommercialMortgage Securities Trust, Series2017-C5, Class A5
3.69%, 3/15/50 1,750 1,904
JP Morgan Chase CommercialMortgage Securities Trust, Series2017-JP5, Class A5
3.72%, 3/15/50 1,530 1,668
Morgan Stanley Bank of AmericaMerrill Lynch Trust, Series 2013-C7,Class A4
2.92%, 2/15/46 1,015 1,037
Morgan Stanley Bank of AmericaMerrill Lynch Trust, Series 2013-C9,Class A4
3.10%, 5/15/46 100 103
Morgan Stanley Bank of AmericaMerrill Lynch Trust, Series 2015-C25,Class A5
3.64%, 10/15/48 1,030 1,106
10,382
Credit Card – 1.2%
American Express Credit AccountMaster Trust, Series 2019-3, Class A
2.00%, 4/15/25 2,455 2,466
Total Asset-Backed Securities
(Cost $12,373) 12,848
C O R P O R AT E BO N D S – 2 3 . 5 %
Automobiles Manufacturing – 0.3%
American Honda Finance Corp.,
2.15%, 9/10/24 585 583
PRINCIPALAMOUNT
(000S)VALUE(000S)
C O R P O R AT E BO N D S - 2 3 . 5 % c o n t i n u e d
U . S . G OV E R N M E N T AG E N C I E S - 2 6 . 8 % ( 6 ) c o n t i n u e d
Freddie Mac Gold – 2.2% continued
Pool #Q63667,
4.50%, 5/1/49 $419 $442
4,453
Government National Mortgage Association I – 0.6%
Pool #604183,
5.50%, 4/15/33 3 3
Pool #633627,
5.50%, 9/15/34 3 3
Pool #784760,
2.50%, 2/15/48 1,189 1,199
1,205
Total U.S. Government Agencies
(Cost $54,497) 54,845
U . S . G OV E R N M E N T O B L I GAT I O N S – 37. 7 %
U.S. Treasury Bonds – 7.2%
2.88%, 5/15/49 2,322 2,708
2.25%, 8/15/49 11,670 12,003
14,711
U.S. Treasury Inflation Indexed Bonds – 0.9%
1.00%, 2/15/49 1,625 1,859
U.S. Treasury Inflation Indexed Notes – 2.2%
1.13%, 1/15/21 1,290 1,517
0.13%, 1/15/23 1,375 1,515
0.38%, 1/15/27 1,415 1,519
4,551
U.S. Treasury Notes – 27.4%
1.50%, 8/31/21 23,166 23,098
1.50%, 8/15/22 19,380 19,335
1.50%, 9/30/24 12,433 12,402
1.63%, 8/15/29 1,196 1,191
56,026
Total U.S. Government Obligations
(Cost $77,126) 77,147
S C H E D U L E O F I N V E S T M E N T S
C O R E BO N D F U N D c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 22 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
M U N I C I PA L BO N D S – 0 .1 %
Massachusetts – 0.1%
Massachusetts State G.O. LimitedBonds, Series H, TaxableConsolidated Loan of 2019,
2.90%, 9/1/49 $180 $175
Total Municipal Bonds
(Cost $180) 175
NUMBEROF SHARES
VALUE(000S)
I N V E S T M E N T C O M PA N I E S – 2 . 2 %
Northern Institutional Funds -U.S. Government Portfolio (Shares),1.83%(7) (8) 4,629,870 $4,630
Total Investment Companies
(Cost $4,630) 4,630
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S – 0 . 3 %
U.S. Treasury Bill,2.40%, 10/24/19(9) $500 $499
Total Short-Term Investments
(Cost $499) 499
Total Investments – 100.1%
(Cost $201,052) 204,959
Liabilities less Other Assets – (0.1%) (149)
NET ASSETS – 100.0% $204,810
(1) Variable rate security. Security issued at a fixed coupon rate, which convertsto a variable rate at a future date. Rate shown is the rate in effect as ofperiod end.
(2) Perpetual bond. Maturity date represents next call date.(3) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,normally to qualified institutional buyers. The value of these securities isdetermined by valuations supplied by a pricing service or brokers, or, if notavailable, in accordance with procedures established by the Board ofTrustees of Northern Funds.
(4) When-Issued Security. Coupon rate is not in effect at September 30, 2019.(5) Variable rate security. Rate as of September 30, 2019 is disclosed.(6) The obligations of certain U.S. government-sponsored entities are neither
issued nor guaranteed by the United States Treasury.(7) Investment in affiliated Portfolio. Northern Trust Investments, Inc. is the
investment adviser to the Fund and the investment adviser to NorthernInstitutional Funds.
(8) 7-day current yield as of September 30, 2019 is disclosed.
(9) Discount rate at the time of purchase.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
1Y - 1 Year
3M - 3 Month
5Y - 5 Year
CMT - Constant Maturity
Fannie Mae - Federal National Mortgage Association
Freddie Mac - Federal Home Loan Mortgage Corporation
G.O. - General Obligation
ICE - Intercontinental Exchange
LIBOR - London Interbank Offered Rate
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
SOFR - Secured Overnight Financing Rate
USD - United States Dollar
Percentages shown are based on Net Assets.
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
U.S. Treasury 38.5%
U.S. Agency 26.2
AAA 6.3
AA 0.2
A 4.6
BBB 22.0
Cash Equivalents 2.2
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 23 FIXED INCOME FUNDS
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interestrates 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 anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
U . S . G OV E R N M E N T AG E N C I E S - 27. 4 % ( 7 ) c o n t i n u e d
Freddie Mac Gold – 2.5% continued
Pool #C02838,
5.50%, 5/1/37 $896 $1,010
Pool #G01954,
5.00%, 11/1/35 523 578
Pool #G60948,
3.00%, 1/1/47 583 598
Pool #G61284,
3.00%, 1/1/44 3,300 3,399
Pool #G61670,
3.00%, 5/1/47 8,036 8,250
Pool #Q15842,
3.00%, 2/1/43 2,895 2,985
Pool #Q63667,
4.50%, 5/1/49 1,387 1,465
20,603
Freddie Mac Gold Pool – 0.0%
Pool #G18643,
2.50%, 5/1/32 227 229
Government National Mortgage Association I – 0.7%
Pool #784760,
2.50%, 2/15/48 5,452 5,494
Total U.S. Government Agencies
(Cost $226,121) 228,349
U . S . G OV E R N M E N T O B L I GAT I O N S – 3 4 . 2 %
U.S. Treasury Bonds – 7.7%
2.88%, 5/15/49 9,468 11,042
2.25%, 8/15/49 51,583 53,052
64,094
U.S. Treasury Inflation Indexed Bonds – 1.0%
1.00%, 2/15/49 7,724 8,838
U.S. Treasury Inflation Indexed Notes – 2.3%
1.13%, 1/15/21 5,345 6,287
0.13%, 1/15/23 5,700 6,280
0.38%, 1/15/27 5,980 6,417
18,984
U.S. Treasury Notes – 23.2%
1.50%, 8/31/21 90,490 90,225
1.50%, 8/15/22 60,058 59,920
S C H E D U L E O F I N V E S T M E N T S
F I X E D I N C O M E F U N D c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 32 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
U . S . G OV E R N M E N T O B L I GAT I O N S - 3 4 . 2 % c o n t i n u e d
U.S. Treasury Notes – 23.2% continued
1.50%, 9/30/24 $30,821 $30,744
1.63%, 8/15/29 13,176 13,115
194,004
Total U.S. Government Obligations
(Cost $286,061) 285,920
M U N I C I PA L BO N D S – 0 .1 %
Massachusetts – 0.1%
Massachusetts State G.O. LimitedBonds, Series H, TaxableConsolidated Loan of 2019,
2.90%, 9/1/49 750 731
Total Municipal Bonds
(Cost $750) 731
NUMBEROF SHARES
VALUE(000S)
I N V E S T M E N T C O M PA N I E S – 0 . 7 %
Northern Institutional Funds -U.S. Government Portfolio (Shares),1.83%(9) (10) 5,598,585 $5,599
Total Investment Companies
(Cost $5,599) 5,599
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S – 0 .1 %
U.S. Treasury Bill,2.40%, 10/24/19(11) $900 $899
Total Short-Term Investments
(Cost $898) 899
Total Investments – 99.9%
(Cost $819,341) 834,290
Other Assets less Liabilities – 0.1% 1,039
NET ASSETS – 100.0% $835,329
(1) Variable rate security. Security issued at a fixed coupon rate, which convertsto a variable rate at a future date. Rate shown is the rate in effect as ofperiod end.
(2) Perpetual bond. Maturity date represents next call date.(3) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt fromregistration, normally to qualified institutional buyers. The value of thesesecurities is determined by valuations supplied by a pricing service orbrokers, or, if not available, in accordance with procedures established bythe Board of Trustees of Northern Funds.
(4) Security is a payment in-kind bond (PIK), distributions received in-kind unlessotherwise noted in the description.
(5) When-Issued Security. Coupon rate is not in effect at September 30, 2019.(6) Variable rate security. Rate as of September 30, 2019 is disclosed.(7) The obligations of certain U.S. government-sponsored entities are neither
issued nor guaranteed by the United States Treasury.(8) Principal Amount and Value rounds to less than one thousand.(9) Investment in affiliated Portfolio. Northern Trust Investments, Inc. is the
investment adviser to the Fund and the investment adviser to NorthernInstitutional Funds.
(10) 7-day current yield as of September 30, 2019 is disclosed.(11) Discount rate at the time of purchase.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
1Y - 1 Year
3M - 3 Month
5Y - 5 Year
CMT - Constant Maturity
Fannie Mae - Federal National Mortgage Association
Freddie Mac - Federal Home Loan Mortgage Corporation
G.O. - General Obligation
ICE - Intercontinental Exchange
LIBOR - London Interbank Offered Rate
PLC - Public Limited Company
REMIC - Real Estate Mortgage Investment Conduit
SOFR - Secured Overnight Financing Rate
USD - United States Dollar
Percentages shown are based on Net Assets.
SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 33 FIXED INCOME FUNDS
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
U.S. Treasury 35.0%
U.S. Agency 26.7
AAA 6.3
AA 0.1
A 3.9
BBB 18.6
BB 3.0
B 4.0
CCC 1.7
Cash Equivalents 0.7
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interestrates 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 anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
H I G H Y I E L D F I X E D I N C O M E F U N D c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 42 NORTHERN FUNDS SEMIANNUAL REPORT
NUMBEROF SHARES
VALUE(000S)
P R E F E R R E D S TO C KS – 0 . 5 %
Banks – 0.5%
GMAC Capital Trust I, (Variable, ICELIBOR USD 3M + 5.79%), 7.94%(7) 657,459 $17,039
Total Preferred Stocks
(Cost $15,699) 17,039
I N V E S T M E N T C O M PA N I E S – 2 . 5 %
Northern Institutional Funds -U.S. Government Portfolio (Shares),1.83%(8) (9) 94,463,550 94,464
Total Investment Companies
(Cost $94,464) 94,464
Total Investments – 99.2%
(Cost $3,739,893) 3,733,207
Other Assets less Liabilities – 0.8% 29,942
NET ASSETS – 100.0% $3,763,149
(1) Securities exempt from registration under Rule 144A of the Securities Act of1933. These securities may be resold in transactions exempt from registration,normally to qualified institutional buyers. The value of these securities isdetermined by valuations supplied by a pricing service or brokers, or, if notavailable, in accordance with procedures established by the Board ofTrustees of Northern Funds.
(2) Variable rate security. Security issued at a fixed coupon rate, which convertsto a variable rate at a future date. Rate shown is the rate in effect as ofperiod end.
(3) Perpetual bond. Maturity date represents next call date.(4) Security is a payment in-kind bond (PIK), distributions received in-kind unless
otherwise noted in the description.(5) Restricted security that has been deemed illiquid. At September 30, 2019,
the value of this restricted illiquid security amounted to approximately$4,000,000 or 0.1% of net assets. Additional information on this restrictedilliquid security is as follows:
S E C U R I T Y
ACQUISITIONAND
ENFORCEABLEDATE
COST(000S)
JPR Royalty Sub LLC, 14.00%, 9/1/20 3/10/11 $8,000
(6) When-Issued Security. Coupon rate is not in effect at September 30, 2019.(7) Variable rate security. Rate as of September 30, 2019 is disclosed.(8) Investment in affiliated Portfolio. Northern Trust Investments, Inc. is the
investment adviser to the Fund and the investment adviser to NorthernInstitutional Funds.
(9) 7-day current yield as of September 30, 2019 is disclosed.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
1M - 1 Month
3M - 3 Month
5Y - 5 Year
CMT - Constant Maturity
ICE - Intercontinental Exchange
LIBOR - London Interbank Offered Rate
USD - United States Dollar
Percentages shown are based on Net Assets.
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
BBB 2.2%
BB 28.4
B 49.4
CCC 17.4
Not Rated 0.1
Cash Equivalents 2.5
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interestrates 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).
SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 43 FIXED INCOME FUNDS
The inputs or methodologies used for valuing securities are not necessarily anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
INVESTMENTSLEVEL 1(000S)
LEVEL 2(000S)
LEVEL 3(000S)
TOTAL(000S)
Corporate Bonds(1) $ — $2,648,408 $— $2,648,408
Foreign Issuer Bonds(1) — 889,472 — 889,472
Term Loans(1) — 83,824 — 83,824
Preferred Stocks(1) — 17,039 — 17,039
Investment Companies 94,464 — — 94,464
Total Investments $94,464 $3,638,743 $— $3,733,207(1) Classifications as defined in the Schedule of Investments.
S C H E D U L E O F I N V E S T M E N T S
H I G H Y I E L D F I X E D I N C O M E F U N D c o n t i n u e d SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
FIXED INCOME FUNDS 44 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
A S S E T - BAC K E D S E C U R I T I E S – 14 . 3 %
Commercial Mortgage-Backed Securities – 7.1%
BANK, Series 2018-BN14, Class A2
4.13%, 9/15/60 $3,880 $4,163
BENCHMARK Mortgage Trust, Series2018-B2, Class A2
3.66%, 2/15/51 2,355 2,454
BENCHMARK Mortgage Trust, Series2018-B6, Class A2
4.20%, 10/10/51 3,285 3,517
JP Morgan Chase CommercialMortgage Securities Trust, Series2016-JP3, Class A2
2.43%, 8/15/49 4,998 4,999
Morgan Stanley Bank of AmericaMerrill Lynch Trust, Series 2013-C12,Class A4
4.26%, 10/15/46 575 617
Morgan Stanley Bank of AmericaMerrill Lynch Trust, Series 2013-C7,Class A4
2.92%, 2/15/46 2,200 2,247
UBS-Barclays Commercial MortgageTrust, Series 2012-C3, Class A4
3.09%, 8/10/49 5,095 5,204
WFRBS Commercial Mortgage Trust,Series 2012-C10, Class A3
2.88%, 12/15/45 4,960 5,059
28,260
Credit Card – 4.6%
American Express Credit AccountMaster Trust, Series 2018-8, Class A
3.18%, 4/15/24 5,200 5,332
American Express Credit AccountMaster Trust, Series 2019-1, Class A
2.87%, 10/15/24 1,845 1,890
BA Credit Card Trust, Series 2019-A1,Class A1
1.74%, 1/15/25 880 877
Capital One Multi-Asset Execution Trust,Series 2019-A1, Class A1
2.84%, 12/15/24 1,005 1,028
Discover Card Execution Note Trust,Series 2018-A5, Class A5
3.32%, 3/15/24 1,415 1,454
Discover Card Execution Note Trust,Series 2019-A1, Class A1
3.04%, 7/15/24 3,700 3,797
PRINCIPALAMOUNT
(000S)VALUE(000S)
A S S E T - BAC K E D S E C U R I T I E S - 14 . 3 % c o n t i n u e d
Credit Card – 4.6% continued
Synchrony Card Funding LLC, Series2019-A1, Class A
2.95%, 3/15/25 $3,210 $3,279
World Financial Network Credit CardMaster Trust, Series 2019-C, Class A
Northern Institutional Funds -U.S. Government Portfolio (Shares),1.83%(6) (7) 5,601,527 5,602
Total Investment Companies
(Cost $10,262) 10,363
Total Investments – 99.4%
(Cost $392,788) 396,809
Other Assets less Liabilities – 0.6% 2,213
NET ASSETS – 100.0% $399,022
(1) Variable rate security. Rate as of September 30, 2019 is disclosed.(2) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,normally to qualified institutional buyers. The value of these securities isdetermined by valuations supplied by a pricing service or brokers, or, if notavailable, in accordance with procedures established by the Board ofTrustees of Northern Funds.
(3) Variable rate security. Security issued at a fixed coupon rate, which convertsto a variable rate at a future date. Rate shown is the rate in effect as ofperiod end.
(4) Perpetual bond. Maturity date represents next call date.(5) The obligations of certain U.S. government-sponsored entities are neither
issued nor guaranteed by the United States Treasury.(6) Investment in affiliated fund. Northern Trust Investments, Inc. is the investment
adviser to the Fund and the investment adviser to Northern Institutional Fundsand FlexShares Trust.
(7) 7-day current yield as of September 30, 2019 is disclosed.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
1M - 1 Month
1Y - 1 Year
3M - 3 Month
Fannie Mae - Federal National Mortgage Association
Freddie Mac - Federal Home Loan Mortgage Corporation
ICE - Intercontinental Exchange
LIBOR - London Interbank Offered Rate
MBS - Mortgage Backed Securities
PLC - Public Limited Company
SOFR - Secured Overnight Financing Rate
USD - United States Dollar
Percentages shown are based on Net Assets.
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
U.S. Treasury 40.8%
U.S. Agency 2.9
AAA 14.6
AA 2.9
A 12.7
BBB 17.1
BB 3.4
B 2.2
CCC 0.8
Not Rated 1.2
Cash Equivalents 1.4
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interestrates 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 anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
Total Investments $10,363 $386,446 $— $396,809(1) Classifications as defined in the Schedule of Investments.
S C H E D U L E O F I N V E S T M E N T S
S H O R T BO N D F U N D c o n t i n u e d SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
FIXED INCOME FUNDS 52 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
U . S . G OV E R N M E N T AG E N C I E S – 3 . 3 % ( 1 )
Fannie Mae – 3.3%
Pool #555649,
7.50%, 10/1/32 $29 $31
Pool #BH5752,
3.50%, 11/1/47 1,013 1,046
Pool #BH9277,
3.50%, 2/1/48 549 567
Pool #MA3027,
4.00%, 6/1/47 193 203
1,847
Total U.S. Government Agencies
(Cost $1,798) 1,847
U . S . G OV E R N M E N T O B L I GAT I O N S – 9 3 . 4 %
U.S. Treasury Inflation Indexed Notes – 5.0%
1.13%, 1/15/21 475 559
0.13%, 1/15/23 505 556
0.63%, 4/15/23 535 557
0.25%, 7/15/29 1,099 1,111
2,783
U.S. Treasury Notes – 88.4%
1.63%, 10/15/20 7,250 7,235
1.50%, 8/31/21 15,696 15,650
1.50%, 8/15/22 19,142 19,098
1.50%, 9/30/24 7,619 7,600
49,583
Total U.S. Government Obligations
(Cost $52,436) 52,366
NUMBEROF SHARES
VALUE(000S)
I N V E S T M E N T C O M PA N I E S – 0 . 3 %
Northern Institutional Funds -U.S. Government Portfolio (Shares),1.83%(2) (3) 146,062 $146
Total Investment Companies
(Cost $146) 146
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S – 2 . 8 %
U.S. Treasury Bill,2.40%, 10/24/19(4) (5) $1,600 $1,598
Total Short-Term Investments
(Cost $1,598) 1,598
Total Investments – 99.8%
(Cost $55,978) 55,957
Other Assets less Liabilities – 0.2% 104
NET ASSETS – 100.0% $56,061
(1) The obligations of certain U.S. government-sponsored entities are neitherissued nor guaranteed by the United States Treasury.
(2) Investment in affiliated Portfolio. Northern Trust Investments, Inc. is theinvestment adviser to the Fund and the investment adviser to NorthernInstitutional Funds.
(3) 7-day current yield as of September 30, 2019 is disclosed.(4) Discount rate at the time of purchase.(5) Security pledged as collateral to cover margin requirements for open futures
contracts.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
Fannie Mae - Federal National Mortgage Association
Percentages shown are based on Net Assets.
At September 30, 2019, the Fund had open futures contracts as follows:
TYPENUMBER OFCONTRACTS
NOTIONALAMOUNT
(000S)CONTRACTPOSITION
CONTRACTEXP.
VALUE ANDUNREALIZED
APPRECIATION(DEPRECIATION)
(000S)(1)
5-YearU.S. TreasuryNote 21 $2,502 Long 12/19 $(16)
(1) Includes cumulative appreciation/depreciation on futures contracts. Only thecurrent day’s variation margin is reported within the Statements of Assets andLiabilities.
S C H E D U L E O F I N V E S T M E N T S
S H O R T - I N T E R M E D I AT E U . S . G OV E R N M E N T F U N D SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 53 FIXED INCOME FUNDS
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
U.S. Treasury 96.4%
U.S. Agency 3.3
Cash Equivalents 0.3
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interestrates 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 anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
INVESTMENTSLEVEL 1(000S)
LEVEL 2(000S)
LEVEL 3(000S)
TOTAL(000S)
U.S. Government Agencies(1) $ — $ 1,847 $— $ 1,847
U.S. Government Obligations(1) — 52,366 — 52,366
Investment Companies 146 — — 146
Short-Term Investments — 1,598 — 1,598
Total Investments $146 $55,811 $— $55,957
OTHER FINANCIALINSTRUMENTS
Liabilities
Futures Contracts $ (16) $ — $— $ (16)(1) Classifications as defined in the Schedule of Investments.
S C H E D U L E O F I N V E S T M E N T S
S H O R T - I N T E R M E D I AT E U . S . G OV E R N M E N T F U N D c o n t i n u e d SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
FIXED INCOME FUNDS 54 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
A S S E T - BAC K E D S E C U R I T I E S – 0 . 4 %
Credit Card – 0.4%
American Express Credit AccountMaster Trust, Series 2019-3, Class A
2.00%, 4/15/25 $15,300 $15,367
Total Asset-Backed Securities
(Cost $15,298) 15,367
C O M M E RC I A L PA P E R – 1. 0 %
Wireless Telecommunications Services – 1.0%
AT&T, Inc.,
2.44%, 12/2/19 40,000 39,838
Total Commercial Paper
(Cost $39,835) 39,838
C O R P O R AT E BO N D S – 9 . 9 %
Aerospace & Defense – 0.5%
Boeing (The) Co.,
2.30%, 8/1/21 11,520 11,570
United Technologies Corp.,
3.35%, 8/16/21 7,200 7,386
18,956
Automobiles Manufacturing – 1.5%
Ford Motor Credit Co. LLC,
2.68%, 1/9/20 600 600
2.46%, 3/27/20 1,851 1,849
2.43%, 6/12/20 3,250 3,242
3.16%, 8/4/20 200 201
General Motors Financial Co., Inc.,
4.20%, 3/1/21 10,000 10,215
4.20%, 11/6/21 4,650 4,797
Harley-Davidson Financial Services,Inc.,
3.55%, 5/21/21 (1) 10,000 10,154
Volkswagen Group of AmericaFinance LLC,
2.50%, (1) 5,000 5,012
4.00%, 11/12/21 (1) 22,500 23,253
59,323
Banks – 3.2%
Capital One N.A.,
2.15%, 9/6/22 12,500 12,488
Citibank N.A.,
3.40%, 7/23/21 22,000 22,517
PRINCIPALAMOUNT
(000S)VALUE(000S)
C O R P O R AT E BO N D S - 9 . 9 % c o n t i n u e d
Pennsylvania State TurnpikeCommission Variable RevenueRefunding Bonds, Series A-1,
(Floating, SIFMA Municipal SwapIndex Yield + 0.60%), 2.18%,12/1/23(2) 15,000 15,155
Pennsylvania State TurnpikeCommission Variable RevenueRefunding Bonds, Series A-2,
(Floating, SIFMA Municipal SwapIndex Yield + 0.70%), 2.28%,12/1/19(2) 2,500 2,502
113,446
South Carolina – 0.0%
York County Fort Mill School DistrictNo. 4 G.O. Unlimited RefundingBonds, Series D (SCSDE Insured),
5.00%, 3/1/20 1,500 1,523
Tennessee – 1.6%
Franklin County Health & EducationalFacilities Board Collateralized MFHRevenue Bonds, BTT DevelopmentVillage Associates,
2.40%, 12/1/20(2) (4) (5) 3,750 3,781
Memphis Electric System RevenueBonds,
4.00%, 12/1/19 1,470 1,477
Metropolitan Government Nashville &Davidson County G.O. Unlimitedand Improvement Bonds,
5.00%, 7/1/20 14,890 15,298
5.00%, 7/1/21 18,245 19,420
SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 65 FIXED INCOME FUNDS
PRINCIPALAMOUNT
(000S)VALUE(000S)
M U N I C I PA L BO N D S - 6 5 . 7 % c o n t i n u e d
Tennessee – 1.6% continued
Metropolitan Government Nashville &Davidson County Health &Educational Facility BoardCollateralized MFH VariableRevenue Bonds, Hermitage Flats,
1.50%, 7/1/20 $3,750 $3,752
Metropolitan Government of Nashville& Davidson County Health &Educational Facilities BoardCollateralized MFH Revenue Bonds,Trevecca Towers I/East Project,
2.00%, 1/1/21(2) (4) (5) 12,000 12,075
Metropolitan Government of Nashville& Davidson County Health &Educational Facilities Board RevenueBonds, Oakwood Flats ApartmentsProject,
2.10%, 10/1/20(2) (4) (5) 7,350 7,393
63,196
Texas – 6.0%
Alamo Community College DistrictG.O. Limited Refunding Bonds,
3.00%, 8/15/20 4,000 4,060
Alamo Heights Independent SchoolDistrict School Building VariableG.O. Unlimited Bonds, Series B (PSF,Gtd.),
3.00%, 2/1/21(2) (4) (5) 2,700 2,753
Alvin Independent School DistrictSchoolhouse Variable G.O.Unlimited Bonds, Series B (PSF,Gtd.),
1.25%, 8/15/22(2) (4) (5) 7,500 7,445
Clear Creek Independent SchoolDistrict G.O. Unlimited Bonds, SeriesB (PSF, Gtd.),
1.35%, 8/15/22(2) (4) (5) 19,000 18,931
Clear Creek Independent SchoolDistrict Variable G.O. UnlimitedBonds, Series B (PSF, Gtd.),
Delaware State G.O. Unlimited Bonds,5.00%, 2/1/20 12,900 13,060
Director of The State of NevadaDepartment of Business & IndustryVariable Revenue Notes (AMT),Republic Services Project,1.88%, 12/2/19(1) (2) (5) 1,200 1,200
Jordan School District Building G.O.Unlimited Refunding Bonds, Series B(School Board Guaranty Program),5.00%, 6/15/20 5,870 6,024
SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 69 FIXED INCOME FUNDS
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S - 17. 7 % c o n t i n u e d
Kentucky State Economic DevelopmentFinance Authority Solid WasteRevenue Refunding Bonds, Series B,Republic Services, Inc. Project,1.30%, 12/2/19(2) (5) $4,500 $4,500
Loudoun County G.O. Unlimited Bonds,Series A (State Aid Withholding),5.00%, 12/1/19 10,245 10,308
Matagorda County Navigation DistrictNo. 1 Variable Revenue RefundingBonds (AMT), Central Power & Light,1.75%, 9/1/20(2) (5) 8,335 8,342
Metropolitan Government of Nashville& Davidson County Health &Educational Facilities Board RevenueBonds, Haynes Garden ApartmentsProject (GNMA Insured),1.75%, 12/1/19(2) (5) 4,500 4,501
Metropolitan Government of Nashville& Davidson County Health &Educational Facilities Board VariableRevenue Bonds, E. Webster StreetApartments,2.05%, 4/1/20(2) (5) 3,000 3,011
Michigan State Building AuthorityFacilities Program Revenue RefundingBonds, Series I,4.00%, 10/15/19 11,000 11,011
Michigan State Strategic Fund LimitedObligation Variable Revenue Bonds,Kroger Recovery Zone (The Bank ofTokyo-Mitsubishi UFJ. Ltd. LOC),1.62%, 10/2/19(2) (10) 3,300 3,300
Mississippi State Business FinanceCommission Gulf Opportunity ZoneVariable Revenue Bonds, Series F,Chevron U.S.A., Inc.,1.77%, 10/2/19(2) (10) 9,100 9,100
Mobile IDB PCR Bonds, AlabamaPower Company Barry Plant Project,1.85%, 3/24/20(2) (5) 16,500 16,518
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S - 17. 7 % c o n t i n u e d
Montgomery County Hospital RevenueRefunding Bonds, Premier HealthPartners (PNC Bank N.A. LOC),1.65%, 10/1/19(2) (10) $13,250 $13,250
TA X - A DVA N TAG E D U LT R A - S H O R T F I X E D I N C O M E F U N D c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 70 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S - 17. 7 % c o n t i n u e d
Texas State Department of Housing &Community Affairs MFH RevenueBonds, Emli at Liberty Crossing,1.80%, 12/1/19(2) (5) $4,000 $4,001
University of Alabama UniversityGeneral Revenue Refunding Bonds,Series A,5.00%, 7/1/20 2,700 2,774
University of Delaware Revenue Bonds,5.00%, 11/1/19 1,445 1,449
Virginia State G.O. Unlimited RefundingBonds, Series B,5.00%, 6/1/20 10,390 10,647
Washington State Various PurposeG.O. Unlimited Bonds, Series C,5.00%, 2/1/20 10,935 11,070
Wichita G.O. Unlimited TemporaryNotes, Series 296,3.00%, 10/15/19 19,000 19,011
Total Short-Term Investments
(Cost $680,720) 680,653
Total Investments – 100.4%
(Cost $3,845,381) 3,857,345
Liabilities less Other Assets – (0.4%) (15,951)
NET ASSETS – 100.0% $3,841,394
(1) Securities exempt from registration under Rule 144A of the Securities Act of1933. These securities may be resold in transactions exempt fromregistration, normally to qualified institutional buyers. The value of thesesecurities is determined by valuations supplied by a pricing service orbrokers, or, if not available, in accordance with procedures established bythe Board of Trustees of Northern Funds.
(2) Variable rate security. Rate as of September 30, 2019 is disclosed.(3) Variable rate security. Security issued at a fixed coupon rate, which converts
to a variable rate at a future date. Rate shown is the rate in effect as ofperiod end.
(4) Maturity date represents the puttable date.(5) These securities are remarketed by an agent, and the interest rate is
determined by general market conditions and supply and demand.(6) When-Issued Security. Coupon rate is not in effect at September 30, 2019.(7) Maturity date represents the prerefunded date.(8) Investment in affiliated Portfolio. Northern Trust Investments, Inc. is the
investment adviser to the Fund and the investment adviser to NorthernInstitutional Funds.
(9) 7-day current yield as of September 30, 2019 is disclosed.
(10) Rate is determined by a remarketing agent which, in its judgment, on thebasis of prevailing financial markets, will be the lowest interest ratenecessary to enable the remarketing agent to sell the bonds at a price equalto 100% of the principal amount.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
1M - 1 Month
3M - 3 Month
AGM - Assured Guaranty Municipal Corporation
AMT - Alternative Minimum Tax
BANS - Bond Anticipation Notes
COPS - Certificates of Participation
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
G.O. - General Obligation
GNMA - Government National Mortgage Association
Gtd. - Guaranteed
HFA - Housing Finance Authority
HUD - Housing and Urban Development
IBC - Insured Bond Certificates
ICE - Intercontinental Exchange
IDA - Industrial Development Authority
IDB - Industrial Development Board
LANS - Loan Anticipation Notes
LCRA - Lower Colorado River Authority
LIBOR - London Interbank Offered Rate
LOC - Letter of Credit
MFH - Multi-Family Housing
NATL - National Public Finance Guarantee Corporation
PCR - Pollution Control Revenue
PFA - Public Finance Authority
PSF - Permanent School Fund
RANS - Revenue Anticipation Notes
SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 71 FIXED INCOME FUNDS
SCSDE - South Carolina State Department of Education
SFM - Single Family Mortgage
SIFMA - Securities Industry and Financial Markets Association
SonyMA - State of New York Mortgage Agency
TANS - Tax Anticipation Notes
TRANS - Tax and Revenue Anticipation Notes
TRB - Tax Revenue Bonds
USD - United States Dollar
YKHC - Yukon Kuskokwim Health Corporation
Percentages shown are based on Net Assets.
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
U.S. Treasury 2.4%
AAA 22.1
AA 32.6
A 17.6
A1+ (Short Term) 0.4
A1 (Short Term) 11.3
A2 (Short Term) 1.0
BBB 7.0
Not Rated 4.6
Cash Equivalents 1.0
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interestrates 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 anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
U . S . G OV E R N M E N T AG E N C I E S – 1. 9 % ( 5 )
Fannie Mae – 0.9%
1.50%, 7/30/20 4,700 4,687
2.88%, 10/30/20 5,000 5,054
2.25%, 4/12/22 11,600 11,786
21,527
Federal Farm Credit Bank – 0.9%
2.60%, 1/18/22 6,900 7,042
(Floating, U.S. Treasury 3M BillMMY + 0.27%), 2.12%,5/16/22(1) 14,000 13,989
21,031
PRINCIPALAMOUNT
(000S)VALUE(000S)
U . S . G OV E R N M E N T AG E N C I E S - 1. 9 % ( 5 ) c o n t i n u e d
Federal Home Loan Bank – 0.1%
3.00%, 10/12/21 $2,185 $2,243
Total U.S. Government Agencies
(Cost $44,346) 44,801
U . S . G OV E R N M E N T O B L I GAT I O N S – 9 . 8 %
U.S. Treasury Floating Rate Notes – 0.3%
(Floating, U.S. Treasury 3M BillMMY + 0.22%), 2.13%,10/1/19(1) 7,500 7,493
U.S. Treasury Notes – 9.5%
2.50%, 1/31/21 4,000 4,038
2.25%, 2/15/21 10,000 10,065
2.13%, 5/31/21 35,000 35,238
1.63%, 6/30/21 20,000 19,978
1.75%, 7/31/21 43,000 43,061
2.13%, 8/15/21 10,000 10,081
1.50%, 8/31/21 11,480 11,446
2.88%, 11/15/21 3,000 3,076
2.63%, 12/15/21 14,000 14,308
2.13%, 5/15/22 15,000 15,196
1.75%, 7/15/22 25,772 25,874
1.50%, 8/15/22 33,000 32,924
225,285
Total U.S. Government Obligations
(Cost $231,978) 232,778
NUMBEROF SHARES
VALUE(000S)
I N V E S T M E N T C O M PA N I E S – 0 .1 %
Northern Institutional Funds -U.S. Government Portfolio (Shares),1.83%(6) (7) 3,262,081 $3,262
Total Investment Companies
(Cost $3,262) 3,262
S C H E D U L E O F I N V E S T M E N T S
U LT R A - S H O R T F I X E D I N C O M E F U N D c o n t i n u e d
See Notes to the Financial Statements.
FIXED INCOME FUNDS 84 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S – 0 . 4 %
U.S. Treasury Bills,,1.71%, 8/13/20(3) $11,000 $10,833
Total Short-Term Investments
(Cost $10,834) 10,833
Total Investments – 99.6%
(Cost $2,359,984) 2,373,420
Other Assets less Liabilities – 0.4% 8,975
NET ASSETS – 100.0% $2,382,395
(1) Variable rate security. Rate as of September 30, 2019 is disclosed.(2) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,normally to qualified institutional buyers. The value of these securities isdetermined by valuations supplied by a pricing service or brokers, or, if notavailable, in accordance with procedures established by the Board ofTrustees of Northern Funds.
(3) Discount rate at the time of purchase.(4) Variable rate security. Security issued at a fixed coupon rate, which converts
to a variable rate at a future date. Rate shown is the rate in effect as ofperiod end.
(5) The obligations of certain U.S. government-sponsored entities are neitherissued nor guaranteed by the United States Treasury.
(6) Investment in affiliated Portfolio. Northern Trust Investments, Inc. is theinvestment adviser to the Fund and the investment adviser to NorthernInstitutional Funds.
(7) 7-day current yield as of September 30, 2019 is disclosed.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
1M - 1 Month
3M - 3 Month
Fannie Mae - Federal National Mortgage Association
ICE - Intercontinental Exchange
LIBOR - London Interbank Offered Rate
MMY - Money Market Yield
PLC - Public Limited Company
USD - United States Dollar
Percentages shown are based on Net Assets.
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
U.S. Treasury 10.3%
U.S. Agency 1.9
AAA 14.8
AA 17.1
A 33.4
A1 (Short Term) 0.2
A2 (Short Term) 0.6
BBB 21.6
Cash Equivalents 0.1
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interestrates 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 anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
NORTHERN FUNDS SEMIANNUAL REPORT 85 FIXED INCOME FUNDS
INVESTMENTSLEVEL 1(000S)
LEVEL 2(000S)
LEVEL 3(000S)
TOTAL(000S)
Investment Companies $3,262 $ — $— $ 3,262
Short-Term Investments — 10,833 — 10,833
Total Investments $3,262 $2,370,158 $— $2,373,420(1) Classifications as defined in the Schedule of Investments.
S C H E D U L E O F I N V E S T M E N T S
U LT R A - S H O R T F I X E D I N C O M E F U N D c o n t i n u e d SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
FIXED INCOME FUNDS 86 NORTHERN FUNDS SEMIANNUAL REPORT
PRINCIPALAMOUNT
(000S)VALUE(000S)
U . S . G OV E R N M E N T AG E N C I E S – 3 . 0 % ( 1 )
Fannie Mae – 3.0%
Pool #555649,
7.50%, 10/1/32 $29 $33
Pool #BH5752,
3.50%, 11/1/47 450 464
Pool #BH9277,
3.50%, 2/1/48 536 553
1,050
Total U.S. Government Agencies
(Cost $1,018) 1,050
U . S . G OV E R N M E N T O B L I GAT I O N S – 9 6 .1 %
U.S. Treasury Inflation Indexed Notes – 5.0%
1.13%, 1/15/21 295 347
0.13%, 1/15/23 315 347
0.63%, 4/15/23 330 344
0.25%, 7/15/29 684 691
1,729
U.S. Treasury Notes – 91.1%
1.63%, 10/15/20 1,565 1,562
1.50%, 8/31/21 7,058 7,037
1.50%, 8/15/22 8,816 8,795
1.50%, 9/30/24 7,366 7,348
1.88%, 7/31/26 4,846 4,926
1.63%, 8/15/29 1,958 1,949
31,617
Total U.S. Government Obligations
(Cost $33,294) 33,346
NUMBEROF SHARES
VALUE(000S)
I N V E S T M E N T C O M PA N I E S – 0 . 2 %
Northern Institutional Funds -U.S. Government Portfolio (Shares),1.83%(2) (3) 43,703 $44
Total Investment Companies
(Cost $44) 44
PRINCIPALAMOUNT
(000S)VALUE(000S)
S H O R T - T E R M I N V E S T M E N T S – 0 . 7 %
U.S. Treasury Bill,2.40%, 10/24/19(4) $250 $250
Total Short-Term Investments
(Cost $250) 250
Total Investments – 100.0%
(Cost $34,606) 34,690
Other Assets less Liabilities – 0.0% 17
NET ASSETS – 100.0% $34,707
(1) The obligations of certain U.S. government-sponsored entities are neitherissued nor guaranteed by the United States Treasury.
(2) Investment in affiliated Portfolio. Northern Trust Investments, Inc. is theinvestment adviser to the Fund and the investment adviser to NorthernInstitutional Funds.
(3) 7-day current yield as of September 30, 2019 is disclosed.(4) Discount rate at the time of purchase.
EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUTTHE SCHEDULE OF INVESTMENTS:
Fannie Mae - Federal National Mortgage Association
Percentages shown are based on Net Assets.
At September 30, 2019, the credit quality distribution for the Fund as apercentage of investments including cash was:
Q UA L I T Y D I S T R I B U T I O N * % OF INVESTMENTS
U.S. Treasury 96.9%
U.S. Agency 3.0
Cash Equivalents 0.1
Total 100.0%
* Credit quality ratings are based on the conservative average of Moody’s, S&PGlobal and Fitch ratings. If ratings from all three rating agencies disagree, themodel assigns the middle rating to the security. If two of the three agree, themodel assigns the rating from those two to the security. If none of these threerating agencies has assigned a rating, the Fund will assign a rating of notrated. 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 ratings represent the rating agencies’ opinions of thequality of the securities they rate. Ratings are relative and subjective and arenot absolute standards of quality.
Various inputs are used in determining the value of the Fund’s investments. Theseinputs are summarized in three levels listed below:
Level 1 - Unadjusted quoted market prices in active markets for identical securitieson the measurement date.Level 2 - Other observable inputs (e.g., quoted prices in active markets for similarsecurities, securities valuations based on commonly quoted benchmark interest
S C H E D U L E O F I N V E S T M E N T S
U . S . G OV E R N M E N T F U N D SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
NORTHERN FUNDS SEMIANNUAL REPORT 87 FIXED INCOME FUNDS
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 anindication of the risk associated with investing in those securities and otherfinancial instruments, if any. The following table summarizes the valuations of theFund’s investments by the above fair value hierarchy as of September 30, 2019:
INVESTMENTSLEVEL 1(000S)
LEVEL 2(000S)
LEVEL 3(000S)
TOTAL(000S)
U.S. Government Agencies(1) $— $ 1,050 $— $ 1,050
U.S. Government Obligations(1) — 33,346 — 33,346
Investment Companies 44 — — 44
Short-Term Investments — 250 — 250
Total Investments $ 44 $34,646 $— $34,690(1) Classifications as defined in the Schedule of Investments.
S C H E D U L E O F I N V E S T M E N T S
U . S . G OV E R N M E N T F U N D c o n t i n u e d SEPTEMBER 30, 2019 (UNAUDITED)
See Notes to the Financial Statements.
FIXED INCOME FUNDS 88 NORTHERN FUNDS SEMIANNUAL REPORT
1. O RGA N I Z AT I O N
Northern Funds (the “Trust”) is a Delaware statutory trust and isregistered under the Investment Company Act of 1940, asamended (the “1940 Act”), as an open-end managementinvestment company. The Trust offers 43 funds as ofSeptember 30, 2019, each with its own investment objective (e.g.,long-term capital appreciation, total return or income consistentwith preservation of capital). The Core Bond, Fixed Income, HighYield Fixed Income, Short Bond, Short-IntermediateU.S. Government, Tax-Advantaged Ultra-Short Fixed Income,Ultra-Short Fixed Income and U.S. Government Funds (each a“Fund” and collectively, the “Funds”) are separate, diversifiedinvestment portfolios of the Trust. Each of the Funds is presentedherein.
Northern Trust Investments, Inc. (“NTI”), a subsidiary of TheNorthern Trust Company (“Northern Trust”), serves as theinvestment adviser and administrator for each of the Funds.Northern Trust serves as the custodian, transfer agent andsub-administrator for the Trust. Northern Funds Distributors,LLC, not an affiliate of NTI, is the Trust’s distributor.
2 . S I G N I F I C A N T AC C O U N T I N G P O L I C I E S
The Trust, which is an investment company, follows accountingand reporting guidance under Financial Accounting StandardsBoard (“FASB”) Accounting Standards Codification Topic 946,Financial Services-Investment Companies.
The following is a summary of significant accounting policiesconsistently followed by the Funds in the preparation of theirfinancial statements. These policies are in conformity withaccounting principles generally accepted in the United States ofAmerica (“U.S. GAAP”). The preparation of financial statementsin conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.Actual results may differ from those estimates.
The net asset value (“NAV”) of each Fund is determined daily asof the close of regular trading on the New York Stock Exchange(“NYSE”), generally 3:00 P.M. Central Time, on each day theNYSE is open for trading.
A) VALUATION OF SECURITIES AND DERIVATIVE CONTRACTS
Securities are valued at their fair value. Equity securities traded onUnited States (“U.S.”) securities exchanges or in the NASDAQNational Market System are principally valued at the regulartrading session closing price (generally, 3:00 P.M. Central Time)on the exchange or market in which such securities are principallytraded. If any such security is not traded on a valuation date, it isvalued at the most recent quoted bid price. Over-the-countersecurities not reported in the NASDAQ National Market Systemare also generally valued at the most recent quoted bid price. Fixed
income securities, however, may be valued on the basis ofevaluated prices provided by the Funds’ approved independentthird-party pricing services when such prices are believed toreflect the fair value of such securities or broker provided prices.Such prices may be determined by taking into account othersimilar securities’ prices, yields, maturities, call features, ratings,prepayment speeds, credit risks, cash flows, institutional sizetrading in similar groups of securities and developments related tospecific securities.
The values of securities of foreign issuers are generally based uponmarket quotations, which depending upon local convention orregulation, may be the last sale price, the last bid price or themean between the last bid and asked price as of, in each case, theclose of the appropriate exchange or other designated time.Foreign fixed income securities, however, may, like domestic fixedincome securities, be valued based on evaluated prices providedby independent pricing services when such prices are believed toreflect the fair value of such securities.
Shares of open-end investment companies, other than exchangetraded funds, are valued at their NAV. Spot and forward foreigncurrency exchange contracts are generally valued using anindependent pricing service. Exchange-traded financial futuresand options are valued at the settlement price as established by theexchange on which they are traded. Over-the-counter options arevalued at broker-provided prices, as are swaps, caps, collars andfloors. The foregoing prices may be obtained from one or moreindependent pricing services or, as needed or applicable,independent broker-dealers. Short-term investments with amaturity of 60 days or less are valued at their amortized cost,which NTI, as authorized by the Trust’s Board of Trustees (the“Board”), has determined approximates fair value.
Any securities for which market quotations are not readilyavailable or are believed to be incorrect are valued at fair value asdetermined in good faith by NTI under the supervision of theBoard. The Trust, in its discretion, may make adjustments to theprices of securities held by a Fund if an event occurs after thepublication of fair values normally used by a Fund but before thetime as of which the Fund calculates its NAV, depending on thenature and significance of the event, consistent with applicableregulatory guidance and U.S. GAAP. This may occur particularlywith respect to certain foreign securities held by a Fund, in whichcase the Trust may use adjustment factors obtained from anindependent evaluation service that are intended to reflect moreaccurately the fair value of those securities as of the time theFund’s NAV is calculated.
The use of fair valuation involves the risk that the values used bythe Funds to price their investments may be higher or lower thanthe values used by other unaffiliated investment companies andinvestors to price the same investments.
F I X E D I N C O M E F U N D S
N OT E S TO T H E F I N A N C I A L S TAT E M E N T S SEPTEMBER 30, 2019 (UNAUDITED)
NORTHERN FUNDS SEMIANNUAL REPORT 89 FIXED INCOME FUNDS
B) FUTURES CONTRACTS Certain Funds invest in long or shortexchange-traded futures contracts for hedging purposes, toincrease total return (i.e., for speculative purposes) or to maintainliquidity to meet potential shareholder redemptions, to invest cashbalances or dividends or to minimize trading costs. When used asa hedge, a Fund may sell a futures contract in order to offset adecrease in the fair value of its portfolio securities that mightotherwise result from a market decline. A Fund may do so eitherto hedge the value of its portfolio securities as a whole, or toprotect against declines occurring prior to sales of securities in thevalue of the securities to be sold. Conversely, a Fund may purchasea futures contract as a hedge in anticipation of purchases ofsecurities. In addition, a Fund may utilize futures contracts inanticipation of changes in the composition of its portfolioholdings. A Fund bears the market risk arising from changes inthe value of these financial instruments. At the time a Fund entersinto a futures contract, it is generally required to make a margindeposit with the custodian of a specified amount of liquid assets.Futures are marked-to-market each day with the change in valuereflected in the unrealized gains or losses. Risk may arise as aresult of the potential inability of the counterparties to meet theterms of their contracts. Credit risk is mitigated to the extent thatthe exchange on which a particular futures contract is tradedassumes the risk of a counterparty defaulting on its obligationsunder the contract. The Statements of Operations include anyrealized gains or losses on closed futures contracts in Net realizedgains (losses) on futures contracts, and any unrealized gains orlosses on open futures contracts in Net change in unrealizedappreciation (depreciation) on futures contracts.
The contract positions and investment strategies utilized duringthe six months ended September 30, 2019, were as follows:
CONTRACTPOSITION
INVESTMENTSTRATEGY
Core Bond Long Hedging/Liquidity
Fixed Income Long Hedging/Liquidity
Short-Intermediate U.S. Government Long Hedging/Liquidity
U.S. Government Long and Short Hedging/Liquidity
At September 30, 2019, the aggregate market value of assetspledged to cover margin requirements for open positions for theShort-Intermediate U.S. Government Fund was approximately$1,598,000. Further information on the impact of these positions,if any, on the Funds’ financial statements can be found in Note 10.
C) FOREIGN CURRENCY TRANSLATION Values of investmentsdenominated in foreign currencies are converted into U.S. dollarsusing the spot rates on the NYSE at generally 3:00 P.M. CentralTime. The cost of purchases and proceeds from sales ofinvestments, interest and dividend income are translated into U.S.dollars using the spot rates on the NYSE at generally 3:00 P.M.Central Time. The gains or losses, if any, on investments fromoriginal purchase date to subsequent sales trade date resultingfrom changes in foreign exchange rates are included in the
Statements of Operations in Net realized gains (losses) oninvestments and Net change in unrealized appreciation(depreciation) on investments. The gains or losses, if any, ontranslation of other assets and liabilities denominated in foreigncurrencies and between the trade and settlement dates oninvestment transactions are included in Net realized gains (losses)on foreign currency transactions and Net change in unrealizedappreciation (depreciation) on foreign currency translations inthe Statements of Operations.
D) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Certain Funds are authorized to enter into forward foreigncurrency exchange contracts for the purchase or sale of a specificforeign currency at a fixed price on a future date as a hedge againsteither specific transactions or portfolio positions, or as across-hedge transaction or for speculative purposes. The objectiveof a Fund’s foreign currency hedging transactions is to reduce therisk that the U.S. dollar value of a Fund’s foreign currencydenominated securities will decline in value due to changes inforeign currency exchange rates. All forward foreign currencyexchange contracts are marked-to-market daily at the applicableexchange rates. Any resulting unrealized gains or losses arerecorded in Net change in unrealized appreciation (depreciation)on forward foreign currency exchange contracts in the Statementsof Operations. A Fund records realized gains or losses at the timethe forward foreign currency exchange contract is offset byentering into a closing transaction with the same counterparty oris extinguished by delivery of the currency. Realized gains orlosses, if any, are included in Net realized gains (losses) onforward foreign currency exchange contracts in the Statements ofOperations.
Risks may arise upon entering into these contracts from thepotential inability of counterparties to meet the terms of theircontracts and from unanticipated movements in the value of aforeign currency relative to the U.S. dollar. The contractualamounts of forward foreign currency exchange contracts do notnecessarily represent the amounts potentially subject to risk. AFund bears the market risk from changes in foreign currencyexchange rates and the credit risk if the counterparty to thecontract fails to perform. The institutions that deal in forwardforeign currency exchange contracts are not required to continueto make markets in the currencies they trade and these marketscan experience periods of illiquidity. No forward foreign currencyexchange contracts were held by the Funds during the six monthsended September 30, 2019.
E) WHEN-ISSUED/DELAYED DELIVERY SECURITIES Certain Fundspurchase securities with delivery or payment to occur at a laterdate beyond the normal settlement period. At the time a Fundenters into the commitment to purchase a security, thetransaction is recorded and the value of the commitment isreflected in the NAV. The value of the commitment may vary withmarket fluctuations. No interest accrues to a Fund until settlementtakes place. At the time a Fund enters into this type of transaction,
F I X E D I N C O M E F U N D S
N OT E S TO T H E F I N A N C I A L S TAT E M E N T S c o n t i n u e d
FIXED INCOME FUNDS 90 NORTHERN FUNDS SEMIANNUAL REPORT
it is required to segregate collateral of cash or liquid assets havinga fair value at least equal to the amount of the commitment. TheFunds identify securities as segregated with a value that meets orexceeds the value of the commitments. When-issued securities atSeptember 30, 2019, if any, are noted in each Fund’s Schedule ofInvestments and in aggregate as Payable for when-issuedsecurities, in each Fund’s Statement of Assets and Liabilities.
On January 6, 2014, certain Funds entered into Master SecuritiesForward Transaction Agreements (“MSFTA”) with certaincounterparties, pursuant to which each party has agreed to pledgecash and/or securities as collateral to secure the repayment of itsobligations to the other party under the MSFTA. No collateral hasbeen pledged to or received by the Funds as of September 30,2019.
F) MORTGAGE DOLLAR ROLLS Certain Funds enter into mortgage“dollar rolls” in which a Fund sells securities for delivery in thefuture (generally within 30 days) and simultaneously contractswith the same counterparty to repurchase other mortgagesecurities on a specified future date. During the roll period, aFund loses the right to receive principal and interest paid on thesecurities sold. However, a Fund would benefit to the extent of anydifference between the price received for the securities sold andthe lower forward price for the future purchase.
For financial reporting and tax purposes, the Funds treatmortgage dollar rolls as two separate transactions; one involvingthe purchase of a security and a separate transaction involving asale.
G) INVESTMENT TRANSACTIONS AND INCOME Investmenttransactions are recorded as of the trade date. The Fundsdetermine the gain or loss realized from investment transactionsby using an identified cost basis method. Interest income isrecognized on an accrual basis and includes amortization ofpremiums and accretion of discounts using the effective yieldmethod. The interest rates reflected in the Schedules ofInvestments represent the stated coupon rate, annualized yield ondate of purchase for discount notes, the current reset rate forfloating rate securities, the 7-day yield for money market funds or,for interest-only or principal only securities, the current effectiveyield. Cost of investments includes amortization of premiums andaccretion of discounts, if any. Dividend income is recognized onthe ex-dividend date. The Funds’ income may be subject to certainstate and local taxes.
H) EXPENSES Each Fund is charged for those expenses that aredirectly attributable to that Fund. Expenses incurred which do notspecifically relate to an individual Fund generally are allocatedamong all Funds in the Trust in proportion to each Fund’s relativenet assets.
I) REDEMPTION FEES The High Yield Fixed Income Fund chargesa 2 percent redemption fee on the redemption of shares(including by exchange) held for 30 days or less. For the purpose
of applying the fee, the Fund uses a first-in, first-out (“FIFO”)method so that shares held longest are treated as being redeemedfirst and shares held shortest are treated as being redeemed last.The redemption fee is paid to the Fund and is intended to offsetthe trading, market impact and other costs associated withshort-term money movements in and out of the Fund. Theredemption fee may be collected by deduction from theredemption proceeds or, if assessed after the redemptiontransaction, through a separate billing. The redemption fee doesnot apply to certain types of redemptions as described in theFund’s prospectuses.
Redemption fees for the six months ended September 30, 2019were approximately $7,000 and $2,000 for the High Yield FixedIncome Fund and Ultra-Short Fixed Income Fund, respectively.Redemption fees for the fiscal year ended March 31, 2019 wereapproximately $38,000 for the High Yield Fixed Income Fund.These amounts are included in Payments for Shares Redeemed inNote 8 - Capital Share Transactions. The impact from redemptionfees paid to the Fund was less than $0.001 per share for bothperiods.
J) DISTRIBUTIONS TO SHAREHOLDERS Distributions of dividendsfrom net investment income, if any, are declared and paid asfollows:
DECLARATIONFREQUENCY
PAYMENTFREQUENCY
Core Bond Daily Monthly
Fixed Income Daily Monthly
High Yield Fixed Income Daily Monthly
Short Bond Daily Monthly
Short-Intermediate U.S. Government Daily Monthly
Tax-Advantaged Ultra-Short Fixed Income Daily Monthly
Ultra-Short Fixed Income Daily Monthly
U.S. Government Daily Monthly
Distributions of net realized capital gains, if any, are declared andpaid at least annually. Distributions to shareholders are recordedon the ex-dividend date.
Income dividends and capital gains distributions are determinedin accordance with federal income tax regulations. Such amountsmay differ from income and capital gains recorded in accordancewith U.S. GAAP. Accordingly, the Funds may periodically makereclassifications among certain of their capital accounts to reflectdifferences between financial reporting and federal income taxbasis distributions. The reclassifications are reported in order toreflect the tax treatment for certain permanent differences thatexist between income tax regulations and U.S. GAAP. Thesereclassifications relate to net operating losses, Section 988currency gains and losses, and paydowns. These reclassifications
F I X E D I N C O M E F U N D S
SEPTEMBER 30, 2019 (UNAUDITED)
NORTHERN FUNDS SEMIANNUAL REPORT 91 FIXED INCOME FUNDS
have no impact on the net assets or the net asset values per shareof the Funds. At March 31, 2019, the following reclassificationswere recorded:
Amounts in thousands
UNDISTRIBUTEDNET INVESTMENTINCOME (LOSS)
ACCUMULATEDUNDISTRIBUTEDNET REALIZED
GAINS (LOSSES)CAPITALSTOCK
Core Bond $ 481 $ (481) $ —
Fixed Income 2,370 (2,263) (107)
Short Bond 5 (5) —
Short-IntermediateU.S. Government 195 (195) —
U.S. Government 52 (52) —
K) FEDERAL INCOME TAXES No provision for federal income taxeshas been made since each Fund’s policy is to comply with therequirements of Subchapter M of the Internal Revenue Code of1986, as amended (the “Code”), applicable to regulatedinvestment companies and to distribute, each year, substantiallyall of its taxable income and capital gains to its shareholders.
The Regulated Investment Company Modernization Act of 2010(the “Act”) eliminated the eight-year limit on the use of capitalloss carryforwards that arise in taxable years beginning after itsenactment date of December 22, 2010. The changes becameeffective for the Funds for the fiscal year ended March 31, 2012and for the Core Bond Fund and the Short Bond Fund, the fiscalyear ended November 30, 2012. Consequently, capital lossesincurred by the Funds in taxable years beginning with the taxableyear ended March 31, 2012 or November 30, 2012, as applicable,can be carried forward for an unlimited period. However, capitallosses incurred by the Funds in taxable years beginning before thetaxable year ended March 31, 2012 or November 30, 2012, asapplicable, with an expiration date may not be used to offsetcapital gains until all net capital losses incurred in taxable yearsbeginning with the taxable year ended March 31, 2012 orNovember 30, 2012, as applicable, without an expiration date havebeen utilized. As a result, pre-enactment capital loss carryforwardsmay be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character aseither short-term or long-term capital losses instead of asshort-term capital losses as under prior law. The Funds’ ability toutilize capital loss carryforwards in the future may be limitedunder the Code and related regulations based on the results offuture transactions.
Capital losses incurred that will be carried forward indefinitelyunder the provisions of the Act are as follows:
Post-enactment losses
Amounts in thousands
SHORT-TERMCAPITAL LOSS
CARRYFORWARD
LONG-TERMCAPITAL LOSS
CARRYFOWARD
Core Bond $ 5,868 $ 1,938
Fixed Income 15,588 21,007
High Yield Fixed Income 147,098 287,280
Short Bond 5,222 9,259
Short-Intermediate U.S. Government 5,107 1,247
Tax-Advantaged Ultra-Short Fixed Income 95 71
Ultra-Short Fixed Income 1,388 667
U.S. Government 1,066 259
At March 31, 2019, the tax components of undistributed netinvestment income, undistributed realized gains and unrealizedgains (losses) were as follows:
* Ordinary income includes taxable market discount income andshort-term capital gains, if any.
As of March 31, 2019, no Fund had uncertain tax positions thatwould require financial statement recognition or disclosure. TheFunds’ federal tax returns remain subject to examination by theInternal Revenue Service for the three years after they are filed.Interest or penalties incurred, if any, on future unknown,uncertain tax positions taken by the Funds will be recorded asinterest expense and other expenses, respectively, on theStatements of Operations.
3 . S E RV I C E P L A N
The Trust has adopted a Service Plan pursuant to which the Trustmay enter into agreements with Northern Trust, its affiliates orother institutions (together “Service Organizations”) under whichthe Service Organizations agree to provide certain administrativesupport services and, in some cases, personal and accountmaintenance services for their customers, who are beneficialowners of shares of the Funds. As compensation for servicesprovided pursuant to the Service Plan, the Service Organizationsreceive a fee at an annual rate of up to 0.15 percent of the averagedaily net assets of the Funds beneficially owned by theircustomers. There were no shareholder servicing fees paid by theFunds to Northern Trust or its affiliates during the six monthsended September 30, 2019.
Service Plan expenses, if any, are included in the Statements ofOperations under Shareholder servicing fees for the six monthsended September 30, 2019.
4 . BA N K B O R ROW I N G S
The Trust and Northern Institutional Funds, a registeredinvestment company also advised by NTI, jointly entered into a$250,000,000 senior unsecured revolving credit facility onNovember 19, 2018, which is administered by Citibank, N.A., forliquidity and other purposes (the “Credit Facility”). The interestrate charged under the Credit Facility is equal to the sum of (i) theFederal Funds Rate plus (ii) if the one month London InterbankOffered Rate (“LIBOR”) on the date of borrowing exceeded suchFederal Funds Rate, the amount by which it so exceeded, plus (iii)1.00 percent. In addition, there is an annual commitment fee of0.15 percent on the unused portion of the credit line under theCredit Facility, payable quarterly in arrears, which is included inOther expenses on the Statements of Operations.
At a meeting held on November 13-14, 2019, the Board approvedan agreement to replace the Credit Facility (as replaced, the “NewCredit Facility”). The New Credit Facility is also in the amount of$250,000,000 and will also be administered by Citibank, N.A. Theinterest rate charged under the New Credit Facility is the same asit was for the Credit Facility. In addition, there is an annualcommitment fee of 0.15 percent on the unused portion of thecredit line under the New Credit Facility, payable quarterly inarrears. The New Credit Facility is anticipated to go into effect onNovember 18, 2019 and will expire on November 16, 2020, unlessrenewed.
The Funds did not have any borrowings or incur any interestexpense for the six months ended September 30, 2019.
5 . M A N AG E M E N T A N D OT H E R AG R E E M E N T S
As compensation for advisory and administration services and theassumption of related expenses, NTI is entitled to a managementfee, computed daily and payable monthly, at annual rates set forthin the table below (expressed as a percentage of each Fund’srespective average daily net assets).
NTI has contractually agreed to reimburse a portion of theoperating expenses of each Fund (other than certain exceptedexpenses, i.e., acquired fund fees and expenses, the compensationpaid to each independent Trustee of the Trust, expenses ofthird-party consultants engaged by the Board, membership duespaid to the Investment Company Institute and Mutual FundDirectors Forum, expenses in connection with the negotiationand renewal of the revolving credit facility, extraordinary expensesand interest) as shown on the accompanying Statements ofOperations, to the extent the total annual fund operating expensesof the Funds exceed the expense limitations set forth below. NTIhas also contractually agreed to reimburse acquired fund fees andexpenses related to investments in non-money market mutualfunds or exchange traded funds managed by NTI for the ShortBond, Short-Intermediate U.S. Government and U.S. GovernmentFunds. The total annual fund operating expenses after expensereimbursement for each Fund may be higher than the contractuallimitation as a result of certain excepted expenses that are not
F I X E D I N C O M E F U N D S
SEPTEMBER 30, 2019 (UNAUDITED)
NORTHERN FUNDS SEMIANNUAL REPORT 93 FIXED INCOME FUNDS
reimbursed. The amount of the reimbursement is included in Lessexpenses reimbursed by investment adviser as a reduction to TotalExpenses in the Statements of Operations.
At September 30, 2019, the annual management fees andcontractual expense limitations for the Funds were based on thefollowing annual rates as set forth in the tables below.
CONTRACTUAL ANNUALMANAGEMENT FEES CONTRACTUAL
EXPENSELIMITATIONS
FIRST$1.5 BILLION
NEXT$1 BILLION
OVER$2.5 BILLION
Core Bond 0.38% 0.369% 0.358% 0.40%
Fixed Income 0.43% 0.417% 0.404% 0.45%
High Yield FixedIncome 0.79% 0.766% 0.743% 0.78%
Short Bond 0.38% 0.369% 0.358% 0.40%
Short-IntermediateU.S. Government 0.38% 0.369% 0.358% 0.40%
The contractual reimbursement arrangements described above areexpected to continue until at least July 31, 2020. The contractualreimbursement arrangements will continue automatically forperiods of one-year (each such one-year period, a “RenewalYear”). The arrangement may be terminated, as to any succeedingRenewal Year, by NTI or a Fund upon 60 days’ written notice priorto the end of the current Renewal Year. The Board may terminatethe contractual arrangements at any time with respect to a Fund ifit determines that it is in the best interest of the Fund and itsshareholders.
In addition, NTI has contractually agreed to reimburse additionalexpenses that may be excepted expenses.
As compensation for services rendered as transfer agent, includingthe assumption by Northern Trust of the expenses related thereto,Northern Trust receives a fee, computed daily and payablemonthly, at an annual rate of 0.0385 percent of the average dailynet assets of each Fund. Prior to August 1, 2019, the transfer agentannual rate was 0.015 percent of the average daily net assets ofeach Fund.
NTI has entered into a sub-administration agreement withNorthern Trust, pursuant to which Northern Trust performscertain administrative services for the Funds. NTI pays NorthernTrust for its sub-administration services out of NTI’s managementfees.
For compensation as custodian, Northern Trust receives anamount based on a pre-determined schedule of charges approvedby the Board. The Funds have entered into an expense offsetarrangement with the custodian whereby credits realized as aresult of uninvested cash balances are used to reduce a portion ofthe Funds’ custodian expenses, unless such uninvested cashbalances receive a separate type of return.
Northern Funds Distributors, LLC, the distributor for the Funds,received no compensation from the Funds under its distributionagreement. However, it received compensation from NTI for itsservices as distributor pursuant to a separate letter agreementbetween it and NTI.
Certain officers of the Trust are also officers of Northern Trustand NTI. All officers serve without compensation from the Funds.The Trust provided a deferred compensation plan for its Trusteeswho are not officers of Northern Trust or NTI. Prior to August 22,2013, under the deferred compensation plan, Trustees may haveelected to defer all or a portion of their compensation. EffectiveAugust 22, 2013, the Trustees may no longer defer theircompensation. Any amounts deferred and invested under the planshall remain invested pursuant to the terms of the plan. EachTrustee’s account shall be deemed to be invested in shares of theU.S. Government Portfolio of Northern Institutional Fundsand/or the Global Tactical Asset Allocation Fund of the Trustand/or at the discretion of the Trust, another money market fundselected by the Trust that complies with the provisions ofRule 2a-7 under the 1940 Act or one or more short-term fixedincome instruments selected by the Trust that are “eligiblesecurities” as defined by that rule. The net investment income,gains and losses achieved by such deemed investment shall becredited to the Trustee’s account as provided in the plan.
6 . R E L AT E D PA R T Y T R A N SAC T I O N S
Each Fund may invest its uninvested cash in a money market fundadvised by NTI or its affiliates. Accordingly, each Fund bearsindirectly a proportionate share of that money market fund’soperating expenses. These operating expenses include themanagement, transfer agent and custody fees that the moneymarket fund pays to NTI or its affiliates. At September 30, 2019,the uninvested cash of the Funds is invested in the NorthernInstitutional Funds U.S. Government Portfolio (the “Portfolio”).The total annual portfolio operating expenses after expensereimbursement (other than certain excepted expenses as describedin the fees and expenses table of the Portfolio’s prospectus) on anyassets invested in the Portfolio is 0.25%. However, to the extent ofany duplicative advisory fees, NTI will reimburse each Fund for aportion of the management fees attributable to and payable by theFunds for advisory services on any assets invested in an affiliatedmoney market fund. This reimbursement is included in Lessexpenses reimbursed by the investment adviser as a reduction toTotal Expenses in the Statements of Operations. This
F I X E D I N C O M E F U N D S
N OT E S TO T H E F I N A N C I A L S TAT E M E N T S c o n t i n u e d
FIXED INCOME FUNDS 94 NORTHERN FUNDS SEMIANNUAL REPORT
reimbursement’s impact on each Fund’s net expense and netinvestment income ratios is included in each Fund’s FinancialHighlights.
The Funds are permitted to purchase and sell securities from or tocertain affiliated funds or portfolios under specified conditionsoutlined in Rule 17a-7 Procedures adopted by the Board. Theprocedures have been designed to ensure that any purchase or saleof securities by a Fund from or to another fund or portfolio that isor could be considered an affiliate by virtue of having a commoninvestment adviser (or affiliated investment advisers), commontrustees and/or common officers complies with Rule 17a-7 of the1940 Act. Further, as defined under these procedures, eachtransaction is effected at the current market price as defined in theRule 17a-7 Procedures. For the six months ended September 30,2019, the following Fund engaged in purchases and/or sales ofsecurities from an affiliated entity:
Amount in thousands PURCHASES SALES*
Tax-Advantaged Ultra-Short Fixed Income $33,435 $54,300
* During the six months ended September 30, 2019, the realizedgain (loss) associated with these transactions was zero.
7. I N V E S T M E N T T R A N SAC T I O N S
For the six months ended September 30, 2019, the aggregate costsof purchases and proceeds from sales of securities (excludingshort-term investments) for the Funds were as follows:
PURCHASES SALES
Amounts in thousands U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
Core Bond $ 542,005 $ 41,863 $ 577,452 $ 62,671
Fixed Income 1,856,268 160,959 1,857,607 192,713
High Yield FixedIncome — 675,569 — 744,224
Short Bond 107,192 93,518 114,284 103,726
Short-IntermediateU.S. Government 212,434 — 210,822 —
The difference between book basis and tax basis net unrealizedappreciation (depreciation) is attributable primarily to the taxdeferral of losses on wash sales, the realization for tax purposes ofunrealized gains on certain foreign currency contracts, thedeferral of post-October currency and capital losses for taxpurposes, and the timing of income recognition on investments inreal estate investment trusts and passive foreign investmentcompanies.
At September 30, 2019, for federal income tax purposes, grossunrealized appreciation, gross unrealized depreciation, netunrealized appreciation (depreciation) on investments (includingderivative instruments, if any) and the cost basis of investments(including derivative instruments, if any) were as follows:
Amounts inthousands
UNREALIZEDAPPRECIATION
UNREALIZEDDEPRECIATION
NETAPPRECIATION
(DEPRECIATION)
COSTBASIS OF
INVESTMENTS
Core Bond $ 4,133 $ (368) $ 3,765 $ 201,194
Fixed Income 19,075 (4,487) 14,588 819,702
High Yield FixedIncome 118,653 (131,231) (12,578) 3,745,785
Short Bond 4,544 (558) 3,986 392,823
Short-IntermediateU.S. Government 68 (105) (37) 55,978
Tax-AdvantagedUltra-ShortFixed Income 14,369 (2,405) 11,964 3,845,381
Information concerning the types of derivatives in which the Funds invest, the objectives for using them and their related risks can befound in Note 2.
Below are the types of derivatives by primary risk exposure as presented in the Statements of Assets and Liabilities as of September 30,2019:
ASSETS LIABILITIES
Amounts in thousands CONTRACT TYPESTATEMENTS OF
ASSETS LOCATION VALUESTATEMENTS OF
LIABILITIES LOCATION VALUE
Short-IntermediateU.S. Government
Interest rate contracts Net Assets - Net unrealizedappreciation $ —
Net Assets - Net unrealizeddepreciation $(16)*
* Includes cumulative appreciation/depreciation on futures contracts as reported in the Schedule of Investments’ footnotes. Only the currentday’s variation margin is reported within the Statements of Assets and Liabilities.
The following tables set forth by primary risk exposure the Funds’ realized gains (losses) and change in unrealized appreciation(depreciation) by type of derivative contract for the six months ended September 30, 2019:
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVE CONTRACTS
Amounts in thousands CONTRACT TYPE STATEMENTS OF OPERATIONS LOCATION VALUE
Core Bond Interest rate contracts Net realized gains (losses) on futures contracts $ 13
Fixed Income Interest rate contracts Net realized gains (losses) on futures contracts 16
Short-Intermediate U.S. Government Interest rate contracts Net realized gains (losses) on futures contracts 243
U.S. Government Interest rate contracts Net realized gains (losses) on futures contracts 151
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ONDERIVATIVE CONTRACTS
Amounts in thousands CONTRACT TYPE STATEMENTS OF OPERATIONS LOCATION VALUE
Short-Intermediate U.S. Government Interest rate contracts Net change in unrealized appreciation (depreciation) on futures contracts $(135)
U.S. Government Interest rate contracts Net change in unrealized appreciation (depreciation) on futures contracts (32)
Volume of derivative activity for the six months ended September 30, 2019*:
INTEREST RATECONTRACTS
NUMBEROF
TRADES
AVERAGENOTIONAL
AMOUNT**
Core Bond 4 $ 8,040
F I X E D I N C O M E F U N D S
SEPTEMBER 30, 2019 (UNAUDITED)
NORTHERN FUNDS SEMIANNUAL REPORT 97 FIXED INCOME FUNDS
INTEREST RATECONTRACTS
NUMBEROF
TRADES
AVERAGENOTIONAL
AMOUNT**
Fixed Income 4 $33,237
Short-Intermediate U.S. Government 2 4,130
U.S. Government 3 1,568
* Activity for the period is measured by number of trades during the period and average notional amount for futures interest rate contracts.
** Amounts in thousands.
11. I N D E M N I F I C AT I O N S A N D WA R R A N T I E S
In the ordinary course of their business, the Funds may enter intocontracts or agreements that contain indemnifications orwarranties. Future events could occur that lead to the execution ofthese provisions against the Funds. The maximum exposure to theFunds under these provisions is unknown, as this would involvefuture claims that have not yet occurred. However, the Funds havenot had prior claims or losses pursuant to these contracts andbelieve the risk of loss to be remote.
12 . N E W AC C O U N T I N G P RO N O U N C E M E N T S
On March 30, 2017, the FASB issued Accounting StandardsUpdate (ASU) 2017-08 “Premium Amortization on PurchasedCallable Debt Securities” (the “ASU”), which amends theamortization period for certain purchased callable debt securitiesheld at premium shortening such period to the earliest call date.The new guidance requires an entity to amortize the premium ona callable debt security within its scope to the earliest call date,unless the guidance for considering estimated prepayments asdescribed above is applied. If the call option is not exercised at theearliest call date, the yield is reset to the effective yield using thepayment terms of the security. If the security has more than onecall date and the premium was amortized to a call price greaterthan the next call price, any excess of the amortized cost basis overthe amount repayable at the next call date will be amortized tothat date. If there are no other call dates, any excess of theamortized cost basis over the par amount will be amortized tomaturity. Discounts on purchased callable debt securities willcontinue to be amortized to the security’s maturity date. The ASUis effective for public business entities for fiscal years, and interimperiods within those fiscal years, beginning after December 15,2018. For all other entities, the ASU is effective for fiscal yearsbeginning after December 15, 2019, and interim periods withinfiscal years beginning after December 15, 2020. Earlier applicationis permitted for all entities, including adoption in an interimperiod. If an entity early adopts the ASU in an interim period, anyadjustments must be reflected as of the beginning of the fiscal yearthat includes that interim period. The Funds have adopted theASU. The adoption of the ASU did not have a material impact onthe financial statements.
13 . S U B S E Q U E N T E V E N T S
Management has evaluated subsequent events for the Fundsthrough the date the financial statements were issued, and hasconcluded that there are no recognized or non-recognizedsubsequent events relevant for financial statement disclosure otherthan the New Credit Facility disclosed in Note 4—BankBorrowings.
F I X E D I N C O M E F U N D S
N OT E S TO T H E F I N A N C I A L S TAT E M E N T S c o n t i n u e d SEPTEMBER 30, 2019 (UNAUDITED)
FIXED INCOME FUNDS 98 NORTHERN FUNDS SEMIANNUAL REPORT
As a shareholder of the Funds, you incur two types of costs:(1) transaction costs, if any, including redemption fees on certainexchanges and redemptions in the High Yield Fixed Income Fund;and (2) ongoing costs, including management fees and other fundexpenses. This Example is intended to help you understand yourongoing costs (in dollars) of investing in the Funds and tocompare these costs with the ongoing costs of investing in othermutual funds.
The Example is based on an investment of $1,000 invested at thebeginning of the period and held for the entire period, April 1,2019 through September 30, 2019.
AC T UA L E X P E N S E S
The first line of the tables below provides information aboutactual account values and actual expenses. You may use theinformation in this line, together with the amount you invested,to estimate the expenses that you paid over the period. Simplydivide your account value by $1,000 (for example, an $8,600account value divided by $1,000 = 8.6), then multiply the result bythe number in the first line under the heading entitled ExpensesPaid 4/1/2019 - 9/30/2019 to estimate the expenses you paid onyour account during this period.
H Y P OT H E T I C A L E X A M P L E F O R C O M PA R I S O NP U R P O S E S
The second line in the tables below provides information abouthypothetical account values and hypothetical expenses based onthe Funds’ actual expense ratios and an assumed rate of return of5 percent per year before expenses, which is not the Funds’ actualreturn. The hypothetical account values and expenses may not beused to estimate the actual ending account balance or expensesyou paid for the period. You may use this information to comparethe ongoing costs of investing in the Funds and other funds. To doso, compare this 5 percent hypothetical example with the 5percent hypothetical examples that appear in the shareholderreports of the other funds.
Please note that the expenses shown in the table are meant tohighlight your ongoing costs only and do not reflect anytransaction costs, such as sales charges (loads), redemption fees,or exchange fees or other costs such as advisory fees related toaffiliated money market fund investments, but shareholders ofother funds may incur such costs. For example, the informationdoes not reflect redemption fees (See page 91), if any, in the HighYield Fixed Income Fund. If these fees were included, your costswould have been higher. The information also does not reflectreimbursements of advisory fees incurred in connection with theinvestment of uninvested cash in affiliated money market funds(See page 94), which may result in different expense ratios in theFinancial Highlights. Therefore, the hypothetical information isuseful in comparing ongoing costs only, and will not help youdetermine the relative total costs of owning different funds.
C O R E BO N D
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.41% $1,000.00 $1,059.10 $ 2.12
Hypothetical 0.41% $1,000.00 $1,023.01 $2.08
F I X E D I N C O M E
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.45% $1,000.00 $1,057.20 $2.32
Hypothetical 0.45% $1,000.00 $1,022.81 $2.28
H I G H Y I E L D F I X E D I N C O M E
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.78% $1,000.00 $1,041.30 $3.99
Hypothetical 0.78% $1,000.00 $ 1,021.16 $3.95
S H O R T BO N D
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.40% $1,000.00 $1,023.20 $2.03
Hypothetical 0.40% $1,000.00 $1,023.06 $2.03
S H O R T - I N T E R M E D I AT E U . S . G OV E R N M E N T
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.42% $1,000.00 $ 1,027.70 $2.13
Hypothetical 0.42% $1,000.00 $1,022.96 $2.13
TA X - A DVA N TAG E D U LT R A - S H O R T F I X E D I N C O M E
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.25% $1,000.00 $ 1,011.20 $1.26
Hypothetical 0.25% $1,000.00 $1,023.82 $1.27
* Expenses are calculated using the Funds’ annualized expenseratios, which represent ongoing expenses as a percentage of netassets for the six months ended September 30, 2019. Expensesare equal to the Funds’ annualized expense ratio multiplied bythe average account value over the period, multiplied by183/365 (to reflect the one-half year period).
F I X E D I N C O M E F U N D S
F U N D E X P E N S E S SEPTEMBER 30, 2019 (UNAUDITED)
NORTHERN FUNDS SEMIANNUAL REPORT 99 FIXED INCOME FUNDS
U LT R A - S H O R T F I X E D I N C O M E
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.25% $1,000.00 $1,018.40 $1.26
Hypothetical 0.25% $1,000.00 $1,023.82 $1.27
U . S . G OV E R N M E N T
SHARESEXPENSE
RATIO
BEGINNINGACCOUNT
VALUE4/1/2019
ENDINGACCOUNT
VALUE9/30/2019
EXPENSESPAID*
4/1/2019-9/30/2019
Actual 0.43% $1,000.00 $1,038.50 $2.20
Hypothetical 0.43% $1,000.00 $1,022.91 $ 2.18
* Expenses are calculated using the Funds’ annualized expenseratios, which represent ongoing expenses as a percentage of netassets for the six months ended September 30, 2019. Expensesare equal to the Funds’ annualized expense ratio multiplied bythe average account value over the period, multiplied by183/365 (to reflect the one-half year period).
F I X E D I N C O M E F U N D S
F U N D E X P E N S E S c o n t i n u e d SEPTEMBER 30, 2019 (UNAUDITED)
FIXED INCOME FUNDS 100 NORTHERN FUNDS SEMIANNUAL REPORT
The Board of Trustees (the “Board” or the “Trustees”) of NorthernFunds (the “Trust”) oversees the management of the Trust,including review of the investment performance and expenses ofthe investment funds covered by this Report (the “Funds”) atregularly scheduled meetings held during the Funds’ fiscal year. Inaddition, the Trustees determine annually whether to approve andcontinue the Trust’s management agreement (the “ManagementAgreement”) for the Funds with Northern Trust Investments, Inc.(“Northern”).
The Management Agreement was re-approved with respect to theFunds by the Board, including all of the Trustees who are notparties to the Management Agreement or “interested persons” (asdefined in the Investment Company Act of 1940, as amended (the“1940 Act”)) of any party thereto (the “Independent Trustees”)voting separately, at the in-person annual contract renewalmeeting held on May 15-16, 2019 (the “Annual ContractMeeting”).
In advance of, and at, the Annual Contract Meeting, the Trusteesreceived, considered and discussed a variety of informationrelating to the Management Agreement and Northern and itsaffiliates. This information included written materials and verbalpresentations at in-person Board meetings held on February13-14, 2019 and April 11, 2019 (the “February and April BoardMeetings”). At the Annual Contract Meeting, the Trusteesconsidered these reports and presentations and discussed theinformation that had been provided. Throughout the process, theTrustees also asked questions of and requested additionalinformation from management. In connection with theirdeliberations, the Independent Trustees met separately with andwere advised by their independent legal counsel and received amemorandum from their independent legal counsel regardingtheir responsibilities under applicable law. They also met inexecutive sessions at the Annual Contract Meeting, and each ofthe other Board meetings, with their independent legal counselwithout employees of Northern present.
In evaluating the Management Agreement, the Trustees reviewedNorthern’s reports and presentations and discussed with theirindependent counsel the information that had been provided tothem at the February and April Board Meetings and at the AnnualContract Meeting, as well as their interactions with Northernthroughout the year and in past years at various meetings. TheTrustees noted that the evaluation process with respect toNorthern and the Management Agreement was an ongoing one.The materials reviewed by the Trustees included, withoutlimitation: (i) information on the investment performance of theFunds in comparison to other mutual funds and benchmarkindices; (ii) compliance reports; (iii) information aboutNorthern’s and its affiliates’ risk management processes, and stresstesting, credit research and cyber-security programs; (iv) feescharged to and expenses borne by the Funds; (v) Northern’sprofitability and costs and compensation paid to affiliates ofNorthern; (vi) the qualifications of Northern and its affiliates toprovide services to the Funds; (vii) information regarding
purchases and redemptions of the Funds’ shares; (viii) policiesadopted by Northern regarding brokerage, including soft dollars,trade allocations and other matters; and (ix) the nature of theFunds’ shareholders. The Trustees also considered the nature,quality and extent of non-advisory services provided to the Fundsby Northern’s affiliates.
More specifically, the Trustees reviewed, among other things,information relating to: (i) the terms of the ManagementAgreement; (ii) the Funds’ investment performance over differenttime periods in comparison to the investment performance ofmutual fund peer groups and categories selected by Broadridge,an independent third-party provider of mutual fund data; (iii) thecontractual and net management fees and total expenses (afterexpense reimbursements and fee waivers) of the Funds incomparison to those borne by mutual fund peer groups andcategories selected by Broadridge; (iv) the management feescharged to the Funds compared to the management fees chargedby Northern to Northern’s other comparable institutionalaccounts; (v) Northern’s staffing for the Funds and the experienceof the portfolio managers, credit research and other personnel;(vi) Northern’s financial resources and its ability to attract andretain portfolio management talent; (vii) Northern’s investmentsin technology to benefit the Funds; (viii) the fees paid by theFunds to Northern and its affiliates for services, and the expensesincurred by them in connection with the provision of thoseservices; and (ix) the benefits received by Northern and itsaffiliates from their relationships with the Funds. The Trusteeswere provided with a description of the methodology Broadridgeused to determine the similarity of the Funds with the fundsincluded in their respective peer groups and peer universes. TheTrustees also took into account factors such as conditions andtrends prevailing generally in the economy, the securities markets,and the industry. In evaluating the Management Agreement foreach of the Funds, the Trustees gave weight to various factorsincluding those discussed herein, but did not identify any singlefactor as controlling their decision, and each Trustee may haveattributed different weight to different factors.
Nature, Extent and Quality of Services
The Trustees considered, as part of their review, the nature,quality and extent of the services provided by Northern. In thisregard, they considered both the investment advisory services, andseparately the administrative and other non-advisory services thatare provided to the Funds by Northern and its affiliates. Theseservices included acting as the Funds’ administrator and sub-administrator, custodian and transfer agent and providing otherservices necessary for the operation of the Funds and the Trust.The Trustees understood that the Management Agreementencompassed both the advisory and administrative functionsbeing rendered by Northern and its affiliates. They considered thequality of Northern’s communications with and services toshareholders, as well as the expenditures made by Northern andits affiliates to improve the quality and scope of their services tothe Funds. The Trustees considered the strength of Northern’s and
F I X E D I N C O M E F U N D S
A P P ROVA L O F M A N AG E M E N T AG R E E M E N T SEPTEMBER 30, 2019 (UNAUDITED)
NORTHERN FUNDS SEMIANNUAL REPORT 101 FIXED INCOME FUNDS
its affiliates’ risk management processes, including with respect tothe Funds’ regular reporting on stress testing with respect to theFunds. The Trustees also reviewed the compliance andadministrative services provided to the Funds by Northern and itsaffiliates, including its oversight of the Funds’ day-to-dayoperations and fund accounting. The Trustees also noted that on aregular basis they receive and review information from the Trust’sChief Compliance Officer regarding the Funds’ compliancepolicies and procedures pursuant to Rule 38a-1 under the 1940Act. They also considered the quality of Northern’s complianceoversight program with respect to all of the Funds’ serviceproviders and the continued involvement of Northern’s internalaudit group in reviewing operations that support the Funds, aswell as Northern’s responses to any compliance or operationalissue raised. The Trustees also took into account that the scope ofservices provided by Northern, and the undertakings required ofNorthern in connection with those services, includingmaintaining and monitoring their own and the Funds’ complianceprograms, had expanded over time as a result of regulatory,market and other developments. They also considered Northern’spreparations with respect to the increased reporting requirementsand liquidity risk management program required by new SECregulations.
The Trustees took into account the qualifications, background andresponsibilities of Northern’s senior management and investmentpersonnel. They also noted Northern’s recruitment and retentionplans for attracting high quality investment professionals, as wellas its portfolio management compensation structure, which wasnot based on performance or size of the Funds, and theconsistency of investment approach with respect to the Funds.The Trustees also considered Northern’s and its affiliates’ strongfinancial position and stability. The Trustees concluded thatNorthern was able to commit, and had committed, substantialfinancial and other resources to the operations of the Funds andwas able to continue to provide quality services to the Funds.
Performance
The Trustees considered the investment performance of each ofthe Funds, including whether it had operated within its respectiveinvestment objective, as well as its compliance with its investmentrestrictions. For Funds that had been in existence for theapplicable periods, the Trustees received information on theFunds’ investment performance for one, two, three, four, five andten years, as well as performance for the most recent quarter andyear-to-date. The Trustees compared the investment performanceof the Funds to the performance of other SEC registered fundsand to rankings issued by Broadridge. The Funds were ranked byBroadridge in quintiles, ranging from first to fifth, where first isthe most desirable quintile position and fifth is the least desirable.The Trustees also reviewed the Funds’ investment performancerelative to their respective performance benchmarks; and theFunds’ three-year performance versus net expenses as calculatedby Broadridge (“Broadridge Bubble Chart”).
The Trustees noted that the performance of each of the Funds wasin the first, second or third quintiles of its Broadridge peers for theone-, three- and five-year periods ended January 31, 2019, withthe exception of:
▪ the High Yield Fixed Income Fund, which was in the fourthquintile, and the Fixed Income Fund, which was in the fifthquintile, for the one- year period;
▪ the Core Bond Fund, which was in the fourth quintile for theone- and three-year periods;
▪ the Short Bond Fund and the Short-IntermediateU.S. Government Fund, which were in the fourth quintile forthe one-, three- and five-year periods;
▪ the Tax-Advantaged Ultra-Short Fixed Income Fund, whichwas in the 4th quintile for the one- and five-year periods andin the fifth quintile for the three-year period; and
▪ the U.S. Government Fund, which was in the fourth quintilefor the one-year period and the fifth quintile for the three- andfive-year periods.
They also considered that all of the Funds underperformed theirrespective benchmarks for the one-, three- and five-year periods,except:
▪ the Ultra-Short Fixed Income Fund and the Tax-AdvantagedUltra-Short Fixed Income Fund, which matched oroutperformed their respective benchmarks for the one-, three-and five-year periods; and
▪ the Short Bond Fund, which matched or outperformed itsbenchmark for the three- and five-year periods.
They also considered that the High Yield Fixed Income Fund wasin the least desirable less return, more expenses quadrant of itsBroadridge Bubble Chart.
The Trustees also took into account senior management’s andportfolio managers’ discussion of the Funds’ performance andexplanations for differences in investment parameters of certainFunds and their peers. They also considered the Funds’ investmentperformance relative to the investor base the Funds are intendedto serve. The Trustees noted the potential impact on performanceof the relative risk parameters of the different Funds. Specifically,they took into consideration Northern’s more risk averseinvestment strategies in comparison to their peers, which wouldimpact Fund performance. In addition, the Trustees reviewed theconsistency of Northern’s investment approach for the Funds andprocesses to address performance issues. The Trustees expectedand believed also that Northern was appropriately monitoringunderperforming Funds. They noted the in-depth performancereviews had assisted them in that regard.
The Trustees concluded, based on the information received, thatthe Funds’ performance was satisfactory for most Funds, and thatNorthern was taking appropriate steps to address the performanceof any underperforming Funds.
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Fee Rates, Costs of Services and Profitability
The Trustees also evaluated the Funds’ contractual managementfee rates and net (after expense reimbursements) managementfees paid by the Funds; the Funds’ total operating expense ratios;Northern’s contractual commitments to continue expensereimbursements for at least one year with respect to the Funds;and whether a consistent methodology was in place fordetermining the fees and expenses of the Funds. They also notedcertain other actions taken by Northern in past years to reduceFund expenses. The Trustees also considered that, for those Fundsthat were sweeping uninvested cash into a Northern-affiliatedmoney market Portfolio, Northern was in each case rebating backto the investing Fund all of the advisory fees received by Northern,if any, of the applicable money market Portfolio.
The Trustees reviewed information on the fee rates paid by theFunds under the Management Agreement and the Funds’ totaloperating expense ratios compared to similar information formutual funds advised by unaffiliated investment managementfirms, as prepared by Broadridge. The Broadridge reportcompared the expenses of each Fund against its respectiveBroadridge peer group, peer universe and objective median. Incomparing the Funds’ contractual and net management fees tothose of comparable funds, the Trustees noted that the Funds’management fees include both advisory and administrative costs.Among other data, the Trustees considered that for all of theFunds, the total operating expense ratios after reimbursement ofexpenses were below their respective objective median. Inaddition, the Trustees noted, with respect to the Funds:
▪ actual management fees were equal or lower than the mediansof their respective peer groups and universes, with theexception of the High Yield Fixed Income Fund whose actualmanagement fees were higher than the median of its expensegroup and universe, and the Fixed Income Fund andTax-Advantaged Ultra-Short Fixed Income Fund, whose actualmanagement fees were higher than the median of theirrespective expense universe; and
▪ their total expenses were in the first or second quintile of theirrespective expense peer group or universe, with the exceptionof the High Yield Fixed Income Fund, which was in the thirdquintile of its peer group.
The Trustees took into account Northern’s discussion of theFunds’ expenses, and that Northern had reimbursed expenses formost of the Funds. They also reviewed information comparing theFunds’ fee rates to the fee rates charged by Northern to similarlymanaged, private institutional accounts, if any. They noted thatthere were not applicable comparisons for every Fund. For Fundswhere there were applicable comparisons, the Trustees consideredthe difference in, and level of complexity of, services provided byNorthern with regard to the private institutional accounts, as wellas regulatory, operational and compliance differences, board andcommittee support provided by Northern to the Funds and otherdifferences. The Trustees considered the fee comparisons in light
of the differences in management of these different kinds ofaccounts. These comparisons assisted the Trustees in evaluatingthe reasonableness of the management fees paid by the Funds.
The Trustees also determined that the management fees chargedunder the Management Agreement were based on servicesprovided that were in addition to, rather than duplicative of,services provided under the management agreement of anyaffiliated underlying funds in which the Fund invested in the prioryear.
In addition, the Trustees considered the amount of assets in eachFund; the information provided by Northern relating to the costsof the services provided by it and its affiliates; and the profitsrealized by them through their relationship on a Fund-by-Fundbasis and on an overall Trust basis and both before and afterdistribution and certain non-distribution costs. The Trusteesconsidered Northern’s assumptions and methodology forallocating costs to each Fund, recognizing that cost allocationmethodologies are inherently subjective and not audited.
The Trustees also discussed information provided by Broadridgewith respect to Northern’s profitability compared to other publiclytraded advisers. They considered that comparisons of advisoryagreement profitability across fund families are difficult becauseof numerous factors, including the type of funds managed,business mix, cost allocation methodologies and other factors.The Trustees also took into account Northern’s expensereimbursements during the year, the nature of the Funds and thehigh quality of the services provided by Northern. The Trusteesunderstood that Northern should be entitled to earn a reasonablelevel of profit in exchange for the level of services it provides tothe Funds. The Trustees concluded that the profitability ofNorthern was not unreasonable based on the services and benefitsprovided and the costs assumed by Northern and its affiliates.They also noted that Northern appeared to have the resourcesnecessary to fulfill its obligations under the management andother agreements with the Funds.
Economies of Scale
The Trustees considered the extent to which economies of scalewould be realized as the Funds grow and whether fee levelsreflected these economies of scale for the benefit of shareholders.They took into account management’s discussion of the Funds’management fee structure and considered Northern’s view thatthe Funds are sharing in economies of scale through the level atwhich the Funds’ management fees are set and through Northern’scontractual expense reimbursements that limit the expenses forthe Funds to specific levels. The Trustees considered that theFunds had breakpoints, thus ensuring that as these Funds grew,shareholders would receive reduced fee rates. Materials providedto the Trustees indicated that the High Yield Fixed Income Fund,Ultra-Short Fixed Income Fund and Tax-Advantaged Ultra-ShortFixed Income Fund had the specified asset levels as of January 31,2019 at which one or more breakpoints on their management fees
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were triggered. The Trustees noted that total net expenses of theFunds after reimbursements were below the objective median oftheir respective Broadridge category and the net management feesof many of the Funds were below their respective Lipper groupmedians. The Trustees determined, on the basis of the foregoing,that the Funds’ current management fee structure was reasonable.
Other Benefits to Northern
The Trustees also reviewed other benefits accruing to Northernand its affiliates as a result of their relationship with the Funds.Those benefits included fees received by the affiliates for transferagency, custodial and sub-administrative functions. The Trusteesalso considered that many of the Funds’ shareholders had otherclient relationships with The Northern Trust Company and itsaffiliates. In addition, the Trustees considered that the scale of theFunds provided opportunities to Northern to obtain securitiestrading advantages for its other advisory clients and that Northernand its affiliates benefit from their ability to leverage resourcesover a larger asset base. The Trustees also took into account theextent to which Northern benefited from receipt of researchproducts and services generated by the Trust’s equity investmentportfolios.
After deliberation, the Trustees concluded with respect to each ofthe Funds that the management fee to be paid by each of theFunds was reasonable in light of the services provided byNorthern, its costs, the Fund’s asset levels, and other factorsincluding those discussed above and that the renewal of theManagement Agreement should be approved.
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P O R T F O L I O H O L D I N G S
Northern Funds files its complete schedule of portfolio holdingswith the U.S. Securities and Exchange Commission (“SEC”) forthe first and third quarters of each fiscal year as an exhibit to itsreports on Form N-PORT. The Funds’ Forms N-PORT (and itspredecessor form, Form N-Q) are available on the SEC’s web siteat www.sec.gov.
P ROX Y VOT I N G
Northern Funds’ Proxy Voting Policies and Procedures and eachFund’s portfolio securities voting record for the 12-month periodended June 30 are available upon request and without charge byvisiting Northern Funds’ web site at northerntrust.com/funds orthe SEC’s web site at www.sec.gov or by calling the NorthernFunds Center at 800-595-9111.
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When building a sound Northern Funds investment strategy,you’ll want to select a mix of equity, fixed income and moneymarket funds that have return potential and an acceptablelevel of risk. Please carefully read the summary prospectus orprospectus and consider the investment objectives, risks,charges and expenses of Northern Funds before investing. Visitnortherntrust.com/funds or call 800-595-9111 to obtain asummary prospectus or prospectus. The summary prospectusand prospectus contain this and other information about thefunds.
You could lose money by investing in the Money MarketFunds. Although each of the Money Market Funds seeks topreserve the value of your investment at $1.00 per share, itcannot guarantee it will do so. The Funds’ sponsor has nolegal obligation to provide financial support to the Funds, andyou should not expect that the sponsor will provide financialsupport to the Funds at any time.
The Money Market Fund and the Municipal Money MarketFund may impose a fee upon sale of your shares or maytemporarily suspend your ability to sell shares if the Fund’sliquidity falls below required minimums because of marketconditions or other factors.
You could lose money by investing in the Funds. An investmentin a Fund involves investment risks, including possible loss ofprincipal. An investment in a Fund is not a deposit of a bankand is not insured or guaranteed by the Federal DepositInsurance Corporation (“FDIC”), any other governmentagency, or The Northern Trust Company, its affiliates,subsidiaries or any other bank.
N O R T H E R N
FA M I LY O F F U N D SR I S K / R E WA R D P OT E N T I A L
HIGHERRISK/
REWARD
LOWERRISK/
REWARD
GR
OW
THIN
CO
ME
LIQ
UID
ITY
EQUIT Y FUNDS
INTERNATIONAL EQUITIES & SECTOR FUNDSActive M Emerging Markets Equity Emerging Markets Equity IndexMulti-Manager Global Real EstateGlobal Real Estate IndexMulti-Manager Global Listed InfrastructureInternational EquityActive M International Equity International Equity Index
Global Sustainability Index
SMALL- & MEDIUM-CAP EQUITY FUNDSSmall Cap ValueSmall Cap CoreSmall Cap IndexMid Cap Index
INCOME & LARGE-CAP EQUITY FUNDSU.S. Quality ESGLarge Cap ValueLarge Cap CoreStock IndexIncome Equity