Northern Funds
NORTHERN FUNDS PROSPECTUS
EQUITY FUNDS
GLOBAL
TACTICAL ASSET ALLOCATION FUND
Shares
Class (BBALX)
INCOME
EQUITY FUND
Shares
Class (NOIEX)
INTERNATIONAL
EQUITY FUND
Shares
Class (NOIGX)
LARGE
CAP CORE FUND
Shares
Class (NOLCX)
LARGE
CAP VALUE FUND
Shares
Class (NOLVX)
SMALL
CAP VALUE FUND
Shares
Class (NOSGX)
SMALL
CAP CORE FUND
Class I
(NSGRX)
Class K
(NSCKX)
U.S.
QUALITY ESG FUND
Class I
(NUEIX)
Class K
(NUESX)
EQUITY
INDEX FUNDS
EMERGING
MARKETS EQUITY INDEX FUND
Shares
Class (NOEMX)
GLOBAL
REAL ESTATE INDEX FUND
Shares
Class (NGREX)
INTERNATIONAL
EQUITY INDEX FUND
Shares
Class (NOINX)
MID
CAP INDEX FUND
Shares
Class (NOMIX)
SMALL
CAP INDEX FUND
Shares
Class (NSIDX)
STOCK
INDEX FUND
Shares
Class (NOSIX)
GLOBAL
SUSTAINABILITY INDEX FUND
Class I
(NSRIX)
Class K
(NSRKX)
FIXED
INCOME FUNDS
BOND
INDEX FUND
Shares
Class (NOBOX)
CORE
BOND FUND
Shares
Class (NOCBX)
FIXED
INCOME FUND
Shares
Class (NOFIX)
HIGH
YIELD FIXED INCOME FUND
Shares
Class (NHFIX)
SHORT
BOND FUND
Shares
Class (BSBAX)
LIMITED
TERM U.S. GOVERNMENT FUND
Shares
Class (NSIUX)
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME FUND
Shares
Class (NTAUX)
ULTRA-SHORT
FIXED INCOME FUND
Shares
Class (NUSFX)
U.S.
GOVERNMENT FUND
Shares
Class (NOUGX)
U.S.
TREASURY INDEX FUND
Shares
Class (BTIAX)
TAX-EXEMPT
FIXED INCOME FUNDS
ARIZONA
TAX-EXEMPT FUND
Shares
Class (NOAZX)
CALIFORNIA
INTERMEDIATE TAX-EXEMPT FUND
Shares
Class (NCITX)
CALIFORNIA
TAX-EXEMPT FUND
Shares
Class (NCATX)
HIGH
YIELD MUNICIPAL FUND
Shares
Class (NHYMX)
INTERMEDIATE
TAX-EXEMPT FUND
Shares
Class (NOITX)
LIMITED
TERM TAX-EXEMPT FUND
Shares
Class (NSITX)
TAX-EXEMPT
FUND
Shares
Class (NOTEX)
ACTIVE
M/MULTI-MANAGER FUNDS
ACTIVE
M EMERGING MARKETS EQUITY FUND
Shares
Class (NMMEX)
ACTIVE
M INTERNATIONAL EQUITY FUND
Shares
Class (NMIEX)
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE FUND
Shares
Class (NMFIX)
MULTI-MANAGER
GLOBAL REAL ESTATE FUND
Shares
Class (NMMGX)
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
Shares
Class (NMHYX)
Prospectus
dated July 31, 2024
An
investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (“FDIC”), any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank. An investment in a Fund involves investment risks, including
possible loss of principal.
The
Securities and Exchange Commission (“SEC”) has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
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NORTHERN FUNDS PROSPECTUS |
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TABLE
OF CONTENTS
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3 |
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3 |
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10 |
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14 |
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19 |
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23 |
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27 |
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31 |
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35 |
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40 |
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46 |
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51 |
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56 |
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60 |
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65 |
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69 |
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74 |
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79 |
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85 |
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91 |
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97 |
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103 |
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108 |
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114 |
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120 |
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125 |
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129 |
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134 |
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139 |
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144 |
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149 |
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154 |
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159 |
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164 |
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170 |
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175 |
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2 |
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NORTHERN FUNDS
PROSPECTUS |
FUND
SUMMARIES
GLOBAL
TACTICAL ASSET ALLOCATION FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation and current income.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
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Shareholder Fees (fees paid directly from
your investment) |
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None |
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Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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Shares Class |
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Management
Fees |
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0.23% |
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Other
Expenses |
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0.17% |
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Transfer
Agency Fees |
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0.04% |
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Other
Operating Expenses |
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0.13% |
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Acquired
Fund Fees and Expenses(1) |
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0.28% |
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Total
Annual Fund Operating Expenses(1) |
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0.68% |
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Expense
Reimbursement(2) |
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(0.13)% |
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Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
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0.55% |
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(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.25%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
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1 Year |
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3 Years |
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5 Years |
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10 Years |
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Shares
Class |
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$56 |
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$204 |
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$366 |
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$834 |
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PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 38.30% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund will generally seek exposure to a number of different asset classes based
on an asset allocation framework developed by the Investment Policy Committee of
The Northern Trust Company (“TNTC”) and NTI (TNTC and NTI are collectively
referred to herein as “Northern Trust”). The asset classes in which the Fund
seeks to obtain exposure include but are not limited to small-, mid‑ and
large-capitalization common stocks; real estate securities; commodity-related
securities; mortgage- and asset-backed securities; and fixed-income securities,
including high yield securities and money market instruments. The Fund primarily
obtains exposure to these asset classes by investing in shares of underlying
mutual funds and exchange-traded funds (“ETFs”), including mutual funds and ETFs
for which NTI, the Fund’s investment adviser, or an affiliate acts as investment
adviser (collectively, “Underlying Funds”). The Fund also may obtain exposure to
one or more asset classes by investing directly in equity or fixed-income
securities or money market instruments. In addition, the Fund also may invest
directly in derivatives, including but not limited to forward foreign currency
exchange contracts, futures contracts and options on futures contracts, for
hedging purposes.
The
Fund may obtain exposure to securities of U.S. and foreign issuers, including
those in emerging markets countries (i.e., those that are generally in the early
stages of their industrial cycles). The Fund expects its foreign exposure to be
allocated among various regions or countries, including the United States (but
in no less than three different countries).
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NORTHERN FUNDS PROSPECTUS |
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3 |
GLOBAL
TACTICAL ASSET ALLOCATION FUND
Northern
Trust’s Investment Policy Committee is responsible for developing tactical asset
allocation recommendations with respect to the Fund using the asset allocation
framework and incorporating various criteria, including, for example, economic
factors such as gross domestic product and inflation; fixed-income market
factors such as sovereign yields, credit spreads and currency trends; and equity
market factors such as domestic and foreign operating earnings and valuation
levels. NTI monitors the Fund daily to ensure it is invested pursuant to the
current asset allocation framework. NTI reviews the asset allocation framework
and recommended allocations at least monthly, or more frequently as needed, to
consider adjusting the allocations based on its evolving investment views amid
changing market and economic conditions. There is no limit in the number of
Underlying Funds in which the Fund may invest. The Fund is not required to
maintain any minimum or maximum investment in any asset class.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had a focused investment in the information
technology sector.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
Because
the Fund invests primarily in the Underlying Funds, the risks described below
are in reference to the Underlying Funds, and to the extent that the Fund
invests directly in securities and other instruments, the risks described below
are also directly applicable to the Fund.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
ASSET ALLOCATION RISK is the risk that the
selection by a manager of the Underlying Funds and the allocation of the Fund’s
assets among the various asset classes and market segments will not perform as
expected. The Fund’s investment in any one Underlying Fund or asset class may
exceed 15% of the Fund’s total assets, which may cause it to be subject to
greater volatility and risk than a more diversified fund.
UNDERLYING FUND RISK is the risk that the
Fund’s investment performance and its ability to achieve its investment
objective are directly related to the performance of the Underlying Funds in
which it invests. There can be no assurance that the Underlying Funds will
achieve their respective investment objectives. The Fund will be subject to the
risks associated with investments in the Underlying Funds, such as the
possibility that the value of the securities or instruments held by the
Underlying Funds could decrease. In addition, passively managed Underlying Funds
may not track the performance of their respective reference assets and may hold
troubled securities or other investments. Investments in Underlying Funds may
involve duplication of management fees and certain other expenses, as the Fund
indirectly bears its proportionate share of any expenses paid by the Underlying
Funds in which it invests. Further, investments in ETFs are subject to the
following additional risks: (1) an ETF’s shares may trade above or below
its net asset value; (2) an active trading market for the ETF’s shares may
not develop or be maintained; and (3) trading an ETF’s shares may be halted
by the listing exchange. The Fund is subject to the risks of the Underlying
Funds in direct proportion to the allocation of its assets among the Underlying
Funds. NTI may be subject to potential conflicts of interest with respect to
investments in affiliated Underlying Funds, which are Underlying Funds managed
by NTI or its affiliates, because the fees paid to NTI by some affiliated
Underlying Funds may be higher than the fees paid by other Underlying Funds.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non‑U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also
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4 |
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NORTHERN FUNDS PROSPECTUS |
GLOBAL
TACTICAL ASSET ALLOCATION FUND
impose
taxes. Any of these events could cause the value of the Fund’s investments to
decline. Foreign banks, agents and securities depositories that hold the Fund’s
foreign assets may be subject to little or no regulatory oversight over, or
independent evaluation, of their operations. Additional costs associated with
investments in foreign securities may include higher custodial fees than those
applicable to domestic custodial arrangements and transaction costs of foreign
currency conversions. Unless the Fund has hedged its foreign currency exposure,
foreign securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
EMERGING MARKETS RISK is the risk that
emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition,
companies operating in emerging markets may be subject to lower trading volumes
and greater price volatility than companies in more developed markets. Emerging
market economies may be based on only a few industries, may be highly vulnerable
to changes in local and global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Companies in emerging market countries
generally may be subject to less stringent regulatory, disclosure, financial
reporting, accounting, auditing and recordkeeping standards than companies in
more developed countries. As a result, information, including financial
information, about such companies may be less available and reliable, which can
impede the Fund’s ability to evaluate such companies. Securities law and the
enforcement of systems of taxation in many emerging market countries may change
quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of
a company’s assets, restrictions on foreign ownership of local companies,
restrictions on withdrawing assets from the country, protectionist measures and
practices such as share blocking), or to obtain information needed to pursue or
enforce such actions, may be limited. Investments in emerging market securities
may be subject to additional transaction costs, delays in settlement procedures,
unexpected market closures, and lack of timely information.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
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∎ |
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QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis by certain of the Underlying Funds can perform
differently from the market as a whole or from their expected performance
and the Fund may realize a loss. This may be as a result of the factors
used in building a multifactor quantitative model, the weights placed on
each factor, the accuracy of historical data utilized, and changing
sources of market returns. Whenever a model is used, there is also a risk
that the model will not work as planned.
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MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
COMMODITY-RELATED SECURITIES RISK is the risk that
exposure to the commodities markets may subject the Fund to greater volatility
than investments in other kinds of securities. In addition to overall market
movements, commodity-related securities may be adversely impacted by commodity
index volatility, changes in interest rates, or factors affecting a particular
industry or commodity, such as weather, disease (including pandemic), tariffs,
embargoes or other trade barriers, acts of war or terrorism, or political and
regulatory developments.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and
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NORTHERN FUNDS PROSPECTUS |
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5 |
GLOBAL
TACTICAL ASSET ALLOCATION FUND
leveraged
so that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
RISK is the risk that, if forward prices increase, a loss
will occur to the extent that the agreed upon purchase price of the
currency exceeds the price of the currency that was agreed to be sold.
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∎ |
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FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of loss.
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∎ |
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OPTIONS CONTRACTS RISK is the risk
that there may be an imperfect correlation between the options and the
securities markets that cause a given transaction to fail to achieve its
objectives. The successful use of options depends on the investment
adviser’s ability to predict correctly future price fluctuations and the
degree of correlation between the options and securities markets.
Exchanges can limit the number of positions that can be held or controlled
by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s strategies.
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GEOGRAPHIC RISK is the risk that if an
Underlying Fund invests a significant portion of its total assets in certain
issuers within the same country or geographic region, an adverse economic,
business or political development affecting that country or region may affect
the value of the Fund’s investments more, and the Fund’s investments may be more
volatile, than if the Underlying Fund’s investments were not so concentrated in
such country or region.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
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INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or services.
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HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to the increased risk of an issuer’s inability to make principal and
interest payments.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
SMALL AND MID CAP STOCK RISK is the risk that stocks
of small and mid-sized companies may be more volatile than stocks of larger,
more established companies. Small and mid-sized companies may have limited
product lines or financial resources, may be dependent upon a particular niche
of the market, or may be dependent upon a small or inexperienced management
group. The securities of small and mid-sized companies may trade less frequently
and in lower volume than the securities of larger companies, which could lead to
higher transaction costs. Generally, the smaller the company size, the greater
the risk.
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6 |
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NORTHERN FUNDS
PROSPECTUS |
GLOBAL
TACTICAL ASSET ALLOCATION FUND
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
is the risk that such securities may be less liquid than other bonds, and may be
more sensitive than other bonds to the market’s perception of issuers and
creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
REAL ESTATE SECURITIES RISK is the risk that
investments in real estate investment trusts (“REITs”) and securities of real
estate companies will make the Fund more susceptible to risks associated with
the ownership of real estate and with the real estate industry in general. These
risks include possible declines in the value of real estate, possible lack of
mortgage funds and unexpected vacancies of properties, defaults by borrowers or
tenants, increases in property taxes, fluctuations in interest rates and limited
availability of mortgage financing. REITs that invest in real estate mortgages
are also subject to prepayment risks. REITs and real estate companies may be
less diversified than other pools of securities, may have lower trading volumes
and may be subject to more abrupt or erratic price movements than the overall
securities markets.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of two broad-based securities market indices and a custom blended
benchmark that reflects the investment instruments in which the Fund invests, in
that order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the future.
Updated
performance information for the Fund is available and may be obtained on the
Trust’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 3.98%. For the periods shown in the bar chart above,
the highest quarterly
return was 12.55% in the second quarter of
2020, and the lowest quarterly
return was (16.81)% in the first quarter of
2020.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
7 |
GLOBAL
TACTICAL ASSET ALLOCATION FUND
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
10.72 |
% |
|
|
6.11 |
% |
|
|
4.42 |
% |
Returns
after taxes on distributions |
|
|
9.22 |
% |
|
|
4.59 |
% |
|
|
3.09 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
6.50 |
% |
|
|
4.39 |
% |
|
|
3.05 |
% |
MSCI
All Country World Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
22.20 |
% |
|
|
11.72 |
% |
|
|
7.93 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
Blended
Index (60% MSCI All Country World Index and 40% Bloomberg U.S. Aggregate
Bond Index (reflects no deduction for fees, expenses, or
taxes)) |
|
|
15.37 |
% |
|
|
7.67 |
% |
|
|
5.68 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Global Tactical Asset Allocation Fund. Timothy Johnson, Senior Vice
President of NTI, Anwiti Bahuguna, PhD, Executive Vice President of NTI, and
Daniel Ballantine, Vice President of NTI, have been managers of the Fund since
July 2022, December 2023, and December 2023, respectively. The Northern
Trust Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
|
| |
8 |
|
NORTHERN FUNDS
PROSPECTUS |
GLOBAL
TACTICAL ASSET ALLOCATION FUND
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
9 |
INCOME
EQUITY FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide a high level of current income and long-term capital
appreciation.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.46% |
|
| |
Other
Expenses |
|
|
0.17% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.13% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.63% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.14)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.49% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.48%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$50 |
|
|
|
$188 |
|
|
|
$337 |
|
|
|
$773 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 25.40% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking to achieve its investment objective, the Fund will, under normal
circumstances, invest at least 80% of its net assets in income-producing equity
securities, including dividend-paying common and preferred stocks. The Fund
seeks to provide a high level of current income relative to its benchmark index.
In
determining capital appreciation potential, NTI uses a proprietary quantitative
ranking system that is designed to provide exposure to equity securities that
exhibit quality characteristics. Beginning with a broad universe of highly
liquid equity securities, NTI applies a proprietary quality score, which ranks
each security based on its issuer’s profitability, management efficiency, and
cash generation, to screen out the lowest quality securities based on their
proprietary ranking. NTI then selects securities from the remaining universe
that it believes will achieve the appropriate quality and yield exposures. NTI
also performs a risk management analysis in which NTI seeks to measure and
manage risk exposures at the security, sector and portfolio levels through
portfolio diversification. Final purchase decisions are made based on the
desired level of diversification and dividend yield.
The
Fund may use derivatives such as stock index futures contracts to equitize cash
and enhance portfolio liquidity. NTI will normally sell a security that it
believes is no longer attractive based upon the evaluation criteria described
above.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had a focused investment in the information
technology sector.
|
| |
10 |
|
NORTHERN FUNDS
PROSPECTUS |
INCOME
EQUITY FUND
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the
order in which it appears. The significance of each risk factor below may change
over time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
|
∎ |
|
QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis can perform differently from the market as a whole
or from their expected performance and the Fund may realize a loss. This
may be as a result of the factors used in building a multifactor
quantitative model, the weights placed on each factor, the accuracy of
historical data utilized, and changing sources of market returns. Whenever
a model is used, there is also a risk that the model will not work as
planned. |
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or services.
|
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of loss.
|
PREFERRED SECURITIES RISK is the risk that
preferred securities may be subordinated to bonds or other debt instruments,
subjecting them to a greater risk of non-payment, may be less liquid than many
other securities, such as common stocks, and generally offer no voting rights
with respect to the issuer. Preferred securities also are subject to
issuer-specific and market risks applicable generally to equity securities.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
11 |
INCOME
EQUITY FUND
DIVIDEND RISK is the risk that as a
group, securities that pay high dividends may fall out of favor with investors
and underperform companies that do not pay high dividends. Also, changes in the
dividend policies of such companies and the capital resources available for such
companies’ dividend payments may affect the Fund. There is the possibility that
dividend-paying companies could reduce or eliminate the payment of dividends in
the future or an anticipated acceleration of dividends may not occur. Depending
on market conditions, dividend paying stocks that meet the Fund’s investment
criteria may not be widely available for purchase by the Fund, which may
increase the volatility of the Fund’s returns and limit its ability to produce
current income while remaining fully diversified. High-dividend stocks may not
experience high earnings growth or capital appreciation. The Fund’s performance
during a broad market advance could suffer because dividend paying stocks may
not experience the same capital appreciation as non-dividend paying stocks.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index.
On
July 31, 2014, the Fund changed its principal investment strategy from a
fundamental actively managed strategy to a quantitative actively managed
strategy. The performance shown prior to that date represents performance of the
Fund’s prior fundamental actively managed strategy.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 14.18%. For the periods shown in the bar chart
above, the highest quarterly
return was 19.18% in the second quarter of
2020, and the lowest quarterly
return was (22.67)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
19.52 |
% |
|
|
13.38 |
% |
|
|
9.92 |
% |
Returns
after taxes on distributions |
|
|
17.56 |
% |
|
|
11.11 |
% |
|
|
7.28 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
12.86 |
% |
|
|
10.37 |
% |
|
|
7.30 |
% |
S&P
500® Index
(reflects no deduction for fees, expenses, or taxes) |
|
|
26.29 |
% |
|
|
15.69 |
% |
|
|
12.03 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Income Equity Fund. Reed A. LeMar, CFA, and Jeffrey D. Sampson, CFA, each a
Senior Vice President of NTI, have been managers of the Fund since July 2017,
and Sridhar Kancharla, CFA, Senior Vice President of NTI, has been a manager of
the Fund since July 2018. The Northern Trust Company, an affiliate of NTI,
serves as transfer agent, custodian and sub-administrator to the Fund.
|
| |
12 |
|
NORTHERN FUNDS
PROSPECTUS |
INCOME
EQUITY FUND
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the
intermediary.
In addition, an authorized intermediary may impose different investment minimums
than those set forth above. The Fund is not responsible for any investment
minimums imposed by authorized intermediaries or for notifying shareholders of
any changes to them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
|
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
|
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
|
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
|
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
|
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
|
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
13 |
INTERNATIONAL
EQUITY FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.47% |
|
| |
Other
Expenses |
|
|
0.18% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.14% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.65% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.14)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.51% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.49%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$52 |
|
|
|
$194 |
|
|
|
$348 |
|
|
|
$797 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 47.19% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation, the Fund will invest, under normal
circumstances, at least 80% of its net assets in equity securities. Under normal
circumstances, the Fund will invest significantly (at least 40%) in the
securities of companies that are located, headquartered, incorporated or
otherwise organized outside of the United States. These companies generally have
market capitalizations in excess of $1 billion. The Fund may invest up to
25% of its total assets in emerging market countries (i.e., those that are
generally in the early stages of their industrial
cycles).
The
Fund’s investment strategy attempts to create a portfolio with similar risk,
style, capitalization and industry characteristics as the MSCI World® ex USA Index with the
potential to provide excess returns by allowing the Fund to hold a portion, but
not all of the securities in the MSCI World ex USA Index. In managing the Fund,
NTI attempts to achieve the Fund’s objective by overweighting those stocks that
it believes will outperform the MSCI World ex USA Index and underweighting (or
excluding entirely) those stocks that it believes will underperform the MSCI
World ex USA Index. The Fund seeks to accomplish this goal by employing a
strategy that uses statistics and advanced econometric methods to evaluate
fundamental and quantifiable stock or firm characteristics (such as relative
valuation, price momentum and earnings quality). The characteristics are
combined to create a proprietary multifactor quantitative stock selection model
that generates stock specific forecasts that are used along with controls
intended to manage risk to determine security
weightings.
The
Fund may use derivatives such as stock index futures contracts to equitize cash
and enhance portfolio liquidity. NTI will normally sell a security that it
believes is no longer attractive based upon the evaluation criteria described
above.
|
| |
14 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERNATIONAL
EQUITY FUND
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors,
countries or geographic regions. As of March 31, 2024, the Fund had focused
investments in the financials and industrials sectors and in
Japan.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
MSCI Inc. does not endorse any of the securities in
the MSCI World ex USA Index. It is not a sponsor of the International Equity
Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
MID
CAP STOCK RISK is the risk that stocks
of mid-sized companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Mid-sized
companies may have limited product lines or financial resources, may be
dependent upon a particular niche of the market, or may be dependent upon a
small or inexperienced management group. Securities of mid-sized companies may
trade less frequently and in lower volume than the securities of larger
companies, which could lead to higher transaction costs. Generally the smaller
the company size, the greater the risk.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
EMERGING MARKETS RISK is the risk that
emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition,
companies operating in emerging markets may be subject to lower trading volumes
and greater price volatility than companies in more developed markets. Emerging
market economies may be based on only a few industries, may be highly vulnerable
to changes in local and global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Companies in emerging market countries
generally may be subject to less stringent regulatory, disclosure, financial
reporting, accounting, auditing and recordkeeping standards than companies in
more developed countries. As a result, information, including financial
information, about such companies may be less available and reliable, which can
impede the Fund’s ability to evaluate such companies. Securities law and the
enforcement of systems of taxation in many emerging market countries may change
quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of
a company’s assets,
|
| |
NORTHERN FUNDS PROSPECTUS |
|
15 |
INTERNATIONAL
EQUITY FUND
restrictions
on foreign ownership of local companies, restrictions on withdrawing assets from
the country, protectionist measures and practices such as share blocking), or to
obtain information needed to pursue or enforce such actions, may be limited.
Investments in emerging market securities may be subject to additional
transaction costs, delays in settlement procedures, unexpected market closures,
and lack of timely information.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
|
∎ |
|
QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis can perform differently from the market as a whole
or from their expected performance and the Fund may realize a loss. This
may be as a result of the factors used in building a multifactor
quantitative model, the weights placed on each factor, the accuracy of
historical data utilized, and changing sources of market returns. Whenever
a model is used, there is also a risk that the model will not work as
planned. |
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
GEOGRAPHIC RISK is the risk that if the
Fund invests a significant portion of its total assets in certain issuers within
the same country or geographic region, an adverse economic, business or
political development affecting that country or region may affect the value of
the Fund’s investments more, and the Fund’s investments may be more volatile,
than if its investments were not so concentrated in such country or region.
|
∎ |
|
JAPAN INVESTMENT RISK is the risk
of investing in securities of Japanese issuers. The Japanese economy may
be subject to considerable degrees of economic, political and social
instability, which could negatively impact Japanese issuers. In recent
times, Japan’s economic growth rate has remained low, and it may remain
low in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and tsunamis,
which could negatively affect the securities of Japanese companies held by
the Fund. |
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
|
| |
16 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERNATIONAL
EQUITY FUND
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market
index.
On
January 1, 2017, the Fund changed its principal investment strategy from a
fundamental actively managed strategy to a quantitative actively managed
strategy. The performance shown prior to that date represents performance of the
Fund’s prior fundamental actively managed
strategy.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 5.00%. For the periods shown in the bar chart above,
the highest quarterly
return was 17.64% in the fourth quarter of
2022, and the lowest quarterly
return was (25.00)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
18.95 |
% |
|
|
7.44 |
% |
|
|
3.09 |
% |
Returns
after taxes on distributions |
|
|
17.13 |
% |
|
|
6.41 |
% |
|
|
2.41 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
12.06 |
% |
|
|
5.78 |
% |
|
|
2.42 |
% |
MSCI
World ex USA Index (reflects no deduction or fees, expenses or
taxes) |
|
|
17.94 |
% |
|
|
8.45 |
% |
|
|
4.32 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the International Equity Fund. Mark C. Sodergren, CFA, Reed A. LeMar, CFA, and
Sridhar Kancharla, CFA, each a Senior Vice President of NTI, have been managers
of the Fund since January 2017, July 2024, and July 2024, respectively. The
Northern Trust Company, an affiliate of NTI, serves as transfer agent, custodian
and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums.
You
may also purchase Shares Class shares of the Fund through an account at
Northern Trust (or an affiliate) or an authorized
|
| |
NORTHERN FUNDS PROSPECTUS |
|
17 |
INTERNATIONAL
EQUITY FUND
intermediary.
If you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
18 |
|
NORTHERN FUNDS
PROSPECTUS |
LARGE
CAP CORE FUND
INVESTMENT
OBJECTIVE
The
Fund seeks long-term growth of capital. Any income received is incidental to
this objective.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from your
investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares
Class |
|
| |
Management
Fees |
|
|
0.44% |
|
| |
Other
Expenses |
|
|
0.11% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.07% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.55% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.10)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.45% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$46 |
|
|
|
$166 |
|
|
|
$297 |
|
|
|
$680 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 44.46% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking its investment objective, the Fund will invest, under normal
circumstances, at least 80% of its net assets in a broadly diversified portfolio
of equity securities in large capitalization U.S. companies, including foreign
issuers that are traded in the U.S. Large capitalization companies generally are
considered to be those whose market capitalization is, at the time the Fund
makes an investment, within the range of the market capitalization of the
companies in the Russell 1000®
Index.
The
Fund seeks to achieve its investment objective by employing a strategy that uses
statistics and advanced econometric methods to evaluate fundamental and
quantifiable stock or firm characteristics (such as relative valuation, price
momentum and earnings quality). The characteristics are combined to create a
proprietary multifactor quantitative stock selection model, which generates
stock specific forecasts that are used along with controls intended to manage
risk to determine security weightings.
The
Fund may use derivatives such as stock index futures contracts to equitize cash
and enhance portfolio liquidity. NTI will normally sell a security that it
believes is no longer attractive based upon the evaluation criteria described
above.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had a focused investment in the information
technology sector.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
Frank Russell Company does not endorse any of the
securities in the Russell 1000 Index. It is not a sponsor of the Large Cap Core
Fund and is not affiliated with the Fund in any way.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
19 |
LARGE
CAP CORE FUND
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
|
∎ |
|
QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis can perform differently from the market as a whole
or from their expected performance and the Fund may realize a loss. This
may be as a result of the factors used in building a multifactor
quantitative model, the weights placed on each factor, the accuracy of
historical data utilized, and changing sources of market returns. Whenever
a model is used, there is also a risk that the model will not work as
planned. |
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or
services. |
DEPOSITARY RECEIPTS RISK Foreign securities may
trade in the form of depositary receipts. In addition to investment risks
associated with the underlying issuer, depositary receipts may expose the Fund
to additional risks associated with non-uniform terms that apply to depositary
receipt programs, including credit exposure to the depository bank and to the
sponsors and other parties with whom the depository bank establishes the
programs, currency, political, economic, market risks and the risks of an
illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted. Depositary receipts may not track the price of the
underlying foreign securities on which they are based, may have limited voting
rights, and may have a distribution subject to a fee charged by the depository.
As a result, equity shares of the underlying issuer may trade at a discount or
premium to the market price of the depositary receipts.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
|
| |
20 |
|
NORTHERN FUNDS
PROSPECTUS |
LARGE
CAP CORE FUND
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market
index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 16.64%. For the periods shown in the bar chart
above, the highest quarterly
return was 20.05% in the second quarter of
2020, and the lowest quarterly
return was (21.23)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
24.22 |
% |
|
|
14.44 |
% |
|
|
10.73 |
% |
Returns
after taxes on distributions |
|
|
21.74 |
% |
|
|
12.53 |
% |
|
|
9.48 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
16.06 |
% |
|
|
11.28 |
% |
|
|
8.56 |
% |
S&P
500 Index (reflects no deduction for fees, expenses, or taxes) |
|
|
26.29 |
% |
|
|
15.69 |
% |
|
|
12.03 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the Large Cap Core Fund. Mark C. Sodergren, CFA, Reed A. LeMar, CFA,
and Sridhar Kancharla, CFA, each a Senior Vice President of NTI, have been
managers of the Fund since July 2011, July 2024, and July 2024,
respectively. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the
|
| |
NORTHERN FUNDS PROSPECTUS |
|
21 |
LARGE
CAP CORE FUND
intermediary.
In addition, an authorized intermediary may impose different investment minimums
than those set forth above. The Fund is not responsible for any investment
minimums imposed by authorized intermediaries or for notifying shareholders of
any changes to them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
22 |
|
NORTHERN FUNDS
PROSPECTUS |
LARGE
CAP VALUE FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital
appreciation.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from your
investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.53% |
|
| |
Other
Expenses |
|
|
0.23% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.19% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.76% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.19)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.57% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.55%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$58 |
|
|
|
$224 |
|
|
|
$404 |
|
|
|
$924 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 38.42% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation, the Fund will invest, under normal
circumstances, at least 80% of its net assets in equity securities of large
capitalization companies. Large capitalization companies generally are
considered to be those whose market capitalization is, at the time the Fund
makes an investment, within the range of the market capitalization of the
companies in the Russell 1000® Value
Index.
In
buying stocks, NTI uses a quantitatively managed strategy designed to provide
exposure to value and quality factors. Beginning with a broad universe of highly
liquid equity securities, NTI seeks to identify those securities that are
out-of-favor and undervalued by applying a proprietary value screen. Once the
targeted universe of value securities has been identified, NTI applies a
proprietary quality score to rank each security to eliminate the lowest quality
securities based on their proprietary ranking. NTI then selects securities from
the remaining universe that it believes will achieve the appropriate
capitalization and diversification goals, while focusing on those value
securities ranking in the top quintile based on their proprietary quality and
value score. NTI also performs a risk management analysis in which NTI seeks to
measure and manage risk exposures at the security, sector, region and portfolio
levels through portfolio diversification. Final purchase decisions are made
based on a fundamental review of the remaining companies and on the desired
level of diversification.
The
Fund may use derivatives such as stock index futures contracts to equitize cash
and enhance portfolio liquidity. NTI will normally sell a security that it
believes is no longer attractive based upon the evaluation criteria described
above.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
23 |
LARGE
CAP VALUE FUND
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had focused investments in the financials
and health care sectors.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
Frank Russell Company does not endorse any of the
securities in the Russell 1000 Value Index. It is not a sponsor of the Large Cap
Value Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
|
∎ |
|
VALUE INVESTING RISK is the risk
that because the Fund emphasizes a value style of investing that focuses
on undervalued companies with characteristics for improved valuation, the
Fund is subject to greater risk that the market will not recognize a
security’s inherent value for a long time, or that a stock judged to be
undervalued by the Fund’s adviser may actually be appropriately priced or
overvalued. Value oriented funds will typically underperform when growth
investing is in favor. |
|
∎ |
|
QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis can perform differently from the market as a whole
or from their expected performance and the Fund may realize a loss. This
may be as a result of the factors used in building a multifactor
quantitative model, the weights placed on each factor, the accuracy of
historical data utilized, and changing sources of market returns. Whenever
a model is used, there is also a risk that the model will not work as
planned. |
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financial sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
|
∎ |
|
HEALTH CARE SECTOR RISK is the
risk that companies in the health care sector may be negatively affected
by scientific or technological developments, research and development
costs, increased competition within the health care sector impacting
prices and demand for products or services, rapid product obsolescence and
patent expirations. The price of securities of health care companies may
fluctuate widely due to changes in legislation or other government
regulations, including uncertainty regarding health care reform and its
long-term impact, reductions in government funding and the
unpredictability of winning government
approvals. |
|
| |
24 |
|
NORTHERN FUNDS
PROSPECTUS |
LARGE
CAP VALUE FUND
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
On
July 31, 2014, the Fund changed its principal investment strategy from a
fundamental actively managed strategy to a quantitative actively managed
strategy. The performance shown prior to that date represents performance of the
Fund’s prior fundamental actively managed
strategy.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 6.77%. For the periods shown in the bar chart above,
the highest quarterly
return was 17.68% in the fourth quarter of
2020, and the lowest quarterly
return was (29.04)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
10.04 |
% |
|
|
11.12 |
% |
|
|
7.81 |
% |
Returns
after taxes on distributions |
|
|
8.08 |
% |
|
|
9.56 |
% |
|
|
6.78 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
6.35 |
% |
|
|
8.49 |
% |
|
|
6.06 |
% |
Russell
1000 Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
26.53 |
% |
|
|
15.52 |
% |
|
|
11.80 |
% |
Russell
1000 Value Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
11.46 |
% |
|
|
10.91 |
% |
|
|
8.40 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Russell 1000 Value Index
to the Russell 1000 Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Large Cap Value Fund. Mark C. Sodergren, CFA, and Sridhar Kancharla, CFA,
each a Senior Vice President of NTI, and Jiemen Xu, CFA, Vice President of NTI,
have been managers of the Fund since June 2014, July
|
| |
NORTHERN FUNDS PROSPECTUS |
|
25 |
LARGE
CAP VALUE FUND
2015,
and July 2024, respectively. The Northern Trust Company, an affiliate of NTI,
serves as transfer agent, custodian and sub-administrator to the
Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
26 |
|
NORTHERN FUNDS
PROSPECTUS |
SMALL
CAP VALUE FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from your
investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.95% |
|
| |
Other
Expenses |
|
|
0.20% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.16% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
1.16% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.15)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
1.01% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 1.00%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$103 |
|
|
|
$354 |
|
|
|
$624 |
|
|
|
$1,396 |
|
PORTFOLIO TURNOVER.
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 18.61% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation, the Fund will invest, under normal
circumstances, at least 80% of its net assets in equity securities of small
capitalization companies. Small capitalization companies generally are
considered to be those whose market capitalization is, at the time the Fund
makes an investment, within the range of the market capitalization of companies
in the Russell 2000®
Value Index. Companies whose capitalization no longer meets this definition
after purchase may continue to be considered small capitalization
companies.
Using
a quantitative analysis to evaluate financial data, NTI buys small
capitalization stocks of companies believed to be worth more than is indicated
by current market prices. Similarly, the management team normally will sell a
security that it believes has achieved its full valuation, is not attractively
priced or for other reasons. The team also may sell securities in order to
maintain the desired portfolio characteristics of the Fund. In determining
whether a stock is attractively priced, the Fund employs a strategy that uses
statistics and other methods to evaluate fundamental and quantifiable stock or
firm characteristics (such as relative attractiveness across valuation, price
momentum and earnings quality). The characteristics are combined to create a
proprietary multi-factor quantitative stock selection model that seeks to
generate excess returns relative to the Russell 2000® Value Index by over- and
underweighting securities included in such
index.
Many
of the companies in which the Fund invests retain their earnings to finance
current and future growth. These companies generally pay little or no
dividends.
The
Fund may use derivatives such as stock index futures contracts to equitize cash
and enhance portfolio liquidity.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
27 |
SMALL
CAP VALUE FUND
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had focused investments in the financials
and industrials sectors.
Frank Russell Company does not endorse any of the
securities in the Russell 2000 Value Index. It is not a sponsor of the Small Cap
Value Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
SMALL CAP STOCK RISK is the risk that stocks
of smaller companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Small companies
may have limited product lines or financial resources, may be dependent upon a
particular niche of the market, or may be dependent upon a small or
inexperienced management group. Securities of smaller companies may trade less
frequently and in lower volume than the securities of larger companies, which
could lead to higher transaction costs. Generally, the smaller the company size,
the greater the risk.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
|
∎ |
|
VALUE INVESTING RISK is the risk
that because the Fund emphasizes a value style of investing that focuses
on undervalued companies with characteristics for improved valuation, the
Fund is subject to greater risk that the market will not recognize a
security’s inherent value for a long time, or that a stock judged to be
undervalued by the Fund’s adviser may actually be appropriately priced or
overvalued. Value oriented funds will typically underperform when growth
investing is in favor. |
|
∎ |
|
QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis can perform differently from the market as a whole
or from their expected performance and the Fund may realize a loss. This
may be as a result of the factors used in building a multifactor
quantitative model, the weights placed on each factor, the accuracy of
historical data utilized, and changing sources of market returns. Whenever
a model is used, there is also a risk that the model will not work as
planned. |
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
|
| |
28 |
|
NORTHERN FUNDS
PROSPECTUS |
SMALL
CAP VALUE FUND
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
As with any mutual fund, it is
possible to lose money on an investment in the Fund.
An
investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation, any other government
agency, or The Northern Trust Company, its affiliates, subsidiaries or any other
bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (0.72)%. For the periods shown in the bar chart
above, the highest quarterly
return was 27.40% in the fourth quarter of
2020, and the lowest quarterly
return was (34.43)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
15.55 |
% |
|
|
9.34 |
% |
|
|
6.49 |
% |
Returns
after taxes on distributions |
|
|
13.75 |
% |
|
|
7.51 |
% |
|
|
4.79 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
10.49 |
% |
|
|
7.24 |
% |
|
|
4.92 |
% |
Russell
3000 Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
25.96 |
% |
|
|
15.16 |
% |
|
|
11.48 |
% |
Russell
2000 Value Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
14.65 |
% |
|
|
10.00 |
% |
|
|
6.76 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Russell 2000 Value Index
to the Russell 3000 Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under
|
| |
NORTHERN FUNDS PROSPECTUS |
|
29 |
SMALL
CAP VALUE FUND
certain circumstances, the addition of the tax
benefits from capital losses resulting from redemptions may cause the Returns
after taxes on distributions and sale of fund shares to be greater than the
Returns after taxes on distributions or even the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Small Cap Value Fund. Robert H. Bergson, CFA, Senior Vice President of NTI,
Michael R. Hunstad, PhD, Executive Vice President of NTI, Reed A. LeMar, CFA,
Senior Vice President of NTI, and Sridhar Kancharla, CFA, Senior Vice President
of NTI, have been managers of the Fund since July 2001, July 2020, July
2024, and July 2024, respectively. The Northern Trust Company, an affiliate of
NTI, serves as transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
30 |
|
NORTHERN FUNDS
PROSPECTUS |
SMALL
CAP CORE FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell Class K shares or Class I shares of the Fund. You may be required
to pay commissions and/or other forms of compensation to a financial
intermediary for transactions in Class K or Class I shares, which are
not reflected in the tables or the examples below.
|
|
|
|
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Class K |
|
|
Class I |
|
|
| |
Management
Fees |
|
|
0.47% |
| |
|
0.47% |
|
|
| |
Other
Expenses |
|
|
0.07% |
| |
|
0.17% |
|
|
| |
Transfer
Agent Fees |
|
|
0.04% |
| |
|
0.04% |
|
|
| |
Service
Fees |
|
|
None |
| |
|
0.10% |
|
|
| |
Other
Operating Expenses |
|
|
0.03% |
| |
|
0.03% |
|
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.04% |
| |
|
0.04% |
|
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.58% |
| |
|
0.68% |
|
|
| |
Expense
Reimbursement(2) |
|
|
(0.05)% |
|
|
|
(0.05)% |
|
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.53% |
| |
|
0.63% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
each of the Class K and Class I shares of the Fund so that after
such reimbursement the Total Annual Fund Operating Expenses of each Class
(excluding (i) acquired fund fees and expenses; (ii) service
fees; (iii) the compensation paid to each Independent Trustee of the
Trust; (iv) expenses of third party consultants engaged by the Board
of Trustees; (v) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (vi) expenses in
connection with the negotiation and renewal of the revolving credit
facility; and (vii) extraordinary expenses and interest) do not
exceed 0.49%. NTI has also contractually agreed to reimburse the
management fees payable by the Fund in an amount equal to the net
management fee NTI earns on the amount invested by the Fund in money
market funds managed by NTI. These contractual limitations may not be
terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in
Class K shares and Class I shares of the Fund with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
the Fund for the time periods indicated and then redeem all of your Class K
shares or Class I shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (taking into account the expense
reimbursement arrangement for one year, if applicable). Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Class K |
|
|
$54 |
|
|
|
$181 |
|
|
|
$319 |
|
|
|
$721 |
|
Class I |
|
|
$64 |
|
|
|
$213 |
|
|
|
$374 |
|
|
|
$842 |
|
PORTFOLIO TURNOVER.
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 15.33% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation, the Fund will invest, under normal
circumstances, at least 80% of its net assets in equity securities of small
capitalization companies. Small capitalization companies generally are
considered to be those whose market capitalization is, at the time the Fund
makes an investment, within the range of the market capitalization of companies
in the Russell 2000®
Index. Companies whose capitalization no longer meets this definition after
purchase may continue to be considered small capitalization
companies.
Using
a quantitative analysis to evaluate financial data, NTI buys securities of small
capitalization companies that it believes have favorable characteristics such as
earnings quality and returns on equity relative to their peers. The team may
sell securities in order to maintain the desired portfolio characteristics of
the Fund. In determining whether a company has favorable characteristics, NTI
uses an evaluation process that includes, but is not limited
to:
∎ |
|
Quantitative
review of fundamental factors such as earnings metrics and capital
deployment; and |
∎ |
|
Systematic
evaluations of new securities with attractive attributes and
re-evaluations of portfolio
holdings. |
NTI
also performs a risk management analysis in which NTI seeks to measure and
manage risk exposures at the security, sector and portfolio levels through
portfolio diversification. Final purchase decisions are made based on a
quantitative
|
| |
NORTHERN FUNDS PROSPECTUS |
|
31 |
SMALL
CAP CORE FUND
review
of each company and on the desired level of
diversification.
Many
of the companies in which the Fund invests retain their earnings to finance
current and future growth. These companies generally pay little or no dividends.
The Fund may use derivatives such as stock index futures contracts to equitize
cash and enhance portfolio liquidity.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had focused investments in the financials
and industrials sectors.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
Frank Russell Company does not endorse any of the
securities in the Russell 2000 Index. It is not a sponsor of the Small Cap Core
Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
SMALL CAP STOCK RISK is the risk that stocks
of smaller companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Small companies
may have limited product lines or financial resources, may be dependent upon a
particular niche of the market, or may be dependent upon a small or
inexperienced management group. Securities of smaller companies may trade less
frequently and in lower volume than the securities of larger companies, which
could lead to higher transaction costs. Generally, the smaller the company size,
the greater the risk.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
|
∎ |
|
QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis can perform differently from the market as a whole
or from their expected performance and the Fund may realize a loss. This
may be as a result of the factors used in building a multifactor
quantitative model, the weights placed on each factor, the accuracy of
historical data utilized, and changing sources of market returns. Whenever
a model is used, there is also a risk that the model will not work as
planned. |
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
|
| |
32 |
|
NORTHERN FUNDS
PROSPECTUS |
SMALL
CAP CORE FUND
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing: (A) changes in the performance of the Fund from
year to year and (B) how the average annual total returns of the Fund
compare to those of a broad-based securities market index and a style-specific
index (one reflecting the market segments in which the Fund invests), in that
order.
The
returns shown for periods ended prior to July 30, 2020 are those of the
Shares Class shares of the Fund at net asset value. Effective July 30,
2020, Shares Class shares of the Fund were converted into new Class K
shares and Class I shares of the Fund. Class K and Class I
shares’ returns of the Fund will be different from the returns of the Shares
Class shares’ returns of the Fund as they have different
expenses.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN (CLASS K SHARES)*
* Year to date total
return for the six months ended June 30,
2024 was 2.92%. For the periods shown in the bar chart above,
the highest quarterly
return was 28.37% in the fourth quarter of
2020, and the lowest quarterly
return was (29.37)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Class K
Shares(1) |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
17.01 |
% |
|
|
10.80 |
% |
|
|
7.63 |
% |
Returns
after taxes on distributions |
|
|
14.98 |
% |
|
|
9.06 |
% |
|
|
6.40 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
11.14 |
% |
|
|
8.44 |
% |
|
|
5.98 |
% |
Class I
Shares(1) |
|
|
16.84 |
% |
|
|
10.72 |
% |
|
|
7.59 |
% |
Russell
3000 Index (reflects no deduction for fees, expenses, or taxes)(2) |
|
|
25.96 |
% |
|
|
15.16 |
% |
|
|
11.48 |
% |
Russell
2000 Index (reflects no deduction for fees, expenses, or taxes) |
|
|
16.93 |
% |
|
|
9.97 |
% |
|
|
7.16 |
% |
(1) |
The inception date of Class K and Class I
shares of the Fund is July 30,
2020. Performance shown prior to the
inception date is that of the Fund’s Shares Class shares, which are
no longer offered by the Fund, at net asset value (“NAV”). Performance
reflects any applicable fee waivers and/or expense
reimbursements. |
(2) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Russell 2000 Index to the
Russell 3000 Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
After-tax returns are shown only for Class K
shares. After-tax returns for other classes will vary.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
33 |
SMALL
CAP CORE FUND
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Small Cap Core Fund. Robert H. Bergson, CFA, Senior Vice President of NTI,
Michael R. Hunstad, PhD, Executive Vice President of NTI, Reed A. LeMar, CFA,
Senior Vice President of NTI, Sridhar Kancharla, CFA, Senior Vice President of
NTI, have been managers of the Fund since February 2010,
July 2020, July 2024, and July 2024, respectively. The Northern Trust
Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Class I shares of the Fund only through an authorized
intermediary. There is no minimum initial or subsequent investment amounts for
Class I shares imposed by the Fund.
You
may purchase Class K shares of the Fund by opening an account directly with
Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in the
Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 for Class K shares (except for reinvestments of
distributions for which there is no minimum). The Fund reserves the right to
waive these minimums. You may also purchase Class K shares of the Fund
through an account at Northern Trust (or an affiliate) or an authorized
intermediary.
If
you purchase, sell (redeem) or exchange Class K or Class I shares
through an authorized intermediary, you may be required to pay a commission
and/or other forms of compensation to the intermediary. In addition, an
authorized intermediary may impose different investment minimums than those set
forth above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own Class K shares of the Fund with a
minimum value of $10,000, you may elect to have a fixed sum redeemed at
regular intervals and distributed in cash or reinvested in the same share
class of one or more other funds of the Trust that offers that share
class. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange Class K shares of the Fund for the
Class K shares or Shares class shares of another fund in the Trust.
Class K shares being exchanged must have a value of at least $1,000
($2,500 if a new account is being established by the exchange, $500 if the
new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
34 |
|
NORTHERN FUNDS
PROSPECTUS |
U.S.
QUALITY ESG FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell Class I shares or Class K shares of the Fund. You may be required
to pay commissions and/or other forms of compensation to a financial
intermediary for transactions in Class I or Class K shares, which are
not reflected in the tables or the examples below.
|
|
|
|
|
|
|
| |
Shareholder Fees (fees paid directly from your
investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your
investment) |
|
|
|
Class K |
|
|
Class I |
|
|
| |
Management
Fees |
|
|
0.37% |
| |
|
0.37% |
|
|
| |
Other
Expenses |
|
|
0.07% |
| |
|
0.17% |
|
|
| |
Transfer
Agent Fees |
|
|
0.04% |
| |
|
0.04% |
|
|
| |
Service
Fees |
|
|
None |
| |
|
0.10% |
|
|
| |
Other
Operating Expenses |
|
|
0.03% |
| |
|
0.03% |
|
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.44% |
| |
|
0.54% |
|
|
| |
Expense
Reimbursement(1) |
|
|
(0.05)% |
|
|
|
(0.05)% |
|
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.39% |
| |
|
0.49% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
each of the Class K and Class I shares of the Fund so that after
such reimbursement the Total Annual Fund Operating Expenses of each Class
(excluding (i) acquired fund fees and expenses; (ii) service
fees; (iii) the compensation paid to each Independent Trustee of the
Trust; (iv) expenses of third party consultants engaged by the Board
of Trustees; (v) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (vi) expenses in
connection with the negotiation and renewal of the revolving credit
facility; and (vii) extraordinary expenses and interest) do not
exceed 0.39%. NTI has also contractually agreed to reimburse the
management fees payable by the Fund in an amount equal to the net
management fee NTI earns on the amount invested by the Fund in money
market funds managed by NTI. These contractual limitations may not be
terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in
Class K shares and Class I shares of the Fund with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
the Fund for the time periods indicated and then redeem all of your Class K
shares or Class I shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (taking into account the expense
reimbursement arrangement for one year, if applicable). Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Class K |
|
|
$40 |
|
|
|
$136 |
|
|
|
$241 |
|
|
|
$550 |
|
Class I |
|
|
$50 |
|
|
|
$168 |
|
|
|
$297 |
|
|
|
$672 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year end, the Fund’s portfolio
turnover rate was 36.53% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation, the Fund will invest, under normal
circumstances, at least 80% of its net assets (plus borrowings for investment
purposes) in equity securities of large and mid-capitalization U.S. companies
that NTI believes have favorable environmental, social and governance (“ESG”)
characteristics under a third-party vendor’s rating methodology. For purposes of
this definition, U.S. companies with a market capitalization within the range of
the Russell 1000® Index
will be considered large or mid-capitalization U.S. companies. Companies whose
capitalization no longer meets this definition after purchase may continue to be
considered large or mid-capitalization
companies.
Using
a quantitative, factor based approach, the Fund intends to invest in
companies that: (i) meet certain criteria for ESG factors using data
provided by one or more third-party research vendors; (ii) exhibit strong
business fundamentals, solid management and reliable cash flows; and
(iii) are located, headquartered in, incorporated in or otherwise organized
in the United States. The Fund’s ESG criteria is applied to all equity
securities that are included in the Russell 1000® Index, except that the Fund
may at times hold securities that are subject to, or may hold securities as a
result of, certain corporate actions, which securities may not be evaluated for
ESG criteria. The Fund expects its investments to be allocated among companies
that are diversified in terms of industries and capitalization
ranges.
The
Fund is managed according to a quantitative model developed by NTI. To define an
investable universe, NTI first excludes securities of companies included in the
Russell 1000® Index that
are involved in ESG controversies classified as “very severe” by a third-party
research vendor under certain global conventions, such as the United Nations
Global Compact
|
| |
NORTHERN FUNDS PROSPECTUS |
|
35 |
U.S.
QUALITY ESG FUND
Principles.
NTI also removes companies that, based on its evaluation of ESG data, appear to
do a poor job of managing their ESG risks and opportunities relative to their
peers as well as those with material involvement in controversial business
practices, e.g., tobacco, civilian firearms, thermal coal, and both
controversial and conventional weapons. NTI may modify this list of excluded
companies at any time, without shareholder approval or
notice.
NTI
engages a third-party research vendor to provide ESG data for U.S. companies.
The third-party vendor identifies ESG areas of risk and opportunity, evaluates
exposure and management, and ranks and rates companies against their industry
peers.
After
defining the investable universe, NTI evaluates the quality of the remaining
securities and removes those securities that do not meet the proprietary quality
methodology. NTI’s quality methodology rates and ranks securities based on three
categories of financial signals (profitability, management efficiency, and cash
generation). Those securities remaining from the investable universe are also
rated and ranked based on NTI’s evaluation of their ESG
characteristics.
The
Fund is constructed based on an optimization methodology designed to take active
exposure by overweighting and underweighting securities based on their ESG and
relative financial quality rankings. NTI also performs a risk management
analysis in which NTI seeks to measure and manage risk exposures at the
security, sector and portfolio levels through portfolio diversification. NTI
makes final purchase decisions based on the quantitative model described above
and on the desired level of diversification. The Fund will normally sell a
security that NTI believes is no longer attractive based upon the evaluation
criteria described above. Further, in making purchase and sell decisions, NTI
seeks to create a portfolio comprised of companies with a lower aggregate carbon
footprint than the aggregate carbon footprint of the companies in the Russell
1000 Index, which includes consideration of a company’s emissions and carbon
reserves as well as a company’s risk and opportunity alignment with a transition
to a low carbon economy.
The
Fund may use derivatives such as stock index futures contracts to equitize cash
and enhance portfolio liquidity. ESG criteria are not applied to the Fund’s
investments in derivatives.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had a focused investment in the information
technology sector.
Frank Russell Company does not endorse any of the
securities in the Russell 1000 Index. It is not a sponsor of the Fund and is not
affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
ESG
INVESTING RISK is the risk stemming
from the ESG factors that the Fund applies in selecting securities. The use of
ESG factors in securities selection may affect the Fund’s exposure to certain
companies or industries and cause the Fund to forego certain investment
opportunities. The Fund’s performance results may be lower than the broader
equity market or than other funds that do or do not use ESG factors, scores, or
screens in their securities selection process, or use a different ESG
methodology. Information used by the Fund to evaluate ESG factors, including
data provided by the Fund’s third-party vendor, may not be readily available,
complete or accurate, which could negatively impact the Fund’s ability to
accurately determine companies’ ESG ratings, which in turn could negatively
impact the Fund’s performance. Currently, there is a lack of common industry
standards relating to the development and application of ESG criteria which may
make it difficult to compare the Fund’s principal investment strategies with the
investment strategies of other funds that apply certain ESG criteria or that use
a different third-party vendor for ESG data. The Fund’s assessment of a company,
based on the company’s level of involvement in a particular industry or ESG
controversy or the company’s ESG ranking or rating, may differ
|
| |
36 |
|
NORTHERN FUNDS
PROSPECTUS |
U.S.
QUALITY ESG FUND
from
that of other funds or an investor. Information used by the Fund to evaluate ESG
factors may vary across providers and issuers as ESG is not a uniformly defined
characteristic. ESG standards differ by region and industry, and a company’s ESG
practices or data providers’ assessment of a company’s ESG practices may change
over time. As a result, the companies in which the Fund invests may not reflect
the beliefs and values of any particular investor and may not be deemed to
exhibit positive or favorable ESG characteristics if different metrics were used
to evaluate them. Regulatory changes or interpretations regarding the
definitions and/or use of ESG criteria could have a material adverse effect on
the Fund’s ability to invest in accordance with its investment policies and/or
achieve its investment objective. Regulatory changes or interpretations
regarding the definitions and/or use of ESG criteria could have a material
adverse effect on the Fund’s ability to invest in accordance with its investment
policies and/or achieve its investment
objective.
MID
CAP STOCK RISK is the risk that stocks
of mid-sized companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Mid-sized
companies may have limited product lines or financial resources, may be
dependent upon a particular niche of the market, or may be dependent upon a
small or inexperienced management group. Securities of mid-sized companies may
trade less frequently and in lower volume than the securities of larger
companies, which could lead to higher transaction costs. Generally the smaller
the company size, the greater the risk.
INVESTMENT STYLE RISK is the risk that
different investment styles (e.g., “growth”, “value” or “quantitative”) tend to
shift in and out of favor, depending on market and economic conditions as well
as investor sentiment. The Fund may outperform or underperform other funds that
invest in similar asset classes but employ a different investment style. The
Fund may also employ a combination of styles that impacts its risk
characteristics.
|
∎ |
|
QUANTITATIVE INVESTING RISK is the
risk that the value of securities or other investments selected using
quantitative analysis can perform differently from the market as a whole
or from their expected performance and the Fund may realize a loss. This
may be as a result of the factors used in building a multifactor
quantitative model, the weights placed on each factor, the accuracy of
historical data utilized, and changing sources of market returns. Whenever
a model is used, there is also a risk that the model will not work as
planned. |
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or
services. |
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing: (A) changes in the performance of the Fund from
year to year and (B) how the average annual total returns of the Fund
compare to those of a broad-based securities market
index.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
37 |
U.S.
QUALITY ESG FUND
The
returns shown for periods ended prior to July 30, 2020 for the Class K
shares and August 24, 2020 for the Class I shares are those of the
Shares Class shares of the Fund at net asset value. Effective July 30,
2020, the Shares Class shares of the Fund were converted into new
Class K shares and Class I shares of the Fund. Class K shares
commenced operations on July 30, 2020 and Class I shares commenced
operations on August 24, 2020. Class K and Class I shares’
returns of the Fund will be different from the returns of the Shares
Class shares’ returns of the Fund as they have different
expenses.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN (CLASS K SHARES)*
* Year to date total
return for the six months ended June 30,
2024 was 11.68%. For the periods shown in the bar chart
above, the highest quarterly
return was 22.19% in the second quarter of
2020, and the lowest quarterly
return was (19.11)% in the first quarter
of 2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
Since Inception (10/02/17) |
|
Class K
Shares(1) |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
25.22% |
|
|
|
16.08% |
|
|
|
12.81% |
|
Returns
after taxes on distributions |
|
|
24.69% |
|
|
|
15.21% |
|
|
|
11.97% |
|
Returns
after taxes on distributions and sale of Fund shares |
|
|
15.20% |
|
|
|
12.83% |
|
|
|
10.16% |
|
Class I
Shares(1) |
|
|
25.17% |
|
|
|
16.02% |
|
|
|
12.76% |
|
Russell
1000 Index (reflects no deduction for fees, expenses, or taxes) |
|
|
26.53% |
|
|
|
15.52% |
|
|
|
12.43% |
|
(1) |
The inception date of Class K shares of the Fund is
July 30,
2020 and the inception date of Class I shares of the
Fund is August 24,
2020. Performance shown prior to the inception dates is
that of the Fund’s Shares Class shares, which are no longer offered
by the Fund, at net asset value (“NAV”). The inception date of the Fund’s
Shares Class is October 2, 2017. Performance reflects any
applicable fee waivers and/or expense
reimbursements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
After-tax returns are shown only for Class K
shares. After-tax returns for other classes will vary.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the U.S. Quality ESG Fund. Jeffrey D. Sampson, CFA and Peter M.
Zymali, CFP®, each a
Senior Vice President of NTI, have been managers of the Fund since inception.
The Northern Trust Company, an affiliate of NTI, serves as transfer agent,
custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Class I shares of the Fund only through an authorized
intermediary. There is no minimum initial or subsequent investment amounts for
Class I shares imposed by the Fund.
You
may purchase Class K shares of the Fund by opening an account directly with
Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in the
Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 for Class K shares (except for reinvestments of
distributions for which there is no minimum). The Fund reserves the right to
waive these minimums. You may also purchase Class K shares of the Fund
through an account at Northern Trust (or an affiliate) or an authorized
intermediary.
If
you purchase, sell (redeem) or exchange Class K or Class I shares
through an authorized intermediary, you may be required to pay a commission
and/or other forms of compensation to the intermediary. In addition, an
authorized intermediary may impose different investment minimums than those set
forth above. The Fund is not responsible for any
|
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38 |
|
NORTHERN FUNDS
PROSPECTUS |
U.S.
QUALITY ESG FUND
investment
minimums imposed by authorized intermediaries or for notifying shareholders of
any changes to them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own Class I shares or Class K
shares of the Fund with a minimum value of $10,000, you may elect to have
a fixed sum redeemed at regular intervals and distributed in cash or
reinvested in the same share class of one or more other funds of the Trust
that offers that share class. Call 800-595-9111 for an application form
and additional information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange Class K shares of the Fund for the
Class K shares or Shares Class shares of another fund in the
Trust. Class K shares being exchanged must have a value of at least
$1,000 ($2,500 if a new account is being established by the exchange, $500
if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
39 |
EMERGING
MARKETS EQUITY INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the overall performance
of the MSCI Emerging Markets® Index (the
“Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (within 30 days or less after purchase) (as a percentage of amount
redeemed, if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.14% |
|
| |
Other
Expenses |
|
|
0.15% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.11% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.30% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.15)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.15% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (including acquired fund fees and expenses, but
excluding extraordinary expenses) do not exceed 0.15%. NTI has also
contractually agreed to reimburse the management fees payable by the Fund
in an amount equal to the net management fee NTI earns on the amount
invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or
lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$16 |
|
|
|
$82 |
|
|
|
$154 |
|
|
|
$366 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 44.18% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in equity securities, in weightings that approximate the
relative composition of the securities included in the Index, in American
Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”), and Global
Depositary Receipts (“GDRs”) representing such securities, and in MSCI Emerging
Markets Index futures approved by the Commodity Futures Trading Commission. The
Fund’s common stock investments also include China A-shares (shares of companies
based in mainland China that trade on the Shanghai Stock Exchange and the
Shenzhen Stock Exchange).
The
Index captures large and mid-cap representation across 24 Emerging Markets
countries, as determined by the index provider, and covers approximately 85% of
the free float-adjusted market capitalization in each country as of May 31,
2024. As of May 31, 2024, the Index was comprised of 1,373 constituents
with market capitalizations ranging from $119.65 million to
$624.37 billion. It is rebalanced quarterly. The Fund generally rebalances
its portfolio in accordance with the
Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and
redemptions.
|
| |
40 |
|
NORTHERN FUNDS
PROSPECTUS |
EMERGING
MARKETS EQUITY INDEX FUND
The
Fund generally invests in substantially all of the securities in the Index in
approximately the same proportion as the Index (i.e., replication). In certain
circumstances, however, the Fund may not hold every security in the Index or in
the same proportion as the Index, such as to improve tax efficiency or when it
may not be practicable to fully implement a replication strategy. Rather, it
will use an optimization strategy to seek to construct a portfolio that
minimizes tracking error versus the Index while managing transaction costs and
realized capital gains and losses.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of issuers or in any one issuer than a diversified fund
can. Shareholder approval will not be sought if the Fund becomes non-diversified
due solely to a change in the relative market capitalization or index weighting
of one or more constituents of the Index.
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assets) in one or more particular sectors, countries or geographic
regions. As of March 31, 2024, the Fund had focused investments in China,
India and Taiwan, and in the financials and information technology
sectors.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by Morgan Stanley
Capital International, Inc. (“MSCI”), as the index provider. MSCI determines the
composition and relative weightings of the securities in the Index and publishes
information regarding the market value of the Index. MSCI does not endorse any
of the securities in the Index. It is not a sponsor of the Emerging Markets
Equity Index Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
EMERGING MARKETS RISK is the risk that
emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition,
companies operating in emerging markets may be subject to lower trading volumes
and greater price volatility than companies in more developed markets. Emerging
market economies may be based on only a few industries, may be highly vulnerable
to changes in local and global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Companies in emerging market countries
generally may be subject to less stringent regulatory, disclosure, financial
reporting, accounting, auditing and recordkeeping standards than companies in
more developed countries. As a result, information, including financial
information, about such companies may be less available and reliable, which can
impede the Fund’s ability to evaluate such companies. Securities law and the
enforcement of systems of taxation in many emerging market countries may change
quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of
a company’s assets, restrictions on foreign ownership of local companies,
restrictions on withdrawing assets from the country, protectionist measures and
practices such as share blocking), or to obtain information needed to pursue or
enforce such actions, may be limited. Investments in emerging market securities
may be subject to additional transaction costs, delays in settlement procedures,
unexpected market closures, and lack of timely information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
41 |
EMERGING
MARKETS EQUITY INDEX FUND
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
GEOGRAPHIC RISK is the risk that if the
Fund invests a significant portion of its total assets in certain issuers within
the same country or geographic region, an adverse economic, business or
political development affecting that country or region may affect the value of
the Fund’s investments more, and the Fund’s investments may be more volatile,
than if its investments were not so concentrated in such country or region.
|
∎ |
|
CHINA INVESTMENT RISK is the risk
associated with investments in companies located or operating in China,
such as nationalization, expropriation, or confiscation of property;
alteration or discontinuation of economic reforms; and considerable
degrees of economic, political and social instability. Investors in
Chinese markets generally experience difficulties in obtaining information
necessary for investigations into and/or litigation against Chinese
companies, as well as in obtaining and/or enforcing judgements due to a
lack of publicly available information; and there are generally limited
legal remedies for shareholders. Internal social unrest or confrontations
with other neighboring countries, including military conflicts may disrupt
economic development in China and result in a greater risk of currency
fluctuations, currency convertibility, interest rate fluctuations and
higher rates of inflation. Export growth continues to be a major driver of
China’s rapid economic growth. As a result, a reduction in spending on
Chinese products and services, the institution of additional tariffs or
other trade barriers, including as a result of heightened trade tensions
between China and the U.S., or a downturn in any of the economies of
China’s key trading partners may have an adverse impact on the Chinese
economy. Any difficulties of the Public Company Accounting Oversight Board
(“PCAOB”) to inspect audit work papers and practices of PCAOB-registered
accounting firms in China with respect to their audit work of U.S.
reporting companies may impose significant additional risks associated
with investments in China. Certain securities issued by companies located
or operating in China, such as China A-shares, are subject to trading
restrictions and suspensions, quota limitations and sudden changes in
those limitations, and operational, clearing and settlement risks. In
addition, actions by the U.S. government, such as delisting of certain
Chinese companies from U.S. securities exchanges or otherwise restricting
their operations in the U.S., may negatively impact the value of such
securities held by the Fund. |
|
∎ |
|
INDIA INVESTMENT RISK is the risk
associated with investments in companies located or operating in India,
such as political and legal uncertainty, religious factors impacting
Indian businesses and greater government control over the economy,
currency fluctuations or blockage, liquidity risk, the rate of inflation
and the risk of nationalization or expropriation of assets, which may
result in higher potential for losses. Specifically, India’s strained
relations with neighboring countries like Pakistan and China could result
in geopolitical risk that has an adverse impact on the Indian economy and
stock market. In addition, the Reserve Bank of India (“RBI”) has imposed
limits on foreign ownership of Indian securities, which may limit the
amount the Fund can invest in certain types of companies. Further, certain
Indian regulatory approvals, including approvals from the Securities and
Exchange Board of India, the RBI, the central government and the tax
authorities (to the extent that tax benefits need to be utilized), may be
required before the Fund can make investments in the securities of Indian
companies. Capital gains from Indian securities may be subject to local
taxation. |
|
∎ |
|
TAIWAN INVESTMENT RISK is the risk
of investing in securities of Taiwanese issuers, and includes Taiwanese
legal, regulatory, political, currency, and economic risks. Specifically,
Taiwan’s geographic proximity and history of political contention with
China have resulted in ongoing tensions between the two countries, which
may materially affect the Taiwanese economy and its securities market.
Investments in securities of Taiwanese companies are subject to Taiwan’s
heavy dependence on
exports. |
|
| |
42 |
|
NORTHERN FUNDS
PROSPECTUS |
EMERGING
MARKETS EQUITY INDEX FUND
|
Reductions
in spending on Taiwanese products and services, labor shortages,
institution of tariffs or other trade barriers, or a downturn in any of
the economies of Taiwan’s key trading partners, including the United
States, may have an adverse impact on the Taiwanese economy and the values
of Taiwanese
companies. |
DEPOSITARY RECEIPTS RISK Foreign securities may
trade in the form of depositary receipts. In addition to investment risks
associated with the underlying issuer, depositary receipts may expose the Fund
to additional risks associated with non-uniform terms that apply to depositary
receipt programs, including credit exposure to the depository bank and to the
sponsors and other parties with whom the depository bank establishes the
programs, currency, political, economic, market risks and the risks of an
illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted. Depositary receipts may not track the price of the
underlying foreign securities on which they are based, may have limited voting
rights, and may have a distribution subject to a fee charged by the depository.
As a result, equity shares of the underlying issuer may trade at a discount or
premium to the market price of the depositary receipts.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
|
∎ |
|
INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or
services. |
MID
CAP STOCK RISK is the risk that stocks
of mid-sized companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Mid-sized
companies may have limited product lines or financial resources, may be
dependent upon a particular niche of the market, or may be dependent upon a
small or inexperienced management group. Securities of mid-sized companies may
trade less frequently and in lower volume than the securities of larger
companies, which could lead to higher transaction costs. Generally the smaller
the company size, the greater the risk.
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in
|
| |
NORTHERN FUNDS PROSPECTUS |
|
43 |
EMERGING
MARKETS EQUITY INDEX FUND
low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s
shares.
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any mutual fund, it is
possible to lose money on an investment in the Fund.
An
investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation, any other government
agency, or The Northern Trust Company, its affiliates, subsidiaries or any other
bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market
index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 6.91%. For the periods shown in the bar chart above,
the highest quarterly
return was 19.07% in the fourth quarter of
2020, and the lowest quarterly
return was (24.06)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Years |
|
|
10-Years |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
9.15 |
% |
|
|
3.14 |
% |
|
|
2.14 |
% |
Returns
after taxes on distributions |
|
|
7.87 |
% |
|
|
2.33 |
% |
|
|
1.47 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
5.81 |
% |
|
|
2.35 |
% |
|
|
1.59 |
% |
MSCI
Emerging Markets Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
9.83 |
% |
|
|
3.68 |
% |
|
|
2.66 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the Emerging Markets Equity Index Fund. Robert D. Anstine and Brent
D. Reeder, each a Senior Vice President of NTI, have been managers of the Fund
since July 2019. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
|
| |
44 |
|
NORTHERN FUNDS
PROSPECTUS |
EMERGING
MARKETS EQUITY INDEX FUND
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
45 |
GLOBAL
REAL ESTATE INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the overall performance
of the securities included in the MSCI® ACWI® IMI Core Real Estate Index
(the “Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. You may be required to pay commissions and/or other forms of
compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.40% |
|
| |
Other
Expenses |
|
|
0.08% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.04% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.48% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.01)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.47% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.47%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or
lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$48 |
|
|
|
$153 |
|
|
|
$268 |
|
|
|
$603 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 5.96% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in equity securities included in the Index, in weightings that
approximate the relative composition of the securities contained in the Index,
and in American Depositary Receipts (“ADRs”), European Depositary Receipts
(“EDRs”), and Global Depositary Receipts (“GDRs”) representing such securities.
The Index is a free float-adjusted, market capitalization index that consists of
large, mid and small-cap stocks engaged in the ownership, development and
management of specific core property type real estate. The Index excludes
companies, such as real estate services and real estate financing companies that
do not own properties. The Fund
will concentrate its investments (i.e., invest at least 25% or more of its total
assets) in issuers principally engaged in real estate
activities.
The
Index is a free float-adjusted market capitalization index that consists of
large, mid and small-cap stocks across 23 Developed Markets (DM) and 24 Emerging
Markets (EM) countries engaged in the ownership, development and management of
specific core property type real estate, as determined by the index provider. As
of May 31, 2024, the Index was comprised of 516 constituents with market
capitalizations ranging from $29.95 million to $102.09 billion. The
Index is rebalanced quarterly. The Fund generally rebalances its portfolio in
accordance with the Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and redemptions.
The Fund generally invests in
|
| |
46 |
|
NORTHERN FUNDS
PROSPECTUS |
GLOBAL
REAL ESTATE INDEX FUND
substantially
all of the securities in the Index in approximately the same proportions as the
Index (i.e., replication). In certain circumstances, however, the Fund may not
hold every security in the Index or in the same proportion as the Index, such as
to improve tax efficiency or when it may not be practicable to fully implement a
replication strategy. Rather, it will use an optimization strategy to seek to
construct a portfolio that minimizes tracking error versus the Index while
managing transaction costs and realized capital gains and
losses.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of issuers or in any one issuer than a diversified fund
can. Shareholder approval will not be sought if the Fund becomes non-diversified
due solely to a change in the relative market capitalization or index weighting
of one or more constituents of the
Index.
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assets) in one or more particular countries or geographic
regions.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by Morgan Stanley
Capital International, Inc. (“MSCI”), as the index provider. MSCI determines the
composition and relative weightings of the securities in the Index and publishes
information regarding the market value of the Index. MSCI does not endorse any
of the securities in the Index. It is not a sponsor of the Global Real Estate
Index Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
REAL ESTATE SECURITIES CONCENTRATION
RISK
is the risk that investments in securities of real estate companies will make
the Fund more susceptible to risks associated with the ownership of real estate
and with the real estate industry in general. Real estate companies may have
lower trading volumes and may be subject to more abrupt or erratic price
movements than the overall securities markets. The value of real estate
securities may underperform other sectors of the economy or broader equity
markets. Because the Fund concentrates its investments in the real estate
industry, it will be subject to greater risk of loss than if it were diversified
across different industries.
REIT RISK is the risk that the
Fund’s investments will be affected by factors affecting REITs and the real
estate sector generally. Investing in REITs involves certain unique risks in
addition to those risks associated with investing in the real estate industry in
general. These risks include possible declines in the value of real estate,
possible lack of mortgage funds and unexpected vacancies of properties. REITs
that invest in real estate mortgages are also subject to prepayment risks. REITs
whose underlying properties are concentrated in a particular industry or
geographic region are also subject to risks affecting such industries and
regions. REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation, interest rate risks (especially mortgage REITs) and
liquidity risks. REITs may have limited financial resources, may trade less
frequently and in lower volume, engage in dilutive offerings or become more
volatile than other securities. By investing in REITs through the Fund, a
shareholder will bear expenses of the REITs in addition to expenses of the Fund.
In addition, REITs could possibly fail to (i) qualify for favorable tax
treatment under applicable tax law, or (ii) maintain their exemptions from
registration under the 1940 Act.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
47 |
GLOBAL
REAL ESTATE INDEX FUND
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
EMERGING MARKETS RISK is the risk that
emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition,
companies operating in emerging markets may be subject to lower trading volumes
and greater price volatility than companies in more developed markets. Emerging
market economies may be based on only a few industries, may be highly vulnerable
to changes in local and global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Companies in emerging market countries
generally may be subject to less stringent regulatory, disclosure, financial
reporting, accounting, auditing and recordkeeping standards than companies in
more developed countries. As a result, information, including financial
information, about such companies may be less available and reliable, which can
impede the Fund’s ability to evaluate such companies. Securities law and the
enforcement of systems of taxation in many emerging market countries may change
quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of
a company’s assets, restrictions on foreign ownership of local companies,
restrictions on withdrawing assets from the country, protectionist measures and
practices such as share blocking), or to obtain information needed to pursue or
enforce such actions, may be limited. Investments in emerging market securities
may be subject to additional transaction costs, delays in settlement procedures,
unexpected market closures, and lack of timely information.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
GEOGRAPHIC RISK is the risk that if the
Fund invests a significant portion of its total assets in certain issuers within
the same country or geographic region, an adverse economic, business or
political development affecting that country or region may affect the value of
the Fund’s investments more, and the Fund’s investments may be more volatile,
than if its investments were not so concentrated in such country or region.
DEPOSITARY RECEIPTS RISK Foreign securities may
trade in the form of depositary receipts. In addition to investment risks
associated with the underlying issuer, depositary receipts may expose the Fund
to additional risks associated with non-uniform terms that apply to depositary
receipt programs, including credit exposure to the depository bank and to the
sponsors and other parties with whom the depository bank establishes the
programs, currency, political, economic, market risks and the risks of an
illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted. Depositary receipts may not track the price of the
underlying foreign securities on which they are based, may have limited voting
rights, and may have a distribution subject to a fee charged by the depository.
As a result, equity shares of the underlying issuer may trade at a discount or
premium to the market price of the depositary receipts.
SMALL AND MID CAP STOCK RISK is the risk that stocks
of small and mid-sized companies may be more volatile than stocks of larger,
more established companies. Small and mid-sized companies may have limited
product lines or financial resources, may be dependent upon a particular niche
of the market, or may be dependent upon a small or inexperienced management
group. The securities of small and mid-sized companies may trade less frequently
and in lower volume than the securities of larger companies, which could lead to
higher transaction costs. Generally, the smaller the company size, the greater
the risk.
|
| |
48 |
|
NORTHERN FUNDS
PROSPECTUS |
GLOBAL
REAL ESTATE INDEX FUND
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any mutual fund, it is
possible to lose money on an investment in the Fund.
An
investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation, any other government
agency, or The Northern Trust Company, its affiliates, subsidiaries or any other
bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
Effective
July 31, 2018, the Fund changed its underlying index from the FTSE
EPRA/NAREIT Global Index to the MSCI® ACWI® IMI Core Real Estate Index.
Therefore, performance shown for periods prior to July 31, 2018 may have
differed had the Fund sought to track its current Index. The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (2.47)%. For the periods shown in the bar
chart above, the highest quarterly
return was 14.78% in the fourth quarter of
2023, and the lowest quarterly
return was (27.43)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Years |
|
|
10-Years |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
10.02 |
% |
|
|
2.89 |
% |
|
|
3.71 |
% |
Returns
after taxes on distributions |
|
|
9.12 |
% |
|
|
2.06 |
% |
|
|
2.67 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
6.13 |
% |
|
|
1.98 |
% |
|
|
2.50 |
% |
MSCI® World Index (reflects
no deduction for fees, expenses, or taxes)(1) |
|
|
23.79 |
% |
|
|
12.80 |
% |
|
|
8.60 |
% |
MSCI® ACWI® IMI Core Real Estate
Index (reflects no deduction for fees, expenses, or taxes) |
|
|
9.70 |
% |
|
|
2.49 |
% |
|
|
3.65 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the MSCI® ACWI® IMI Core Real Estate
Index to the MSCI®
World Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting
|
| |
NORTHERN FUNDS PROSPECTUS |
|
49 |
GLOBAL
REAL ESTATE INDEX FUND
from the redemptions are added to the redemption
proceeds. Under certain circumstances, the addition of the tax benefits from
capital losses resulting from redemptions may cause the Returns after taxes on
distributions and sale of Fund shares to be greater than the Returns after taxes
on distributions or even the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Global Real Estate Index Fund. Brent D. Reeder, Senior Vice President of
NTI, and Volter Bagriy, CFA, CAIA, Vice President of NTI, have been managers of
the Fund since July 2019 and April 2024, respectively. The Northern Trust
Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, section 199A dividends or a combination of the
four, unless you are investing through a tax-exempt or tax-advantaged
arrangement, such as a 401(k) plan or an individual retirement account.
Distributions may be taxable upon withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
50 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERNATIONAL
EQUITY INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the aggregate price and
dividend performance of the securities included in the MSCI EAFE® Index (the
“Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.09% |
|
| |
Other
Expenses |
|
|
0.07% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.03% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.16% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.06)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.10% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (including acquired fund fees and expenses, but
excluding extraordinary expenses) do not exceed 0.10%. NTI has also
contractually agreed to reimburse the management fees payable by the Fund
in an amount equal to the net management fee NTI earns on the amount
invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
$ |
11 |
|
|
$ |
46 |
|
|
|
$85 |
|
|
$ |
199 |
|
PORTFOLIO TURNOVER.
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 21.42% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in the equity securities included in the Index, in weightings
that approximate the relative composition of the securities contained in the
Index, and in American Depositary Receipts (“ADRs”), European Depositary
Receipts (“EDRs”), and Global Depositary Receipts (“GDRs”) representing such
securities and Index futures approved by the Commodity Futures Trading
Commission.
The
Index captures large and mid-cap representation across 21 Developed Markets
countries around the world, as determined by the index provider, excluding the
US and Canada, and covers approximately 85% of the free float-adjusted market
capitalization in each country as of May 31, 2024. As of May 31, 2024,
the Index was comprised of 766 constituents with market capitalizations ranging
from $1.61 billion to $440.44 billion. It is rebalanced quarterly. The
Fund generally rebalances its portfolio in accordance with the
Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and
redemptions.
The
Fund generally invests in substantially all of the securities in the Index in
approximately the same proportions as the Index (i.e., replication). In certain
circumstances, however, the Fund may not hold every security in the Index or in
the same proportion as the Index, such as to improve tax efficiency or when it
may not be practicable to fully implement a replication strategy. Rather, it
will use an optimization strategy to seek to construct a portfolio that
minimizes tracking error versus the Index while managing transaction costs and
realized capital gains and losses.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
51 |
INTERNATIONAL
EQUITY INDEX FUND
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of issuers or in any one issuer than a diversified fund
can. Shareholder approval will not be sought if the Fund becomes non-diversified
due solely to a change in the relative market capitalization or index weighting
of one or more constituents of the
Index.
The
Fund may use derivatives such as stock index futures contracts to equitize cash
and enhance portfolio liquidity.
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assets) in one or more particular sectors, countries or geographic
regions. As of March 31, 2024, the Fund had focused investments in the
financials and industrials sectors and in Japan and the European
Union.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by Morgan Stanley
Capital International (“MSCI”), as the index provider. MSCI determines the
composition and relative weightings of the securities in the Index and publishes
information regarding the market value of the Index. MSCI does not endorse any
of the securities in the Index. It is not a sponsor of the International Equity
Index Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
DEPOSITARY RECEIPTS RISK Foreign securities may
trade in the form of depositary receipts. In addition to investment risks
associated with the underlying issuer, depositary receipts may expose the Fund
to additional risks associated with non-uniform terms that apply to depositary
receipt programs, including credit exposure to the depository bank and to the
sponsors and other parties with whom the depository bank establishes the
programs, currency, political, economic, market risks and the risks of an
illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted. Depositary receipts may not track the price of the
|
| |
52 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERNATIONAL
EQUITY INDEX FUND
underlying
foreign securities on which they are based, may have limited voting rights, and
may have a distribution subject to a fee charged by the depository. As a result,
equity shares of the underlying issuer may trade at a discount or premium to the
market price of the depositary receipts.
GEOGRAPHIC RISK is the risk that if the
Fund invests a significant portion of its total assets in certain issuers within
the same country or geographic region, an adverse economic, business or
political development affecting that country or region may affect the value of
the Fund’s investments more, and the Fund’s investments may be more volatile,
than if its investments were not so concentrated in such country or region.
|
∎ |
|
JAPAN INVESTMENT RISK is the risk
of investing in securities of Japanese issuers. The Japanese economy may
be subject to considerable degrees of economic, political and social
instability, which could negatively impact Japanese issuers. In recent
times, Japan’s economic growth rate has remained low, and it may remain
low in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and tsunamis,
which could negatively affect the securities of Japanese companies held by
the Fund. |
|
∎ |
|
EUROPEAN INVESTMENT RISK is the
risk that investments in certain countries in the European Union (the
“EU”) are susceptible to high political, social, or economic risks due to
restrictions on inflation rates, rising debt levels and fiscal and
monetary controls. Decreasing imports or exports, changes in local or EU
regulations on trade, changes in the exchange rate of the euro, the
default or threat of default by an EU member country on its sovereign
debt, budget deficits and recessions in an EU member country may have
significant adverse effects on the economies of the other EU member
countries. Separately, the EU faces issues involving its membership,
structure, procedures and policies. The exit of one or more member states
from the EU, such as the departure of the United Kingdom, will likely
place the EU’s currency and banking system in jeopardy and result in
increased volatility, illiquidity and potentially lower economic growth in
the affected markets, which will adversely affect the Fund’s EU
investments. |
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
MID
CAP STOCK RISK is the risk that stocks
of mid-sized companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Mid-sized
companies may have limited product lines or financial resources, may be
dependent upon a particular niche of the market, or may be dependent upon a
small or inexperienced management group. Securities of mid-sized companies may
trade less frequently and in lower volume than the securities of larger
companies, which could lead to higher transaction costs. Generally the smaller
the company size, the greater the risk.
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
|
| |
NORTHERN FUNDS PROSPECTUS |
|
53 |
INTERNATIONAL
EQUITY INDEX FUND
specialized
activity that involves investment techniques and risks different from those
associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market
index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 5.65%. For the periods shown in the bar chart above,
the highest quarterly
return was 18.35% in the fourth quarter of
2022, and the lowest quarterly
return was (22.62)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
18.02 |
% |
|
|
8.17 |
% |
|
|
4.21 |
% |
Returns
after taxes on distributions |
|
|
17.21 |
% |
|
|
7.61 |
% |
|
|
3.63 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
11.43 |
% |
|
|
6.55 |
% |
|
|
3.36 |
% |
MSCI
EAFE Index (reflects no deduction for fees, expenses, or taxes) |
|
|
18.24 |
% |
|
|
8.16 |
% |
|
|
4.28 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
|
| |
54 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERNATIONAL
EQUITY INDEX FUND
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the International Equity Index Fund. Brent D. Reeder, Senior Vice President of
NTI, and Brendan Sullivan, Vice President of NTI have been managers of the Fund
since July 2019. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
55 |
MID
CAP INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the overall performance
of the common stocks included in the Standard & Poor’s MidCap 400® Composite Stock Price Index
(“S&P MidCap 400®
Index” or “Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.09% |
|
| |
Other
Expenses |
|
|
0.07% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.03% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.16% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.06)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.10% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (including acquired fund fees and expenses, but
excluding extraordinary expenses) do not exceed 0.10%. NTI has also
contractually agreed to reimburse the management fees payable by the Fund
in an amount equal to the net management fee NTI earns on the amount
invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or
lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$11 |
|
|
|
$46 |
|
|
|
$85 |
|
|
|
$199 |
|
PORTFOLIO TURNOVER.
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 21.60% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in equity securities included in the S&P MidCap 400® Index, in weightings that
approximate the relative composition of securities contained in the Index, and
in S&P MidCap 400®
Index futures approved by the Commodity Futures Trading
Commission.
The
Index is a free float-adjusted market capitalization index consisting of 401
mid-capitalization stocks. As of May 31, 2024, the approximate market
capitalization of the companies in the Index was between $1.33 billion and
$20.57 billion. It is rebalanced quarterly. The Fund generally rebalances
its portfolio in accordance with the
Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and
redemptions.
The
Fund generally invests in substantially all of the securities in the Index in
approximately the same proportion as the Index (i.e., replication). In certain
circumstances, however, the Fund may not hold every security in the Index or in
the same proportion as the Index, such as to improve tax efficiency or when it
may not be practicable to fully implement a replication strategy. Rather, it
will use an optimization strategy to seek to construct a portfolio that
minimizes tracking error versus the Index while managing transaction costs and
realized capital gains and losses.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of issuers or in any one issuer than a diversified fund
can. Shareholder approval will not be sought if the Fund
becomes
|
| |
56 |
|
NORTHERN FUNDS
PROSPECTUS |
MID
CAP INDEX FUND
non-diversified
due solely to a change in the relative market capitalization or index weighting
of one or more constituents of the Index.
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assets) in one or more particular sectors. As of March 31, 2024,
the Fund had focused investments in the industrials, financials and consumer
discretionary sectors.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by S&P Dow
Jones Indices (“S&P”), as the index provider. S&P determines the
composition and relative weightings of the securities in the Index and publishes
information regarding the market value of the Index. S&P does not endorse
any of the securities in the Index. It is not a sponsor of the Mid Cap Index
Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
MID
CAP STOCK RISK is the risk that stocks
of mid-sized companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Mid-sized
companies may have limited product lines or financial resources, may be
dependent upon a particular niche of the market, or may be dependent upon a
small or inexperienced management group. Securities of mid-sized companies may
trade less frequently and in lower volume than the securities of larger
companies, which could lead to higher transaction costs. Generally the smaller
the company size, the greater the risk.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
CONSUMER DISCRETIONARY SECTOR RISK
is the risk that companies engaged in the consumer discretionary sector
may be adversely affected by fluctuations in supply and demand, supply
chains, and changes in consumer preferences, social trends and marketing
campaigns. Changes in consumer spending as a result of world events,
political and economic conditions, government regulation, commodity price
volatility, changes in exchange rates, imposition of import or export
controls, increased competition, depletion of resources and labor
relations also may adversely affect these
companies. |
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
57 |
MID
CAP INDEX FUND
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 6.16%. For the periods shown in the bar chart above,
the highest quarterly
return was 24.29% in the fourth quarter of
2020, and the lowest quarterly
return was (29.69)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
16.31 |
% |
|
|
12.46 |
% |
|
|
9.11 |
% |
Returns
after taxes on distributions |
|
|
14.20 |
% |
|
|
10.57 |
% |
|
|
7.22 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
11.07 |
% |
|
|
9.72 |
% |
|
|
6.93 |
% |
Russell
3000 Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
25.96 |
% |
|
|
15.16 |
% |
|
|
11.48 |
% |
S&P
MidCap 400 Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
16.44 |
% |
|
|
12.62 |
% |
|
|
9.27 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the S&P MidCap 400 Index
to the Russell 3000 Index in connection with new regulatory
requirements. |
|
| |
58 |
|
NORTHERN FUNDS
PROSPECTUS |
MID
CAP INDEX FUND
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Mid Cap Index Fund. Lucy A. Johnston, Vice President of NTI, and Brent D.
Reeder, Senior Vice President of NTI, have been managers of the Fund since July
2019 and November 2006, respectively. The Northern Trust Company, an affiliate
of NTI, serves as transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
59 |
SMALL
CAP INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the aggregate price and
dividend performance of the securities included in the Russell 2000® Index (the
“Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.09% |
|
| |
Other
Expenses |
|
|
0.07% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.03% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.16% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.06)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.10% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (including acquired fund fees and expenses, but
excluding extraordinary expenses) do not exceed 0.10%. NTI has also
contractually agreed to reimburse the management fees payable by the Fund
in an amount equal to the net management fee NTI earns on the amount
invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or
lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$11 |
|
|
|
$46 |
|
|
|
$85 |
|
|
|
$199 |
|
PORTFOLIO TURNOVER.
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 11.87% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in the equity securities included in the Index, in weightings
that approximate the relative composition of securities contained in the Index,
and in Index futures approved by the Commodity Futures Trading
Commission.
The
Index measures the performance of the small-cap segment of the US equity
universe. The Index is a subset of the Russell 3000® Index representing
approximately 7% of the total market capitalization of that index. It includes
approximately 2,000 of the smallest securities included in the Russell 3000® Index based on a combination
of their market cap and current index membership. As of May 31, 2024, the
approximate median market capitalization of the companies in the Index was
$919 million. The Index is rebalanced quarterly. The Fund generally
rebalances its portfolio in accordance with the
Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and redemptions.
The Fund generally invests in substantially all of the securities in the
Index in approximately the same proportions as the Index
(i.e., replication). In certain circumstances, however, the Fund may not
hold every security in the Index or in the same proportion as the Index, such as
to improve tax efficiency or when it may not be practicable to fully implement a
replication strategy. Rather, it will use an optimization strategy to seek to
construct a portfolio that minimizes tracking error versus the Index while
managing transaction costs and realized capital gains and
losses.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of
|
| |
60 |
|
NORTHERN FUNDS
PROSPECTUS |
SMALL
CAP INDEX FUND
issuers
or in any one issuer than a diversified fund can. Shareholder approval will not
be sought if the Fund becomes non-diversified due solely to a change in the
relative market capitalization or index weighting of one or more constituents of
the Index.
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assets) in one or more particular sectors. As of March 31, 2024,
the Fund had focused investments in the health care, industrials and financials
sectors.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by Frank Russell
Company (“Russell”), as the index provider. Russell determines the composition
and relative weightings of the securities in the Index and publishes information
regarding the market value of the Index. Russell does not endorse any of the
securities in the Index. It is not a sponsor of the Small Cap Index Fund and is
not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
SMALL CAP STOCK RISK is the risk that stocks
of smaller companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Small companies
may have limited product lines or financial resources, may be dependent upon a
particular niche of the market, or may be dependent upon a small or
inexperienced management group. Securities of smaller companies may trade less
frequently and in lower volume than the securities of larger companies, which
could lead to higher transaction costs. Generally, the smaller the company size,
the greater the risk.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
|
∎ |
|
HEALTH CARE SECTOR RISK is the
risk that companies in the health care sector may be negatively affected
by scientific or technological developments, research and development
costs, increased competition within the health care sector impacting
prices and demand for products or services, rapid product obsolescence and
patent expirations. The price of securities of health
care |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
61 |
SMALL
CAP INDEX FUND
|
companies
may fluctuate widely due to changes in legislation or other government
regulations, including uncertainty regarding health care reform and its
long-term impact, reductions in government funding and the
unpredictability of winning government
approvals. |
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 1.73%. For the periods shown in the bar chart above,
the highest quarterly return
was 31.33% in the fourth quarter of
2020, and the lowest quarterly
return was (30.72)% in the first quarter of
2020.
|
| |
62 |
|
NORTHERN FUNDS
PROSPECTUS |
SMALL
CAP INDEX FUND
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
16.83 |
% |
|
|
9.77 |
% |
|
|
6.99 |
% |
Returns
after taxes on distributions |
|
|
16.22 |
% |
|
|
8.41 |
% |
|
|
5.41 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
10.29 |
% |
|
|
7.62 |
% |
|
|
5.24 |
% |
Russell
3000 Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
25.96 |
% |
|
|
15.16 |
% |
|
|
11.48 |
% |
Russell
2000 Index (reflects no deduction for fees, expenses, or taxes) |
|
|
16.93 |
% |
|
|
9.97 |
% |
|
|
7.16 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Russell 2000 Index to the
Russell 3000 Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the Small Cap Index Fund. Brent D. Reeder, Senior Vice President of
NTI, and Shivani Shah, Vice President of NTI have been managers of the Fund
since November 2006 and December 2021, respectively. The Northern Trust Company,
an affiliate of NTI, serves as transfer agent, custodian and sub-administrator
to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a
|
| |
NORTHERN FUNDS PROSPECTUS |
|
63 |
SMALL
CAP INDEX FUND
tax-exempt
or tax-advantaged arrangement, such as a 401(k) plan or an individual retirement
account. Distributions may be taxable upon withdrawal from tax-advantaged
accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
64 |
|
NORTHERN FUNDS
PROSPECTUS |
STOCK
INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the aggregate price and
dividend performance of the securities included in the S&P 500® Index (the
“Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.04% |
|
| |
Other
Expenses |
|
|
0.05% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.09% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.04)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.05% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (including acquired fund fees and expenses, but
excluding extraordinary expenses) do not exceed 0.05%. NTI has also
contractually agreed to reimburse the management fees payable by the Fund
in an amount equal to the net management fee NTI earns on the amount
invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or
lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$6 |
|
|
|
$25 |
|
|
|
$47 |
|
|
|
$112 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 2.74% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in the equity securities included in the Index, in weightings
that approximate the relative composition of the securities contained in the
Index, and in Index futures approved by the Commodity Futures Trading
Commission.
The
Index is a free float-adjusted market capitalization index consisting of 503
stocks and is a widely recognized measure of large-cap U.S. equities. As of
May 31, 2024, the approximate market capitalization of the companies in the
Index was between $5.33 billion to $3.08 trillion. It is rebalanced
quarterly. The Fund generally rebalances its portfolio in accordance with the
Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and redemptions.
The Fund generally invests in substantially all of the securities in the Index
in approximately the same proportion as the Index (i.e., replication). In
certain circumstances, however, the Fund may not hold every security in the
Index or in the same proportion as the Index, such as to improve tax efficiency
or when it may not be practicable to fully implement a replication strategy.
Rather, it will use an optimization strategy to seek to construct a portfolio
that minimizes tracking error versus the Index while managing transaction costs
and realized capital gains and losses.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of issuers or in any one issuer than a diversified fund
can. Shareholder approval will not be sought if the Fund becomes non-diversified
due solely to a change in the relative market capitalization or index weighting
of one or more constituents of the Index.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
65 |
STOCK
INDEX FUND
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assets) in one or more particular sectors. As of March 31, 2024,
the Fund had a focused investment in the information technology
sector.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by S&P® Dow Jones Indices
(“S&P”), as the index provider. S&P determines the composition and
relative weightings of the securities in the Index and publishes information
regarding the market value of the Index. S&P does not endorse any of the
securities in the Index. It is not a sponsor of the Stock Index Fund and is not
affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or
services. |
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially
are |
|
| |
66 |
|
NORTHERN FUNDS
PROSPECTUS |
STOCK
INDEX FUND
|
unlimited;
and the possible inability of the Fund’s investment adviser to correctly
predict the direction of securities’ prices, interest rates, currency
exchange rates and other economic factors, which may make the Fund’s
returns more volatile or increase the risk of
loss. |
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market
index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 15.24%. For the periods shown in the bar chart
above, the highest quarterly
return was 20.54% in the second quarter of
2020, and the lowest quarterly
return was (19.64)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
26.20 |
% |
|
|
15.57 |
% |
|
|
11.92 |
% |
Returns
after taxes on distributions |
|
|
24.68 |
% |
|
|
14.49 |
% |
|
|
10.90 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
16.49 |
% |
|
|
12.40 |
% |
|
|
9.60 |
% |
S&P
500 Index (reflects no deduction for fees, expenses, or taxes) |
|
|
26.29 |
% |
|
|
15.69 |
% |
|
|
12.03 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Stock Index Fund. Chris J. Jaeger, CFA, and Brent D. Reeder, each a Senior
Vice President of NTI, have been managers of the Fund since July 2019 and
November 2006, respectively. The Northern Trust Company, an affiliate of NTI,
serves as transfer agent, custodian and sub-administrator to the Fund.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
67 |
STOCK
INDEX FUND
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
68 |
|
NORTHERN FUNDS
PROSPECTUS |
GLOBAL
SUSTAINABILITY INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the overall performance
of the securities included in the MSCI World ESG Leaders IndexTM (the
“Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in
Class K or Class I shares, which are not reflected in the tables or
the examples below.
|
|
|
|
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Class K |
|
|
Class I |
|
|
| |
Management
Fees |
|
|
0.18% |
|
|
|
0.18% |
|
|
| |
Other
Expenses |
|
|
0.06% |
|
|
|
0.11% |
|
|
| |
Transfer
Agent Fees |
|
|
0.04% |
| |
|
0.04% |
|
|
| |
Service
Fees |
|
|
None |
| |
|
0.05% |
|
|
| |
Other
Operating Expenses |
|
|
0.02% |
| |
|
0.02% |
|
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
|
|
0.01% |
|
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.25% |
|
|
|
0.30% |
|
|
| |
Expense
Reimbursement(2) |
|
|
0.00% |
|
|
|
0.00% |
|
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.25% |
|
|
|
0.30% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
each of the Class K and Class I shares of the Fund so that after
such reimbursement the Total Annual Fund Operating Expenses of each Class
(excluding (i) acquired fund fees and expenses; (ii) service
fees; (iii) the compensation paid to each Independent Trustee of the
Trust; (iv) expenses of third party consultants engaged by the Board
of Trustees; (v) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (vi) expenses in
connection with the negotiation and renewal of the revolving credit
facility; and (vii) extraordinary expenses and interest) do not
exceed 0.24%. NTI has also contractually agreed to reimburse the
management fees payable by the Fund in an amount equal to the net
management fee NTI earns on the amount invested by the Fund in money
market funds managed by NTI. These contractual limitations may not be
terminated before July 31, 2025 without
the approval of the Board of Trustees.
|
EXAMPLE
The
following Example is intended to help you compare the cost of investing in
Class K shares and Class I shares of the Fund with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
the Fund for the time periods indicated and then redeem all of your Class K
shares or Class I shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (taking into account the expense
reimbursement arrangement for one year, if applicable). Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Class K |
|
|
$26 |
|
|
|
$80 |
|
|
|
$141 |
|
|
|
$318 |
|
Class I |
|
|
$31 |
|
|
|
$97 |
|
|
|
$169 |
|
|
|
$381 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 15.57% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in equity securities included in the Index, in weightings that
approximate the relative composition of the securities contained in the Index,
and in in American Depositary Receipts (“ADRs”), European Depositary Receipts
(“EDRs”), and Global Depositary Receipts (“GDRs”) representing such
securities.
The
Index is a free float-adjusted market capitalization weighted index designed to
represent the performance of companies selected from the MSCI World Index based
on Environmental, Social and Governance (ESG) criteria, as determined by the
index provider. The Index is a member of the MSCI ESG Leaders Index series and
is constructed by aggregating the following regional indexes: MSCI Pacific ESG
Leaders Index, MSCI Europe & Middle East ESG Leaders Index, MSCI Canada
ESG Leaders Index and MSCI USA ESG Leaders Index. The Index’s parent index is
the MSCI World Index, which consists of large and mid-cap companies in 23
Developed Markets Countries, as determined by the index provider. As of
May 31, 2024, the Index was comprised of 693 constituents with market
capitalizations ranging from $1.6 billion to
$2.9 trillion.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
69 |
GLOBAL
SUSTAINABILITY INDEX FUND
Constituent
selection for the Index is based on data from MSCI ESG Research. It is
rebalanced quarterly. The Fund generally rebalances its portfolio in accordance
with the Index.
The
MSCI ESG Leaders Indexes target sector and region weights consistent with those
of their respective parent indexes to limit the systematic risk introduced by
the ESG selection process. The methodology aims to include securities of
companies with the highest ESG ratings representing 50% of the market
capitalization in each sector and region of the respective parent index.
Companies that are not existing constituents of the MSCI ESG Leaders Indexes
must have an MSCI ESG Rating of ‘BB’ or above and an MSCI ESG Controversies
Score of 3 or above to be eligible for inclusion in the Index. Current
constituents of the MSCI ESG Leaders Indexes must have an MSCI ESG Rating of
‘BB’ or above and an MSCI ESG Controversies Score of 1 or above to remain
eligible for inclusion in the Index. In addition, companies showing involvement
in alcohol, gambling, tobacco, nuclear power, civilian firearms, fossil fuels
extraction, thermal coal power and weapons are excluded from the MSCI ESG
Leaders Indexes. The selection universe for the MSCI ESG Leaders Indexes is the
constituents of the MSCI Global Investable Market
Indexes
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index and in response to subscriptions and
redemptions.
The
Fund generally invests in substantially all of the securities in the Index in
approximately the same proportions as the Index (i.e., replication). In certain
circumstances, however, the Fund may not hold every security in the Index or in
the same proportion as the Index, such as to improve tax efficiency or when it
may not be practicable to fully implement a replication strategy. Rather, it
will use an optimization strategy to seek to construct a portfolio that
minimizes tracking error versus the Index while managing transaction costs and
realized capital gains and losses.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of issuers or in any one issuer than a diversified fund
can. Shareholder approval will not be sought if the Fund becomes non-diversified
due solely to a change in the relative market capitalization or index weighting
of one or more constituents of the Index.
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assets) in one or more particular sectors, countries or geographic
regions. As of March 31, 2024, the Fund had a focused investment in the
information technology sector.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by Morgan Stanley
Capital International, Inc. (“MSCI”), as the index provider. MSCI determines the
composition and relative weightings of the securities in the Index and publishes
information regarding the market value of the Index. MSCI does not endorse any
of the securities in the Index. It is not a sponsor of the Global Sustainability
Index Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
ESG
INVESTING RISK is the risk that the ESG
investment methodology of the Index may restrict the investments
|
| |
70 |
|
NORTHERN FUNDS
PROSPECTUS |
GLOBAL
SUSTAINABILITY INDEX FUND
available
to the Fund. This may affect the Fund’s exposure to certain companies or
industries and cause the Fund to forego certain investment opportunities. This
could cause the Fund to underperform or perform differently than the broader
equity market or other funds that do or do not track an ESG index or use ESG
factors, scores, or screens in their securities selection process, or use a
different ESG methodology. Information used by MSCI to evaluate ESG factors may
not be readily available, complete or accurate, which could negatively impact
MSCI’s ability to apply its ESG standards when compiling the Index, which could
negatively impact the Fund’s performance. Although the Index is designed to
measure a portfolio of companies with certain ESG characteristics, there is no
assurance that every security in the Index or Fund will have ESG characteristics
or that companies that have historically exhibited such characteristics will
continue to exhibit such characteristics. Currently, there is a lack of common
industry standards relating to the development and application of ESG criteria,
and MSCI’s assessment of a company, based on the company’s level of involvement
in a particular industry or the company’s ESG Rating and ESG Controversies
Score, may differ from that of other funds, other index providers, the
investment adviser or an investor. As a result, the companies deemed eligible
for inclusion in the Index may not reflect the beliefs and values of any
particular investor and may not be deemed to exhibit positive or favorable ESG
characteristics if different metrics were used to evaluate them. ESG standards
differ by region and industry, and a company’s ESG practices or MSCI’s or data
providers’ assessment of a company’s ESG practices may change over
time.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
DEPOSITARY RECEIPTS RISK Foreign securities may
trade in the form of depositary receipts. In addition to investment risks
associated with the underlying issuer, depositary receipts may expose the Fund
to additional risks associated with non-uniform terms that apply to depositary
receipt programs, including credit exposure to the depository bank and to the
sponsors and other parties with whom the depository bank establishes the
programs, currency, political, economic, market risks and the risks of an
illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted. Depositary receipts may not track the price of the
underlying foreign securities on which they are based, may have limited voting
rights, and may have a distribution subject to a fee charged by the depository.
As a result, equity shares of the underlying issuer may trade at a discount or
premium to the market price of the depositary receipts.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or
services. |
MID
CAP STOCK RISK is the risk that stocks
of mid-sized companies may be more volatile than stocks of larger, more
established companies, and may lack sufficient market liquidity. Mid-sized
companies may have limited product lines
|
| |
NORTHERN FUNDS PROSPECTUS |
|
71 |
GLOBAL
SUSTAINABILITY INDEX FUND
or
financial resources, may be dependent upon a particular niche of the market, or
may be dependent upon a small or inexperienced management group. Securities of
mid-sized companies may trade less frequently and in lower volume than the
securities of larger companies, which could lead to higher transaction costs.
Generally the smaller the company size, the greater the
risk.
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing: (A) changes in the performance of the Fund from
year to year and (B) how the average annual total returns of the Fund
compare to those of a broad-based securities market index and a style-specific
index (one reflecting the market segments in which the Fund invests), in that
order.
The
returns shown for periods ended prior to July 30, 2020 are those of the
Shares Class shares of the Fund at net asset value. Effective July 30,
2020, Shares Class shares of the Fund were converted into new Class K
shares and Class I shares of the Fund. Class K and Class I
shares’ returns of the Fund will be different from the returns of the Shares
Class shares’ returns of the Fund as they have different
expenses.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN (CLASS K SHARES)*
* Year to date total
return for the six months ended June 30,
2024 was 12.97%. For the period shown in the bar chart above,
the highest quarterly
return was 18.63% in the second quarter of
2020, and the lowest quarterly
return was (19.60)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Years |
|
|
10-Years |
|
Class K
Shares(1) |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
25.44 |
% |
|
|
13.32 |
% |
|
|
8.84 |
% |
Returns
after taxes on distributions |
|
|
24.97 |
% |
|
|
12.63 |
% |
|
|
8.06 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
15.40 |
% |
|
|
10.61 |
% |
|
|
7.01 |
% |
Class I
Shares(1) |
|
|
25.41 |
% |
|
|
13.29 |
% |
|
|
8.82 |
% |
MSCI® World Index (reflects
no deduction for fees, expenses, or taxes)(2) |
|
|
23.79 |
% |
|
|
12.80 |
% |
|
|
8.60 |
% |
MSCI
World ESG Leaders Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
25.40 |
% |
|
|
13.19 |
% |
|
|
8.72 |
% |
(1) |
The inception date of Class K and
Class I shares of the Fund is July 30,
2020. Performance shown prior to the
inception date is that of the Fund’s Shares Class shares, which are
no longer offered by the Fund, at net asset value (“NAV”). Performance
reflects any applicable fee waivers and/or expense reimbursements.
|
(2) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the MSCI World ESG Leaders
Index to the MSCI®
World Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax
returns depend on an investor’s tax situation and may differ from those shown.
After-tax returns shown are not relevant to investors who hold their shares
through tax‑advantaged arrangements, such as 401(k) plans or
individual
|
| |
72 |
|
NORTHERN FUNDS
PROSPECTUS |
GLOBAL
SUSTAINABILITY INDEX FUND
retirement
accounts. After-tax returns are shown only for Class K
shares. After-tax returns for other classes will vary.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the Global Sustainability Index Fund. Brent D. Reeder, Senior Vice
President of NTI and Steven J. Santiccioli, Vice President of NTI, have been
managers of the Fund since July 2019. The Northern Trust Company, an affiliate
of NTI, serves as transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Class I shares of the Fund only through an authorized
intermediary. There is no minimum initial or subsequent investment amounts for
Class I shares imposed by the Fund.
You
may purchase Class K shares of the Fund by opening an account directly with
Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in the
Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 for Class K shares (except for reinvestments of
distributions for which there is no minimum). The Fund reserves the right to
waive these minimums. You may also purchase Class K shares of the Fund
through an account at Northern Trust (or an affiliate) or an authorized
intermediary.
If
you purchase, sell (redeem) or exchange Class K or Class I shares
through an authorized intermediary, you may be required to pay a commission
and/or other forms of compensation to the intermediary. In addition, an
authorized intermediary may impose different investment minimums than those set
forth above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own Class K shares of the Fund with a
minimum value of $10,000, you may elect to have a fixed sum redeemed at
regular intervals and distributed in cash or reinvested in the same share
class of one or more other funds of the Trust that offers that share
class. Call 800‑595‑9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange Class K shares of the Fund for the
Class K shares or Shares Class shares of another fund in the
Trust. Class K shares being exchanged must have a value of at least
$1,000 ($2,500 if a new account is being established by the exchange, $500
if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
73 |
BOND
INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the overall performance
of the securities included in the Bloomberg U.S. Aggregate Bond Index (the
“Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.06% |
|
| |
Other
Expenses |
|
|
0.06% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.02% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.12% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.05)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.07% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (including acquired fund fees and expenses, but
excluding extraordinary expenses) do not exceed 0.07%. NTI has also
contractually agreed to reimburse the management fees payable by the Fund
in an amount equal to the net management fee NTI earns on the amount
invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable).
Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$8 |
|
|
|
$34 |
|
|
|
$63 |
|
|
|
$149 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 47.00% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in bonds and other fixed-income securities included in the
Index in weightings that approximate the relative composition of securities
contained in the Index. The Fund will maintain a dollar-weighted average
maturity consistent with the Index, which generally ranges between five to ten
years.
The
Index is a broad-based benchmark that measures the investment grade, U.S.
dollar-denominated, fixed-rate taxable bond market. The Index includes
Treasuries, government-related and corporate securities, mortgage-backed
securities (agency fixed-rate mortgage pass-throughs), asset-backed securities,
and commercial mortgage-backed securities. As of May 31, 2024, the Index
was comprised of 13,545 constituents. It is rebalanced monthly. The Fund
generally rebalances its portfolio in accordance with the Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and redemptions.
NTI
uses a representative sampling strategy to manage the Fund. “Representative
sampling” is investing in a representative sample of securities that
collectively has an investment profile similar to that of an index. The Fund may
or may not hold all of the securities that are included in the Index. The Fund
reserves the right to invest in all of the securities in the Index in
approximately the same proportion (i.e., replication) if NTI determines that it
is in the best interest of the Fund.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of issuers or in any one issuer than a diversified fund
can.
|
| |
74 |
|
NORTHERN FUNDS
PROSPECTUS |
BOND
INDEX FUND
Shareholder
approval will not be sought if the Fund becomes non-diversified due solely to a
change in the relative market capitalization or index weighting of one or more
constituents of the Index.
In
seeking to track the performance of the Index, from time to time the Fund may
have a focused investment (i.e., investment exposure comprising more than 15% of
its total assts) in one or more particular sectors.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by Bloomberg Index
Services Limited (“Bloomberg”), as the index provider. Bloomberg determines the
composition and relative weightings of the securities in the Index and publishes
information regarding the market value of the Index. Bloomberg does not endorse
any of the securities in the Index. It is not a sponsor of the Bond Index Fund
and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
SAMPLING RISK is the risk that the
Fund’s use of a representative sampling approach may result in increased
tracking error because the securities selected for the Fund in the aggregate may
vary from the investment profile of the Index. Additionally, the use of a
representative sampling approach may result in the Fund holding a smaller number
of securities than the Index, and, as a result, an adverse development to an
issuer of securities that the Fund holds could result in a greater decline in
NAV than would be the case if the Fund held all of the securities in the Index.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
75 |
BOND
INDEX FUND
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
Asset-backed and mortgage-backed securities may be less liquid than other bonds,
and may be more sensitive than other bonds to the market’s perception of issuers
and creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund.
Privately
issued mortgage-backed securities and asset-backed securities may be less liquid
than other types of securities and the Fund may be unable to sell these
securities at the time or price it desires. During periods of market stress or
high redemptions, the Fund may be forced to sell these securities at
significantly reduced prices, resulting in losses. Liquid privately issued
mortgage-backed securities and asset-backed securities can become illiquid
during periods of market stress. Privately issued mortgage-related securities
are not subject to the same underwriting requirements as those with government
or government-sponsored entity guarantees and, therefore, mortgage loans
underlying privately issued mortgage-related securities may have less favorable
collateral, credit risk, liquidity risk or other underwriting characteristics,
and wider variances in interest rate, term, size, purpose and borrower
characteristics.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others, which may make them difficult or
impossible to sell at the time and the price that the Fund would like and the
Fund may have to lower the price, sell other securities instead or forgo an
investment opportunity, adversely affecting the value of the Fund’s investments
and its returns. In addition, less liquid securities may be more difficult to
value and markets may become less liquid when there are fewer interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities, and if the Fund is forced to sell these investments to meet
redemption requests or for other cash needs, the Fund may suffer a loss. Banking
regulations may also cause certain dealers to reduce their inventories of
certain securities, which may further decrease the Fund’s ability to buy or sell
such securities. All of these risks may increase during periods of market
turmoil and could have a negative effect on the Fund’s performance.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
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76 |
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NORTHERN FUNDS
PROSPECTUS |
BOND
INDEX FUND
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (0.77)%. For the periods shown in the bar
chart above, the highest quarterly
return was 6.86% in the fourth quarter of
2023, and the lowest quarterly
return was (5.94)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
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|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Bond
Index Fund |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
5.46 |
% |
|
|
1.02 |
% |
|
|
1.70 |
% |
Returns
after taxes on distributions |
|
|
4.07 |
% |
|
|
(0.13 |
)% |
|
|
0.54 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
3.20 |
% |
|
|
0.35 |
% |
|
|
0.82 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Bond Index Fund. Kevin J. O’Shaughnessy, Vice President of NTI, Mousumi
Chinara, Vice President of NTI, David Alongi, Senior Vice President of NTI, and
Michael Chico, Senior Vice President of NTI, have been managers of the Fund
since July 2019, July 2023, July 2024, and
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NORTHERN FUNDS PROSPECTUS |
|
77 |
BOND
INDEX FUND
July
2024, respectively. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
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78 |
|
NORTHERN FUNDS
PROSPECTUS |
CORE
BOND FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to maximize total return (capital appreciation and income) consistent
with reasonable risk.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
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|
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| |
Shareholder Fees (fees paid directly from
your investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.38% |
|
| |
Other
Expenses |
|
|
0.13% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.09% |
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.52% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.10)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.42% |
|
(1) |
The Total Annual Fund Operating Expenses may
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.40%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
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|
|
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|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$43 |
|
|
|
$157 |
|
|
|
$281 |
|
|
|
$643 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 78.68% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund will seek capital appreciation and current income in its attempt to
maximize total return. In doing so, the Fund will invest, under normal
circumstances, at least 80% of its net assets in bonds and other fixed-income
securities. These may include:
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises, including obligations issued by private issuers that are
guaranteed as to principal and interest by the U.S. government, its
agencies or instrumentalities;
|
∎ |
|
Obligations
of U.S. state and local governments, and foreign governments;
|
∎ |
|
Obligations
of domestic and foreign banks and corporations;
|
∎ |
|
Zero
coupon bonds and debentures; |
∎ |
|
Mortgage
and other asset-backed securities;
|
∎ |
|
Inflation-indexed
securities; and |
∎ |
|
Stripped
securities evidencing ownership of future interest or principal payments
on debt obligations.
|
The
Fund invests primarily in the investment grade debt obligations of domestic
issuers. Investment grade debt obligations are obligations rated within the top
four rating categories by a Nationally Recognized Statistical Rating
Organization (“NRSRO”) or determined by NTI to be of comparable quality. Credit
ratings are determined at the time of purchase. The Fund also may invest up to
25% of its total assets in U.S. dollar denominated investment grade obligations
of foreign issuers.
The
Fund may also invest in securities that are subject to resale restrictions such
as those contained in Rule 144A promulgated under the Securities Act of
1933.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
79 |
CORE
BOND FUND
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as treasury, agency, asset-backed,
mortgage-related and corporate securities) that the team believes will provide a
favorable total return in light of these risks.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between three and fifteen years.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities. The secondary market for municipal obligations also tends to be less
well-developed and less liquid than many other securities markets, which may
|
| |
80 |
|
NORTHERN FUNDS
PROSPECTUS |
CORE
BOND FUND
limit
the Fund’s ability to sell its municipal obligations at attractive prices.
Further, inventories of municipal securities held by brokers and dealers have
decreased in recent years, lessening their ability to make a market in these
securities, which has resulted in increased municipal security price volatility
and trading costs, particularly during periods of economic or market stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
Asset-backed and mortgage-backed securities may be less liquid than other bonds,
and may be more sensitive than other bonds to the market’s perception of issuers
and creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund. Privately issued mortgage-backed securities and asset-backed
securities may be less liquid than other types of securities and the Fund may be
unable to sell these securities at the time or price it desires. During periods
of market stress or high redemptions, the Fund may be forced to sell these
securities at significantly reduced prices, resulting in losses. Liquid
privately issued mortgage-backed securities and asset-backed securities can
become illiquid during periods of market stress. Privately issued
mortgage-related securities are not subject to the same underwriting
requirements as those with government or government-sponsored entity guarantees
and, therefore, mortgage loans underlying privately issued mortgage-related
securities may have less favorable collateral, credit risk, liquidity risk or
other underwriting characteristics, and wider variances in interest rate, term,
size, purpose and borrower characteristics. The Fund may invest in mortgage
pools that include subprime mortgages, which are loans made to borrowers with
weakened credit histories or with lower capacity to make timely payments on
their mortgages. Liquidity and credit risks are even greater for mortgage pools
that include subprime mortgages.
SOVEREIGN DEBT RISK is the risk that the
Fund may invest in securities issued or guaranteed by foreign governmental
entities (known as sovereign debt securities). These investments are subject to
the risk of payment delays or defaults, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, large debt
positions relative to the country’s economy or failure to implement economic
reforms. There is no legal or bankruptcy process for collecting sovereign debt.
ZERO COUPON OR PAY-IN-KIND SECURITIES
RISK
The value, interest rates, and liquidity of non-cash paying instruments, such as
zero coupon and pay-in-kind securities, are subject to greater fluctuation than
other types of securities. The higher yields and interest rates on pay-in-kind
securities reflect the payment deferral and increased credit risk associated
with such instruments and that such investments may represent a higher credit
risk than loans that periodically pay interest.
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the
|
| |
NORTHERN FUNDS PROSPECTUS |
|
81 |
CORE
BOND FUND
Fund’s
investments to decline. Foreign banks, agents and securities depositories that
hold the Fund’s foreign assets may be subject to little or no regulatory
oversight over, or independent evaluation, of their operations. Additional costs
associated with investments in foreign securities may include higher custodial
fees than those applicable to domestic custodial arrangements.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable and will
vary as the principal and/or interest is periodically adjusted based on the rate
of inflation. If the index measuring inflation falls, the interest payable on
these securities will be reduced.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others, which may make them difficult or
impossible to sell at the time and the price that the Fund would like and the
Fund may have to lower the price, sell other securities instead or forgo an
investment opportunity, adversely affecting the value of the Fund’s investments
and its returns. In addition, less liquid securities may be more difficult to
value and markets may become less liquid when there are fewer interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities, and if the Fund is forced to sell these investments to meet
redemption requests or for other cash needs, the Fund may suffer a loss. Banking
regulations may also cause certain dealers to reduce their inventories of
certain securities, which may further decrease the Fund’s ability to buy or sell
such securities. All of these risks may increase during periods of market
turmoil and could have a negative effect on the Fund’s performance.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (0.42)%. For the periods shown in the bar
chart above, the highest quarterly
return was 6.95% in the fourth quarter of
2023, and the lowest quarterly
return was (6.22)% in the first quarter of
2022.
|
| |
82 |
|
NORTHERN FUNDS
PROSPECTUS |
CORE
BOND FUND
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
5.75 |
% |
|
|
1.16 |
% |
|
|
1.69 |
% |
Returns
after taxes on distributions |
|
|
4.17 |
% |
|
|
(0.02 |
)% |
|
|
0.49 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
3.37 |
% |
|
|
0.41 |
% |
|
|
0.78 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses,
or taxes) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Core Bond Fund. Christian Roth, Executive Vice President of NTI, Bilal
Memon, Senior Vice President of NTI, Chaitanya Mandavakuriti, Senior Vice
President of NTI, and Antulio Bomfim, Senior Vice President of NTI, have been
managers of the Fund since July 2024, July 2023, July 2024 and July
2023, respectively. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
83 |
CORE
BOND FUND
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
84 |
|
NORTHERN FUNDS
PROSPECTUS |
FIXED
INCOME FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to maximize total return (capital appreciation and income) consistent
with reasonable risk.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment) |
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.43% |
|
| |
Other
Expenses |
|
|
0.08% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.04% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.51% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.06)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.45% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI, and to
reimburse a portion of the operating expenses of the Fund in an amount
equal to the acquired fund fees and expenses arising from the Fund’s
investments in other non-money market funds or exchange-traded funds
managed by NTI. These contractual limitations may not be terminated before
July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$46 |
|
|
|
$158 |
|
|
|
$279 |
|
|
|
$635 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 81.39% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund will seek capital appreciation and current income in its attempt to
maximize total return. In doing so, the Fund will invest, under normal
circumstances, at least 80% of its net assets in bonds and other fixed-income
securities. These may include:
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises, including obligations that are issued by private issuers that
are guaranteed as to principal and interest by the U.S. government, its
agencies or instrumentalities;
|
∎ |
|
Obligations
of U.S. state and local governments, and foreign governments;
|
∎ |
|
Obligations
of domestic and foreign banks and corporations;
|
∎ |
|
Zero
coupon bonds, debentures, convertible securities and loan participations;
|
∎ |
|
Mortgage
and other asset-backed securities;
|
∎ |
|
Inflation-indexed
securities; and |
∎ |
|
Stripped
securities evidencing ownership of future interest or principal payments
on debt obligations.
|
The
Fund may also seek to obtain exposure to these securities through investments in
affiliated or unaffiliated investment companies, including exchange-traded funds
(“ETFs”). The Fund primarily invests in investment grade domestic debt
obligations (i.e., obligations rated within the top four rating categories by a
Nationally Recognized Statistical Rating Organization (“NRSRO”) or of comparable
quality as determined by NTI). However, the Fund may invest up to 20% of its
total assets in domestic and foreign debt obligations that are rated
below-investment grade (commonly referred to as “junk bonds”). Credit ratings
are determined at the time of purchase.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
85 |
FIXED
INCOME FUND
The
Fund may also invest in securities that are subject to resale restrictions such
as those contained in Rule 144A promulgated under the Securities Act of
1933.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as treasury, agency, asset-backed,
mortgage-related and corporate securities) that the team believes will provide a
favorable return in light of these risks.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between three and fifteen years. From time to time the Fund may have a focused
investment (i.e., investment exposure comprising more than 15% of its total
assets) in one or more particular sectors. As of March 31, 2024, the Fund
had focused investments in the financials and industrials sectors.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may
|
| |
86 |
|
NORTHERN FUNDS
PROSPECTUS |
FIXED
INCOME FUND
make
income paid thereon taxable, resulting in a decline in the security’s value. In
addition, there could be changes in applicable tax laws or tax treatments that
reduce or eliminate the current federal income tax exemption on municipal
securities or otherwise adversely affect the current federal or state tax status
of municipal securities. The secondary market for municipal obligations also
tends to be less well-developed and less liquid than many other securities
markets, which may limit the Fund’s ability to sell its municipal obligations at
attractive prices. Further, inventories of municipal securities held by brokers
and dealers have decreased in recent years, lessening their ability to make a
market in these securities, which has resulted in increased municipal security
price volatility and trading costs, particularly during periods of economic or
market stress.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
Asset-backed and mortgage-backed securities may be less liquid than other bonds,
and may be more sensitive than other bonds to the market’s perception of issuers
and creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund. Privately issued mortgage-backed securities and asset-backed
securities may be less liquid than other types of securities and the Fund may be
unable to sell these securities at the time or price it desires. During periods
of market stress or high redemptions, the Fund may be forced to sell these
securities at significantly reduced prices, resulting in losses. Liquid
privately issued mortgage-backed securities and asset-backed securities can
become illiquid during periods of market stress. Privately issued
mortgage-related securities are not subject to the same underwriting
requirements as those with government or government-sponsored entity guarantees
and, therefore, mortgage loans underlying privately issued mortgage-related
securities may have less favorable collateral, credit risk, liquidity risk or
other underwriting characteristics, and wider variances in interest rate, term,
size, purpose and borrower characteristics. The Fund may invest in mortgage
pools that include subprime mortgages, which are loans made to borrowers with
weakened credit histories or with lower capacity to make timely payments on
their mortgages. Liquidity and credit risks are even greater for mortgage pools
that include subprime mortgages.
SOVEREIGN DEBT RISK is the risk that the
Fund may invest in securities issued or guaranteed by foreign governmental
entities (known as sovereign debt securities). These investments are subject to
the risk of payment delays or defaults, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, large debt
positions relative to the country’s economy or failure to implement economic
reforms. There is no legal or bankruptcy process for collecting sovereign debt.
ZERO COUPON OR PAY-IN-KIND
SECURITIES RISK The value, interest
rates, and liquidity of non-cash paying instruments, such as zero coupon and
pay-in-kind securities, are subject to greater fluctuation than other types of
securities. The higher yields and interest rates on pay-in-kind securities
reflect the payment deferral and increased credit risk associated with such
instruments and that such investments may represent a higher credit risk than
loans that periodically pay interest.
CONVERTIBLE SECURITIES RISK The market values of
convertible securities are affected by market interest rates, the risk of actual
issuer default on interest or principal payments and the value of the underlying
common stock into which the convertible security may be converted. Additionally,
a convertible security is subject to the same types of market and issuer risks
as apply to the underlying common stock. Certain convertible securities are
subject to involuntary conversions and may undergo principal write-downs upon
the occurrence
|
| |
NORTHERN FUNDS PROSPECTUS |
|
87 |
FIXED
INCOME FUND
of
triggering events, and, as a result, are subject to an increased risk of loss.
Convertible securities may be rated below investment grade.
LOAN PARTICIPATIONS RISK A loan participation
agreement involves the purchase of a share of a loan made by a bank to a company
in return for a corresponding share of a borrower’s principal and interest
payments. The principal risk associated with acquiring loan participation
interests is the credit risk associated with the underlying corporate borrower.
There is also a risk that there may not be a readily available market for loan
participation interests and, in some cases, this could result in the Fund
disposing of such securities at a substantial discount from face value or
holding such securities until maturity.
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other factors.
|
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory policies.
|
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to the increased risk of an issuer’s inability to make principal and
interest payments.
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable and will
vary as the principal and/or interest is periodically adjusted based on the rate
of inflation. If the index measuring inflation falls, the interest payable on
these securities will be reduced.
INVESTMENT COMPANY RISK is the risk that the
Fund will be subject to the risks associated with investments in registered
investment companies, including ETFs (together, “Underlying Funds”), such as the
possibility that the value of the securities or instruments held by the
Underlying Funds could decrease. In addition, passively managed Underlying Funds
may not track the performance of their respective reference assets and may hold
troubled securities or other investments. Investments in Underlying Funds may
involve duplication of management fees and certain other expenses, as the Fund
indirectly bears its proportionate share of any expenses paid by the Underlying
Funds in which it invests. Further, investments in ETFs are subject to the
following additional risks: (1) an ETF’s shares may trade above or below
its net asset value; (2) an active
|
| |
88 |
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NORTHERN FUNDS
PROSPECTUS |
FIXED
INCOME FUND
trading
market for the ETF’s shares may not develop or be maintained; and
(3) trading an ETF’s shares may be halted by the listing exchange. NTI may
be subject to potential conflicts of interest with respect to investments in
affiliated Underlying Funds, which are Underlying Funds managed by NTI or its
affiliates, because the fees paid to NTI by some affiliated Underlying Funds may
be higher than the fees paid by other Underlying Funds.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others, which may make them difficult or
impossible to sell at the time and the price that the Fund would like and the
Fund may have to lower the price, sell other securities instead or forgo an
investment opportunity, adversely affecting the value of the Fund’s investments
and its returns. In addition, less liquid securities may be more difficult to
value and markets may become less liquid when there are fewer interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities, and if the Fund is forced to sell these investments to meet
redemption requests or for other cash needs, the Fund may suffer a loss. Banking
regulations may also cause certain dealers to reduce their inventories of
certain securities, which may further decrease the Fund’s ability to buy or sell
such securities. All of these risks may increase during periods of market
turmoil and could have a negative effect on the Fund’s performance.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30, 2024
was (0.39)%. For the periods shown in the bar
chart above, the highest quarterly
return was 7.11% in the fourth quarter of
2023, and the lowest quarterly
return was (6.35)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
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1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
6.00 |
% |
|
|
1.73 |
% |
|
|
1.97 |
% |
Returns
after taxes on distributions |
|
|
4.37 |
% |
|
|
0.48 |
% |
|
|
0.67 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
3.51 |
% |
|
|
0.81 |
% |
|
|
0.95 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact
of
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NORTHERN FUNDS PROSPECTUS |
|
89 |
FIXED
INCOME FUND
state and local
taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Fixed Income Fund. Christian Roth, Executive Vice President of NTI, Bilal
Memon, Senior Vice President of NTI, Chaitanya Mandavakuriti, Senior Vice
President of NTI, Eric R. Williams, Senior Vice President of NTI, and Antulio
Bomfim, Senior Vice President of NTI, have been managers of the Fund since July
2024, July 2023, July 2024, July 2023 and July 2023,
respectively. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
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NORTHERN FUNDS
PROSPECTUS |
HIGH
YIELD FIXED INCOME FUND
INVESTMENT
OBJECTIVE
The
Fund seeks a high level of current income. In doing so, the Fund also may
consider the potential for capital
appreciation.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
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Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.58% |
|
| |
Other
Expenses |
|
|
0.06% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.02% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.65% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.04)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.61% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.60%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The
Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (taking into account the expense
reimbursement arrangement for one year, if applicable). Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
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1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$62 |
|
|
|
$204 |
|
|
|
$358 |
|
|
|
$807 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 33.79% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking to achieve its investment objective, the Fund will invest, under normal
circumstances, at least 80% of its net assets in lower quality bonds and other
fixed-income securities (commonly referred to as “junk bonds”). These may
include:
∎ |
|
Obligations
of U.S. and foreign corporations and
banks; |
∎ |
|
Obligations
of U.S. state and local governments, and foreign
governments; |
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises, including obligations that are issued by private issuers that
are guaranteed as to principal and interest by the U.S. or foreign
governments, their agencies or
instrumentalities; |
∎ |
|
Senior
and subordinated bonds and
debentures; |
∎ |
|
Zero
coupon, pay-in-kind and capital appreciation
bonds; |
∎ |
|
Convertible
securities, preferred stock, structured securities and loan
participations; |
∎ |
|
Inflation-indexed
securities; |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
91 |
HIGH
YIELD FIXED INCOME FUND
∎ |
|
Warrants,
rights and other equity securities that are acquired in connection with
the Fund’s investments in debt or convertible securities;
and |
∎ |
|
Repurchase
agreements relating to the above
instruments. |
Lower
quality or below-investment grade securities are rated BB, Ba or lower by a
Nationally Recognized Statistical Rating Organization (“NRSRO”), or unrated
securities determined to be of comparable quality by NTI. Credit ratings are
determined at the time of purchase.
There
is no minimum rating for a security purchased or held by the Fund, and the Fund
may purchase securities that are in default.
The
Fund may also invest in securities that are subject to resale restrictions such
as those contained in Rule 144A promulgated under the Securities Act of
1933.
In
buying and selling securities for the Fund, the Fund’s investment adviser uses a
relative value approach. This approach involves an analysis of general economic
and market conditions. It also involves the use of models that analyze and
compare expected returns and assumed risks. Under the relative value approach,
NTI will emphasize particular securities and types of securities (such as
asset-backed, mortgage-backed and corporate securities) that the team believes
will provide a favorable return in light of the risks. NTI also may consider
obligations with a more favorable or improving credit or industry outlook that
provide the potential for capital appreciation.
The
Fund does not have any portfolio maturity limitation, and may invest its assets
from time to time in instruments with short, medium or long maturities. From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had a focused investment in the industrials
sector.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to the increased risk of an issuer’s inability to make principal and
interest payments.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign
|
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92 |
|
NORTHERN FUNDS
PROSPECTUS |
HIGH
YIELD FIXED INCOME FUND
currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
SOVEREIGN DEBT RISK is the risk that the
Fund may invest in securities issued or guaranteed by foreign governmental
entities (known as sovereign debt securities). These investments are subject to
the risk of payment delays or defaults, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, large debt
positions relative to the country’s economy or failure to implement economic
reforms. There is no legal or bankruptcy process for collecting sovereign debt.
ZERO COUPON OR PAY-IN-KIND SECURITIES
RISK
The value, interest rates, and liquidity of non-cash paying instruments, such as
zero coupon and pay-in-kind securities, are subject to greater fluctuation than
other types of securities. The higher yields and interest rates on pay-in-kind
securities reflect the payment deferral and increased credit risk associated
with such instruments and that such investments may represent a higher credit
risk than loans that periodically pay interest.
CONVERTIBLE SECURITIES RISK The market values of
convertible securities are affected by market interest rates, the risk of actual
issuer default on interest or principal payments and the value of the underlying
common stock into which the convertible security may be converted. Additionally,
a convertible security is subject to the same types of market and issuer risks
as apply to the underlying common stock. Certain convertible securities are
subject to involuntary conversions and may undergo principal write-downs
upon the occurrence of triggering events, and, as a result, are subject to an
increased risk of loss. Convertible securities may be rated below
investment grade.
DEFAULTED SECURITIES RISK Defaulted securities
pose a greater risk that principal will not be repaid than non-defaulted
securities.
Defaulted
securities and any securities received in an exchange for such securities may be
subject to restrictions on resale.
PREFERRED SECURITIES RISK Preferred securities are
subject to issuer-specific and market risks applicable generally to equity
securities. Preferred securities also may be subordinated to bonds or other debt
instruments, subjecting them to a greater risk of non-payment, may be less
liquid than many other securities, such as common stocks, and generally offer no
voting rights with respect to the issuer.
LOAN PARTICIPATIONS RISK A loan participation
agreement involves the purchase of a share of a loan made by a bank to a company
in return for a corresponding share of a borrower’s principal and interest
payments. The principal risk associated with acquiring loan participation
interests is the credit risk associated with the underlying corporate borrower.
There is also a risk that there may not be a readily available market for loan
participation interests and, in some cases, this could result in the Fund
disposing of such securities at a substantial discount from face value or
holding such securities until maturity.
REPURCHASE AGREEMENTS RISK is the risk that the
counterparty may default on its obligation to repurchase the underlying
instruments collateralizing the repurchase
|
| |
NORTHERN FUNDS PROSPECTUS |
|
93 |
HIGH
YIELD FIXED INCOME FUND
agreement,
which may cause the Fund to lose money. This risk is magnified to the extent
that a repurchase agreement is secured by securities other than cash or U.S.
Government securities.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable and will
vary as the principal and/or interest is periodically adjusted based on the rate
of inflation. If the index measuring inflation falls, the interest payable on
these securities will be reduced.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others, which may make them difficult or
impossible to sell at the time and the price that the Fund would like and the
Fund may have to lower the price, sell other securities instead or forgo an
investment opportunity, adversely affecting the value of the Fund’s investments
and its returns. In addition, less liquid securities may be more difficult to
value and markets may become less liquid when there are fewer interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities, and if the Fund is forced to sell these investments to meet
redemption requests or for other cash needs, the Fund may suffer a loss. Banking
regulations may also cause certain dealers to reduce their inventories of
certain securities, which may further decrease the Fund’s ability to buy or sell
such securities. All of these risks may increase during periods of market
turmoil and could have a negative effect on the Fund’s performance.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
STRUCTURED SECURITIES RISK is the risk structured
securities may be more volatile, less liquid and more difficult to price
accurately than less complex securities due to their derivative nature. As a
result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
While income earned on municipal securities is generally not subject to federal
tax, the failure of a municipal security issuer to comply with applicable tax
requirements may make income paid thereon taxable, resulting in a decline in the
security’s value. In addition, there could be changes in applicable tax laws or
tax treatments that reduce or eliminate the current federal income tax exemption
on municipal securities or otherwise adversely affect the current federal or
state tax status of municipal securities. The secondary market for municipal
obligations also tends to be less well-developed and less liquid than many other
securities markets, which may limit the Fund’s ability to sell its municipal
obligations at attractive prices. Further, inventories of municipal securities
held by brokers and dealers have decreased in recent years,
|
| |
94 |
|
NORTHERN FUNDS
PROSPECTUS |
HIGH
YIELD FIXED INCOME FUND
lessening
their ability to make a market in these securities, which has resulted in
increased municipal security price volatility and trading costs, particularly
during periods of economic or market
stress.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 2.71%. For the periods shown in the bar chart above,
the highest quarterly
return was 12.09% in the second quarter of
2020, and the lowest quarterly
return was (16.22)% in the first quarter of
2020.
AVERAGE ANNUAL TOTAL
RETURN
(For the periods ended December 31,
2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
13.83 |
% |
|
|
5.43 |
% |
|
|
4.03 |
% |
Returns
after taxes on distributions |
|
|
10.74 |
% |
|
|
2.87 |
% |
|
|
1.41 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
8.06 |
% |
|
|
3.06 |
% |
|
|
1.88 |
% |
Bloomberg
Universal Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
6.17 |
% |
|
|
1.44 |
% |
|
|
2.08 |
% |
Bloomberg
U.S. Corporate High Yield 2% Issuer Capped Index (reflects
no deduction for fees, expenses, or taxes) |
|
|
13.44 |
% |
|
|
5.35 |
% |
|
|
4.59 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg U.S. Corporate
High Yield 2% Issuer Capped Index to the Bloomberg Universal Index in
connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGER. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the High Yield Fixed Income Fund. Eric R. Williams, Senior Vice President
of NTI, and Benjamin McCubbin, CFA, Vice President of NTI, have been managers of
the Fund since October 2016 and July 2024, respectively. The Northern Trust
Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may
also
|
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NORTHERN FUNDS PROSPECTUS |
|
95 |
HIGH
YIELD FIXED INCOME FUND
purchase
Shares Class shares of the Fund through an account at Northern Trust (or an
affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
96 |
|
NORTHERN FUNDS
PROSPECTUS |
SHORT
BOND FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to maximize total return (capital appreciation and income) with
minimal reasonable risk.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.38% |
|
| |
Other
Expenses |
|
|
0.07% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.03% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.45% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.05)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.40% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.40%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI, and to
reimburse a portion of the operating expenses of the Fund in an amount
equal to the acquired fund fees and expenses arising from the Fund’s
investments in other non-money market funds or exchange-traded funds
managed by NTI. These contractual limitations may not be terminated before
July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or
lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$41 |
|
|
|
$139 |
|
|
|
$247 |
|
|
|
$562 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 78.89% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund will seek capital appreciation and current income in its attempt to
maximize total return. In doing so, the Fund will invest, under normal
circumstances, at least 80% of its net assets in bonds and other fixed-income
securities. These may include:
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises, including obligations issued by private issuers that are
guaranteed as to principal and interest by the U.S. government, its
agencies or instrumentalities; |
∎ |
|
Obligations
of U.S. state and local governments, and foreign
governments; |
∎ |
|
Obligations
of domestic and foreign banks and
corporations; |
∎ |
|
Debentures
and convertible securities; |
∎ |
|
Mortgage
and other asset-backed
securities; |
∎ |
|
Inflation-indexed
securities; |
∎ |
|
Stripped
securities evidencing ownership of future interest or principal payments
on debt obligations; and |
∎ |
|
Repurchase
agreements relating to the above
instruments. |
The
Fund may also seek to obtain exposure to these securities through investments in
affiliated or unaffiliated investment companies, including exchange-traded funds
(“ETFs”).
Although
the Fund will generally invest primarily in investment grade domestic debt
obligations (i.e., obligations rated within the top four rating categories by a
Nationally Recognized Statistical Rating Organization (“NRSRO”) or of comparable
quality as determined by NTI), it may also invest up to 20% of its total assets
in domestic and foreign debt obligations that are rated below-investment grade
(commonly referred to as “junk bonds”). Credit ratings are determined at the
time of purchase.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
97 |
SHORT
BOND FUND
The
Fund may also invest in securities that are subject to resale restrictions such
as those contained in Rule 144A promulgated under the Securities Act of
1933.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as treasury, agency, asset-backed,
mortgage-related and corporate securities) that the team believes will provide a
favorable return in light of these
risks.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between one and three years.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors.
As of March 31, 2024, the Fund had a focused investment in the financials
sector.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal
|
| |
98 |
|
NORTHERN FUNDS
PROSPECTUS |
SHORT
BOND FUND
security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities. The secondary market for municipal obligations also tends to be less
well-developed and less liquid than many other securities markets, which may
limit the Fund’s ability to sell its municipal obligations at attractive prices.
Further, inventories of municipal securities held by brokers and dealers have
decreased in recent years, lessening their ability to make a market in these
securities, which has resulted in increased municipal security price volatility
and trading costs, particularly during periods of economic or market
stress.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
Asset-backed and mortgage-backed securities may be less liquid than other bonds,
and may be more sensitive than other bonds to the market’s perception of issuers
and creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund. Privately issued mortgage-backed securities and asset-backed
securities may be less liquid than other types of securities and the Fund may be
unable to sell these securities at the time or price it desires. During periods
of market stress or high redemptions, the Fund may be forced to sell these
securities at significantly reduced prices, resulting in losses. Liquid
privately issued mortgage-backed securities and asset-backed securities can
become illiquid during periods of market stress. Privately issued
mortgage-related securities are not subject to the same underwriting
requirements as those with government or government-sponsored entity guarantees
and, therefore, mortgage loans underlying privately issued mortgage-related
securities may have less favorable collateral, credit risk, liquidity risk or
other underwriting characteristics, and wider variances in interest rate, term,
size, purpose and borrower characteristics. The Fund may invest in mortgage
pools that include subprime mortgages, which are loans made to borrowers with
weakened credit histories or with lower capacity to make timely payments on
their mortgages. Liquidity and credit risks are even greater for mortgage pools
that include subprime mortgages.
SOVEREIGN DEBT RISK is the risk that the
Fund may invest in securities issued or guaranteed by foreign governmental
entities (known as sovereign debt securities). These investments are subject to
the risk of payment delays or defaults, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, large debt
positions relative to the country’s economy or failure to implement economic
reforms. There is no legal or bankruptcy process for collecting sovereign debt.
CONVERTIBLE SECURITIES RISK The market values
of convertible securities are affected by market interest rates, the risk of
actual issuer default on interest or principal payments and the value of the
underlying common stock into which the convertible security may be converted.
Additionally, a convertible security is subject to the same types of market and
issuer risks as apply to the underlying common stock. Certain convertible
securities are subject to involuntary conversions and may undergo principal
write-downs upon the occurrence of triggering events, and, as a result, are
subject to an increased risk of loss. Convertible securities may be rated below
investment grade.
REPURCHASE AGREEMENTS RISK is the risk that the
counterparty may default on its obligation to repurchase the underlying
instruments collateralizing the repurchase agreement, which may cause the Fund
to lose money. This risk is magnified to the extent that a repurchase agreement
is secured by securities other than cash or U.S. Government securities.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
99 |
SHORT
BOND FUND
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competition, and the availability and
cost of capital, among other
factors. |
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to the increased risk of an issuer’s inability to make principal and
interest payment.
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable and will
vary as the principal and/or interest is periodically adjusted based on the rate
of inflation. If the index measuring inflation falls, the interest payable on
these securities will be reduced.
INVESTMENT COMPANY RISK is the risk that the
Fund will be subject to the risks associated with investments in registered
investment companies, including ETFs (together, “Underlying Funds”), such as the
possibility that the value of the securities or instruments held by the
Underlying Funds could decrease. In addition, passively managed Underlying Funds
may not track the performance of their respective reference assets and may hold
troubled securities or other investments. Investments in Underlying Funds may
involve duplication of management fees and certain other expenses, as the Fund
indirectly bears its proportionate share of any expenses paid by the Underlying
Funds in which it invests. Further, investments in ETFs are subject to the
following additional risks: (1) an ETF’s shares may trade above or below
its net asset value; (2) an active trading market for the ETF’s shares may
not develop or be maintained; and (3) trading an ETF’s shares may be halted
by the listing exchange. NTI may be subject to potential conflicts of interest
with respect to investments in affiliated Underlying Funds, which are Underlying
Funds managed by NTI or its affiliates, because the fees paid to NTI by some
affiliated Underlying Funds may be higher than the fees paid by other Underlying
Funds.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others, which may make them difficult or
impossible to sell at the time and the price that the Fund would like and the
Fund may have to lower the price, sell other securities instead or forgo an
investment opportunity, adversely affecting the value of the Fund’s investments
and its returns. In addition, less liquid securities may be more difficult to
value and markets may become less liquid when there are fewer interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities, and if the Fund is forced to sell these investments to meet
redemption requests or for other cash needs, the Fund may suffer a loss. Banking
regulations may also cause certain dealers to reduce their
|
| |
100 |
|
NORTHERN FUNDS
PROSPECTUS |
SHORT
BOND FUND
inventories
of certain securities, which may further decrease the Fund’s ability to buy or
sell such securities. All of these risks may increase during periods of market
turmoil and could have a negative effect on the Fund’s
performance.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 1.53%. For the periods shown in the bar chart above,
the highest quarterly
return was 2.95% in the second quarter of
2020, and the lowest quarterly
return was (2.80)% in the first quarter of
2022.
AVERAGE ANNUAL TOTAL
RETURN
(For the periods ended December 31,
2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
5.06 |
% |
|
|
1.76 |
% |
|
|
1.34 |
% |
Returns
after taxes on distributions |
|
|
3.76 |
% |
|
|
0.90 |
% |
|
|
0.56 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
2.97 |
% |
|
|
0.98 |
% |
|
|
0.69 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
Bloomberg
1-3 Year U.S. Government/Credit Index (reflects no deduction for fees,
expenses, or taxes) |
|
|
4.61 |
% |
|
|
1.51 |
% |
|
|
1.27 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg 1-3 Year U.S.
Government/Credit Index to the Bloomberg U.S. Aggregate Bond Index in
connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Short Bond Fund. Bilal Memon,
|
| |
NORTHERN FUNDS PROSPECTUS |
|
101 |
SHORT
BOND FUND
Eric R.
Williams, Chaitanya Mandavakuriti and Antulio Bomfim, each a Senior Vice
President of NTI, have been managers of the Fund since July 2019, July
2023, July 2024 and July 2023, respectively. The Northern Trust Company, an
affiliate of NTI, serves as transfer agent, custodian and sub-administrator to
the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which
there is no minimum). The Fund reserves the right to waive these minimums.
You may also purchase Shares Class shares of the Fund through an account at
Northern Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
102 |
|
NORTHERN FUNDS
PROSPECTUS |
LIMITED
TERM U.S. GOVERNMENT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to maximize total return (capital appreciation and income) with
minimal reasonable risk.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.38% |
|
| |
Other
Expenses |
|
|
0.26% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.22% |
|
| |
Total Annual Fund Operating Expenses |
|
|
0.64% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.22)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.42% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.40%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI, and to
reimburse a portion of the operating expenses of the Fund in an amount
equal to the acquired fund fees and expenses arising from the Fund’s
investments in other non-money market funds or exchange-traded funds
managed by NTI. These contractual limitations may not be terminated before
July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$43 |
|
|
|
$183 |
|
|
|
$335 |
|
|
|
$777 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 46.49% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund will seek capital appreciation and current income in its attempt to
maximize total return. In doing so, the Fund will invest, under normal
circumstances, at least 80% of its net assets in securities issued or guaranteed
by the U.S. government or by its agencies, instrumentalities or sponsored
enterprises and repurchase agreements relating to such securities. These may
include:
∎ |
|
U.S.
Treasury bills, notes and
bonds; |
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises, including obligations that are issued by private issuers that
are guaranteed as to principal and interest by the U.S. government, its
agencies or instrumentalities; |
∎ |
|
Mortgage-related
securities issued or guaranteed by the U.S. government or by its agencies,
instrumentalities or sponsored enterprises, including U.S. agency
mortgage-backed pass through securities (“MBS”) that may not be backed by
the full faith and credit of the U.S.
government; |
∎ |
|
Stripped
securities evidencing ownership of future interest or principal payments
on obligations of the U.S. government or its agencies, instrumentalities
or sponsored enterprises; |
∎ |
|
Obligations
of supranational organizations (such as the World Bank);
and |
∎ |
|
Inflation-indexed
securities. |
The
Fund may also seek to obtain all or a portion of the Fund’s exposure to MBS by
investing in shares of one or more affiliated or unaffiliated investment
companies, including exchange-traded funds
(“ETFs”).
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns
and
|
| |
NORTHERN FUNDS PROSPECTUS |
|
103 |
LIMITED
TERM U.S. GOVERNMENT FUND
assumed
risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as treasury, agency, asset-backed and
mortgage-related securities) that the team believes will provide a favorable
return in light of these risks.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between two and five years.
The
Fund may also invest in securities issued by U.S. government-sponsored
enterprises. Obligations issued by U.S. government-sponsored enterprises are
neither issued nor guaranteed by the U.S. Treasury and therefore are not backed
by the full faith and credit of the United
States.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
|
| |
104 |
|
NORTHERN FUNDS
PROSPECTUS |
LIMITED
TERM U.S. GOVERNMENT FUND
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable and will
vary as the principal and/or interest is periodically adjusted based on the rate
of inflation. If the index measuring inflation falls, the interest payable on
these securities will be reduced.
INVESTMENT COMPANY RISK is the risk that the
Fund will be subject to the risks associated with investments in registered
investment companies, including ETFs (together, “Underlying Funds”), such as the
possibility that the value of the securities or instruments held by the
Underlying Funds could decrease. In addition, passively managed Underlying Funds
may not track the performance of their respective reference assets and may hold
troubled securities or other investments. Investments in Underlying Funds may
involve duplication of management fees and certain other expenses, as the Fund
indirectly bears its proportionate share of any expenses paid by the Underlying
Funds in which it invests. Further, investments in ETFs are subject to the
following additional risks: (1) an ETF’s shares may trade above or below
its net asset value; (2) an active trading market for the ETF’s shares may
not develop or be maintained; and (3) trading an ETF’s shares may be halted
by the listing exchange. NTI may be subject to potential conflicts of interest
with respect to investments in affiliated Underlying Funds, which are Underlying
Funds managed by NTI or its affiliates, because the fees paid to NTI by some
affiliated Underlying Funds may be higher than the fees paid by other Underlying
Funds.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
Asset-backed and mortgage-backed securities may be less liquid than other bonds,
and may be more sensitive than other bonds to the market’s perception of issuers
and creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund. Privately issued mortgage-backed securities and asset-backed
securities may be less liquid than other types of securities and the Fund may be
unable to sell these securities at the time or price it desires. During periods
of market stress or high redemptions, the Fund may be forced to sell these
securities at significantly reduced prices, resulting in losses. Liquid
privately issued mortgage-backed securities and asset-backed securities can
become illiquid during periods of market stress. Privately issued
mortgage-related securities are not subject to the same underwriting
requirements as those with government or government-sponsored entity guarantees
and, therefore, mortgage loans underlying privately issued mortgage-related
securities may have less favorable collateral, credit risk, liquidity risk or
other underwriting characteristics, and wider variances in interest rate, term,
size, purpose and borrower characteristics. The Fund may invest in mortgage
pools that include subprime mortgages, which are loans made to borrowers with
weakened credit histories or with lower capacity to make timely payments on
their mortgages. Liquidity and credit risks are even greater for mortgage pools
that include subprime mortgages.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a
|
| |
NORTHERN FUNDS PROSPECTUS |
|
105 |
LIMITED
TERM U.S. GOVERNMENT FUND
broad-based
securities market index and a style-specific index (one reflecting the market
segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 0.77%. For the periods shown in the bar chart above,
the highest quarterly
return was 3.38% in the first quarter of
2020, and the lowest quarterly
return was (3.48)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
4.00 |
% |
|
|
0.86 |
% |
|
|
0.73 |
% |
Returns
after taxes on distributions |
|
|
2.80 |
% |
|
|
0.30 |
% |
|
|
0.22 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
2.35 |
% |
|
|
0.42 |
% |
|
|
0.34 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
Bloomberg
1-5 Year U.S. Government Index (reflects no deduction for fees, expenses,
or taxes) |
|
|
4.39 |
% |
|
|
1.18 |
% |
|
|
1.13 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg 1-5 Year U.S.
Government Index to the Bloomberg U.S. Aggregate Bond Index in connection
with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Limited Term U.S. Government Fund. Michael R. Chico and David Alongi, CFA,
each a Senior Vice President of NTI, have been managers of the Fund since July
2013 and July 2023, respectively. The Northern Trust Company, an affiliate of
NTI, serves as transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be |
|
| |
106 |
|
NORTHERN FUNDS
PROSPECTUS |
LIMITED
TERM U.S. GOVERNMENT FUND
|
charged
$15 for each wire redemption unless the designated bank account is
maintained at Northern Trust or an affiliated bank. Call 800-595-9111 for
instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
107 |
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to maximize total return (capital appreciation and income), adjusted
for the federal maximum tax rate, to the extent consistent with preservation of
principal.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or
other forms of compensation to a financial intermediary for transactions in
Shares Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.23% |
|
| |
Other
Expenses |
|
|
0.05% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.01% |
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.29% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.03)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.26% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.25%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$27 |
|
|
|
$90 |
|
|
|
$160 |
|
|
|
$365 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 43.74% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund will, under normal circumstances, invest primarily (and not less than 80%
of its net assets) in fixed-income securities. These
include:
∎ |
|
Obligations
of U.S. state and local governments, and foreign
governments; |
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises; |
∎ |
|
Commercial
paper and other obligations of domestic and foreign banks and
corporations; |
∎ |
|
Zero
coupon bonds, debentures, preferred stock and convertible
securities; |
∎ |
|
Inflation-indexed
securities; |
∎ |
|
Mortgage
and other asset-backed securities;
and |
∎ |
|
Repurchase
agreements relating to the above
instruments. |
The
Fund invests in investment grade domestic debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality as determined
by NTI). Credit ratings are determined at the time of purchase. The Fund’s
average portfolio quality is expected to be “A” or better. The Fund will focus
primarily on U.S. securities, but may also invest in fixed-income securities of
foreign issuers. The Fund’s investments in foreign securities will consist only
of U.S. dollar-denominated securities.
The
Fund seeks to provide investors in higher tax brackets with more after-tax yield
than a money market fund with the potential for capital appreciation. The Fund
is not a money market fund, and its NAV will fluctuate.
|
| |
108 |
|
NORTHERN FUNDS
PROSPECTUS |
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME FUND
The
Fund seeks to maximize after-tax returns by pursuing what NTI believes to be the
best net after-tax total return opportunities in both taxable and tax-exempt
securities for an investor in the maximum federal tax bracket. For example,
during certain market cycles a two-year corporate security may offer a
significantly higher yield to maturity both gross of taxes and net of the
highest federal tax rate versus a two-year tax-exempt municipal security. In
this situation, the Fund may purchase the corporate security if a clear net of
tax yield advantage can be determined over tax-exempt municipal alternatives.
The Adviser will seek to capture such net of tax yield advantages on an
opportunistic basis within the Fund’s maturity limitations described
below.
The
Fund currently anticipates that it will invest at least 50% of its total assets
in municipal securities and other related investments, the income from which is
exempt from regular U.S. federal income
tax.
The
Fund is not limited in the amount of its assets that may be invested in
alternative minimum tax (“AMT”) obligations (also known as private activity
bonds), which pay interest that may be treated as an item of tax preference to
shareholders under the federal AMT.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between six and eighteen months. Under normal circumstances, the Fund will
invest only in securities with a duration of three years or less at the time of
purchase. NTI may adjust the Fund’s holdings based on actual or anticipated
changes in interest rates or credit quality, and may shorten the Fund’s duration
below six months based on NTI’s interest rate outlook or adverse market
conditions.
The
Fund may also invest in securities that are subject to resale restrictions such
as those contained in Rule 144A promulgated under the Securities Act of
1933.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as general obligation bonds,
corporate-backed municipal bonds, revenue obligation bonds, and other municipal
securities, treasury, agency, asset-backed, mortgage-backed and corporate
securities) that the team believes will provide a favorable net after-tax return
in light of these risks.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities. The secondary market for municipal obligations also tends to be less
well-developed and less liquid than many other securities markets, which may
limit the Fund’s ability to sell its municipal obligations at attractive prices.
Further, inventories of municipal securities
|
| |
NORTHERN FUNDS PROSPECTUS |
|
109 |
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME FUND
held
by brokers and dealers have decreased in recent years, lessening their ability
to make a market in these securities, which has resulted in increased municipal
security price volatility and trading costs, particularly during periods of
economic or market stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
ALTERNATIVE MINIMUM TAX RISK is the risk that a
portion of the Fund’s otherwise tax-exempt income may be taxable to those
shareholders subject to the federal alternative minimum tax.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
Asset-backed and mortgage-backed securities may be less liquid than other bonds,
and may be more sensitive than other bonds to the market’s perception of issuers
and creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund. Privately issued mortgage-backed securities and asset-backed
securities may be less liquid than other types of securities and the Fund may be
unable to sell these securities at the time or price it desires. During periods
of market stress or high redemptions, the Fund may be forced to sell these
securities at significantly reduced prices, resulting in losses. Liquid
privately issued mortgage-backed securities and asset-backed securities can
become illiquid during periods of market stress. Privately issued
mortgage-related securities are not subject to the same underwriting
requirements as those with government or government-sponsored entity guarantees
and, therefore, mortgage loans underlying privately issued mortgage-related
securities may have less favorable collateral, credit risk, liquidity risk or
other underwriting characteristics, and wider variances in interest rate, term,
size, purpose and borrower characteristics. The Fund may invest in mortgage
pools that include subprime mortgages, which are loans made to borrowers with
weakened credit histories or with lower capacity to make timely payments on
their mortgages. Liquidity and credit risks are even greater for mortgage pools
that include subprime mortgages.
SOVEREIGN DEBT RISK is the risk that the
Fund may invest in securities issued or guaranteed by foreign governmental
entities (known as sovereign debt securities). These investments are subject to
the risk of payment delays or defaults, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, large debt
positions relative to the country’s economy or failure to implement economic
reforms. There is no legal or bankruptcy process for collecting sovereign debt.
ZERO COUPON OR PAY-IN-KIND
SECURITIES RISK The value, interest
rates, and liquidity of non-cash paying instruments, such as zero coupon and
pay-in-kind securities, are subject to greater fluctuation than other types of
securities. The higher yields and interest rates on pay-in-kind securities
reflect the
|
| |
110 |
|
NORTHERN FUNDS
PROSPECTUS |
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME FUND
payment
deferral and increased credit risk associated with such instruments and that
such investments may represent a higher credit risk than loans that periodically
pay interest.
CONVERTIBLE SECURITIES RISK The market values
of convertible securities are affected by market interest rates, the
risk of actual issuer default on interest or principal payments and the
value of the underlying common stock into which the convertible security
may be converted. Additionally, a convertible security is subject to the
same types of market and issuer risks as apply to the underlying common
stock. Certain convertible securities are subject to involuntary
conversions and may undergo principal write-downs upon the occurrence of
triggering events, and, as a result, are subject to an increased risk of
loss. Convertible securities may be rated below investment grade.
PREFERRED SECURITIES RISK Preferred
securities are subject to issuer-specific and market risks applicable
generally to equity securities. Preferred securities also may be
subordinated to bonds or other debt instruments, subjecting them to a
greater risk of non-payment, may be less liquid than many other securities,
such as common stocks, and generally offer no voting rights with respect to
the issuer.
REPURCHASE AGREEMENTS RISK is the risk that the
counterparty may default on its obligation to repurchase the underlying
instruments collateralizing the repurchase agreement, which may cause the Fund
to lose money. This risk is magnified to the extent that a repurchase agreement
is secured by securities other than cash or U.S. Government securities.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable and will
vary as the principal and/or interest is periodically adjusted based on the rate
of inflation. If the index measuring inflation falls, the interest payable on
these securities will be reduced.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
|
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NORTHERN FUNDS PROSPECTUS |
|
111 |
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME FUND
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index, two style-specific indices
(reflecting the market segments in which the Fund invests) and a custom blended
benchmark that reflects the investment instruments in which the Fund invests, in
that order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 1.79%. For the periods shown in the bar chart above,
the highest quarterly
return was 1.80% in the fourth quarter of
2023, and the lowest quarterly
return was (1.46)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
4.81 |
% |
|
|
1.53 |
% |
|
|
1.16 |
% |
Returns
after taxes on distributions |
|
|
4.19 |
% |
|
|
1.26 |
% |
|
|
0.95 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
3.36 |
% |
|
|
1.24 |
% |
|
|
0.95 |
% |
Bloomberg
U.S. Municipal Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
ICE
BofA 6-12 Month Municipal Securities Index (reflects no deduction for
fees, expenses, or taxes) |
|
|
3.35 |
% |
|
|
1.37 |
% |
|
|
1.02 |
% |
ICE
BofA 1-3 Year US Municipal Securities Index (reflects no deduction for
fees, expenses, or taxes) |
|
|
3.31 |
% |
|
|
1.31 |
% |
|
|
1.11 |
% |
75%
ICE BofA 6-12 Month Municipal Securities Index and 25% ICE BofA
1-3 Year Municipal Securities Index (reflects no deduction for fees,
expenses, or taxes) |
|
|
3.34 |
% |
|
|
1.35 |
% |
|
|
1.04 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the 75% ICE BofA 6-12 Month
Municipal Securities Index and 25% ICE BofA 1-3 Year Municipal Securities
Index to the Bloomberg U.S. Municipal Bond Index in connection with
new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGER.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the Tax-Advantaged Ultra-Short Fixed Income Fund. Adam M. Shane, CFA,
Timothy Blair, CFA, Bilal Memon, and Morten Olsen, each a Senior Vice President
of NTI, have been managers of the Fund since July 2022, July 2023, July
2023, and July 2024, respectively. The Northern Trust Company, an affiliate of
NTI, serves as transfer agent, custodian and sub-administrator to the fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an
|
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112 |
|
NORTHERN FUNDS
PROSPECTUS |
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME FUND
IRA;
$250 under the Automatic Investment Plan; and $500 for employees of Northern
Trust and its affiliates). The minimum subsequent investment is $50 (except for
reinvestments of distributions for which there is no minimum). The Fund reserves
the right to waive these minimums. You may also purchase Shares
Class shares of the Fund through an account at Northern Trust (or an
affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions may be taxable as ordinary income or capital gains.
However,
the Fund currently anticipates that a portion of its income dividends will be
“exempt interest dividends” that are generally exempt from regular federal
income tax. In certain instances, dividends paid by the Fund, while exempt from
regular federal income tax, may be subject to the federal AMT. State and local
income taxes may apply to all or a portion of the exempt-interest dividends paid
by the Fund. Tax exempt institutions, IRAs and other tax advantaged retirement
accounts will not gain an additional benefit through investment in the Fund
because such investors are already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
113 |
ULTRA-SHORT
FIXED INCOME FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to maximize total return (capital appreciation and income) to the
extent consistent with preservation of
principal.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
|
|
|
None |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.23% |
|
| |
Other
Expenses |
|
|
0.06% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.02% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.30% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.04)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.26% |
|
(1) |
The
Total Annual Fund Operating Expenses do not correlate to the ratio of
expenses to average net assets as reported in the “Financial Highlights”
section of the Prospectus, which reflects the operating expenses of the
Fund and does not include Acquired Fund Fees and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.25%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31,
2025 without the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or
lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$27 |
|
|
|
$92 |
|
|
|
$165 |
|
|
|
$377 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 21.16% of the average
value of its portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund will, under normal circumstances, invest primarily (and not less than 80%
of its net assets) in fixed-income securities. These
include:
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises; |
∎ |
|
Obligations
of U.S. state and local governments, and foreign
governments; |
∎ |
|
Commercial
paper and other obligations of domestic and foreign banks and
corporations; |
∎ |
|
Zero
coupon bonds and debentures; |
∎ |
|
Inflation-indexed
securities; and |
∎ |
|
Mortgage
and other asset-backed
securities. |
Under
normal market conditions, the Fund will invest at least 25% of its total assets
in securities issued by companies in the financial services industry. Companies
in the financial services industry include but are not limited to U.S. and
non-U.S. companies involved in banking, mortgage, consumer or specialized
finance, investment banking, securities brokerage, asset management and custody,
insurance, financial investment, real estate and mortgage finance and financial
conglomerates, and related asset-backed
securities.
The
Fund invests in investment grade domestic debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality as determined
by NTI). Credit ratings are determined at the time of purchase. The Fund’s
average portfolio is expected to be “A”
|
| |
114 |
|
NORTHERN FUNDS
PROSPECTUS |
ULTRA-SHORT
FIXED INCOME FUND
or
better. The Fund will focus primarily on U.S. securities, but may invest in
fixed-income securities of foreign issuers. The Fund’s investments in foreign
securities will consist only of U.S. dollar-denominated securities. The Fund may
also invest in securities that are subject to resale restrictions such as those
contained in Rule 144A promulgated under the Securities Act of
1933.
The
Fund seeks to provide investors with more yield than a money market fund with
the potential for capital appreciation. The Fund is not a money market fund, and
its NAV will fluctuate.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as treasury, agency, asset-backed,
mortgage-backed and corporate securities) that the team believes will provide a
favorable return in light of these
risks.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between six and eighteen months. Under normal circumstances, the Fund will
invest only in securities with a duration of three years or less at the time of
purchase. NTI may adjust the Fund’s holdings based on actual or anticipated
changes in interest rates or credit quality, and may shorten the Fund’s duration
below six months based on NTI’s interest rate outlook or adverse market
conditions.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
FINANCIAL SERVICES INDUSTRY CONCENTRATION
RISK
is the risk that, because the Fund will invest under normal market conditions at
least 25% of its total assets in the financial services industry, the Fund will
be subject to greater risk of loss by economic, business, political or other
developments which generally affect this industry. Specifically, the Fund is
vulnerable to conditions that impact companies in the financial services
industry, such as increased competition impacting market shares and prices,
company mergers increasing industry interconnectedness, and cybersecurity
attacks exposing protected information. Changes in both domestic and foreign
government regulation and interest rates and economic downturns, among other
factors, can have a significant negative effect on issuers in the financial
services industry, including the price of the issuer’s securities or ability to
meet their payment obligations. Because the Fund concentrates its investments in
the financial services industry, it will be subject to greater risk of loss than
if it were diversified across different industries.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will
|
| |
NORTHERN FUNDS PROSPECTUS |
|
115 |
ULTRA-SHORT
FIXED INCOME FUND
tend
to be higher. A Fund’s yield will vary as short-term securities in its portfolio
mature and the proceeds are reinvested in securities with different interest
rates. In general, securities with longer maturities or durations are more
sensitive to interest rate changes. A general rise in interest rates may cause
investors to move out of fixed income securities on a large scale, which could
adversely affect the price and liquidity of fixed income securities and could
also result in increased redemptions for the Fund. During periods when inflation
rates are high or rising, or during periods of low interest rates, the Fund may
be subject to a greater risk of rising interest rates. Changing interest rates
may have unpredictable effects on the markets and the Fund’s investments, may
result in heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund
performance.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK
Asset-backed and mortgage-backed securities may be less liquid than other bonds,
and may be more sensitive than other bonds to the market’s perception of issuers
and creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund. Privately issued mortgage-backed securities and asset-backed
securities may be less liquid than other types of securities and the Fund may be
unable to sell these securities at the time or price it desires. During periods
of market stress or high redemptions, the Fund may be forced to sell these
securities at significantly reduced prices, resulting in losses. Liquid
privately issued mortgage-backed securities and asset-backed securities can
become illiquid during periods of market stress. Privately issued
mortgage-related securities are not subject to the same underwriting
requirements as those with government or government-sponsored entity guarantees
and, therefore, mortgage loans underlying privately issued mortgage-related
securities may have less favorable collateral, credit risk, liquidity risk or
other underwriting characteristics, and wider variances in interest rate, term,
size, purpose and borrower characteristics. The Fund may invest in mortgage
pools that include subprime mortgages, which are loans made to borrowers with
weakened credit histories or with lower capacity to make timely payments on
their mortgages. Liquidity and credit risks are even greater for mortgage pools
that include subprime mortgages.
SOVEREIGN DEBT RISK is the risk that the
Fund may invest in securities issued or guaranteed by foreign governmental
entities (known as sovereign debt securities). These investments are subject to
the risk of payment delays or defaults, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, large debt
positions relative to the country’s economy or failure to implement economic
reforms. There is no legal or bankruptcy process for collecting sovereign debt.
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
ZERO COUPON OR PAY-IN-KIND
SECURITIES RISK The value, interest
rates, and liquidity of non-cash paying instruments, such as zero coupon and
pay-in-kind securities, are subject to greater fluctuation than other types of
securities. The higher yields and interest rates on pay-in-kind securities
reflect the payment deferral and increased credit risk associated with such
instruments and that such investments may represent a higher credit
risk than loans that periodically pay interest.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
|
| |
116 |
|
NORTHERN FUNDS
PROSPECTUS |
ULTRA-SHORT
FIXED INCOME FUND
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable and will
vary as the principal and/or interest is periodically adjusted based on the rate
of inflation. If the index measuring inflation falls, the interest payable on
these securities will be reduced.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities. The secondary market for municipal obligations also tends to be less
well-developed and less liquid than many other securities markets, which may
limit the Fund’s ability to sell its municipal obligations at attractive prices.
Further, inventories of municipal securities held by brokers and dealers have
decreased in recent years, lessening their ability to make a market in these
securities, which has resulted in increased municipal security price volatility
and trading costs, particularly during periods of economic or market stress.
As with any mutual fund, it is possible to lose money on an
investment in the Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar
chart and table that follow provide an indication of the risks of investing in
the Fund by showing (A) changes in the performance of the Fund from year to
year, and (B) how the average annual total returns of the Fund compare to
those of a broad-based securities market index and a style-specific index (one
reflecting the market segments in which the Fund invests), in that
order.
The Fund’s
past performance, before and after taxes, is not necessarily an indication of
how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds
or by calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year
to date total return for the six months ended June 30,
2024 was 3.04%. For the periods
shown in the bar chart above, the highest
quarterly return was 2.78% in the
second
quarter of 2020, and the lowest
quarterly return was (1.42)% in the
first
quarter of 2022.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
117 |
ULTRA-SHORT
FIXED INCOME FUND
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
6.29 |
% |
|
|
2.22 |
% |
|
|
1.67 |
% |
Returns
after taxes on distributions |
|
|
4.61 |
% |
|
|
1.37 |
% |
|
|
0.98 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
3.70 |
% |
|
|
1.34 |
% |
|
|
0.98 |
% |
Bloomberg
Global Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
5.74 |
% |
|
|
(0.32 |
)% |
|
|
0.38 |
% |
ICE
BofA 1-Year U.S. Treasury Note Index (reflects no deduction for fees,
expenses, or taxes) |
|
|
4.74 |
% |
|
|
1.66 |
% |
|
|
1.18 |
% |
(1) |
Effective
July 31, 2024, the Fund changed its broad-based securities market index
from the ICE BofA 1-Year U.S. Treasury Note Index to the Bloomberg Global
Aggregate Bond Index in connection with new regulatory
requirements. |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local
taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold
their shares through tax-advantaged arrangements, such as 401(k) plans or
individual retirement accounts.
In
calculating the federal income taxes due on redemptions, capital gains taxes
resulting from redemptions are subtracted from the redemption proceeds and the
tax benefits from capital losses resulting from the redemptions are added to the
redemption proceeds. Under certain circumstances, the addition of the tax
benefits from capital losses resulting from redemptions may cause the Returns
after taxes on distributions and sale of Fund shares to be greater than the
Returns after taxes on distributions or even the Returns before
taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Ultra-Short Fixed Income Fund. Bilal Memon, Morten Olsen and Chaitanya
Mandavakuriti, each a Senior Vice President of NTI, have been the managers of
the Fund since October 2018, July 2016 and July 2024, respectively. The Northern
Trust Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class Shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an
individual
|
| |
118 |
|
NORTHERN FUNDS
PROSPECTUS |
ULTRA-SHORT
FIXED INCOME FUND
retirement
account. Distributions may be taxable upon withdrawal from tax-advantaged
accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
119 |
U.S.
GOVERNMENT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks a high level of current income.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.38% |
|
| |
Other
Expenses |
|
|
0.25% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.21% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.63% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.20)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.43% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.40%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI, and to
reimburse a portion of the operating expenses of the Fund in an amount
equal to the acquired fund fees and expenses arising from the Fund’s
investments in other non-money market funds or exchange-traded funds
managed by NTI. These contractual limitations may not be terminated before
July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$44 |
|
|
|
$182 |
|
|
|
$331 |
|
|
|
$767 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 59.75% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking a high level of current income, the Fund will invest, under normal
circumstances, at least 80% of its net assets in securities issued or guaranteed
by the U.S. government or by its agencies, instrumentalities or sponsored
enterprises and repurchase agreements relating to such securities. These may
include:
∎ |
|
U.S.
Treasury bills, notes and
bonds; |
∎ |
|
Obligations
of the U.S. government or its agencies, instrumentalities or sponsored
enterprises, including obligations that are issued by private issuers that
are guaranteed as to principal and interest by the U.S. government, its
agencies or instrumentalities; |
∎ |
|
Mortgage-related
securities issued or guaranteed by the U.S. government or by its agencies,
instrumentalities or sponsored enterprises, including U.S. agency
mortgage-backed pass-through securities (“MBS”) that may not be backed by
the full faith and credit of the U.S.
government; |
∎ |
|
Stripped
securities evidencing ownership of future interest or principal payments
on obligations of the U.S. government or its agencies, instrumentalities
or sponsored enterprises; |
∎ |
|
Obligations
of supranational organizations (such as the World Bank);
and |
∎ |
|
Inflation-indexed
securities. |
The
Fund may also seek to obtain all or a portion of the Fund’s exposure to MBS by
investing in shares of one or more affiliated or unaffiliated investment
companies, including exchange-traded funds
(“ETFs”).
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns
and
|
| |
120 |
|
NORTHERN FUNDS
PROSPECTUS |
U.S.
GOVERNMENT FUND
assumed
risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as treasury, agency, asset-backed and
mortgage-related securities) that the team believes will provide a favorable
return in light of these risks.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between one and ten years.
The
Fund may also make significant investments in securities issued by U.S.
government-sponsored enterprises. Obligations issued by U.S.
government-sponsored enterprises are neither issued nor guaranteed by the U.S.
Treasury and therefore are not backed by the full faith and credit of the United
States.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
U.S. GOVERNMENT SECURITIES RISK is the risk that the
U.S. government will not provide financial support to its agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. Certain U.S. government securities purchased by the Fund are neither issued
nor guaranteed by the U.S. Treasury and, therefore, may not be backed by the
full faith and credit of the United States. The maximum potential liability of
the issuers of some U.S. government securities may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that the issuers of such securities will not have the funds to meet
their payment obligations in the future.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
INFLATION-INDEXED SECURITIES RISK is the risk that
interest payments on inflation-indexed securities can be unpredictable
|
| |
NORTHERN FUNDS PROSPECTUS |
|
121 |
U.S.
GOVERNMENT FUND
and
will vary as the principal and/or interest is periodically adjusted based on the
rate of inflation. If the index measuring inflation falls, the interest payable
on these securities will be reduced.
INVESTMENT COMPANY RISK is the risk that the
Fund will be subject to the risks associated with investments in registered
investment companies, including ETFs (together, “Underlying Funds”), such as the
possibility that the value of the securities or instruments held by the
Underlying Funds could decrease. In addition, passively managed Underlying Funds
may not track the performance of their respective reference assets and may hold
troubled securities or other investments. Investments in Underlying Funds may
involve duplication of management fees and certain other expenses, as the Fund
indirectly bears its proportionate share of any expenses paid by the Underlying
Funds in which it invests. Further, investments in ETFs are subject to the
following additional risks: (1) an ETF’s shares may trade above or below
its net asset value; (2) an active trading market for the ETF’s shares may
not develop or be maintained; and (3) trading an ETF’s shares may be halted
by the listing exchange. NTI may be subject to potential conflicts of interest
with respect to investments in affiliated Underlying Funds, which are Underlying
Funds managed by NTI or its affiliates, because the fees paid to NTI by some
affiliated Underlying Funds may be higher than the fees paid by other Underlying
Funds.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
RISK Asset-backed and
mortgage-backed securities may be less liquid than other bonds, and may be more
sensitive than other bonds to the market’s perception of issuers and
creditworthiness of payees, particularly in declining general economic
conditions when concern regarding mortgagees’ ability to pay (e.g., the ability
of homeowners, commercial mortgagees, consumers with student loans, automobile
loans or credit card debtholders to make payments on the underlying loan pools)
rises, which may result in the Fund experiencing difficulty selling or valuing
these securities. In addition, these securities may not be backed by the full
faith and credit of the U.S. government, have experienced extraordinary weakness
and volatility at various times in recent years, and may decline quickly in the
event of a substantial economic or market downturn. Those asset-backed and
mortgage-backed securities that are guaranteed as to the timely payment of
interest and principal by a government entity, are not guaranteed as to market
price, which will fluctuate. Small movements in interest rates (both increases
and decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities.
An
unexpectedly high rate of defaults on the mortgages held by a mortgage pool may
adversely affect the value of mortgage-backed securities and could result in
losses to the Fund. Privately issued mortgage-backed securities and asset-backed
securities may be less liquid than other types of securities and the Fund may be
unable to sell these securities at the time or price it desires. During periods
of market stress or high redemptions, the Fund may be forced to sell these
securities at significantly reduced prices, resulting in losses. Liquid
privately issued mortgage-backed securities and asset-backed securities can
become illiquid during periods of market stress. Privately issued
mortgage-related securities are not subject to the same underwriting
requirements as those with government or government-sponsored entity guarantees
and, therefore, mortgage loans underlying privately issued mortgage-related
securities may have less favorable collateral, credit risk, liquidity risk or
other underwriting characteristics, and wider variances in interest rate, term,
size, purpose and borrower characteristics. The Fund may invest in mortgage
pools that include subprime mortgages, which are loans made to borrowers with
weakened credit histories or with lower capacity to make timely payments on
their mortgages. Liquidity and credit risks are even greater for mortgage pools
that include subprime mortgages.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and
table that follow provide an indication of the risks of investing in the Fund by
showing (A) changes in the performance of the Fund from year to year, and
(B) how the average annual total returns of the Fund compare to those of
a
|
| |
122 |
|
NORTHERN FUNDS
PROSPECTUS |
U.S.
GOVERNMENT FUND
broad-based securities market
index and a style-specific index (one reflecting the market segments in which
the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (0.10)%. For the periods shown in the bar
chart above, the highest quarterly
return was 4.84% in the first quarter of
2020, and the lowest quarterly
return was (4.08)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
4.01 |
% |
|
|
0.77 |
% |
|
|
0.92 |
% |
Returns
after taxes on distributions |
|
|
2.79 |
% |
|
|
(0.05 |
)% |
|
|
0.23 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
2.36 |
% |
|
|
0.25 |
% |
|
|
0.41 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
Bloomberg
Intermediate U.S. Government Bond Index (reflects no deduction for fees,
expenses, or taxes) |
|
|
4.30 |
% |
|
|
1.03 |
% |
|
|
1.24 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg Intermediate
U.S. Government Bond Index to the Bloomberg U.S. Aggregate Bond Index in
connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the U.S. Government Fund. Michael R. Chico and David Alongi, CFA, each a Senior
Vice President of NTI, have been managers of the Fund since July 2013 and July
2023, respectively. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
123 |
U.S.
GOVERNMENT FUND
|
a
previously designated bank account (the minimum redemption amount by this
method is $250). You will be charged $15 for each wire redemption unless
the designated bank account is maintained at Northern Trust or an
affiliated bank. Call 800-595-9111 for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
124 |
|
NORTHERN FUNDS
PROSPECTUS |
U.S.
TREASURY INDEX FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide investment results approximating the performance of the
Bloomberg U.S. Treasury Index (the “Index”).
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.13% |
|
| |
Other
Expenses |
|
|
0.14% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.10% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.27% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.11)% |
|
| |
Total Annual Fund Operating Expenses
After Expense Reimbursement(1) |
|
|
0.16% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not to the extent the
“Total Annual Fund Operating Expenses” exceed 0.15%. NTI has also
contractually agreed to reimburse the management fees payable by the Fund
in an amount equal to the net management fee NTI earns on the amount
invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$16 |
|
|
|
$76 |
|
|
|
$141 |
|
|
|
$332 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 24.25% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, the Fund will invest substantially all (and at least 80%)
of its net assets in a representative sample of the U.S. Treasury obligations
included in the Index. The Fund will buy and sell securities with the goal of
achieving an overall duration and total return similar to that of the
Index.
The
Index is an unmanaged index that includes a broad range of U.S. Treasury
obligations and is regarded as representative of U.S. Treasury bond performance
overall. As of May 31, 2024, the duration of the Index was approximately
5.92 years. It is rebalanced monthly. The Fund generally rebalances its
portfolio in accordance with the
Index.
NTI
uses a “passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
index it tracks and does not seek temporary defensive positions when markets
decline or appear overvalued. NTI will buy and sell securities in response to
changes in the Index as well as in response to subscriptions and
redemptions.
NTI
uses a representative sampling strategy to manage the Fund. “Representative
sampling” is investing in a representative sample of securities that
collectively has an investment profile similar to that of an index. The Fund may
or may not hold all of the securities that are included in the Index. The Fund
reserves the right to invest in all of the securities in the Index in
approximately the same proportion (i.e., replication) if NTI determines that it
is in the best interest of the Fund.
The
Fund intends to be diversified in approximately the same proportion as the Index
is diversified. The Fund may become “non-diversified,” as defined in the
Investment Company Act of 1940 (the “1940 Act”), solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the Index. A “non-diversified” fund can invest a greater percentage of its
assets in a small group of
|
| |
NORTHERN FUNDS PROSPECTUS |
|
125 |
U.S.
TREASURY INDEX FUND
issuers
or in any one issuer than a diversified fund can. Shareholder approval will not
be sought if the Fund becomes non-diversified due solely to a change in the
relative market capitalization or index weighting of one or more constituents of
the Index.
NTI
expects that, under normal circumstances, the quarterly performance of the Fund,
before fees and expenses, will track the performance of the Index within a 0.95
correlation coefficient.
The Index is created and sponsored by Bloomberg Index
Services Limited (“Bloomberg”), as the index provider. Bloomberg determines the
composition and relative weightings of the securities in the Index and publishes
information regarding the market value of the Index. Bloomberg does not endorse
any of the securities in the Index. It is not a sponsor of the U.S. Treasury
Index Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
TRACKING RISK is the risk that the
Fund’s performance may vary from the performance of the index it tracks as a
result of share purchases and redemptions, transaction costs, expenses and other
factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund’s ability to adjust its
exposure to required levels in order to track its Index or cause delays in the
Index’s rebalancing schedule. During any such delay, it is possible that the
Index, and, in turn, the Fund will deviate from the Index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
INDEX RISK is the risk that that
the Fund would not necessarily buy or sell a security unless that security is
added or removed, respectively, from the Index, even if that security generally
is underperforming, because unlike many investment companies, the Fund does not
utilize an investing strategy that seeks returns in excess of the Index.
Additionally, the Fund rebalances its portfolio in accordance with the Index,
and, therefore, any changes to the Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule.
SAMPLING RISK is the risk that the
Fund’s use of a representative sampling approach may result in increased
tracking error because the securities selected for the Fund in the aggregate may
vary from the investment profile of the Index. Additionally, the use of a
representative sampling approach may result in the Fund holding a smaller number
of securities than the Index, and, as a result, an adverse development to an
issuer of securities that the Fund holds could result in a greater decline in
NAV than would be the case if the Fund held all of the securities in the Index.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
|
| |
126 |
|
NORTHERN FUNDS
PROSPECTUS |
U.S.
TREASURY INDEX FUND
the
value of the security, and the Fund’s NAV, to decrease, and the Fund may lose
opportunities to invest in higher yielding
securities.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
NON-DIVERSIFICATION RISK Under the 1940 Act, a
fund designated as “diversified” must limit its holdings such that the
securities of issuers which individually represent more than 5% of its total
assets must in the aggregate represent less than 25% of its total assets. The
Fund is “diversified” for purposes of the 1940 Act. However, in seeking to track
its Index, the Fund may become “non-diversified,” as defined in the 1940 Act,
solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Index. A non-diversified fund can
invest a greater portion of its assets in the obligations or securities of a
small portion of its assets in the obligations or securities of a small number
of issuers or any single issuer than a diversified fund can. In such
circumstances, a change in the value of one or a few issuers’ securities will
therefore affect the value of the Fund more than if it was a diversified fund.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (0.94)%. For the periods shown in the bar
chart above, the highest quarterly
return was 8.40% in the first quarter of
2020, and the lowest quarterly
return was (5.58)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
3.90 |
% |
|
|
0.38 |
% |
|
|
1.10 |
% |
Returns
after taxes on distributions |
|
|
2.90 |
% |
|
|
(0.40 |
)% |
|
|
0.33 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
2.29 |
% |
|
|
0.00 |
% |
|
|
0.54 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
5.53 |
% |
|
|
1.10 |
% |
|
|
1.81 |
% |
Bloomberg
U.S. Treasury Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
4.05 |
% |
|
|
0.53 |
% |
|
|
1.27 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg U.S. Treasury
Index to the Bloomberg U.S. Aggregate Bond Index in connection with new
regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the U.S. Treasury Index Fund. Michael R. Chico and David Alongi, CFA, each a
Senior Vice President of NTI, have been managers of the Fund since July 2013 and
July 2023, respectively. The Northern Trust Company, an affiliate of NTI, serves
as transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
128 |
|
NORTHERN FUNDS
PROSPECTUS |
ARIZONA
TAX-EXEMPT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide high current income exempt from regular federal income tax
and Arizona State personal income tax by investing in municipal
instruments.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
None |
|
|
|
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.43% |
|
| |
Other
Expenses |
|
|
0.23% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.19% |
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.67% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.19)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.48% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$49 |
|
|
|
$195 |
|
|
|
$354 |
|
|
|
$817 |
|
PORTFOLIO
TURNOVER. The Fund may incur transaction costs as it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the Example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was
5.51% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, at least 80% of the Fund’s net assets will be invested in
instruments that pay income that is exempt from Arizona State personal income
tax (“Arizona municipal instruments”). These may include certain securities of
issuers located outside the State of
Arizona.
A
municipal instrument is a fixed-income obligation issued by a state, territory
or possession of the United States (including the District of Columbia) or a
political subdivision, agency or instrumentality thereof. Interest income
received by holders of municipal instruments is often exempt from the federal
income tax and from the income tax of the state in which they are issued,
although municipal instruments issued for certain purposes may not be
tax-exempt. The municipal instruments in which the Fund invests may
include:
∎ |
|
General
obligation bonds secured by the issuer’s full faith, credit and taxing
power; |
∎ |
|
Revenue
obligation bonds payable from the revenues derived from a particular
facility or class of
facilities; |
∎ |
|
Industrial
development bonds; |
∎ |
|
Moral
obligation bonds; |
∎ |
|
Tax-exempt
derivative instruments; |
∎ |
|
Stand-by
commitments; and |
∎ |
|
Municipal
instruments backed by letters of credit, insurance or other forms of
credit enhancement issued by domestic or foreign banks, insurance
companies and other financial
institutions. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
129 |
ARIZONA
TAX-EXEMPT FUND
The
Fund primarily invests in investment grade debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality as determined
by NTI). However, it may invest up to 15% of its net assets in obligations that
are rated below-investment grade (commonly referred to as “junk bonds”). Credit
ratings are determined at the time of
purchase.
Except
in extraordinary circumstances, at least 80% of the Fund’s net assets will be
invested in debt instruments that pay interest that is exempt from regular
federal income tax. Alternative minimum tax (“AMT”) obligations (also known as
“private activity bonds”), which pay interest that may be treated as an item of
tax preference to shareholders under the federal AMT, will not be deemed to be
eligible debt instruments for the purposes of determining whether the Fund meets
this policy. For shareholders subject to AMT, a limited portion of the Fund’s
dividends may be subject to federal tax.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as general obligation bonds and revenue
obligation bonds) that NTI believes will provide a favorable return in light of
these risks.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between ten and thirty years.
The
Fund is “non-diversified” under the Investment Company Act of 1940, as amended
(the “1940 Act”), and may invest more of its assets in fewer issuers than
“diversified” mutual funds.
In
seeking to achieve its investment objective, the Fund may make significant
investments in structured securities and also may invest, to a lesser extent, in
futures contracts, options and swaps, all of which are considered to be
derivative instruments, for both hedging and non-hedging
purposes.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
ARIZONA-SPECIFIC RISK is the risk that the
Fund will be more exposed to negative political or economic factors in Arizona
than a fund that invests more widely. Principal economic sectors in Arizona
include: aerospace and defense, construction, trade, government, education,
health care, manufacturing, mining, renewable energy and tourism. Exposure to
these industries, however, leaves Arizona vulnerable to an economic slowdown
associated with business cycles, political events and public health emergencies.
In light of adverse economic, political or public health outcomes, Arizona could
experience budget shortfalls, including both difficulty in meeting operating
obligations and debt obligations. Credit rating downgrades could result in a
reduction in the market value of Arizona municipal securities held by the Fund.
All of these factors increase the risk of investing in Arizona municipal
securities, including the risk of potential issuer default, and could negatively
impact the Fund’s NAV, yield and/or the distributions paid by the Fund or cause
them to experience greater volatility.
NON-DIVERSIFICATION RISK is the risk that because
the Fund is non-diversified and may invest a larger percentage of its assets in
the securities of fewer issuers than a diversified fund, the Fund’s performance
will be more vulnerable to changes in the market value of a single issuer or
group of issuers, and more susceptible to risks associated with a single
economic, political or regulatory occurrence.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may
|
| |
130 |
|
NORTHERN FUNDS
PROSPECTUS |
ARIZONA
TAX-EXEMPT FUND
affect
the municipal security’s value, interest payments, repayment of principal and
the Fund’s ability to sell the security. The Fund may be more sensitive to
adverse economic, business, political or public health developments if it
focuses its assets in municipal bonds that are issued to finance similar
projects (such as those relating to education, health care, housing,
transportation, and utilities), industrial development bonds, in particular
types of municipal securities (such as general obligation bonds, private
activity bonds and moral obligation bonds), or in municipal securities of a
particular state or territory. While income earned on municipal securities is
generally not subject to federal tax, the failure of a municipal security issuer
to comply with applicable tax requirements may make income paid thereon taxable,
resulting in a decline in the security’s value. In addition, there could be
changes in applicable tax laws or tax treatments that reduce or eliminate the
current federal income tax exemption on municipal securities or otherwise
adversely affect the current federal or state tax status of municipal
securities. The secondary market for municipal obligations also tends to be less
well-developed and less liquid than many other securities markets, which may
limit the Fund’s ability to sell its municipal obligations at attractive prices.
Further, inventories of municipal securities held by brokers and dealers have
decreased in recent years, lessening their ability to make a market in these
securities, which has resulted in increased municipal security price volatility
and trading costs, particularly during periods of economic or market
stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to increased risk of an issuer’s inability to make principal and
interest payments.
ALTERNATIVE MINIMUM TAX RISK is the risk that a
portion of the Fund’s otherwise tax-exempt income may be taxable to those
shareholders subject to the federal alternative minimum tax.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
STRUCTURED SECURITIES RISK is the risk that
structured securities may be more volatile, less liquid and more difficult to
price accurately than less complex securities due to their derivative nature. As
a result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those
|
| |
NORTHERN FUNDS PROSPECTUS |
|
131 |
ARIZONA
TAX-EXEMPT FUND
risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
|
∎ |
|
OPTIONS CONTRACTS RISK is the risk
that there may be an imperfect correlation between the options and the
securities markets that cause a given transaction to fail to achieve its
objectives. The successful use of options depends on the investment
adviser’s ability to predict correctly future price fluctuations and the
degree of correlation between the options and securities markets.
Exchanges can limit the number of positions that can be held or controlled
by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s
strategies. |
|
∎ |
|
SWAP CONTRACTS RISK is the risk
that the counterparty with whom the Fund has entered into the agreement
will default on its obligation to pay the Fund. While certain swaps are
subject to mandatory central clearing, which is intended to reduce
counterparty risk, these swaps are subject to the risk that a central
clearinghouse will go into bankruptcy or become non-operational, and
sometimes involve increased transaction
costs. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 0.52%. For the periods shown in the bar chart above,
the highest quarterly
return was 6.85% in the fourth quarter of
2023, and the lowest quarterly
return was (6.03) % in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
5.43 |
% |
|
|
1.33 |
% |
|
|
2.43 |
% |
Returns
after taxes on distributions |
|
|
5.43 |
% |
|
|
1.32 |
% |
|
|
2.34 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
4.59 |
% |
|
|
1.64 |
% |
|
|
2.50 |
% |
Bloomberg
U.S. Municipal Bond Index (reflects no deduction for fees, expenses,
or taxes)(1) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
Bloomberg
Arizona Municipal Bond Index (reflects no deduction for fees, expenses,
or taxes) |
|
|
6.04 |
% |
|
|
2.01 |
% |
|
|
2.84 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg Arizona
Municipal Bond Index to the Bloomberg U.S. Municipal Bond Index in
connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax
returns depend on an investor’s tax situation and may differ from those shown.
After-tax returns shown
|
| |
132 |
|
NORTHERN FUNDS
PROSPECTUS |
ARIZONA
TAX-EXEMPT FUND
are not relevant to investors
who hold their shares through tax-advantaged arrangements, such as 401(k) plans
or individual retirement
accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser
of the Arizona Tax-Exempt Fund. Adam M. Shane, CFA, and Timothy Blair, CFA, each
a Senior Vice President of NTI, have been managers of the Fund since July 2022
and July 2023, respectively. The Northern Trust Company, an affiliate of NTI,
serves as transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions primarily will be “exempt interest dividends” that are
generally exempt from regular federal income tax and from Arizona State personal
income tax for shareholders resident in Arizona. In certain instances, dividends
paid by the Fund, while exempt from regular federal income tax, may be subject
to the federal AMT. The Fund also may make distributions taxable as ordinary
income or capital gains. Tax-exempt institutions, IRAs and other tax advantaged
retirement accounts will not gain an additional benefit through investment in
the Fund because such investors are already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
133 |
CALIFORNIA
INTERMEDIATE TAX-EXEMPT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide high current income exempt from regular federal income tax
and California state personal income tax by investing in municipal
instruments.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
|
None |
|
|
|
Annual Fund
Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.43% |
|
| |
Other
Expenses |
|
|
0.09% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.05% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.53% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.07)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.46% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$47 |
|
|
|
$163 |
|
|
|
$289 |
|
|
|
$658 |
|
PORTFOLIO
TURNOVER. The Fund may incur transaction costs as it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the Example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was
14.35% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, at least 80% of the Fund’s net assets will be invested in
instruments that pay income that is exempt from California state personal income
tax (“California municipal instruments”). These may include certain securities
of issuers located outside the State of
California.
A
municipal instrument is a fixed-income obligation issued by a state, territory
or possession of the United States (including the District of Columbia) or a
political subdivision, agency or instrumentality thereof. Interest income
received by holders of municipal instruments is often exempt from the federal
income tax and from the income tax of the state in which they are issued,
although municipal instruments issued for certain purposes may not be
tax-exempt. The municipal instruments in which the Fund invests may
include:
∎ |
|
General
obligation bonds secured by the issuer’s full faith, credit and taxing
power; |
∎ |
|
Revenue
obligation bonds payable from the revenues derived from a particular
facility or class of
facilities; |
∎ |
|
Industrial
development bonds; |
∎ |
|
Moral
obligation bonds; |
∎ |
|
Tax-exempt
derivative instruments; |
∎ |
|
Stand-by
commitments; and |
∎ |
|
Municipal
instruments backed by letters of credit, insurance or other forms of
credit enhancement issued by domestic or foreign banks, insurance
companies and other financial
institutions. |
|
| |
134 |
|
NORTHERN FUNDS
PROSPECTUS |
CALIFORNIA
INTERMEDIATE TAX-EXEMPT FUND
The
Fund primarily invests in investment grade debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality as determined
by NTI). However, it may invest up to 15% of its net assets in obligations that
are rated below-investment grade (commonly referred to as “junk bonds”). Credit
ratings are determined at the time of
purchase.
Except
in extraordinary circumstances, at least 80% of the Fund’s net assets will be
invested in debt instruments that pay interest that is exempt from regular
federal income tax. Alternative minimum tax (“AMT”) obligations (also known as
“private activity bonds”), which pay interest that may be treated as an item of
tax preference to shareholders under the federal AMT, will not be deemed to be
eligible debt instruments for the purposes of determining whether the Fund meets
this policy. For shareholders subject to AMT, a portion of the Fund’s dividends
may be subject to federal tax.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as general obligation bonds and revenue
obligation bonds) that NTI believes will provide a favorable return in light of
these risks.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between three and ten years.
In
seeking to achieve its investment objective, the Fund may make significant
investments in structured securities and also may invest, to a lesser extent, in
futures contracts, options and swaps, all of which are considered to be
derivative instruments, for both hedging and non-hedging
purposes.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
CALIFORNIA-SPECIFIC RISK is the risk that the
Fund will be more exposed to risks associated with the negative aspects of
California’s economy, political system, public health and government financing
structures than a fund that invests more widely. Unfavorable developments in any
economic sector or in the California economy as a whole may have a substantial
impact on the overall California municipal market. Provisions of the California
Constitution and State statutes that limit the taxing and spending authority of
California governmental entities may impair the ability of California issuers to
pay principal and/or interest on their obligations. While California’s economy
is broad, it does have major concentrations in technology, manufacturing, trade,
entertainment, private education, health services, and financial services, and
may be sensitive to economic problems affecting those industries. Future
California political, public health and economic developments, constitutional
amendments, legislative measures, executive orders, administrative regulations,
litigation and voter initiatives could have an adverse effect on the debt
obligations of California issuers.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral
|
| |
NORTHERN FUNDS PROSPECTUS |
|
135 |
CALIFORNIA
INTERMEDIATE TAX-EXEMPT FUND
obligation
bonds), or in municipal securities of a particular state or territory. While
income earned on municipal securities is generally not subject to federal tax,
the failure of a municipal security issuer to comply with applicable tax
requirements may make income paid thereon taxable, resulting in a decline in the
security’s value. In addition, there could be changes in applicable tax laws or
tax treatments that reduce or eliminate the current federal income tax exemption
on municipal securities or otherwise adversely affect the current federal or
state tax status of municipal securities. The secondary market for municipal
obligations also tends to be less well-developed and less liquid than many other
securities markets, which may limit the Fund’s ability to sell its municipal
obligations at attractive prices. Further, inventories of municipal securities
held by brokers and dealers have decreased in recent years, lessening their
ability to make a market in these securities, which has resulted in increased
municipal security price volatility and trading costs, particularly during
periods of economic or market stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to increased risk of an issuer’s inability to make principal and
interest payments.
ALTERNATIVE MINIMUM TAX RISK is the risk that a
portion of the Fund’s otherwise tax-exempt income may be taxable to those
shareholders subject to the federal alternative minimum tax.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
STRUCTURED SECURITIES RISK is the risk that
structured securities may be more volatile, less liquid and more difficult to
price accurately than less complex securities due to their derivative nature. As
a result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund.
|
| |
136 |
|
NORTHERN FUNDS
PROSPECTUS |
CALIFORNIA
INTERMEDIATE TAX-EXEMPT FUND
Derivatives
are also subject to counterparty risk, which is the risk that the other party to
the transaction will not perform its contractual obligations. The use of
derivatives is a highly specialized activity that involves investment techniques
and risks different from those associated with investments in more traditional
securities and instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
|
∎ |
|
OPTIONS CONTRACTS RISK is the risk
that there may be an imperfect correlation between the options and the
securities markets that cause a given transaction to fail to achieve its
objectives. The successful use of options depends on the investment
adviser’s ability to predict correctly future price fluctuations and the
degree of correlation between the options and securities markets.
Exchanges can limit the number of positions that can be held or controlled
by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s
strategies. |
|
∎ |
|
SWAP CONTRACTS RISK is the risk
that the counterparty with whom the Fund has entered into the agreement
will default on its obligation to pay the Fund. While certain swaps are
subject to mandatory central clearing, which is intended to reduce
counterparty risk, these swaps are subject to the risk that a central
clearinghouse will go into bankruptcy or become non-operational, and
sometimes involve increased transaction
costs. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 0.02%. For the periods shown in the bar chart above,
the highest quarterly
return was 5.89% in the fourth quarter of
2023, and the lowest quarterly
return was (6.39)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
4.88 |
% |
|
|
1.29 |
% |
|
|
2.23 |
% |
Returns
after taxes on distributions |
|
|
4.88 |
% |
|
|
1.26 |
% |
|
|
2.17 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
3.98 |
% |
|
|
1.53 |
% |
|
|
2.28 |
% |
Bloomberg
U.S. Municipal Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
Bloomberg
California Intermediate Municipal Bond Index (reflects no deduction for
fees, expenses, or taxes) |
|
|
4.94 |
% |
|
|
1.94 |
% |
|
|
2.45 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg California
Intermediate Municipal Bond Index to the Bloomberg U.S. Municipal Bond
Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital
|
| |
NORTHERN FUNDS PROSPECTUS |
|
137 |
CALIFORNIA
INTERMEDIATE TAX-EXEMPT FUND
losses resulting from redemptions may cause the
Returns after taxes on distributions and sale of Fund shares to be greater than
the Returns after taxes on distributions or even the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the California Intermediate Tax-Exempt Fund. Adam M. Shane, CFA, and Timothy
Blair, CFA, each a Senior Vice President of NTI, have been managers of the Fund
since October 2018 and July 2023, respectively. The Northern Trust Company, an
affiliate of NTI, serves as transfer agent, custodian and sub-administrator to
the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions primarily will be “exempt interest dividends” that are
generally exempt from regular federal income tax and from California state
personal income tax for residents of California. In certain instances, dividends
paid by the Fund, while exempt from regular federal income tax, may be subject
to the federal AMT. The Fund also may make distributions taxable as ordinary
income or capital gains. Tax-exempt institutions, IRAs and other tax advantaged
retirement accounts will not gain an additional benefit through investment in
the Fund because such investors are already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
138 |
|
NORTHERN FUNDS
PROSPECTUS |
CALIFORNIA
TAX-EXEMPT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide high current income exempt from regular federal income tax
and California state personal income tax.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
|
None |
|
|
|
Annual Fund
Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.43% |
|
| |
Other
Expenses |
|
|
0.12% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.08% |
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.56% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.09)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.47% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$48 |
|
|
|
$170 |
|
|
|
$304 |
|
|
|
$693 |
|
PORTFOLIO
TURNOVER. The Fund may incur transaction costs as it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the Example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was
20.78% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
Under
normal circumstances, at least 80% of the Fund’s net assets will be invested in
instruments that pay income that is exempt from California state personal income
tax (“California municipal instruments”). These may include certain securities
of issuers located outside the State of
California.
A
municipal instrument is a fixed-income obligation issued by a state, territory
or possession of the United States (including the District of Columbia) or a
political subdivision, agency or instrumentality thereof. Interest income
received by holders of municipal instruments is often exempt from the federal
income tax and from the income tax of the state in which they are issued,
although municipal instruments issued for certain purposes may not be
tax-exempt. The municipal instruments in which the Fund invests may
include:
∎ |
|
General
obligation bonds secured by the issuer’s full faith, credit and taxing
power; |
∎ |
|
Revenue
obligation bonds payable from the revenues derived from a particular
facility or class of
facilities; |
∎ |
|
Industrial
development bonds; |
∎ |
|
Moral
obligation bonds; |
∎ |
|
Tax-exempt
derivative instruments; |
∎ |
|
Stand-by
commitments; and |
∎ |
|
Municipal
instruments backed by letters of credit, insurance or other forms of
credit enhancement issued by domestic or foreign banks, insurance
companies and other financial
institutions. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
139 |
CALIFORNIA
TAX-EXEMPT FUND
The
Fund primarily invests in investment grade debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality as determined
by NTI), as determined at the time of purchase. However, it may invest up to 15%
of its net assets in obligations that are rated below-investment grade (commonly
referred to as “junk bonds”). Credit ratings are determined at the time of
purchase.
Except
in extraordinary circumstances, at least 80% of the Fund’s net assets will be
invested in debt instruments that pay interest that is exempt from regular
federal income tax. Alternative Minimum Tax (“AMT”) obligations (also known as
“private activity bonds”), which pay interest that may be treated as an item of
tax preference to shareholders under the federal AMT, will not be deemed to be
eligible debt instruments for the purposes of determining whether the Fund meets
this policy. For shareholders subject to AMT, a portion of the Fund’s dividends
may be subject to federal tax.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as general obligation bonds and revenue
obligation bonds) that NTI believes will provide a favorable return in light of
these risks.
NTI
may engage in active trading, and will not consider portfolio trading a limiting
factor in making decisions for the Fund.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between ten and thirty years.
In
seeking to achieve its investment objective, the Fund may make significant
investments in structured securities and also may invest, to a lesser extent, in
futures contracts, options and swaps, all of which are considered to be
derivative instruments, for both hedging and non-hedging
purposes.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
CALIFORNIA-SPECIFIC RISK is the risk that the
Fund will be more exposed to risks associated with the negative aspects of
California’s economy, political system, public health and government financing
structures than a fund that invests more widely. Unfavorable developments in any
economic sector or in the California economy as a whole may have a substantial
impact on the overall California municipal market. Provisions of the California
Constitution and State statutes that limit the taxing and spending authority of
California governmental entities may impair the ability of California issuers to
pay principal and/or interest on their obligations. While California’s economy
is broad, it does have major concentrations in technology, manufacturing, trade,
entertainment and financial services, and may be sensitive to economic problems
affecting those industries. Future California political, public health and
economic developments, constitutional amendments, legislative measures,
executive orders, administrative regulations, litigation and voter initiatives
could have an adverse effect on the debt obligations of California issuers.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral
|
| |
140 |
|
NORTHERN FUNDS
PROSPECTUS |
CALIFORNIA
TAX-EXEMPT FUND
obligation
bonds), or in municipal securities of a particular state or territory. While
income earned on municipal securities is generally not subject to federal tax,
the failure of a municipal security issuer to comply with applicable tax
requirements may make income paid thereon taxable, resulting in a decline in the
security’s value. In addition, there could be changes in applicable tax laws or
tax treatments that reduce or eliminate the current federal income tax exemption
on municipal securities or otherwise adversely affect the current federal or
state tax status of municipal securities. The secondary market for municipal
obligations also tends to be less well-developed and less liquid than many other
securities markets, which may limit the Fund’s ability to sell its municipal
obligations at attractive prices. Further, inventories of municipal securities
held by brokers and dealers have decreased in recent years, lessening their
ability to make a market in these securities, which has resulted in increased
municipal security price volatility and trading costs, particularly during
periods of economic or market stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to increased risk of an issuer’s inability to make principal and
interest payments.
ALTERNATIVE MINIMUM TAX RISK is the risk that a
portion of the Fund’s otherwise tax-exempt income may be taxable to those
shareholders subject to the federal alternative minimum tax.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
STRUCTURED SECURITIES RISK is the risk that
structured securities may be more volatile, less liquid and more difficult to
price accurately than less complex securities due to their derivative nature. As
a result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund.
|
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NORTHERN FUNDS PROSPECTUS |
|
141 |
CALIFORNIA
TAX-EXEMPT FUND
Derivatives
are also subject to counterparty risk, which is the risk that the other party to
the transaction will not perform its contractual obligations. The use of
derivatives is a highly specialized activity that involves investment techniques
and risks different from those associated with investments in more traditional
securities and instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of
loss. |
|
∎ |
|
OPTIONS CONTRACTS RISK is the risk
that there may be an imperfect correlation between the options and the
securities markets that cause a given transaction to fail to achieve its
objectives. The successful use of options depends on the investment
adviser’s ability to predict correctly future price fluctuations and the
degree of correlation between the options and securities markets.
Exchanges can limit the number of positions that can be held or controlled
by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s
strategies. |
|
∎ |
|
SWAP CONTRACTS RISK is the risk
that the counterparty with whom the Fund has entered into the agreement
will default on its obligation to pay the Fund. While certain swaps are
subject to mandatory central clearing, which is intended to reduce
counterparty risk, these swaps are subject to the risk that a central
clearinghouse will go into bankruptcy or become non-operational, and
sometimes involve increased transaction
costs. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index and a style-specific index (one reflecting the market segments in
which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (0.14)%. For the periods shown in the bar
chart above, the highest quarterly
return was 7.24% in the fourth quarter of
2023, and the lowest quarterly
return was (7.08)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended
December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
6.27 |
% |
|
|
1.64 |
% |
|
|
3.02 |
% |
Returns
after taxes on distributions |
|
|
6.27 |
% |
|
|
1.54 |
% |
|
|
2.90 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
4.97 |
% |
|
|
1.85 |
% |
|
|
2.99 |
% |
Bloomberg
U.S. Municipal Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
Bloomberg
California Municipal Bond Index (reflects no deduction for fees, expenses,
or taxes) |
|
|
6.22 |
% |
|
|
2.25 |
% |
|
|
3.10 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg California
Municipal Bond Index to the Bloomberg U.S. Municipal Bond Index in
connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under
|
| |
142 |
|
NORTHERN FUNDS
PROSPECTUS |
CALIFORNIA
TAX-EXEMPT FUND
certain circumstances, the addition of the tax
benefits from capital losses resulting from redemptions may cause the Returns
after taxes on distributions and sale of Fund shares to be greater than the
Returns after taxes on distributions or even the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the California Tax-Exempt Fund. Adam M. Shane, CFA, and Timothy
Blair, CFA, each a Senior Vice President of NTI, have been managers of the Fund
since October 2018 and July 2023, respectively. The Northern Trust Company, an
affiliate of NTI, serves as transfer agent, custodian and sub-administrator to
the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions primarily will be “exempt interest dividends” that are
generally exempt from regular federal income tax and from California state
personal income tax for residents of California. In certain instances, dividends
paid by the Fund, while exempt from regular federal income tax, may be subject
to the federal AMT. The Fund also may make distributions taxable as ordinary
income or capital gains. Tax-exempt institutions, IRAs and other tax advantaged
retirement accounts will not gain an additional benefit through investment in
the Fund because such investors are already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
143 |
HIGH
YIELD MUNICIPAL FUND
INVESTMENT
OBJECTIVE
The
Fund seeks a high level of current income exempt from regular federal income
tax.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
|
None |
|
|
|
Annual Fund
Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.56% |
|
| |
Other
Expenses |
|
|
0.08% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.04% |
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.65% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.06)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.59% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.58%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$60 |
|
|
|
$202 |
|
|
|
$356 |
|
|
|
$805 |
|
PORTFOLIO
TURNOVER. The Fund may incur transaction costs as it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the Example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was
14.76% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking high current income exempt from regular federal income tax, the Fund
will invest, under normal circumstances, at least 65% of its net assets in rated
and unrated municipal instruments that are of low quality (commonly referred to
as “junk bonds”) or medium or upper medium quality. A municipal instrument is a
fixed-income obligation issued by a state, territory or possession of the United
States (including the District of Columbia) or a political subdivision, agency
or instrumentality thereof. Interest income received by holders of municipal
instruments is often exempt from the federal income tax and from the income tax
of the state in which they are issued, although municipal instruments issued for
certain purposes may not be tax-exempt. The municipal instruments in which the
Fund invests may include:
∎ |
|
General
obligation bonds secured by the issuer’s full faith, credit and taxing
power; |
∎ |
|
Revenue
obligation bonds payable from the revenues derived from a particular
facility or class of
facilities; |
∎ |
|
Industrial
development bonds; |
∎ |
|
Moral
obligation bonds; |
∎ |
|
Tax-exempt
derivative instruments; |
∎ |
|
Stand-by
commitments; and |
∎ |
|
Municipal
instruments backed by letters of credit, insurance or other forms of
credit enhancement issued by domestic or foreign banks, insurance
companies and other financial
companies. |
Upper
medium quality securities are rated A by a Nationally Recognized Statistical
Rating Organization (“NRSRO”), and medium quality securities are rated BBB or
Baa by a NRSRO.
|
| |
144 |
|
NORTHERN FUNDS
PROSPECTUS |
HIGH
YIELD MUNICIPAL FUND
Lower
quality or below investment-grade securities are rated BB, Ba or lower by a
NRSRO, or unrated securities determined to be of comparable quality by NTI.
Credit ratings are determined at the time of
purchase.
There
is no minimum rating for a municipal instrument purchased or held by the Fund,
and the Fund may purchase securities that are in default. Although the Fund
primarily invests in low, medium or upper medium quality securities, it may
invest a portion of its assets in securities of higher
quality.
Except
in extraordinary circumstances, at least 80% of the Fund’s net assets will be
invested in debt instruments that pay interest that is exempt from regular
federal income tax. The Fund is not limited in the amount of its assets that may
be invested in alternative minimum tax (“AMT”) obligations (also known as
“private activity bonds”), which pay interest that may be treated as an item of
tax preference to shareholders under the federal AMT. For shareholders subject
to AMT, a significant portion of the Fund’s dividends may be subject to federal
tax.
The
Fund may also invest in securities that are subject to resale restrictions such
as those contained in Rule 144A promulgated under the Securities Act of
1933.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as corporate-backed municipal bonds and
revenue obligation bonds) that NTI believes will provide a favorable return in
light of these risks.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
The
Fund does not have any portfolio maturity limitations, and may invest its assets
from time to time primarily in instruments with short, medium or long
maturities.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to increased risk of an issuer’s inability to make principal and
interest payments.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities. The secondary market for municipal obligations also tends to be less
well-developed and less liquid than many other securities markets, which may
|
| |
NORTHERN FUNDS PROSPECTUS |
|
145 |
HIGH
YIELD MUNICIPAL FUND
limit
the Fund’s ability to sell its municipal obligations at attractive prices.
Further, inventories of municipal securities held by brokers and dealers have
decreased in recent years, lessening their ability to make a market in these
securities, which has resulted in increased municipal security price volatility
and trading costs, particularly during periods of economic or market
stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
ALTERNATIVE MINIMUM TAX RISK A portion of the Fund’s
otherwise tax-exempt income may be taxable to those shareholders subject to the
federal alternative minimum tax.
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index and a style-specific index (one reflecting the market segments in
which the Fund invests), in that
order.
|
| |
146 |
|
NORTHERN FUNDS
PROSPECTUS |
HIGH
YIELD MUNICIPAL FUND
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 3.59%. For the periods shown in the bar chart above,
the highest quarterly
return was 7.47% in the fourth quarter of
2023, and the lowest quarterly
return was (8.18) % in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended
December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
5.88 |
% |
|
|
1.00 |
% |
|
|
2.84 |
% |
Returns
after taxes on distributions |
|
|
5.88 |
% |
|
|
0.98 |
% |
|
|
2.81 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
5.39 |
% |
|
|
1.68 |
% |
|
|
3.13 |
% |
Bloomberg
U.S. Municipal Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
Bloomberg
Municipal Bond 60% High Yield/40% Investment Grade Index (reflects no
deduction for fees, expenses, or taxes) |
|
|
8.09 |
% |
|
|
3.02 |
% |
|
|
4.23 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg Municipal Bond
60% High Yield/40% Investment Grade Index to the Bloomberg U.S. Municipal
Bond Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as
the investment adviser of the High Yield Municipal Fund. Adam M. Shane,
CFA, and Timothy Blair, CFA, each a Senior Vice President of NTI, have been
managers of the Fund since August 2018 and July 2023, respectively. The Northern
Trust Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
147 |
HIGH
YIELD MUNICIPAL FUND
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions primarily will be “exempt interest dividends” that are
generally exempt from regular federal income tax. In certain instances,
dividends paid by the Fund, while exempt from regular federal income tax, may be
subject to the federal AMT. State and local income taxes may apply to all or a
portion of exempt-interest dividends paid by the Fund. The Fund also may make
distributions taxable as ordinary income or capital gains. Tax-exempt
institutions, IRAs and other tax advantaged retirement accounts will not gain an
additional benefit through investment in the Fund because such investors are
already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
148 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERMEDIATE
TAX-EXEMPT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide a high level of current income exempt from regular federal
income tax by investing in municipal
instruments.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
|
None |
|
|
|
Annual Fund
Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.43% |
|
| |
Other
Expenses |
|
|
0.07% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.03% |
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.01% |
|
| |
Total Annual Fund Operating Expenses(1) |
|
|
0.51% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.05)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.46% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$47 |
|
|
|
$159 |
|
|
|
$280 |
|
|
|
$636 |
|
PORTFOLIO
TURNOVER. The Fund may incur transaction costs as it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the Example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was
18.08% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking high current income exempt from regular federal income tax, the Fund
will invest in municipal instruments. A municipal instrument is a fixed-income
obligation issued by a state, territory or possession of the United States
(including the District of Columbia) or a political subdivision, agency or
instrumentality thereof. Interest income received by holders of municipal
instruments is often exempt from the federal income tax and from the income tax
of the state in which they are issued, although municipal instruments issued for
certain purposes may not be tax-exempt. The municipal instruments in which the
Fund invests may include:
∎ |
|
General
obligation bonds secured by the issuer’s full faith, credit and taxing
power; |
∎ |
|
Revenue
obligation bonds payable from the revenues derived from a particular
facility or class of
facilities; |
∎ |
|
Industrial
development bonds; |
∎ |
|
Moral
obligation bonds; |
∎ |
|
Tax-exempt
derivative instruments; |
∎ |
|
Stand-by
commitments; and |
∎ |
|
Municipal
instruments backed by letters of credit, insurance or other forms of
credit enhancement issued by domestic or foreign banks, insurance
companies and other financial
institutions. |
The
Fund primarily invests in investment grade debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality as determined
by NTI). However, it may invest up to 15% of its
|
| |
NORTHERN FUNDS PROSPECTUS |
|
149 |
INTERMEDIATE
TAX-EXEMPT FUND
net
assets in obligations that are rated below-investment grade (commonly referred
to as “junk bonds”). Credit ratings are determined at the time of
purchase.
Except
in extraordinary circumstances, at least 80% of the Fund’s net assets will be
invested in debt instruments that pay interest that is exempt from regular
federal income tax.
Alternative
minimum tax (“AMT”) obligations (also known as “private activity bonds”), which
pay interest that may be treated as an item of tax preference to shareholders
under the federal AMT, will not be deemed to be eligible debt instruments for
the purposes of determining whether the Fund meets this policy. For shareholders
subject to AMT, a portion of the Fund’s dividends may be subject to federal
tax.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as general obligation bonds,
corporate-backed municipal bonds and revenue obligation bonds) that NTI believes
will provide a favorable return in light of these
risks.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between three and ten years.
In
seeking to achieve its investment objective, the Fund may make significant
investments in structured securities and also may invest, to a lesser extent, in
futures contracts, options and swaps, all of which are considered to be
derivative instruments, for both hedging and non-hedging
purposes.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities.
The
secondary market for municipal obligations also tends to be less well-developed
and less liquid than many other securities markets, which may limit the Fund’s
ability to sell its municipal obligations at attractive prices. Further,
inventories of municipal securities held by brokers and dealers have decreased
in recent years, lessening their ability to make a market in these securities,
which has resulted in increased municipal security price volatility and trading
costs, particularly during periods of economic or market
stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of
|
| |
150 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERMEDIATE
TAX-EXEMPT FUND
the
Fund’s investments and its returns. Changes in an issuer’s financial strength,
the market’s perception of an issuer’s creditworthiness, or in the credit rating
of the issuer or the security may also affect the value of the Fund’s investment
in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to increased risk of an issuer’s inability to make principal and
interest payments.
STRUCTURED SECURITIES RISK is the risk that
structured securities may be more volatile, less liquid and more difficult to
price accurately than less complex securities due to their derivative nature. As
a result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
ALTERNATIVE MINIMUM TAX RISK is the risk that a
portion of the Fund’s otherwise tax-exempt income may be taxable to those
shareholders subject to the federal alternative minimum tax.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
151 |
INTERMEDIATE
TAX-EXEMPT FUND
|
and
other economic factors, which may make the Fund’s returns more volatile or
increase the risk of loss. |
|
∎ |
|
OPTIONS CONTRACTS RISK is the risk
that there may be an imperfect correlation between the options and the
securities markets that cause a given transaction to fail to achieve its
objectives. The successful use of options depends on the investment
adviser’s ability to predict correctly future price fluctuations and the
degree of correlation between the options and securities markets.
Exchanges can limit the number of positions that can be held or controlled
by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s
strategies. |
|
∎ |
|
SWAP CONTRACTS RISK is the risk
that the counterparty with whom the Fund has entered into the agreement
will default on its obligation to pay the Fund. While certain swaps are
subject to mandatory central clearing, which is intended to reduce
counterparty risk, these swaps are subject to the risk that a central
clearinghouse will go into bankruptcy or become non-operational, and
sometimes involve increased transaction
costs. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index and a style-specific index (one reflecting the market segments in
which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 0.14%. For the periods shown in the bar chart above,
the highest quarterly
return was 5.74% in the fourth quarter of
2023, and the lowest quarterly
return was (5.77)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended
December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
5.01 |
% |
|
|
1.57 |
% |
|
|
2.20 |
% |
Returns
after taxes on distributions |
|
|
5.01 |
% |
|
|
1.43 |
% |
|
|
2.04 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
4.15 |
% |
|
|
1.67 |
% |
|
|
2.14 |
% |
Bloomberg
U.S. Municipal Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
Bloomberg
Municipal 1 – 15 Year Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
5.26 |
% |
|
|
2.17 |
% |
|
|
2.58 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg Municipal 1-15
Year Index to the Bloomberg U.S. Municipal Bond Index in connection
with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Intermediate Tax-Exempt Fund. Adam M. Shane, CFA, and Timothy Blair, CFA,
each a Senior
|
| |
152 |
|
NORTHERN FUNDS
PROSPECTUS |
INTERMEDIATE
TAX-EXEMPT FUND
Vice
President of NTI, have been managers of the Fund since July 2022 and July 2023,
respectively. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions primarily will be “exempt interest dividends” that are
generally exempt from regular federal income tax. In certain instances,
dividends paid by the Fund, while exempt from regular federal income tax, may be
subject to the federal AMT. State and local income taxes may apply to all or a
portion of exempt-interest dividends paid by the Fund. The Fund also may make
distributions taxable as ordinary income or capital gains. Tax-exempt
institutions, IRAs and other tax advantaged retirement accounts will not gain an
additional benefit through investment in the Fund because such investors are
already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
153 |
LIMITED
TERM TAX-EXEMPT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide a high level of current income exempt from regular federal
income tax by investing in municipal
instruments.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
|
None |
|
|
|
Annual Fund
Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.43% |
|
| |
Other
Expenses |
|
|
0.07% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.03% |
|
| |
Acquired
Fund Fees and Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.51% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.05)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.46% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$47 |
|
|
|
$159 |
|
|
|
$280 |
|
|
|
$636 |
|
PORTFOLIO
TURNOVER. The Fund may incur transaction costs as it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the Example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was
16.10% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking high current income exempt from regular federal income tax, the Fund
will invest in municipal instruments. A municipal instrument is a fixed-income
obligation issued by a state, territory or possession of the United States
(including the District of Columbia) or a political subdivision, agency or
instrumentality thereof. Interest income received by holders of municipal
instruments is often exempt from the federal income tax and from the income tax
of the state in which they are issued, although municipal instruments issued for
certain purposes may not be tax-exempt. The municipal instruments in which the
Fund invests may include:
|
∎ |
|
General
obligation bonds secured by the issuer’s full faith, credit and taxing
power; |
|
∎ |
|
Revenue
obligation bonds payable from the revenues derived from a particular
facility or class of
facilities; |
|
∎ |
|
Industrial
development bonds; |
|
∎ |
|
Moral
obligation bonds; |
|
∎ |
|
Tax-exempt
derivative instruments; |
|
∎ |
|
Stand-by
commitments; and |
|
∎ |
|
Municipal
instruments backed by letters of credit, insurance or other forms of
credit enhancement issued by domestic or foreign banks, insurance
companies and other financial
institutions. |
The
Fund primarily invests in investment grade debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality
as
|
| |
154 |
|
NORTHERN FUNDS
PROSPECTUS |
LIMITED
TERM TAX-EXEMPT FUND
determined
by NTI). However, it may invest up to 15% of its net assets in obligations that
are rated below-investment grade (commonly referred to as “junk bonds”). Credit
ratings are determined at the time of
purchase.
Except
in extraordinary circumstances, at least 80% of the Fund’s net assets will be
invested in debt instruments that pay interest that is exempt from regular
federal income tax. Alternative minimum tax (“AMT”) obligations (also known as
“private activity bonds”), which pay interest that may be treated as an item of
tax preference to shareholders under the federal AMT, will not be deemed to be
eligible debt instruments for the purposes of determining whether the Fund meets
this policy. For shareholders subject to AMT, a portion of the Fund’s dividends
may be subject to federal tax.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as general obligation bonds,
corporate-backed municipal bonds and revenue obligation bonds) that NTI believes
will provide a favorable return in light of these risks. NTI may engage in
active trading, and will not consider portfolio turnover a limiting factor in
making decisions for the Fund.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
from at least one year to less than six
years.
In
seeking to achieve its investment objective, the Fund may make significant
investments in structured securities and also may invest, to a lesser extent, in
futures contracts, options and swaps, all of which are considered to be
derivative instruments, for both hedging and non-hedging
purposes.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities. The secondary market for municipal obligations also tends to be less
well-developed and less liquid than many other securities markets, which may
limit the Fund’s ability to sell its municipal obligations at attractive prices.
Further, inventories of municipal securities held by brokers and dealers have
decreased in recent years, lessening their ability to make a market in these
securities, which has resulted in increased municipal security price volatility
and trading costs, particularly during periods of economic or market stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of
|
| |
NORTHERN FUNDS PROSPECTUS |
|
155 |
LIMITED
TERM TAX-EXEMPT FUND
the
Fund’s investments and its returns. Changes in an issuer’s financial strength,
the market’s perception of an issuer’s creditworthiness, or in the credit rating
of the issuer or the security may also affect the value of the Fund’s investment
in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
STRUCTURED SECURITIES RISK is the risk that
structured securities may be more volatile, less liquid and more difficult to
price accurately than less complex securities due to their derivative nature. As
a result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to increased risk of an issuer’s inability to make principal and
interest payments.
ALTERNATIVE MINIMUM TAX RISK is the risk that a
portion of the Fund’s otherwise tax-exempt income may be taxable to those
shareholders subject to the federal alternative minimum tax.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction
of |
|
| |
156 |
|
NORTHERN FUNDS
PROSPECTUS |
LIMITED
TERM TAX-EXEMPT FUND
|
securities’
prices, interest rates, currency exchange rates and other economic
factors, which may make the Fund’s returns more volatile or increase the
risk of loss. |
|
∎ |
|
OPTIONS CONTRACTS RISK is the risk
that there may be an imperfect correlation between the options and the
securities markets that cause a given transaction to fail to achieve its
objectives. The successful use of options depends on the investment
adviser’s ability to predict correctly future price fluctuations and the
degree of correlation between the options and securities markets.
Exchanges can limit the number of positions that can be held or controlled
by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s
strategies. |
|
∎ |
|
SWAP CONTRACTS RISK is the risk
that the counterparty with whom the Fund has entered into the agreement
will default on its obligation to pay the Fund. While certain swaps are
subject to mandatory central clearing, which is intended to reduce
counterparty risk, these swaps are subject to the risk that a central
clearinghouse will go into bankruptcy or become non-operational, and
sometimes involve increased transaction
costs. |
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index and a style-specific index (one reflecting the market segments in
which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 0.34%. For the periods shown in the bar chart above,
the highest quarterly
return was 3.46% in the fourth quarter of
2023, and the lowest quarterly
return was (3.36)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended
December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
3.23 |
% |
|
|
1.45 |
% |
|
|
1.21 |
% |
Returns
after taxes on distributions |
|
|
3.23 |
% |
|
|
1.23 |
% |
|
|
1.09 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
2.76 |
% |
|
|
1.38 |
% |
|
|
1.21 |
% |
Bloomberg
U.S. Municipal Bond Index (reflects no deduction for fees, expenses, or
taxes)(1) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
Bloomberg
1-5 Year Blend Municipal Bond Index (reflects no deduction for fees,
expenses, or taxes) |
|
|
3.76 |
% |
|
|
1.51 |
% |
|
|
1.44 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the Bloomberg 1-5 Year Blend
Municipal Bond Index to the Bloomberg U.S. Municipal Bond Index in
connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO
MANAGERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Limited Term Tax-Exempt Fund.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
157 |
LIMITED
TERM TAX-EXEMPT FUND
Adam
M. Shane, CFA, and Timothy Blair, CFA, each a Senior Vice President of NTI, have
been managers of the Fund since July 2022 and July 2023, respectively. The
Northern Trust Company, an affiliate of NTI, serves as transfer agent, custodian
and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions primarily will be “exempt interest dividends” that are
generally exempt from regular federal income tax. In certain instances,
dividends paid by the Fund, while exempt from regular federal income tax, may be
subject to the federal AMT. State and local income taxes may apply to all or a
portion of exempt-interest dividends paid by the Fund. The Fund also may make
distributions taxable as ordinary income or capital gains. Tax-exempt
institutions, IRAs and other tax advantaged retirement accounts will not gain an
additional benefit through investment in the Fund because such investors are
already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
158 |
|
NORTHERN FUNDS
PROSPECTUS |
TAX-EXEMPT FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide a high level of current income exempt from regular federal
income tax by investing in municipal instruments.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
|
|
|
| |
Shareholder Fees (fees paid directly from your
investment) |
|
|
None |
|
|
|
Annual Fund
Operating Expenses (expenses that you pay each year as a
percentage of the value of your investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.43% |
|
| |
Other
Expenses |
|
|
0.07% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.03% |
|
| |
Total
Annual Fund Operating Expenses |
|
|
0.50% |
|
| |
Expense
Reimbursement(1) |
|
|
(0.05)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(1) |
|
|
0.45% |
|
(1) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.45%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$46 |
|
|
|
$155 |
|
|
|
$275 |
|
|
|
$623 |
|
PORTFOLIO
TURNOVER. The Fund may incur transaction costs as it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the Example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was
31.74% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking high current income exempt from regular federal income tax, the Fund may
invest in a broad range of municipal instruments. A municipal instrument is a
fixed-income obligation issued by a state, territory or possession of the United
States (including the District of Columbia) or a political subdivision, agency
or instrumentality thereof. Interest income received by holders of municipal
instruments is often exempt from the federal income tax and from the income tax
of the state in which they are issued, although municipal instruments issued for
certain purposes may not be tax-exempt. The municipal instruments in which the
Fund invests may include:
∎ |
|
General
obligation bonds secured by the issuer’s full faith, credit and taxing
power; |
∎ |
|
Revenue
obligation bonds payable from the revenues derived from a particular
facility or class of facilities;
|
∎ |
|
Industrial
development bonds; |
∎ |
|
Moral
obligation bonds; |
∎ |
|
Tax-exempt
derivative instruments; |
∎ |
|
Stand-by
commitments; and |
∎ |
|
Municipal
instruments backed by letters of credit, insurance or other forms of
credit enhancement issued by domestic or foreign banks, insurance
companies and other financial institutions.
|
The
Fund primarily invests in investment grade debt obligations (i.e., obligations
rated within the top four rating categories by a Nationally Recognized
Statistical Rating Organization (“NRSRO”) or of comparable quality as determined
by NTI). However, it may invest up to 15% of its net assets in obligations that
are rated below-investment grade (commonly referred to as “junk bonds”). Credit
ratings are determined at the time of purchase.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
159 |
TAX-EXEMPT FUND
Except
in extraordinary circumstances, at least 80% of the Fund’s net assets will be
invested in debt instruments that pay interest that is exempt from regular
federal income tax. Alternative minimum tax (“AMT”) obligations (also known as
“private activity bonds”), which pay interest that may be treated as an item of
tax preference to shareholders under the federal AMT, will not be deemed to be
eligible debt instruments for the purposes of determining whether the Fund meets
this policy. For shareholders subject to AMT, a portion of the Fund’s dividends
may be subject to federal tax.
In
buying and selling securities for the Fund, NTI uses a relative value approach.
This approach involves an analysis of general economic and market conditions. It
also involves the use of models that analyze and compare expected returns and
assumed risks. Under the relative value approach, NTI will emphasize particular
securities and types of securities (such as general obligation bonds and revenue
obligation bonds) that NTI believes will provide a favorable return in light of
these risks.
NTI
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the Fund.
The
Fund’s dollar-weighted average maturity, under normal circumstances, will range
between ten and thirty years.
In
seeking to achieve its investment objective, the Fund may make significant
investments in structured securities and also may invest, to a lesser extent, in
futures contracts, options and swaps, all of which are considered to be
derivative instruments, for both hedging and non-hedging purposes.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), yield, total
return and ability to meet its investment objective. Each risk noted below is
considered a principal risk of investing in the Fund, regardless of the order in
which it appears. The significance of each risk factor below may change over
time and you should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
MUNICIPAL INVESTMENTS RISK is the risk of a
municipal security that generally depends on the financial and credit status of
the issuer. Constitutional amendments, legislative enactments, executive orders,
administrative regulations, voter initiatives, and the issuer’s regional
economic conditions may affect the municipal security’s value, interest
payments, repayment of principal and the Fund’s ability to sell the security.
The Fund may be more sensitive to adverse economic, business, political or
public health developments if it focuses its assets in municipal bonds that are
issued to finance similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, in
particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds), or in municipal securities
of a particular state or territory. While income earned on municipal securities
is generally not subject to federal tax, the failure of a municipal security
issuer to comply with applicable tax requirements may make income paid thereon
taxable, resulting in a decline in the security’s value. In addition, there
could be changes in applicable tax laws or tax treatments that reduce or
eliminate the current federal income tax exemption on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities.
The
secondary market for municipal obligations also tends to be less well-developed
and less liquid than many other securities markets, which may limit the Fund’s
ability to sell its municipal obligations at attractive prices. Further,
inventories of municipal securities held by brokers and dealers have decreased
in recent years, lessening their ability to make a market in these securities,
which has resulted in increased municipal security price volatility and trading
costs, particularly during periods of economic or market stress.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the
|
| |
160 |
|
NORTHERN FUNDS
PROSPECTUS |
TAX-EXEMPT FUND
security
may also affect the value of the Fund’s investment in that issuer.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
STRUCTURED SECURITIES RISK is the risk that
structured securities may be more volatile, less liquid and more difficult to
price accurately than less complex securities due to their derivative nature. As
a result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to increased risk of an issuer’s inability to make principal and
interest payments.
ALTERNATIVE MINIMUM TAX RISK is the risk that a
portion of the Fund’s otherwise tax-exempt income may be taxable to those
shareholders subject to the federal alternative minimum tax.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser may fail to produce the intended
results or that imperfections, errors or limitations in the tools and data used
by the investment adviser may cause unintended results.
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligations. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FUTURES CONTRACTS RISK is the risk
that there will be imperfect correlation between the change in market
value of the Fund’s securities and the price of futures contracts, which
may result in the strategy not working as intended; the possible inability
of the Fund to sell or close out a futures contract at the desired time or
price; losses due to unanticipated market movements, which potentially are
unlimited; and the possible inability of the Fund’s investment adviser to
correctly predict the direction of securities’ prices, interest rates,
currency exchange rates and other economic factors, which may make the
Fund’s returns more volatile or increase the risk of loss.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
161 |
TAX-EXEMPT FUND
|
∎ |
|
OPTIONS CONTRACTS RISK is the risk
that there may be an imperfect correlation between the options and the
securities markets that cause a given transaction to fail to achieve its
objectives. The successful use of options depends on the investment
adviser’s ability to predict correctly future price fluctuations and the
degree of correlation between the options and securities markets.
Exchanges can limit the number of positions that can be held or controlled
by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s strategies.
|
|
∎ |
|
SWAP CONTRACTS RISK is the risk
that the counterparty with whom the Fund has entered into the agreement
will default on its obligation to pay the Fund. While certain swaps are
subject to mandatory central clearing, which is intended to reduce
counterparty risk, these swaps are subject to the risk that a central
clearinghouse will go into bankruptcy or become non-operational, and
sometimes involve increased transaction costs.
|
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 0.41%. For the periods shown in the bar chart above,
the highest quarterly
return was 6.85% in the fourth quarter of
2023, and the lowest quarterly
return was (6.79)% in the first quarter of
2022.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended
December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
5.88 |
% |
|
|
1.49 |
% |
|
|
2.71 |
% |
Returns
after taxes on distributions |
|
|
6.93 |
% |
|
|
1.37 |
% |
|
|
2.64 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
5.99 |
% |
|
|
1.73 |
% |
|
|
2.77 |
% |
Bloomberg
U.S. Municipal Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
6.40 |
% |
|
|
2.25 |
% |
|
|
3.03 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER AND PORTFOLIO MANAGERS.
NTI,
an indirect subsidiary of Northern Trust Corporation, serves as the investment
adviser of the Tax-Exempt Fund. Adam M. Shane, CFA, and Timothy Blair, CFA, each
a Senior Vice President of NTI, have been managers of the Fund since July 2022
and July 2023, respectively. The Northern Trust Company, an affiliate of NTI,
serves as transfer agent, custodian and sub-administrator to the Fund.
|
| |
162 |
|
NORTHERN FUNDS
PROSPECTUS |
TAX-EXEMPT FUND
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions primarily will be “exempt interest dividends” that are
generally exempt from regular federal income tax. In certain instances,
dividends paid by the Fund, while exempt from regular federal income tax, may be
subject to the federal AMT. State and local income taxes may apply to all or a
portion of exempt-interest dividends paid by the Fund. The Fund also may make
distributions taxable as ordinary income or capital gains. Tax-exempt
institutions, IRAs and other tax advantaged retirement accounts will not gain an
additional benefit through investment in the Fund because such investors are
already tax-exempt.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
163 |
ACTIVE
M EMERGING MARKETS EQUITY FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation through a diversified
portfolio of primarily emerging and frontier market equity securities. Any
income received is incidental to this objective.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
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Shareholder Fees (fees paid directly from
your investment) |
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Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
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None |
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Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
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2.00% |
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Annual Fund
Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment) |
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|
Shares Class |
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Management
Fees |
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1.08% |
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Other
Expenses |
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0.33% |
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Transfer
Agent Fees |
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0.04% |
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Other
Operating Expenses |
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0.29% |
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Acquired
Fund Fees & Expenses(1) |
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0.01% |
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Total
Annual Fund Operating Expenses(1) |
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1.42% |
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Expense
Reimbursement(2) |
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(0.30)% |
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Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
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1.12% |
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(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 1.10%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Fund’s Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
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1 Year |
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3 Years |
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5 Years |
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10 Years |
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Shares
Class |
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$114 |
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$420 |
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$748 |
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$1,676 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 97.82% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation, the Fund will invest, under normal
circumstances, at least 80% of its net assets in equity securities of issuers
domiciled in emerging and frontier markets. Emerging and frontier markets are
defined as those markets included in the MSCI Emerging Markets® Index and MSCI Frontier
Markets® Index. The
Fund’s sub-advisers may also consider emerging and frontier markets as
classified by the World Bank, International Finance Corporation or the United
Nations and other similar agencies. The Fund may invest in companies of any size
located in a number of countries throughout the world. The principal types of
equity securities in which the Fund invests include common stock, American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). The Fund’s
common stock investments also include China A-shares (shares of companies based
in mainland China that trade on the Shanghai Stock Exchange and the Shenzhen
Stock Exchange).
The
Fund utilizes a “multi-manager” approach whereby the Fund’s assets are allocated
to one or more sub-advisers, in percentages determined at the discretion of NTI.
Each sub-adviser acts independently from the others and utilizes its own
distinct investment style in selecting securities. However, each sub-adviser
must operate within the constraints of the Fund’s investment objective,
strategies and restrictions.
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164 |
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NORTHERN FUNDS
PROSPECTUS |
ACTIVE
M EMERGING MARKETS EQUITY FUND
When
determining the allocations and reallocations to sub-advisers, NTI will consider
a variety of factors, including but not limited to the sub-adviser’s style,
historical performance, and the characteristics of each sub-adviser’s allocated
assets (including capitalization, growth and profitability measures, valuation
metrics, economic sector exposures, and earnings and volatility statistics). NTI
seeks, through its selection of sub-advisers and its allocation determinations,
to reduce portfolio volatility and provide an attractive combination of risk and
return for the Fund.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors
or countries. As of March 31, 2024, the Fund had focused investments in the
consumer discretionary and information technology sectors, and in India and
South Korea.
The
sub-advisers may engage in active trading, and will not consider portfolio
turnover a limiting factor in making decisions for the Fund.
Morgan Stanley Capital International, Inc. (“MSCI”)
does not endorse any of the securities in the MSCI Emerging Markets Index or
MSCI Frontier Markets Index. It is not a sponsor of the Active M Emerging
Markets Equity Fund and is not affiliated with the Fund in any way.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
EMERGING MARKETS RISK is the risk that
emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition,
companies operating in emerging markets may be subject to lower trading volumes
and greater price volatility than companies in more developed markets. Emerging
market economies may be based on only a few industries, may be highly vulnerable
to changes in local and global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Companies in emerging market countries
generally may be subject to less stringent regulatory, disclosure, financial
reporting, accounting, auditing and recordkeeping standards than companies in
more developed countries. As a result, information, including financial
information, about such companies may be less available and reliable, which can
impede the Fund’s ability to evaluate such companies. Securities law and the
enforcement of systems of taxation in many emerging market countries may change
quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of
a company’s assets, restrictions on foreign ownership of local companies,
restrictions on withdrawing assets from the country, protectionist measures and
practices such as share blocking), or to obtain information needed to pursue or
enforce such actions, may be limited. Investments in emerging market securities
may be subject to additional transaction costs, delays in settlement procedures,
unexpected market closures, and lack of timely information.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk
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NORTHERN FUNDS PROSPECTUS |
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165 |
ACTIVE
M EMERGING MARKETS EQUITY FUND
of
negative foreign currency rate fluctuations, which may cause the value of
securities denominated in such foreign currency (or other instruments through
which the Fund has exposure to foreign currencies) to decline in value. Currency
exchange rates may fluctuate significantly over short periods of time. Currency
hedging strategies, if used, are not always successful. For instance, forward
foreign currency exchange contracts, if used by the Fund, could reduce
performance if there are unanticipated changes in currency exchange rates.
FRONTIER MARKETS RISK is the risk that
frontier countries generally have smaller economies or less developed capital
markets than traditional emerging markets and, as a result, the risks of
investing in emerging market countries are magnified in frontier countries.
DEPOSITARY RECEIPTS RISK Foreign securities may
trade in the form of depositary receipts. In addition to investment risks
associated with the underlying issuer, depositary receipts may expose the Fund
to additional risks associated with non-uniform terms that apply to depositary
receipt programs, including credit exposure to the depository bank and to the
sponsors and other parties with whom the depository bank establishes the
programs, currency, political, economic, market risks and the risks of an
illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted. Depositary receipts may not track the price of the
underlying foreign securities on which they are based, may have limited voting
rights, and may have a distribution subject to a fee charged by the depository.
As a result, equity shares of the underlying issuer may trade at a discount or
premium to the market price of the depositary receipts.
MULTI-MANAGER RISK is the risk that the
sub-advisers’ investment styles will not always be complementary or that the
investment adviser’s allocation of assets amongst sub-advisers will not achieve
the intended result, which could negatively impact the performance of the Fund.
Sub-advisers make investment decisions independently of one another, and may
make decisions that conflict with each other.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser or sub-advisers may fail to
produce the intended results or that imperfections, errors or limitations in the
tools and data used by the investment adviser or the sub-advisers may cause
unintended results.
GEOGRAPHIC RISK is the risk that if the
Fund invests a significant portion of its total assets in certain issuers within
the same country or geographic region, an adverse economic, business or
political development affecting that country or region may affect the value of
the Fund’s investments more, and the Fund’s investments may be more volatile,
than if its investments were not so concentrated in such country or region.
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∎ |
|
INDIA INVESTMENT RISK is the risk
associated with investments in companies located or operating in India,
such as political and legal uncertainty, religious factors impacting
Indian businesses and greater government control over the economy,
currency fluctuations or blockage, liquidity risk, the rate of inflation
and the risk of nationalization or expropriation of assets, which may
result in higher potential for losses. Specifically, India’s strained
relations with neighboring countries like Pakistan and China could result
in geopolitical risk that has an adverse impact on the Indian economy and
stock market. In addition, the Reserve Bank of India (“RBI”) has imposed
limits on foreign ownership of Indian securities, which may limit the
amount the Fund can invest in certain types of companies. Further, certain
Indian regulatory approvals, including approvals from the Securities and
Exchange Board of India, the RBI, the central government and the tax
authorities (to the extent that tax benefits need to be utilized), may be
required before the Fund can make investments in the securities of Indian
companies. Capital gains from Indian securities may be subject to local
taxation. |
|
∎ |
|
SOUTH KOREA INVESTMENT RISK is
that risk that South Korean issuers in which the Fund invests may subject
the Fund to legal, regulatory, political, currency, security,
environmental and economic risks that are specific to South Korea. In
addition, economic and political developments of South Korea’s neighbors,
including escalated tensions involving North Korea and any outbreak of
hostilities involving North Korea, or even the threat of an outbreak of
hostilities, may have a severe adverse effect on the South Korean economy.
|
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
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∎ |
|
CONSUMER DISCRETIONARY SECTOR RISK
is the risk that companies engaged in the consumer discretionary sector
may be adversely affected by fluctuations in supply and demand, supply
chains, and changes in consumer preferences, social trends and marketing
campaigns. Changes in consumer spending as a result of world events,
political and economic conditions, government regulation, commodity price
volatility, changes in exchange rates, imposition of import or export
controls, increased competition, depletion of resources and labor
relations also may adversely affect these companies.
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166 |
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NORTHERN FUNDS
PROSPECTUS |
ACTIVE
M EMERGING MARKETS EQUITY FUND
|
∎ |
|
INFORMATION TECHNOLOGY SECTOR RISK
is the risk that securities of technology companies may be subject to
greater price volatility than securities of companies in other sectors.
These securities may fall in and out of favor with investors rapidly,
which may cause sudden selling and dramatically lower market prices.
Technology companies also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or services.
|
SMALL AND MID CAP STOCK RISK is the risk that stocks
of small and mid-sized companies may be more volatile than stocks of larger,
more established companies. Small and mid-sized companies may have limited
product lines or financial resources, may be dependent upon a particular niche
of the market, or may be dependent upon a small or inexperienced management
group. The securities of small and mid-sized companies may trade less frequently
and in lower volume than the securities of larger companies, which could lead to
higher transaction costs. Generally, the smaller the company size, the greater
the risk.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others, which may make them difficult or
impossible to sell at the time and the price that the Fund would like and the
Fund may have to lower the price, sell other securities instead or forgo an
investment opportunity, adversely affecting the value of the Fund’s investments
and its returns. In addition, less liquid securities may be more difficult to
value and markets may become less liquid when there are fewer interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities, and if the Fund is forced to sell these investments to meet
redemption requests or for other cash needs, the Fund may suffer a loss. Banking
regulations may also cause certain dealers to reduce their inventories of
certain securities, which may further decrease the Fund’s ability to buy or sell
such securities. All of these risks may increase during periods of market
turmoil and could have a negative effect on the Fund’s performance.
PORTFOLIO TURNOVER RISK is the risk that high
portfolio turnover, including investments made on a shorter-term basis or
instruments with a maturity of one year or less at the time of acquisition, may
lead to increased Fund expenses that may result in lower investment returns.
High portfolio turnover may also result in higher short-term capital gains
taxable to shareholders.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 8.50%. For the period shown in the bar chart above,
the highest quarterly
return was 20.58% in the fourth quarter of
2020, and the lowest quarterly
return was (25.57)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
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1-Year |
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5-Year |
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10-Year |
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Shares
Class |
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Returns
before taxes |
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|
12.10 |
% |
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|
3.52 |
% |
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|
2.18 |
% |
Returns
after taxes on distributions |
|
|
11.77 |
% |
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|
1.42 |
% |
|
|
1.03 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
7.65 |
% |
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|
2.77 |
% |
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|
1.76 |
% |
MSCI
Emerging Markets Index (reflects no deduction for fees, expenses, or
taxes) |
|
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9.83 |
% |
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|
3.68 |
% |
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2.66 |
% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact
of
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NORTHERN FUNDS PROSPECTUS |
|
167 |
ACTIVE
M EMERGING MARKETS EQUITY FUND
state and local
taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER, PORTFOLIO MANAGER AND
SUB-ADVISERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Active M Emerging Markets Equity Fund. Kelly Finegan and Kaz Sikora, each a
Senior Vice President of NTI, have been managers of the Fund since May
2023. Ashmore Investment Management Limited, Axiom Investors LLC and Westwood
Global Investments, LLC each serves as a sub-adviser of the Fund. From time to
time, the Fund may have little or no assets allocated to any one particular
sub-adviser in light of economic or other conditions, as determined by NTI in
its sole discretion. The Northern Trust Company, an affiliate of NTI, serves as
transfer agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
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168 |
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NORTHERN FUNDS
PROSPECTUS |
ACTIVE
M EMERGING MARKETS EQUITY FUND
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
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NORTHERN FUNDS PROSPECTUS |
|
169 |
ACTIVE
M INTERNATIONAL EQUITY FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation through a diversified
portfolio of primarily non-U.S. equity securities. Any income received is
incidental to this objective.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples below.
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| |
Shareholder Fees (fees paid directly from
your investment) |
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| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund
Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.82% |
|
| |
Other
Expenses |
|
|
0.11% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.07% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
0.94% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.08)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.86% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.84%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Fund’s Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$88 |
|
|
|
$292 |
|
|
|
$512 |
|
|
|
$1,147 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 37.54% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation, the Fund will invest, under normal
circumstances, at least 80% of its net assets in equity securities of issuers
domiciled outside the U.S. The Fund may invest in companies of any size located
in a number of countries throughout the world but primarily invests in companies
domiciled in developed markets. The Fund may invest up to 40% of its net assets
in issuers domiciled in emerging markets (i.e., those that are generally in the
early stages of their industrial cycles).
The
Fund utilizes a “multi-manager” approach whereby the Fund’s assets are allocated
to one or more sub-advisers, in percentages determined at the discretion of NTI.
Each sub-adviser acts independently from the others and utilizes its own
distinct investment style in selecting securities. However, each sub-adviser
must operate within the constraints of the Fund’s investment objective,
strategies and restrictions.
When
determining the allocations and reallocations to sub-advisers, NTI will consider
a variety of factors, including but not limited to the sub-adviser’s style,
historical performance, and the characteristics of each sub-adviser’s allocated
assets (including capitalization, growth and profitability measures, valuation
metrics, economic sector exposures, and earnings and volatility statistics). NTI
seeks, through its selection of
|
| |
170 |
|
NORTHERN FUNDS
PROSPECTUS |
ACTIVE
M INTERNATIONAL EQUITY FUND
sub‑advisers
and its allocation determinations, to reduce portfolio volatility and provide an
attractive combination of risk and return for the Fund.
From
time to time the Fund may have a focused investment (i.e., investment exposure
comprising more than 15% of its total assets) in one or more particular sectors,
countries or geographic regions. As of March 31, 2024, the Fund had focused
investments in the financials and industrials sectors, and in the United Kingdom
and European Union.
The
sub-advisers may engage in active trading, and will not consider portfolio
turnover a limiting factor in making decisions for the Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
EMERGING MARKETS RISK is the risk that
emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition,
companies operating in emerging markets may be subject to lower trading volumes
and greater price volatility than companies in more developed markets. Emerging
market economies may be based on only a few industries, may be highly vulnerable
to changes in local and global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Companies in emerging market countries
generally may be subject to less stringent regulatory, disclosure, financial
reporting, accounting, auditing and recordkeeping standards than companies in
more developed countries. As a result, information, including financial
information, about such companies may be less available and reliable, which can
impede the Fund’s ability to evaluate such companies. Securities law and the
enforcement of systems of taxation in many emerging market countries may change
quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of
a company’s assets, restrictions on foreign ownership of local companies,
restrictions on withdrawing assets from the country, protectionist measures and
practices such as share blocking), or to obtain information needed to pursue or
enforce such actions, may be limited. Investments in emerging market securities
may be subject to additional transaction costs, delays in settlement procedures,
unexpected market closures, and lack of timely information.
MULTI-MANAGER RISK is the risk that the
sub-advisers’ investment styles will not always be complementary or that the
investment adviser’s allocation of assets amongst sub-advisers
|
| |
NORTHERN FUNDS PROSPECTUS |
|
171 |
ACTIVE
M INTERNATIONAL EQUITY FUND
will
not achieve the intended result, which could negatively impact the performance
of the Fund. Sub-advisers make investment decisions independently of one
another, and may make decisions that conflict with each other.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser or sub-advisers may fail to
produce the intended results or that imperfections, errors or limitations in the
tools and data used by the investment adviser or the sub-advisers may cause
unintended results.
GEOGRAPHIC RISK is the risk that if the
Fund invests a significant portion of its total assets in certain issuers within
the same country or geographic region, an adverse economic, business or
political development affecting that country or region may affect the value of
the Fund’s investments more, and the Fund’s investments may be more volatile,
than if its investments were not so concentrated in such country or region.
|
∎ |
|
EUROPEAN INVESTMENT RISK is the
risk that investments in certain countries in the European Union (the
“EU”) are susceptible to high political, social, or economic risks due to
restrictions on inflation rates, rising debt levels and fiscal and
monetary controls. Decreasing imports or exports, changes in local or EU
regulations on trade, changes in the exchange rate of the euro, the
default or threat of default by an EU member country on its sovereign
debt, budget deficits and recessions in an EU member country may have
significant adverse effects on the economies of the other EU member
countries. Separately, the EU faces issues involving its membership,
structure, procedures and policies. The exit of one or more member states
from the EU, such as the departure of the United Kingdom, will likely
place the EU’s currency and banking system in jeopardy and result in
increased volatility, illiquidity and potentially lower economic growth in
the affected markets, which will adversely affect the Fund’s EU
investments. |
|
∎ |
|
UNITED KINGDOM INVESTMENT RISK is
the risk that investments in issuers located in the United Kingdom (“UK”)
may subject the Fund to regulatory, political, currency, security and
economic risk specific to the UK. The UK has one of the largest economies
in Europe and is heavily dependent on trade with the European Union
(“EU”). As a result, the UK economy may be impacted by changes to the
economic health of EU member countries. On January 31, 2020, the UK
officially withdrew from the EU. The precise impact on the UK’s economy as
a result of its departure from the EU depends to a large degree on its
ability to conclude favorable trade deals with the EU and other countries.
While new trade deals may boost economic growth, such growth may not be
able to offset the increased costs of trade with the EU resulting from the
UK’s loss of its membership in the EU single market.
|
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
|
∎ |
|
FINANCIALS SECTOR RISK is the risk
that companies in the financials sector can be significantly affected by
changes in interest rates, government regulation, the rate of corporate
and consumer debt defaulted, price competitions and the availability and
cost of capital, among other factors.
|
|
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory policies.
|
SMALL AND MID CAP STOCK RISK is the risk that stocks
of small and mid-sized companies may be more volatile than stocks of larger,
more established companies. Small and mid-sized companies may have limited
product lines or financial resources, may be dependent upon a particular niche
of the market, or may be dependent upon a small or inexperienced management
group. The securities of small and mid-sized companies may trade less frequently
and in lower volume than the securities of larger companies, which could lead to
higher transaction costs. Generally, the smaller the company size, the greater
the risk.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others, which may make them difficult or
impossible to sell at the time and the price that the Fund would like and the
Fund may have to lower the price, sell other securities instead or forgo an
investment opportunity, adversely affecting the value of the Fund’s investments
and its returns. In addition, less liquid securities may be more difficult to
value and markets may become less liquid when there are fewer interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities, and if the Fund is forced to sell these investments to meet
redemption requests or for other cash needs, the Fund may suffer a loss. Banking
regulations may also cause certain dealers to reduce their inventories of
certain securities, which may further decrease the Fund’s ability to buy or sell
such securities. All of these risks may increase during periods of market
turmoil and could have a negative effect on the Fund’s performance.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in
|
| |
172 |
|
NORTHERN FUNDS
PROSPECTUS |
ACTIVE
M INTERNATIONAL EQUITY FUND
low
volume or volatile markets or that are valued using a fair value methodology. In
addition the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The bar chart and table that follow provide an
indication of the risks of investing in the Fund by showing (A) changes in
the performance of the Fund from year to year, and (B) how the average
annual total returns of the Fund compare to those of a broad-based securities
market index.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on
the Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 5.94%. For the periods shown in the bar chart above,
the highest quarterly
return was 21.01% in the second quarter of
2020, and the lowest quarterly
return was (26.59)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
20.72 |
% |
|
|
9.46 |
% |
|
|
4.45 |
% |
Returns
after taxes on distributions |
|
|
18.66 |
% |
|
|
8.32 |
% |
|
|
3.68 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
13.42 |
% |
|
|
7.53 |
% |
|
|
3.54 |
% |
MSCI
World® ex USA
IM Index (reflects no deduction for fees, expenses, or
taxes) |
|
|
17.18 |
% |
|
|
8.24 |
% |
|
|
4.35 |
% |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER, PORTFOLIO MANAGER AND
SUB-ADVISERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Active M International Equity Fund. Kelly Finegan and Kaz Sikora, each a
Senior Vice President of NTI, have been managers of the Fund since May 2023.
Causeway Capital Management LLC, Polen Capital Management, LLC, Victory Capital
Management Inc., WCM Investment Management, LLC and Wellington Management
Company LLP each serves as a sub-adviser of the Fund. From time to time, the
Fund may have little or no assets allocated to any one particular sub-adviser in
light of economic or other conditions, as determined by NTI in its sole
discretion. The Northern Trust Company, an affiliate of NTI, serves as transfer
agent, custodian and sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund
|
| |
NORTHERN FUNDS PROSPECTUS |
|
173 |
ACTIVE
M INTERNATIONAL EQUITY FUND
reserves
the right to waive these minimums. You may also purchase Shares
Class shares of the Fund through an account at Northern Trust (or an
affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
174 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE FUND
INVESTMENT
OBJECTIVE
The
Fund seeks total return through both income and capital
appreciation.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.90% |
|
| |
Other
Expenses |
|
|
0.11% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.07% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.03% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
1.04% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.05)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.99% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.96%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Fund’s Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The
Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (taking into account the expense
reimbursement arrangement for one year, if applicable). Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$101 |
|
|
|
$326 |
|
|
|
$569 |
|
|
|
$1,266 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 48.35% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking to achieve total return, the Fund will invest, under normal
circumstances, at least 80% of its net assets (plus borrowings for investment
purposes) in securities of infrastructure companies listed on a domestic or
foreign exchange. The Fund invests primarily in equity securities, including
common stock, of infrastructure companies. Under normal circumstances, the Fund
will invest at least 40%, and may invest up to 100%, of its net assets in the
securities of infrastructure companies economically tied to a foreign (non-U.S.)
country, including emerging market countries (i.e., those that are generally in
the early stages of their industrial cycles). The Fund may invest in large,
medium or small capitalization infrastructure companies. The Fund will invest
at least 25% or more of its total assets in issuers principally engaged in the
infrastructure business.
The Fund considers a
company to be engaged in the infrastructure business if it derives at least 50%
of its revenues or earnings from, or devotes at least 50% of its assets to,
infrastructure-related activities. The Fund defines “infrastructure” as the
systems and networks of energy, transportation, utilities, communication and
other services required for the normal function of society. Infrastructure
companies are involved in, among other things: (1) the generation,
transmission and distribution of electric energy; (2) the storage,
transportation and distribution of natural resources, such as natural gas, used
to produce energy; (3) alternative and sustainable energy sources;
(4) the building, operation and maintenance of highways, toll roads,
tunnels, bridges and parking lots; (5) the building, operation
and
|
| |
NORTHERN FUNDS PROSPECTUS |
|
175 |
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE FUND
maintenance of airports and
ports, railroads and mass transit systems; (6) telecommunications and
digital infrastructure, including wireless, cable networks and data centers;
(7) water treatment and distribution; (8) social infrastructure and
other public services such as health care and education; and (9) businesses
tied to future infrastructure spending and infrastructure project management
including consultancy and
engineering.
The
Fund may enter into spot and forward foreign currency exchange contracts to
facilitate settlement of securities
transactions.
The
Fund utilizes a “multi-manager” approach whereby the Fund’s assets are allocated
to one or more sub-advisers, in percentages determined at the discretion of NTI.
Each sub-adviser acts independently from the others and utilizes its own
distinct investment style in selecting securities. However, each sub-adviser
must operate within the constraints of the Fund’s investment objective,
strategies and restrictions.
When
determining the allocations and reallocations to sub-advisers, NTI will consider
a variety of factors, including but not limited to the sub-adviser’s investment
approach, historical performance, and the characteristics of each sub-adviser’s
allocated assets (including capitalization, growth and profitability measures,
valuation metrics, economic sector exposures, and earnings and volatility
statistics). NTI seeks, through its selection of sub-advisers and its allocation
determinations, to reduce portfolio volatility and provide an attractive
combination of risk and return for the
Fund.
The
sub-advisers may engage in active trading, and will not consider portfolio
turnover a limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
INFRASTRUCTURE SECURITIES CONCENTRATION
RISK
Infrastructure companies are subject to the risk that: the potential for
realized revenue volumes is significantly lower than projected and/or there will
be cost overruns; project sponsors will alter their terms making a project no
longer economical; macroeconomic factors such as low gross domestic product
(“GDP”) growth or high nominal interest rates will raise the average cost of
funding; government regulation may affect rates charged to customers; government
budgetary constraints will impact projects; special tariffs will be imposed; and
changes in tax laws, regulatory policies or accounting standards could be
unfavorable. Other risks include environmental damage due to a company’s
operations or an accident, changes in market sentiment towards infrastructure
and terrorist acts. Because the Fund concentrates its investments in the
infrastructure industry, it will be subject to greater risk of loss than if it
were diversified across different industries.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates
|
| |
176 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE FUND
may
fluctuate significantly over short periods of time. Currency hedging strategies,
if used, are not always successful. For instance, forward foreign currency
exchange contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange
rates.
EMERGING MARKETS RISK is the risk that
emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition,
companies operating in emerging markets may be subject to lower trading volumes
and greater price volatility than companies in more developed markets. Emerging
market economies may be based on only a few industries, may be highly vulnerable
to changes in local and global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Companies in emerging market countries
generally may be subject to less stringent regulatory, disclosure, financial
reporting, accounting, auditing and recordkeeping standards than companies in
more developed countries. As a result, information, including financial
information, about such companies may be less available and reliable, which can
impede the Fund’s ability to evaluate such companies. Securities law and the
enforcement of systems of taxation in many emerging market countries may change
quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of
a company’s assets, restrictions on foreign ownership of local companies,
restrictions on withdrawing assets from the country, protectionist measures and
practices such as share blocking), or to obtain information needed to pursue or
enforce such actions, may be limited. Investments in emerging market securities
may be subject to additional transaction costs, delays in settlement procedures,
unexpected market closures, and lack of timely information.
MULTI-MANAGER RISK is the risk that the
sub-advisers’ investment styles will not always be complementary or that the
investment adviser’s allocation of assets amongst sub-advisers will not achieve
the intended result, which could negatively impact the performance of the Fund.
Sub-advisers make investment decisions independently of one another, and may
make decisions that conflict with each other.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser or sub-advisers may fail to
produce the intended results or that imperfections, errors or limitations in the
tools and data used by the investment adviser or the sub-advisers may cause
unintended results.
DERIVATIVES RISK is the risk that
derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be
illiquid or less liquid, more volatile, more difficult to value and leveraged so
that small changes in the value of the underlying instrument may produce
disproportionate losses to the Fund. Derivatives are also subject to
counterparty risk, which is the risk that the other party to the transaction
will not perform its contractual obligation. The use of derivatives is a highly
specialized activity that involves investment techniques and risks different
from those associated with investments in more traditional securities and
instruments.
|
∎ |
|
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
RISK is the risk that, if forward prices increase, a loss
will occur to the extent that the agreed upon purchase price of the
currency exceeds the price of the currency that was agreed to be
sold. |
SMALL AND MID CAP STOCK RISK is the risk that stocks
of small and mid-sized companies may be more volatile than stocks of larger,
more established companies. Small and mid-sized companies may have limited
product lines or financial resources, may be dependent upon a particular niche
of the market, or may be dependent upon a small or inexperienced management
group. The securities of small and mid-sized companies may trade less frequently
and in lower volume than the securities of larger companies, which could lead to
higher transaction costs. Generally, the smaller the company size, the greater
the risk.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
177 |
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE FUND
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (1.37)%. For the period shown in the bar
chart above, the highest quarterly
return was 12.93% in the fourth quarter of
2022, and the lowest quarterly
return was (20.39)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
6.63 |
% |
|
|
6.37 |
% |
|
|
4.90 |
% |
Returns
after taxes on distributions |
|
|
6.07 |
% |
|
|
5.43 |
% |
|
|
3.73 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
4.55 |
% |
|
|
5.07 |
% |
|
|
3.76 |
% |
MSCI® All Country World
Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
22.20 |
% |
|
|
11.72 |
% |
|
|
7.93 |
% |
S&P
Global Infrastructure® Index (net dividend
return) (reflects no deduction for fees, expenses, or taxes) |
|
|
5.78 |
% |
|
|
6.46 |
% |
|
|
4.82 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the S&P Global
Infrastructure®
Index to the MSCI®
All Country World Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER, PORTFOLIO MANAGER AND
SUB-ADVISERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser for
the Multi-Manager Global Listed Infrastructure Fund. Kelly Finegan, a Senior
Vice President of NTI, and Jim Hardman, a Vice President of NTI, have been
managers of the Fund since May 2023. First Sentier Investors (Australia) IM Ltd,
KBI Global Investors (North America), Ltd., and Lazard Asset Management LLC each
serves as a sub-adviser of the Fund. From time to time, the Fund may have little
or no assets allocated to any one particular sub-adviser in light of economic or
other conditions, as determined by NTI in its sole discretion. The Northern
Trust Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which
there is no minimum). The Fund reserves the right to waive these minimums. You
may also purchase Shares Class shares of the Fund through an account at
Northern Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum |
|
| |
178 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE FUND
|
redemption
amount by this method is $250). You will be charged $15 for each wire
redemption unless the designated bank account is maintained at Northern
Trust or an affiliated bank. Call 800-595-9111 for
instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, or a combination of the three, unless you are
investing through a tax-exempt or tax-advantaged arrangement, such as a 401(k)
plan or an individual retirement account. Distributions may be taxable upon
withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
179 |
MULTI-MANAGER
GLOBAL REAL ESTATE FUND
INVESTMENT
OBJECTIVE
The
Fund seeks to provide long-term capital appreciation and current income through
a diversified portfolio of primarily equity securities of U.S. and foreign real
estate and real estate related companies.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees |
|
|
0.89% |
|
| |
Other
Expenses |
|
|
0.19% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.15% |
|
| |
Acquired
Fund Fees & Expenses(1) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(1) |
|
|
1.09% |
|
| |
Expense
Reimbursement(2) |
|
|
(0.16)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(2) |
|
|
0.93% |
|
(1) |
The Total Annual Fund Operating Expenses do
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(2) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.91%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Fund’s Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of our shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the expense reimbursement arrangement for
one year, if applicable). Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$95 |
|
|
|
$331 |
|
|
|
$585 |
|
|
|
$1,314 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 56.04% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking long-term capital appreciation and current income, the Fund will invest,
under normal circumstances, at least 80% of its net assets in equity securities
of real estate companies and real estate related companies (collectively “real
estate companies”). This means that the Fund will concentrate its investments
(i.e., invest at least 25% or more of its total assets) in issuers principally
engaged in real estate activities. The Fund considers companies to be engaged in
real estate activities if they derive a significant portion of their revenues
from the ownership, construction, financing, management or sale of commercial,
industrial or residential real estate or if they have a significant portion of
their assets in these types of real estate-related areas. The Fund will invest
in equity-related securities of U.S. and foreign real estate companies. The Fund
does not invest directly in real
estate.
The
Fund’s investments in equity-related securities of real estate companies will
generally be primarily in securities of companies known as real estate
investment trusts (“REITs”) or U.S. or non-U.S. REIT-like companies that own
and/or manage property. The Fund may invest without limit in the securities of
REITs. The Fund may also invest in equity securities of other types of real
estate companies including REITs that invest in real estate-related loans and
real estate operating companies.
|
| |
180 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
GLOBAL REAL ESTATE FUND
The
Fund utilizes a “multi-manager” approach whereby the Fund’s assets are allocated
to one or more sub-advisers, in percentages determined at the discretion of NTI.
Each sub-adviser acts independently from the others and utilizes its own
distinct investment style in selecting securities. However, each sub-adviser
must operate within the constraints of the Fund’s investment objective,
strategies and restrictions.
When
determining the allocations and reallocations to sub-advisers, NTI will consider
a variety of factors, including but not limited to the sub-adviser’s style,
historical performance, and the characteristics of each sub-adviser’s allocated
assets (including capitalization, growth and profitability measures, valuation
metrics, economic sector exposures, and earnings and volatility statistics). NTI
seeks, through its selection of sub-advisers and its allocation determinations,
to reduce portfolio volatility and provide an attractive combination of risk and
return for the Fund.
The
sub-advisers may engage in active trading, and will not consider portfolio
turnover a limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
REAL ESTATE SECURITIES CONCENTRATION
RISK
is the risk that investments in securities of real estate companies will make
the Fund more susceptible to risks associated with the ownership of real estate
and with the real estate industry in general. Real estate companies may have
lower trading volumes and may be subject to more abrupt or erratic price
movements than the overall securities markets. The value of real estate
securities may underperform other sectors of the economy or broader equity
markets. To the extent that the Fund concentrates its investments in the real
estate industry, it will be subject to greater risk of loss than if it were
diversified across different industries.
REIT RISK is the risk that the
Fund’s investments will be affected by factors affecting REITs and the real
estate sector generally. Investing in REITs involves certain unique risks in
addition to those risks associated with investing in the real estate industry in
general. These risks include possible declines in the value of real estate,
possible lack of mortgage funds and unexpected vacancies of properties. REITs
that invest in real estate mortgages are also subject to prepayment risks. REITs
whose underlying properties are concentrated in a particular industry or
geographic region are also subject to risks affecting such industries and
regions. REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation, interest rate risks (especially mortgage REITs) and
liquidity risk. REITs may have limited financial resources, may trade less
frequently and in lower volume, engage in dilutive offerings or become more
volatile than other securities. By investing in REITs through the Fund, a
shareholder will bear expenses of the REITs in addition to expenses of the Fund.
In addition, REITs could possibly fail to (i) qualify for favorable tax
treatment under applicable tax law, or (ii) maintain their exemptions from
registration under the Investment Company Act of 1940.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk
|
| |
NORTHERN FUNDS PROSPECTUS |
|
181 |
MULTI-MANAGER
GLOBAL REAL ESTATE FUND
of
negative foreign currency rate fluctuations, which may cause the value of
securities denominated in such foreign currency (or other instruments through
which the Fund has exposure to foreign currencies) to decline in value. Currency
exchange rates may fluctuate significantly over short periods of time. Currency
hedging strategies, if used, are not always successful. For instance, forward
foreign currency exchange contracts, if used by the Fund, could reduce
performance if there are unanticipated changes in currency exchange
rates.
MULTI-MANAGER RISK is the risk that the
sub-advisers’ investment styles will not always be complementary or that the
investment adviser’s allocation of assets amongst sub-advisers will not achieve
the intended result, which could negatively impact the performance of the Fund.
Sub-advisers make investment decisions independently of one another, and may
make decisions that conflict with each other.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser or sub-advisers may fail to
produce the intended results or that imperfections, errors or limitations in the
tools and data used by the investment adviser or the sub-advisers may cause
unintended results.
SMALL AND MID CAP STOCK RISK is the risk that stocks
of small and mid-sized companies may be more volatile than stocks of larger,
more established companies. Small and mid-sized companies may have limited
product lines or financial resources, may be dependent upon a particular niche
of the market, or may be dependent upon a small or inexperienced management
group. The securities of small and mid-sized companies may trade less frequently
and in lower volume than the securities of larger companies, which could lead to
higher transaction costs. Generally, the smaller the company size, the greater
the risk.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was (3.53)%. For the period shown in the bar
chart above, the highest quarterly
return was 14.64% in the fourth quarter of
2023, and the lowest quarterly
return was (24.87)% in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
9.87 |
% |
|
|
4.35 |
% |
|
|
4.10 |
% |
Returns
after taxes on distributions |
|
|
8.86 |
% |
|
|
3.41 |
% |
|
|
1.69 |
% |
Returns
after taxes on distributions and sale of Fund shares |
|
|
6.00 |
% |
|
|
3.07 |
% |
|
|
2.49 |
% |
MSCI® All Country World
Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
22.20 |
% |
|
|
11.72 |
% |
|
|
7.93 |
% |
FTSE® EPRA® / NAREIT® Developed® Index (reflects no
deduction for fees, expenses, or taxes) |
|
|
9.68 |
% |
|
|
2.81 |
% |
|
|
3.57 |
% |
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the FTSE® EPRA® / NAREIT® Developed® Index to the MSCI® All Country World
Index in connection with new regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
|
| |
182 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
GLOBAL REAL ESTATE FUND
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER, PORTFOLIO MANAGER AND
SUB-ADVISERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Multi-Manager Global Real Estate Fund.
Kelly
Finegan, a Senior Vice President of NTI, and Jim Hardman, a Vice President of
NTI, have been managers of the Fund since May 2023. Janus Henderson Investors US
LLC and Massachusetts Financial Services Company each serves as a sub-adviser of
the Fund. From time to time, the Fund may have little or no assets allocated to
any one particular sub-adviser in light of economic or other conditions, as
determined by NTI in its sole discretion. The Northern Trust Company, an
affiliate of NTI, serves as transfer agent, custodian and sub-administrator to
the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you purchase shares directly from the Trust, you may sell
(redeem) or exchange your shares in one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986, Chicago,
Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, qualified
dividend income, capital gains, section 199A dividends, or a combination of the
four, unless you are investing through a tax-exempt or tax-advantaged
arrangement, such as a 401(k) plan or an individual retirement account.
Distributions may be taxable upon withdrawal from tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
183 |
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
INVESTMENT
OBJECTIVE
The
Fund seeks total return consisting of a combination of income and capital
appreciation.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You may be required to pay commissions and/or other
forms of compensation to a financial intermediary for transactions in Shares
Class shares, which are not reflected in the tables or the examples
below.
|
|
|
| |
Shareholder Fees (fees paid directly from
your investment)
|
|
| |
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
|
None |
|
| |
Redemption
Fee (30 days or less after purchase) (as a percentage of amount redeemed,
if applicable) |
|
|
2.00% |
|
|
|
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
|
Shares Class |
|
| |
Management
Fees(1) |
|
|
0.65% |
|
| |
Other
Expenses |
|
|
0.11% |
|
| |
Transfer
Agent Fees |
|
|
0.04% |
|
| |
Other
Operating Expenses |
|
|
0.07% |
|
| |
Acquired
Fund Fees & Expenses(2) |
|
|
0.01% |
|
| |
Total
Annual Fund Operating Expenses(2) |
|
|
0.77% |
|
| |
Expense
Reimbursement(3) |
|
|
(0.09)% |
|
| |
Total
Annual Fund Operating Expenses After Expense Reimbursement(3) |
|
|
0.68% |
|
(1) |
“Management Fees” have been restated to
reflect current
fees. |
(2) |
The Total Annual Fund Operating Expenses may
not correlate to the ratio of expenses to average net assets as reported
in the “Financial Highlights” section of the Prospectus, which reflects
the operating expenses of the Fund and does not include Acquired Fund Fees
and
Expenses. |
(3) |
Northern Trust Investments, Inc. (“NTI”) has
contractually agreed to reimburse a portion of the operating expenses of
the Fund so that after such reimbursement the Total Annual Fund Operating
Expenses of the Fund (excluding (i) acquired fund fees and expenses;
(ii) the compensation paid to each Independent Trustee of the Trust;
(iii) expenses of third party consultants engaged by the Board of
Trustees; (iv) membership dues paid to the Investment Company
Institute and Mutual Fund Directors Forum; (v) expenses in connection
with the negotiation and renewal of the revolving credit facility; and
(vi) extraordinary expenses and interest) do not exceed 0.67%. NTI
has also contractually agreed to reimburse the management fees payable by
the Fund in an amount equal to the net management fee NTI earns on the
amount invested by the Fund in money market funds managed by NTI. These
contractual limitations may not be terminated before July 31, 2025 without
the approval of the Fund’s Board of
Trustees. |
EXAMPLE
The
following Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The
Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (taking into account the expense
reimbursement arrangement for one year, if applicable). Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
Shares
Class |
|
|
$69 |
|
|
|
$237 |
|
|
|
$419 |
|
|
|
$946 |
|
PORTFOLIO
TURNOVER. The Fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the Example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 44.77% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
In
seeking to achieve its investment objective, the Fund will invest, under normal
circumstances, at least 80% of its net assets in bonds and other fixed-income
securities that are rated below investment grade (commonly referred to as “junk
bonds”). These may include:
∎ |
|
Obligations
of U.S. and foreign corporations and
banks; |
∎ |
|
Senior
and subordinated bonds and
debentures; |
∎ |
|
Zero
coupon, pay-in-kind and capital appreciation
bonds; |
∎ |
|
Convertible
securities, preferred stock, structured securities;
and |
∎ |
|
Loans
and loan
participations. |
The
sub-advisers may shift the Fund’s assets among various types of securities based
upon changing market conditions, yield differences and the credit-worthiness of
issuers among other things.
Lower
quality securities or below-investment grade securities are rated BB, Ba or
lower by a Nationally Recognized Statistical Rating Organization (“NRSRO”), or
unrated securities determined to be of comparable quality by one or more of the
Fund’s sub-advisers. Credit ratings are determined at the time of purchase.
There is no minimum rating for a security purchased or held by the Fund, and the
Fund may purchase securities that are in default. The Fund does not have any
portfolio maturity limitation, and may invest its assets from time to time
primarily in instruments with short, medium or long
maturities.
|
| |
184 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
Although
the Fund primarily invests in the debt obligations of domestic issuers, it may
invest in debt obligations of foreign issuers. The Fund’s investments in foreign
issuers together with notional underlying foreign currency exposure are not
expected to exceed 30%.
The
Fund may invest up to 15% of its net assets in “illiquid investments,” i.e.
those that the Fund reasonably expects cannot be sold or disposed of in current
market conditions within seven calendar days or less without the sale or
disposition significantly changing the market value of the investment. The Fund
may also invest in securities that are subject to resale restrictions such as
those contained in Rule 144A promulgated under the Securities Act of
1933.
The
Fund utilizes a “multi-manager” approach whereby the Fund’s assets are allocated
to one or more sub-advisers, in percentages determined at the discretion of NTI.
Each sub-adviser acts independently from the others and utilizes its own
distinct investment style in selecting securities. However, each sub-adviser
must operate within the constraints of the Fund’s investment objective,
strategies and restrictions.
When
determining the allocations and reallocations to sub-advisers, NTI will consider
a variety of factors, including but not limited to the sub-adviser’s investment
approach, historical performance, and the characteristics of each sub-adviser’s
allocated assets (including duration, credit quality, average maturity, industry
and geographic region). NTI seeks, through its selection of sub-advisers and its
allocation determinations, to reduce portfolio volatility and provide an
attractive combination of risk and return for the Fund.
From
time to time the Fund may have a focused investment (i.e., investment
exposure comprising more than 15% of its total assets) in one or more particular
sectors. As of March 31, 2024, the Fund had a focused investment in the
industrials sector.
The
sub-advisers may engage in active trading, and will not consider portfolio
turnover a limiting factor in making decisions for the
Fund.
PRINCIPAL
RISKS
As
with any investment, you could lose all or part of your investment in the Fund,
and the Fund’s performance could trail that of other investments. The Fund is
subject to certain risks, including the principal risks noted below, any of
which may adversely affect the Fund’s net asset value (“NAV”), total return and
ability to meet its investment objective. Each risk noted below is considered a
principal risk of investing in the Fund, regardless of the order in which it
appears. The significance of each risk factor below may change over time and you
should review each risk factor carefully.
MARKET RISK is the risk that the
value of the Fund’s investments may increase or decrease in response to
expected, real or perceived economic, political or financial events in the U.S.
or global markets. The frequency and magnitude of such changes in value cannot
be predicted. Certain securities and other investments held by the Fund may
experience increased volatility, illiquidity, or other potentially adverse
effects in response to changing market conditions, inflation, changes in
interest rates, lack of liquidity in the bond or equity markets or volatility in
the equity markets. Market disruptions caused by local or regional events such
as financial institution failures, war, acts of terrorism, the spread of
infectious illness (including epidemics and pandemics) or other public health
issues, recessions or other events or adverse investor sentiment could have a
significant impact on the Fund and its investments. During periods of market
disruption or other abnormal market conditions, the Fund’s exposure to risks
described elsewhere in this summary will likely increase.
HIGH-YIELD RISK is the risk that the
Fund’s below-investment grade fixed-income securities, sometimes known as “junk
bonds,” will be subject to greater credit risk, price volatility and risk of
loss than investment grade securities, which can adversely impact the Fund’s
return and NAV. High yield securities are considered highly speculative and are
subject to the increased risk of an issuer’s inability to make principal and
interest payments.
CREDIT (OR DEFAULT) RISK is the risk that the
inability or unwillingness of an issuer or guarantor of a fixed-income security,
or a counterparty to a repurchase or other transaction, to meet its principal or
interest payments or other financial obligations in a timely manner will
adversely affect the value of the Fund’s investments and its returns. Changes in
an issuer’s financial strength, the market’s perception of an issuer’s
creditworthiness, or in the credit rating of the issuer or the security may also
affect the value of the Fund’s investment in that issuer.
RESTRICTED SECURITIES RISK is the risk that
limitations on the resale of restricted securities or other securities exempt
from certain registration requirements, such as Rule 144A securities, may have
an adverse effect on their marketability and may prevent the Fund from disposing
of them promptly or at desirable prices. There can be no assurance that a
trading market will exist at any time for any particular restricted security.
Transaction costs may be higher for restricted securities and such securities
may be difficult to value and may have significant volatility.
LIQUIDITY RISK is the risk that certain
securities may be less liquid than others or may be deemed illiquid in certain
instances where a sub-adviser to the Fund may receive material non-public
information of a company because one of the sub-adviser’s employees, such as a
portfolio manager to the Fund, sits on the company’s board of directors, which
may make them difficult or impossible to sell at the time and the price that the
Fund would like and the Fund may have to lower the price, sell other securities
instead or forgo an investment opportunity, adversely affecting the value of the
Fund’s investments and its
|
| |
NORTHERN FUNDS PROSPECTUS |
|
185 |
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
returns.
In addition, less liquid securities may be more difficult to value and markets
may become less liquid when there are fewer interested buyers or sellers or when
dealers are unwilling or unable to make a market for certain securities, and if
the Fund is forced to sell these investments to meet redemption requests or for
other cash needs, the Fund may suffer a loss. Banking regulations may also cause
certain dealers to reduce their inventories of certain securities, which may
further decrease the Fund’s ability to buy or sell such securities. All of these
risks may increase during periods of market turmoil and could have a negative
effect on the Fund’s performance.
LOAN RISK is the risk that loans
may be unrated, less liquid and more difficult to value than traditional debt
securities. Loans may be made to finance highly leveraged corporate operations
or acquisitions. The highly leveraged capital structure of the borrowers in such
transactions may make such loans especially vulnerable to adverse changes in
financial, economic or market conditions. Loans generally are subject to
restrictions on transfer, and only limited opportunities may exist to sell such
loans in secondary markets. As a result, the Fund may be unable to sell loans at
a desired time or price. Extended trade settlement periods for certain loans may
result in cash not being immediately available to the Fund upon sale of the
loan. As a result, the Fund may have to sell other investments with shorter
settlement periods or engage in borrowing transactions to raise cash to meet its
obligations. Loans are also subject to the risk of price declines and to
increases in prevailing interest rates, although the floating rate loans in
which the Fund generally invests are substantially less exposed to this risk
than fixed-rate debt instruments. If the Fund acquires only an assignment or a
participation in a loan made by a third party, the Fund may not be able to
control amendments, waivers or the exercise of any remedies that a lender would
have under a direct loan and may assume liability as a lender. In addition,
loans held by the Fund may not be considered “securities” under the federal
securities laws and therefore the Fund may not receive the same investor
protections with respect to such investments that are available to purchasers of
investments that are considered “securities” under the federal securities laws.
The Fund may experience relatively greater difficulty or delays in enforcing its
rights on its holdings of covenant lite loans than its holdings of loans or
securities with financial maintenance covenants, which may result in losses to
the Fund, especially during a downturn in the credit cycle.
LOAN PARTICIPATIONS RISK A loan participation
agreement involves the purchase of a share of a loan made by a bank to a company
in return for a corresponding share of a borrower’s principal and interest
payments. The principal risk associated with acquiring loan participation
interests is the credit risk associated with the underlying corporate borrower.
There is also a risk that there may not be a readily available market for loan
participation interests and, in some cases, this could result in the Fund
disposing of such securities at a substantial discount from face value or
holding such securities until maturity.
MULTI-MANAGER RISK is the risk that the
sub-advisers’ investment styles will not always be complementary or that the
investment adviser’s allocation of assets amongst sub-advisers will not achieve
the intended result, which could negatively impact the performance of the Fund.
Sub-advisers make investment decisions independently of one another, and may
make decisions that conflict with each other.
MANAGEMENT RISK is the risk that a
strategy used by the Fund’s investment adviser or sub-advisers may fail to
produce the intended results or that imperfections, errors or limitations in the
tools and data used by the investment adviser or the sub-advisers may cause
unintended results.
INTEREST RATE RISK is the risk that during
periods of rising interest rates, the market value of a Fund’s securities will
tend to be lower than prevailing market rates and in periods of falling interest
rates, the market value of a Fund’s securities will tend to be higher. A Fund’s
yield will vary as short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. In general,
securities with longer maturities or durations are more sensitive to interest
rate changes. A general rise in interest rates may cause investors to move out
of fixed income securities on a large scale, which could adversely affect the
price and liquidity of fixed income securities and could also result in
increased redemptions for the Fund. During periods when inflation rates are high
or rising, or during periods of low interest rates, the Fund may be subject to a
greater risk of rising interest rates. Changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, may result in
heightened market volatility, may impact the liquidity of fixed-income
securities and of the Fund, and may detract from Fund performance.
VALUATION RISK is the risk that the
sale price the Fund could receive for a portfolio security may differ from the
Fund’s valuation of the security, particularly for securities that trade in low
volume or volatile markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
SOVEREIGN DEBT RISK is the risk that the
Fund may invest in securities issued or guaranteed by foreign governmental
entities (known as sovereign debt securities). These investments are subject to
the risk of payment delays or defaults, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, large debt
positions relative to
the
country’s economy or failure to implement economic reforms. There is no legal or
bankruptcy process for collecting sovereign debt.
|
| |
186 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
ZERO COUPON OR PAY-IN-KIND SECURITIES
RISK
The value, interest rates, and liquidity of non-cash paying instruments, such as
zero coupon and pay-in-kind securities, are subject to greater fluctuation than
other types of securities. The higher yields and interest rates on pay-in-kind
securities reflect the payment deferral and increased credit risk associated
with such instruments and that such investments may represent a higher credit
risk than loans that periodically pay interest.
CONVERTIBLE SECURITIES RISK The market values of
convertible securities are affected by market interest rates, the risk of actual
issuer default on interest or principal payments and the value of the underlying
common stock into which the convertible security may be converted. Additionally,
a convertible security is subject to the same types of market and issuer risks
as apply to the underlying common stock. Certain convertible securities are
subject to involuntary conversions and may undergo principal write-downs upon
the occurrence of triggering events, and, as a result, are subject to an
increased risk of loss. Convertible securities may be rated below investment
grade.
PREFERRED SECURITIES RISK Preferred securities are
subject to issuer-specific and market risks applicable generally to equity
securities. Preferred securities also may be subordinated to bonds or other debt
instruments, subjecting them to a greater risk of non-payment, may be less
liquid than many other securities, such as common stocks, and generally offer no
voting rights with respect to the issuer.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may, in certain circumstances, cause the value of
securities of all companies in a particular sector of the market to decrease.
∎ |
|
INDUSTRIALS SECTOR RISK is the
risk that companies in the industrials sector may be significantly
affected by, among other things, worldwide economic growth, supply and
demand for specific products and services, rapid technological
developments, international political and economic developments,
environmental issues, and tax and governmental regulatory
policies. |
DEBT EXTENSION RISK is the risk that when
interest rates rise an issuer will exercise its right to pay principal on
certain debt securities held by the Fund later than expected. This will cause
the value of the security, and the Fund’s NAV, to decrease, and the Fund may
lose opportunities to invest in higher yielding securities.
FOREIGN SECURITIES RISK is the risk that
investing in foreign (non-U.S.) securities may result in the Fund experiencing
more rapid and extreme changes in value than a fund that invests exclusively in
securities of U.S. companies, due to less liquid markets, and adverse economic,
political, diplomatic, financial, and regulatory factors. Foreign governments
may impose limitations on foreigners’ ownership of interests in local issuers,
restrictions on the ability to repatriate assets, and may also impose taxes. Any
of these events could cause the value of the Fund’s investments to decline.
Foreign banks, agents and securities depositories that hold the Fund’s foreign
assets may be subject to little or no regulatory oversight over, or independent
evaluation, of their operations. Additional costs associated with investments in
foreign securities may include higher custodial fees than those applicable to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Unless the Fund has hedged its foreign currency exposure, foreign
securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund has exposure to
foreign currencies) to decline in value. Currency exchange rates may fluctuate
significantly over short periods of time. Currency hedging strategies, if used,
are not always successful. For instance, forward foreign currency exchange
contracts, if used by the Fund, could reduce performance if there are
unanticipated changes in currency exchange rates.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on callable debt securities
held by the Fund earlier than expected. Issuers may be more likely to prepay
when interest rates fall, when credit spreads change, or when an issuer’s credit
quality improves. If this happens, the Fund will not benefit from the rise in
the market price of the securities that normally accompanies a decline in
interest rates, and will be forced to reinvest prepayment proceeds in lower
yielding securities, which may reduce the Fund’s returns. The Fund may also lose
any premium it paid to purchase the securities.
STRUCTURED SECURITIES RISK is the risk that
structured securities may be more volatile, less liquid and more difficult to
price accurately than less complex securities due to their derivative nature. As
a result, investments in structured securities may adversely affect the Fund’s
NAV. In some cases, it is possible that the Fund may suffer a total loss on its
investment in a structured security. In addition, the performance and payment of
principal and interest of a structured security is tied to that of a reference
obligation. Accordingly, risks of structured securities also include those risks
associated with the underlying reference obligation including, but not limited
to, market risk, interest rate risk, credit risk, default risk and foreign
currency risk.
As with any
mutual fund, it is possible to lose money on an investment in the
Fund. An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency, or The Northern Trust Company, its affiliates, subsidiaries
or any other bank.
FUND
PERFORMANCE
The
bar chart and table that follow provide an indication of the risks of investing
in the Fund by showing (A) changes in the performance of the Fund from year
to year, and (B) how the average annual total returns of the Fund compare
to those of a broad-based securities market index and a style-specific index
(one reflecting the market segments in which the Fund invests), in that
order.
The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the
future.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
187 |
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
Updated
performance information for the Fund is available and may be obtained on the
Fund’s website at northerntrust.com/funds or by
calling 800-595-9111.
CALENDAR
YEAR TOTAL RETURN*
* Year to date total
return for the six months ended June 30,
2024 was 2.20%. For the period shown in the bar chart above,
the highest quarterly
return was 9.60% in the second quarter of
2020, and the lowest quarterly
return was (14.45) % in the first quarter of
2020.
AVERAGE
ANNUAL TOTAL RETURN
(For the periods ended December 31, 2023)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1-Year |
|
|
5-Year |
|
|
10-Year |
|
Shares
Class |
|
|
|
| |
|
|
| |
|
| |
Returns
before taxes |
|
|
12.89% |
|
|
|
4.86% |
|
|
|
4.15% |
|
Returns
after taxes on distributions |
|
|
9.65% |
|
|
|
2.18% |
|
|
|
1.50% |
|
Returns
after taxes on distributions and sale of Fund shares |
|
|
7.65% |
|
|
|
2.57% |
|
|
|
1.97% |
|
Bloomberg
Universal Index (reflects no deduction for fees, expenses, or taxes)(1) |
|
|
6.17% |
|
|
|
1.44% |
|
|
|
2.08% |
|
ICE
BofA U.S. High Yield Constrained Index (reflects no deduction for fees,
expenses, or taxes) |
|
|
13.47% |
|
|
|
5.19% |
|
|
|
4.51% |
|
(1) |
Effective July 31, 2024, the Fund changed
its broad-based securities market index from the ICE BofA U.S. High Yield
Constrained Index to the Bloomberg Universal Index in connection with new
regulatory
requirements. |
After-tax returns are calculated using the
historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s
tax situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their shares through tax-advantaged arrangements,
such as 401(k) plans or individual retirement accounts.
In calculating the federal income taxes due on
redemptions, capital gains taxes resulting from redemptions are subtracted from
the redemption proceeds and the tax benefits from capital losses resulting from
the redemptions are added to the redemption proceeds. Under certain
circumstances, the addition of the tax benefits from capital losses resulting
from redemptions may cause the Returns after taxes on distributions and sale of
Fund shares to be greater than the Returns after taxes on distributions or even
the Returns before taxes.
MANAGEMENT
INVESTMENT ADVISER, PORTFOLIO MANAGER AND
SUB-ADVISERS. NTI, an indirect
subsidiary of Northern Trust Corporation, serves as the investment adviser of
the Multi-Manager High Yield Opportunity Fund. Luis Diez, a Senior Vice
President of NTI, and Neal Barrett, a Vice President of NTI, have been managers
of the Fund since May 2023. BlackRock Investment Management, LLC, Nomura
Corporate Research and Asset Management Inc. and Polen Capital Credit, LLC each
serves as a sub-adviser of the Fund. From time to time, the Fund may have little
or no assets allocated to any one particular sub-adviser in light of economic or
other conditions, as determined by NTI in its sole discretion. The Northern
Trust Company, an affiliate of NTI, serves as transfer agent, custodian and
sub-administrator to the Fund.
PURCHASE
AND SALE OF FUND SHARES
You
may purchase Shares Class shares of the Fund by opening an account directly
with Northern Funds (the “Trust”) with a minimum initial investment of $2,500 in
the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500
for employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Fund reserves the right to waive these minimums. You may also
purchase Shares Class shares of the Fund through an account at Northern
Trust (or an affiliate) or an authorized intermediary.
If
you purchase, sell (redeem) or exchange Shares Class shares through an
authorized intermediary, you may be required to pay a commission and/or other
forms of compensation to the intermediary. In addition, an authorized
intermediary may impose different investment minimums than those set forth
above. The Fund is not responsible for any investment minimums imposed by
authorized intermediaries or for notifying shareholders of any changes to
them.
On
any business day, you may sell (redeem) or exchange shares through your account
by contacting your Northern Trust account representative or authorized
intermediary. If you
|
| |
188 |
|
NORTHERN FUNDS
PROSPECTUS |
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
purchase
shares directly from the Trust, you may sell (redeem) or exchange your shares in
one of the following ways:
∎ |
|
By
Mail – Send a written request to: Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986. |
∎ |
|
By
Telephone – Authorize the telephone privilege on your New Account
Application. Call 800-595-9111 to use the telephone
privilege. |
∎ |
|
By
Wire – Authorize wire redemptions on your New Account Application and have
proceeds sent by federal wire transfer to a previously designated bank
account (the minimum redemption amount by this method is $250). You will
be charged $15 for each wire redemption unless the designated bank account
is maintained at Northern Trust or an affiliated bank. Call 800-595-9111
for instructions. |
∎ |
|
By
Systematic Withdrawal – If you own shares of the Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular
intervals and distributed in cash or reinvested in one or more other funds
of the Trust. Call 800-595-9111 for an application form and additional
information. The minimum amount is $250 per
withdrawal. |
∎ |
|
By
Exchange – Complete the Exchange Privilege section of your New Account
Application to exchange shares of one fund in the Trust for shares of
another fund in the Trust. Shares being exchanged must have a value of at
least $1,000 ($2,500 if a new account is being established by the
exchange, $500 if the new account is an IRA). Call 800-595-9111 for more
information. |
∎ |
|
By
Internet – You may initiate transactions between Northern Trust banking
and Fund accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to northerntrust.com/funds or contact
your Relationship Manager. |
TAX
INFORMATION
The
Fund’s distributions are generally taxable to you as ordinary income, capital
gains, or a combination of the two, unless you are investing through a
tax-exempt or tax-advantaged arrangement, such as a 401(k) plan or an individual
retirement account. Distributions may be taxable upon withdrawal from
tax-advantaged accounts.
PAYMENTS
TO BROKERS-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your financial intermediary’s website for more
information.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
189 |
INVESTMENT
ADVISER
This
Prospectus describes thirty seven funds (each a “Fund” and collectively, the
“Funds”), which are currently offered by Northern Funds (the
“Trust”).
The
Income Equity Fund, International Equity Fund, Large Cap Core Fund, Large Cap
Value Fund, Small Cap Value Fund, Small Cap Core Fund, Global Tactical Asset
Allocation Fund and U.S. Quality ESG Fund are collectively referred to as the
“Equity Funds.” The Emerging Markets Equity Index Fund, Global Real Estate Index
Fund, Global Sustainability Index Fund, International Equity Index Fund, Mid Cap
Index Fund, Small Cap Index Fund and Stock Index Fund are collectively referred
to as the “Equity Index Funds.”
The
Bond Index Fund, Core Bond Fund, Fixed Income Fund, High Yield Fixed Income
Fund, Short Bond Fund, Limited Term U.S. Government Fund, Tax-Advantaged
Ultra-Short Fixed Income Fund, Ultra-Short Fixed Income Fund, U.S. Government
Fund and U.S. Treasury Index Fund are collectively referred to as the “Fixed
Income Funds.” The Arizona Tax-Exempt Fund, California Intermediate Tax-Exempt
Fund, California Tax-Exempt Fund, High Yield Municipal Fund, Intermediate
Tax-Exempt Fund, Limited Term Tax-Exempt Fund and Tax-Exempt Fund are
collectively referred to as the “Tax-Exempt Fixed Income Funds.”
The
Active M Emerging Markets Equity Fund, Active M International Equity Fund,
Multi-Manager Global Listed Infrastructure Fund, Multi-Manager Global Real
Estate Fund and Multi-Manager High Yield Opportunity Fund are collectively
referred to as the “Active M/Multi-Manager Funds.”
Northern
Trust Investments, Inc. (“NTI” or the “Investment Adviser”), an indirect
subsidiary of Northern Trust Corporation, serves as the Investment Adviser of
the Funds and is responsible for their overall administration. NTI is located at
50 South LaSalle Street, Chicago, Illinois 60603.
NTI
is an Illinois State Banking Corporation and an investment adviser registered
under the Investment Advisers Act of 1940, as amended. It primarily manages
assets for institutional and individual separately managed accounts, investment
companies and bank common and collective funds.
Northern
Trust Corporation is regulated by the Board of Governors of the Federal Reserve
System as a financial holding company under the U.S. Bank Holding Company Act of
1956, as amended. Unless otherwise indicated, NTI and The Northern Trust Company
(“TNTC”) are referred to collectively in this Prospectus as “Northern
Trust.”
As
of June 30, 2024, Northern Trust Corporation, through its affiliates, had
assets under custody of $13.04 trillion, and assets under investment management
of $1.53 trillion.
Under
a Management Agreement with the Trust, on behalf of each Fund other than the
Active M/Multi-Manager Funds, the Investment Adviser, subject to the general
supervision of the Trust’s Board of Trustees (the “Board”), is responsible for
making investment decisions for the Funds and for placing purchase and sale
orders for portfolio securities, as well as for providing administration
services to the Funds.
INVESTMENT
SUB-ADVISERS
The
Active M/Multi-Manager Funds are managed by the Investment Adviser and one or
more investment sub-advisers unaffiliated with the Investment Adviser (each a
“Sub-Adviser” and together, the “Sub-Advisers”). The Investment Adviser has the
ultimate responsibility to oversee the Sub-Advisers, and to recommend their
hiring, termination, and replacement, subject to approval by the Board. The
Investment Adviser is responsible for managing the Active M/Multi-Manager Funds
during transition periods in which an existing Sub-Adviser is terminated and a
new Sub-Adviser is hired or where assets are reallocated among existing
Sub-Advisers. During these transition periods, the Investment Adviser may use
the services of a transition manager to facilitate the purchase or sale of an
Active M/Multi-Manager Fund’s portfolio holdings. Under a Management Agreement
with the Trust, on behalf of each of the Active M/Multi-Manager Funds, the
Investment Adviser, subject to the general supervision of the Board, is
responsible for: (1) selecting the overall investment strategies of the
Active M/Multi-Manager Funds; (2) recommending and selecting Sub-Advisers;
(3) allocating and reallocating assets among the Sub-Advisers where an
Active M/Multi-Manager Fund has more than one Sub-Adviser; (4) monitoring
and evaluating Sub-Adviser performance; (5) implementing procedures to
ensure that the Sub-Advisers comply with each Active M/Multi-Manager Fund’s
investment objectives, policies and restrictions; and (6) providing
administration services to the Active M/Multi-Manager Funds.
The
Trust and the Investment Adviser have received an exemptive order from the SEC,
on which the Active M/Multi-Manager Funds currently rely, that permits the
Investment Adviser to engage or terminate a Sub-Adviser, and to enter into and
materially amend an existing Sub-Advisory Agreement, upon the approval of the
Trust’s Board, without obtaining shareholder approval. In accordance with a
separate exemptive order that the Trust and the Investment Adviser have obtained
from the SEC, the Board may approve a new sub-advisory agreement or a material
amendment to an existing sub-advisory agreement at a meeting that is not in
person, provided that the Trustees are able to participate in the meeting using
a means of communication that allows them to hear each other simultaneously
during the meeting and the other conditions in the exemptive order are
met.
|
| |
190 |
|
NORTHERN FUNDS
PROSPECTUS |
The
Sub-Advisers provide investment advisory services to the Funds, except for cash
management services, which are provided by the Investment Adviser. The
Investment Adviser selects Sub-Advisers based upon the Sub-Adviser’s skills in
managing assets pursuant to particular investment styles and strategies. The
Investment Adviser monitors existing Sub-Advisers based on their investment
styles, strategies, and results in managing assets for specific asset classes.
Each Sub-Adviser has discretion to select portfolio securities for its portion
of an Active M/Multi-Manager Fund, but must select those securities according to
the Fund’s investment objectives, strategies and restrictions. The current
Sub-Advisers for the Active M/Multi-Manager Funds are set forth under the
section entitled “Fund Management.”
|
| |
NORTHERN FUNDS PROSPECTUS |
|
191 |
MANAGEMENT
FEES
As
compensation for advisory services (asset allocation services for the Global
Tactical Asset Allocation Fund) and administration services and the assumption
of related expenses, NTI is entitled to a management fee, computed daily and
payable monthly, at annual rates. The tables below reflect the aggregate
management fees paid by each of the Funds for the fiscal year ended
March 31, 2024 after waivers and/or reimbursements (expressed as a
percentage of each Fund’s respective average daily net assets).
NTI
has contractually agreed to reimburse a portion of the operating expenses (other
than certain fees and expenses shown in the table under the caption “Fees and
Expenses of the Fund” in each Fund’s Fund Summary) of each Fund (other than
Emerging Markets Equity Index Fund, International Equity Index Fund, Mid Cap
Index Fund, Small Cap Index Fund, Stock Index Fund and Bond Index Fund) so that
“Total Annual Fund Operating Expenses After Expense Reimbursement” do not exceed
the amount shown in the footnote to the table under the caption “Fees and
Expenses of the Fund” in each such Fund’s Fund Summary. The “Total Annual Fund
Operating Expenses After Expense Reimbursement” for a Fund may be higher than
the contractual limitation for the Fund as a result of certain excepted expenses
that are not reimbursed. The contractual expense reimbursement arrangement is
expected to continue until at least July 31, 2025. The contractual expense
reimbursement arrangement will continue automatically thereafter for periods of
one year (each such one-year period, a “Renewal Year”). The arrangement may be
terminated, as to any succeeding Renewal Year, by NTI or a Fund upon 60 days’
written notice prior to the end of the current Renewal Year. The Board may
terminate the arrangement at any time with respect to a Fund if it determines
that it is in the best interests of the Fund and its shareholders.
NTI
has contractually agreed to reimburse a portion of the operating expenses of the
Emerging Markets Equity Index Fund, International Equity Index Fund, Mid Cap
Index Fund, Small Cap Index Fund, Stock Index Fund and Bond Index Fund
(including acquired fund fees and expenses, but excluding extraordinary
expenses) so that “Total Annual Fund Operating Expenses After Expense
Reimbursement” do not exceed 0.1549%, 0.1049%, 0.1049%, 0.1049%, 0.0549% and
0.0749%, respectively.
NTI
has contractually agreed to reimburse the management fees payable by each Fund
in an amount equal to the net management fee NTI earns on the amount invested by
the Fund in money market mutual funds managed by NTI that comply with Rule 2a-7
under the Investment Company Act of 1940, as amended (the “1940 Act”). With
respect to Limited Term U.S. Government Fund, U.S. Government Fund, Short Bond
Fund and Fixed Income Fund, NTI also has contractually agreed to reimburse a
portion of the operating expenses of the Fund or Class in an amount equal to the
acquired fund fees and expenses arising from the Fund’s investment in other
non-money market mutual funds or exchange-traded funds managed by
NTI.
Service
providers to a Fund, including the Fund’s adviser and/or its affiliates, may,
from time to time, voluntarily waive all or a portion of any fees to which they
are entitled and/or reimburse certain expenses. Any such additional expense
reimbursement or fee waiver would be voluntary and could be implemented,
increased or decreased, or discontinued at any time without notice.
A
discussion regarding the Board of Trustees’ basis for its most recent approval
of the Funds’ Management Agreements and Sub-Advisory Agreements, as applicable,
is available in the Funds’ semi-annual report to shareholders for the six-month
period ending September 30, 2023.
|
|
|
| |
Fund |
|
Aggregate Management Fees Paid for Fiscal Year Ended 3/31/24 after waivers and/or reimbursements, if any |
|
GLOBAL
TACTICAL ASSET ALLOCATION |
|
|
0.10% |
|
INTERNATIONAL
EQUITY |
|
|
0.32% |
|
LARGE
CAP CORE |
|
|
0.34% |
|
LARGE
CAP VALUE |
|
|
0.34% |
|
SMALL
CAP VALUE |
|
|
0.80% |
|
EMERGING
MARKETS EQUITY INDEX |
|
|
0.00% |
|
GLOBAL
REAL ESTATE INDEX |
|
|
0.39% |
|
INTERNATIONAL
EQUITY INDEX |
|
|
0.04% |
|
MID
CAP INDEX |
|
|
0.03% |
|
SMALL
CAP INDEX |
|
|
0.03% |
|
STOCK
INDEX |
|
|
0.00% |
|
|
| |
192 |
|
NORTHERN FUNDS
PROSPECTUS |
|
|
|
| |
Fund |
|
Aggregate Management Fees Paid for Fiscal Year Ended 3/31/24 after waivers and/or reimbursements, if any |
|
SMALL
CAP CORE |
|
|
0.42% |
|
U.S.
QUALITY ESG |
|
|
0.32% |
|
GLOBAL
SUSTAINABILITY INDEX |
|
|
0.18% |
|
BOND
INDEX |
|
|
0.01% |
|
U.S.
TREASURY INDEX |
|
|
0.02% |
|
INCOME
EQUITY |
|
|
0.32% |
|
ACTIVE
M EMERGING MARKETS EQUITY |
|
|
0.78% |
|
ACTIVE
M INTERNATIONAL EQUITY |
|
|
0.75% |
|
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE |
|
|
0.85% |
|
MULTI-MANAGER
GLOBAL REAL ESTATE |
|
|
0.73% |
|
CORE
BOND |
|
|
0.28% |
|
FIXED
INCOME |
|
|
0.37% |
|
HIGH
YIELD FIXED INCOME |
|
|
0.54% |
|
SHORT
BOND |
|
|
0.33% |
|
LIMITED
TERM U.S. GOVERNMENT |
|
|
0.17% |
|
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME |
|
|
0.20% |
|
ULTRA-SHORT
FIXED INCOME |
|
|
0.20% |
|
U.S.
GOVERNMENT |
|
|
0.18% |
|
ARIZONA
TAX-EXEMPT |
|
|
0.24% |
|
CALIFORNIA
INTERMEDIATE TAX-EXEMPT |
|
|
0.36% |
|
CALIFORNIA
TAX-EXEMPT |
|
|
0.33% |
|
HIGH
YIELD MUNICIPAL |
|
|
0.51% |
|
INTERMEDIATE
TAX-EXEMPT |
|
|
0.39% |
|
LIMITED
TERM TAX-EXEMPT |
|
|
0.38% |
|
TAX-EXEMPT |
|
|
0.38% |
|
MULTI-MANAGER
HIGH YIELD OPPORTUNITY |
|
|
0.62% |
|
Effective
July 31, 2023, the management fee for Multi-Manager High Yield Opportunity Fund
is calculated as the annual rate of 0.65% of the first $1.5 billion, 0.631% of
the next $1 billion and 0.612% of the amount over $2.5 billion of the Fund’s
assets. Prior to July 31, 2023, the management fee for Multi-Manager High Yield
Opportunity Fund was calculated as the annual rate of 0.83% of the first $1.5
billion, 0.805% of the next $1 billion and 0.781% of the amount over $2.5
billion of the Fund’s assets.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
193 |
FUND
MANAGEMENT
Unless
otherwise provided below, for any Fund with more than one manager, each manager
has full and joint responsibility for managing the Fund with no restrictions or
limitations on such manager’s role.
EQUITY
AND EQUITY INDEX FUNDS
The
managers for the Global Tactical Asset
Allocation Fund are Timothy Johnson, Senior Vice President of NTI, Anwiti
Bahuguna, PhD, Executive Vice President of NTI, and Daniel Ballantine, Vice
President of NTI. Mr. Johnson has been a manager of the Fund since July
2022. Ms. Bahuguna and Mr. Ballantine have been managers of the Fund
since December 2023. Mr. Johnson joined NTI in January 2022, where he is
the Head of Portfolio Solutions and a member of the Fixed Income Strategy
Committee. Prior to joining Northern Trust, Mr. Johnson led various
portfolio management teams at BNP Paribas Asset Management and held senior
portfolio management positions at BlackRock and De Nederlandsche Bank.
Ms. Bahuguna is Chief Investment Officer of Global Asset Allocation at NTI.
Prior to joining NTI in September 2023, Ms. Bahuguna was head of
multi-asset strategy for the Global Asset Allocation Team at Columbia
Threadneedle Investments and was the lead portfolio manager for the Columbia
Threadneedle Investments asset allocation funds and separately managed accounts.
Ms. Bahuguna earned her PhD in economics at Northeastern University in
1998. Mr. Ballantine joined NTI in 2015, where he is a Portfolio Manager on
the Global Asset Allocation Team.
The
managers for the Income Equity Fund are
Sridhar Kancharla, CFA, Reed A. LeMar, CFA, and Jeffrey D. Sampson, CFA, each a
Senior Vice President of NTI. Messrs. LeMar and Sampson have been managers of
the Fund since July 2017. Mr. Kancharla has been a manager of the Fund
since July 2018. Mr. Kancharla joined NTI in 2007 and is a senior
portfolio manager and researcher in the quantitative active equity team. He is
responsible for research and implementation of several quantitative equity
strategies. Mr. Kancharla is also a portfolio manager of the International
Equity Fund, Large Cap Core Fund, Large Cap Value Fund, Small Cap Core Fund, and
Small Cap Value Fund. Mr. LeMar joined NTI in 2007 and serves as a
portfolio manager on the global equity team. Mr. LeMar is also a portfolio
manager of the International Equity Fund, Large Cap Core Fund, Small Cap Core
Fund, and Small Cap Value Fund. Mr. Sampson joined NTI in 2006 and serves
as a portfolio manager on the global equity team. Mr. Sampson is a CFA
charterholder. Mr. Sampson is also a portfolio manager of the U.S. Quality
ESG Fund.
The
managers for the International Equity
Fund and Large Cap Core Fund are
Mark C. Sodergren, CFA, Sridhar Kancharla, CFA, and Reed A. LeMar, CFA, each a
Senior Vice President of NTI. Messrs. Sodergren, Kancharla, and LeMar have been
managers of the International Equity Fund since January 2017, July 2024,
and July 2024, respectively. Messrs. Sodergren, Kancharla, and LeMar have also
been managers of the Large Cap Core Fund since July 2011, July 2024, and
July 2024, respectively. Mr. Sodergren joined NTI in 2007 and is the head
of the quantitative equity portfolio management team and responsible for
research and implementation of several quantitative equity strategies.
Mr. Sodergren is also a portfolio manager of the Large Cap Value Fund. More
information for Messrs. Kancharla and LeMar is provided above.
The
managers for the Large Cap Value Fund are
Mark C. Sodergren, CFA, Senior Vice President of NTI, Sridhar Kancharla,
CFA, Senior Vice President of NTI, and Jiemin Xu,.CFA, Vice President of NTI.
Messrs. Sodergren and Kancharla and Ms. Xu have been managers of the Fund
since June 2014, July 2015, and July 2024, respectively. Ms. Xu has
managed the Fund since July 2024. Ms. Xu joined NTI in 2016, where she is a
Portfolio Manager on Northern’s quantitative active equity team. More
information for Messrs. Sodergren and Kancharla is provided above.
The
managers for the Small Cap Value Fund
and Small Cap Core Fund are
Robert H. Bergson, CFA, Senior Vice President of NTI, Michael R.
Hunstad, PhD, Executive Vice President of NTI, Sridhar Kancharla, CFA, Senior
Vice President of NTI, and Reed A. LeMar, CFA, Senior Vice President of NTI.
Messrs. Bergson, Hunstad, Kancharla, and LeMar have been managers of the
Small Cap Value Fund since July 2001, July 2020, July 2024, and July
2024, respectively. Messrs. Bergson, Hunstad, Kancharla, and LeMar have also
been the portfolio managers of the Small Cap Core Fund since February
2010, July 2020, July 2024, and July 2024, respectively.
Mr. Bergson joined NTI in 1997 and has managed various equity portfolios.
Mr. Hunstad joined NTI in 2012 and is the head of quantitative strategies
and responsible for all quantitative equity research, strategies, and
quantitative equity portfolio management activities. More information about
Messrs. Kancharla and LeMar is provided above.
The
managers for the U.S. Quality ESG Fund
are Jeffrey D. Sampson, CFA and Peter M. Zymali, CFP®, each a Senior Vice
President of NTI. Messrs. Sampson and Zymali have been managers of the Fund
since its inception. Mr. Zymali is a Vice President on NTI’s Global Equity
team and has been on the Global Equity team since 2007. Mr. Zymali holds
the Certified Financial Planner designation. More information about
Mr. Sampson is provided above.
The
managers for the Emerging Markets Equity Index
Fund are Robert D. Anstine and
Brent D. Reeder, each a Senior Vice President of NTI. Messrs. Anstine and Reeder
have been managers of the Fund since July 2019. Mr. Reeder joined NTI in
1993 and has managed quantitative equity portfolios. Mr. Reeder is also a
portfolio manager of the other Equity Index Funds. Mr. Anstine joined NTI
in January 2007 and is a Portfolio Manager with the Global Index
Team.
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The
managers for the Global Real Estate Index
Fund are Volter Bagriy, CFA, CAIA, Vice President of NTI, and Brent D.
Reeder, Senior Vice President of NTI. Messrs. Bagriy and Reeder have been
managers of the Fund since April 2024 and July 2019, respectively.
Mr. Bagriy joined NTI in 2014 and serves as a portfolio manager on the
Global Index team. More information about Mr. Reeder is provided
above.
The
managers for the International Equity Index
Fund are Brent D. Reeder, Senior Vice President of NTI, and Brendan
Sullivan, CFA, Vice President of NTI. Messrs. Reeder and Sullivan have been
managers of the Fund since July 2019. Mr. Sullivan joined NTI in 2012 and
is a Senior Portfolio Manager with the Global Index Management Group, where he
manages international equity index portfolios. More information about
Mr. Reeder is provided above.
The
managers for the Mid Cap Index Fund are
Brent D. Reeder, Senior Vice President of NTI, and Lucy A. Johnston, Vice
President of NTI. Mr. Reeder and Ms. Johnston have been managers of
the Fund since November 2006 and July 2019, respectively. Ms. Johnston
joined NTI in 1997 and has managed passive and index products for large, medium
and small capitalization mandates. More information about Mr. Reeder is
provided above.
The
managers for the Small Cap Index Fund are
Brent D. Reeder, Senior Vice President of NTI, and Shivani Shah, CFA, Vice
President of NTI. Mr. Reeder and Ms. Shah have been managers of the
Fund since November 2006 and December 2021, respectively. Ms. Shah joined
NTI in 2021, where she is responsible for managing a variety of equity index
portfolios. Prior to joining Northern Trust, Ms. Shah was a Portfolio
Manager and Trader at The Vanguard Group managing ETFs and equity index
investments. Ms. Shah began her career in 2010 and has held various
investment management roles at Davis Selected Advisors, The Vanguard Group, and
most recently as an independent consultant. More information about
Mr. Reeder is provided above.
The
managers for the Stock Index Fund are
Brent D. Reeder, Senior Vice President of NTI, and Chris J. Jaeger, Vice
President of NTI. Messrs. Reeder and Jaeger have been managers of the Fund
since November 2006 and July 2019, respectively. Mr. Jaeger joined NTI in
2000 and has managed equity index portfolios. More information about
Mr. Reeder is provided above.
The
managers for the Global Sustainability Index
Fund are Brent D. Reeder, Senior Vice President of NTI, and Steven J.
Santiccioli, Vice President of NTI. Messrs. Reeder and Santiccioli have been
managers of the Fund since July 2019. Mr. Santiccioli joined NTI in 2003.
More information about Mr. Reeder is provided above.
FIXED
INCOME AND TAX-EXEMPT FIXED INCOME FUNDS
The
managers for the Bond Index Fund are
Kevin J. O’Shaughnessy, CFA, Vice President of NTI, Mousumi Chinara, Vice
President of NTI, David Alongi, Senior Vice President of NTI, and Michael Chico,
Senior Vice President of NTI. Mr. O’Shaughnessy and Ms. Chinara have
been managers of the Fund since July 2019 and July 2023, respectively. Messrs.
Alongi and Chico have been managers of the Fund since July 2024.
Mr. O’Shaughnessy joined NTI in 1997 and is a Senior Fixed Income Portfolio
Manager responsible for quantitative fixed income portfolios.
Mr. O’Shaughnessy has been an investment manager since 1990.
Ms. Chinara joined NTI in 2019 and is a senior portfolio manager in the
Fixed Income group, where she manages various index portfolios, including mutual
funds, common and collective funds, ETFs and separately-managed accounts.
Mr. Chico joined NTI in 2005 and is a member of the Active Long Duration
Strategy Team and is responsible for quantitatively managing and trading fixed
income accounts. Mr. Chico is also a manager of the Limited Term U.S.
Government Fund, U.S. Government Fund and U.S. Treasury Index Fund.
Mr. Alongi joined NTI in 2000 and is responsible for leading the portfolio
management process for passive fixed income funds. Mr. Alongi is also a
manager of the Limited Term U.S. Government Fund, U.S. Government Fund and U.S.
Treasury Index Fund.
The
managers for the Core Bond Fund are
Christian Roth, Executive Vice President of NTI, Bilal Memon, Senior Vice
President of NTI, Chaitanya Mandavakuriti, Senior Vice President of NTI, and
Antulio Bomfim, Senior Vice President of NTI. Messrs. Roth and Mandavakuriti
have been managers of the Fund since July 2024. Messrs. Memon and Bomfim have
been managers of the Fund since July 2023. Mr. Roth joined NTI in April
2024 and serves as Chief Investment Officer of Global Fixed Income. Prior to
joining NTI, Mr. Roth most recently was the Chairman of Broad Markets Fixed
Income at Morgan Stanley, where he held a variety of global fixed income
leadership roles since 1999. Mr. Roth is also a portfolio manager of the
Fixed Income Fund. Mr. Memon joined NTI in 2007 and is a portfolio manager
in the Short Duration Fixed Income Group. Mr. Memon also is a portfolio
manager for the Fixed Income Fund, Tax-Advantaged Ultra-Short Fixed Income Fund,
Ultra‑Short Fixed Income Fund and Short Bond Fund. Mr. Mandavakuriti joined
NTI in 2013 and is a Fixed Income Portfolio Manager responsible for the
management of international fixed income index portfolios with a focus on
credit. Mr. Mandavakuriti is also a portfolio manager for the Fixed Income
Fund, Short Bond Fund, and Ultra-Short Fixed Income Fund. Mr. Bomfim joined
NTI in 2022 and is head of global macro for NTI’s global fixed income team.
Prior to joining Northern Trust, Mr. Bomfim served as Special Adviser to
the Federal Reserve Board since 2016. Mr. Bomfim is also a portfolio
manager for the Fixed Income Fund and Short Bond Fund.
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The
managers for the Fixed Income Fund are
Christian Roth, Executive Vice President of NTI, Bilal Memon, Senior Vice
President of NTI, Chaitanya Mandavakuriti, Senior Vice President of NTI, Eric R.
Williams, Senior Vice President of NTI, and Antulio Bomfim, Senior Vice
President of NTI. Messrs. Roth and Mandavakuriti have been managers of the Fund
since July 2024. Messrs. Memon, Williams and Bomfim have been managers of the
Fund since July 2023. Mr. Williams joined NTI in January 2010 and is a
Senior Portfolio Manager in the Fixed Income Group and Head of Capital
Structure. Mr. Williams also is a portfolio manager for the Short Bond Fund
and High Yield Fixed Income Fund. More information about Messrs. Roth, Memon,
Mandavakuriti and Bomfim is provided above.
The
managers for the High Yield Fixed Income
Fund are Eric R. Williams, Senior Vice President of NTI, and Benjamin
McCubbin, CFA, Vice President of NTI. Mr. Williams has been a manager of
the Fund since October 2016. Mr. McCubbin has been a manager of the Fund
since July 2024. Mr. McCubbin joined NTI in 2018 and is a Portfolio Manager
in the Fixed Income Group. More information about Mr. Williams is provided
above.
The
managers for the Short Bond Fund are
Bilal Memon, Eric R. Williams, Chaitanya Mandavakuriti and Antulio Bomfim, each
a Senior Vice President of NTI. Mr. Memon has been a manager of the Fund
since July 2019. Messrs. Williams and Bomfim have been managers of the Fund
since July 2023. Mr. Mandavakuriti has been a manager of the Fund since
July 2024. More information about Messrs. Memon, Williams, Mandavakuriti and
Bomfim is provided above.
The
managers for the Limited Term U.S. Government
Fund, the U.S. Government Fund and
the U.S. Treasury Index Fund are Michael
R. Chico and David Alongi, CFA, each a Senior Vice President of NTI. Messrs.
Chico and Alongi have been managers of the Funds since July 2013 and July 2023,
respectively. More information about Messrs. Chico and Alongi is provided
above.
The
managers for the Arizona Tax-Exempt Fund,
California Intermediate Tax-Exempt Fund, California Tax-Exempt Fund, High Yield
Municipal Fund, Intermediate Tax-Exempt Fund, Limited Term Tax-Exempt
Fund, and Tax-Exempt Fund are Adam
M. Shane, CFA, and Timothy Blair, CFA, each a Senior Vice President of NTI.
Mr. Shane has been a manager of the High Yield Municipal Fund since August
2018; the California Intermediate Tax-Exempt Fund and California Tax-Exempt Fund
since October 2018; and the Arizona Tax-Exempt Fund, Intermediate Tax-Exempt
Fund, Limited Term Tax-Exempt Fund and Tax-Exempt Fund since July 2022.
Mr. Blair has been a portfolio manager of the Funds since July 2023.
Mr. Shane joined NTI in 2010 and is the director of the High Yield
Municipal Fixed Income Group. Mr. Blair joined NTI in 1992 and joined the
municipal bond team in 1996. He has managed registered mutual funds and separate
accounts for institutional and wealth management clients. Mr. Shane and
Mr. Blair are also portfolio managers for the Tax-Advantaged Ultra-Short
Fixed Income Fund.
The
managers for the Tax-Advantaged Ultra-Short
Fixed Income Fund are Adam M. Shane, CFA, Timothy Blair, Bilal Memon, and
Morten Olsen, each a Senior Vice President of NTI. Mr. Shane has been
manager of the Fund since July 2022. Messrs. Blair and Memon have been managers
of the Fund since July 2023. Mr. Olsen has been a manager of the Fund since
July 2024. Mr. Olsen joined NTI in 2009 and is a Director of Multi-Sector
Portfolio Management. Mr. Olsen is also a manager of the Ultra-Short Fixed
Income Fund. More information about Messrs. Shane, Blair and Memon is provided
above.
The
managers for the Ultra-Short Fixed Income
Fund are Bilal Memon, Morten Olsen, and Chaitanya Mandavakuriti, each a
Senior Vice President of NTI. Messrs. Memon, Olsen and Mandavakuriti have been
managers of the Fund since October 2018, July 2016 and July 2024, respectively.
More information about Messrs. Memon, Olsen and Mandavakuriti is provided
above.
ACTIVE
M/ MULTI-MANAGER FUNDS
The
managers for the Active M Emerging Markets
Equity Fund and Active M International
Equity Fund are Kelly Finegan and Kaz Sikora, each a Senior Vice
President of NTI. Ms. Finegan and Mr. Sikora have been managers of the
Funds since May 2023. Ms. Finegan joined NTI in 2008 and is the Head of
Multi-Manager Solutions. She is also a portfolio manager of the Multi-Manager
Global Listed Infrastructure Fund and Multi-Manager Global Real Estate Fund.
Mr. Sikora joined NTI in 2005 and is a team leader on NTI’s Multi-Manager
Solutions team.
The
managers for the Multi-Manager Global Listed
Infrastructure Fund and Multi-Manager
Global Real Estate Fund are Kelly Finegan, a Senior Vice President of
NTI, and Jim Hardman, a Vice President of NTI. Ms. Finegan and
Mr. Hardman have been managers of the Funds since May 2023.
Mr. Hardman joined NTI in 2019 and is a member of NTI’s Multi-Manager
Solutions team. More information about Ms. Finegan is provided above.
The
managers for the Multi-Manager High Yield
Opportunity Fund are Luis Diez, a
Senior Vice President of NTI, and Neal Barrett, a Vice President of NTI. Messrs.
Diez and Barrett have been managers of the Fund since May 2023. Mr. Diez
joined NTI in 2006 and is a member of NTI’s Multi-Manager Solutions team.
Mr. Barrett joined NTI in 2016 and is a member of NTI’s Multi-Manager
Solutions team.
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Additional
information about the managers’ compensation, other accounts managed by the
managers and the managers’ ownership of securities in the Funds is available in
the Statement of Additional Information (“SAI”).
THE
SUB-ADVISERS TO THE ACTIVE M/MULTI-MANAGER FUNDS
Each
Sub-Adviser has full investment discretion and makes all determinations with
respect to the investment of assets of the Fund allocated to it, subject to
general supervision of the Investment Adviser and the Board of Trustees.
ACTIVE
M EMERGING MARKETS EQUITY FUND
ASHMORE INVESTMENT MANAGEMENT LIMITED
(“ASHMORE”). Ashmore has managed a
portion of the Fund since March 2020. Ashmore was established in 1999 is located
at 61 Aldwych, London, United Kingdom. Ashmore is an indirectly held wholly
owned subsidiary of Ashmore Group plc. As of March 31, 2024, Ashmore had
approximately $45.29 billion in assets under management.
AXIOM INVESTORS LLC (“AXIOM”). Axiom has managed a
portion of the Fund since November 2008. Axiom is a Delaware Limited Liability
Company located at 33 Benedict Place, 2nd Floor, Greenwich, Connecticut 06830
and was founded in 1998. As of June 30, 2024, Axiom had approximately
$23.22 billion in assets under management.
WESTWOOD GLOBAL INVESTMENTS, LLC
(“WESTWOOD”). Westwood has managed a
portion of the Fund since November 2008. Westwood is a Massachusetts
Limited Liability Company located at One Financial Center, Suite 1620, Boston,
Massachusetts 02111 and was founded in 2003. As of June 30, 2024, Westwood
had approximately $11.02 billion in assets under management.
ACTIVE
M INTERNATIONAL EQUITY FUND
CAUSEWAY CAPITAL MANAGEMENT LLC
(“CAUSEWAY”). Causeway has managed a
portion of the Fund since June 2016. Causeway’s principal office is located at
11111 Santa Monica Boulevard, 15th Floor, Los Angeles,
California 90025. Causeway began operations as an investment adviser in June
2001. As of June 30, 2024, Causeway had approximately $49.1 billion in
assets under management.
POLEN CAPITAL MANAGEMENT, LLC
(“POLEN”). Polen has managed a
portion of the Fund since September 2020. Polen was founded in 1979 by David
Polen and is located at 1825 NW Corporate Blvd., Suite 300, Boca Raton, Florida
33431. As of May 31, 2024, Polen had approximately $64.95 billion in assets
under management.
VICTORY CAPITAL MANAGEMENT INC. (“VICTORY
CAPITAL”). Victory Capital has
managed a portion of the Fund since June 2016. Victory Capital is located at
15935 La Cantera Parkway, San Antonio, Texas 78256. Victory Capital is a
diversified global asset manager and manages a portion of the Fund through its
investment franchise, Trivalent Investments (“Trivalent”). As of June 30,
2024, Victory Capital had approximately $173.8 billion in assets under
management and advisement.
WCM
INVESTMENT MANAGEMENT, LLC (“WCM”). WCM has managed a
portion of the Fund since September 2015. WCM is located at 281 Brooks Street,
Laguna Beach, California 92651. WCM is an independent money management firm
founded in 1976. As of June 30, 2024, WCM had approximately
$90.68 billion in assets under management.
WELLINGTON MANAGEMENT COMPANY LLP
(“WELLINGTON”). Wellington has managed a
portion of the Fund since October 2017. Wellington is a Delaware limited
liability partnership with principal offices at 280 Congress Street, Boston,
Massachusetts 02210. Wellington is owned by the partners of Wellington
Management Group LLP, a Massachusetts limited liability partnership. As of
May 31, 2024, Wellington and its investment advisory affiliates had
investment management authority with respect to approximately $1.2 trillion
in assets.
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE FUND
FIRST SENTIER INVESTORS (AUSTRALIA) IM LTD (“FIRST
SENTIER”). First Sentier has
managed a portion of the Fund since January 2020. First Sentier is a global
investment management firm located at Level 5 Tower 3, International
Towers, 300 Barangaroo Avenue, Sydney NSW 2000, Australia. First Sentier is
wholly-owned by Mitsubishi UFJ Trust and Banking Corporation. As of June 30,
2024, First Sentier had approximately $151.4 billion in assets under management.
KBI
GLOBAL INVESTORS (NORTH AMERICA), LTD. (“KBIGINA”). KBIGINA has managed a
portion of the Fund since December 10, 2021. KBIGINA is an Irish domiciled
and incorporated institutional asset manager located at 2 Harbourmaster Pl,
International Financial Services Centre, Dublin 1, D01 X5P3, Ireland. As of
June 30, 2024, KBIGINA and KBI Global Investors Ltd. had approximately
$14.67 billion in assets under management.
LAZARD ASSET MANAGEMENT LLC
(“LAZARD”). Lazard has managed a
portion of the Fund since March 2013. Lazard is a Delaware limited liability
company located at 30 Rockefeller Plaza, New York, New York 10112. As of
March 31, 2024, Lazard had approximately $210.5 billion in assets
under management.
MULTI-MANAGER
GLOBAL REAL ESTATE FUND
JANUS HENDERSON INVESTORS US LLC
(“JHIUS”). JHIUS began managing a
portion of the Fund on or about
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September 8,
2020. JHIUS is a wholly-owned subsidiary of Janus Henderson Group plc (“Janus
Henderson Group”). JHIUS is located at 151 Detroit Street, Denver, Colorado
80206. As of March 31, 2024, Janus Henderson Group had approximately $352.6
billion in assets under management.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
(“MFS”). MFS has managed a
portion of the Fund since January 2018. MFS is located at 111 Huntington Avenue,
Boston, Massachusetts 02199. MFS and its predecessor organizations have a
history of money management dating from 1924 and the founding of the first
mutual fund. As of June 30, 2024, MFS had approximately $618.1 billion
of net assets under management.
MULTI-MANAGER
HIGH YIELD OPPORTUNITY FUND
BLACKROCK INVESTMENT MANAGEMENT, LLC (“BIM”).
BIM
has managed a portion of the Fund since February 24, 2023. BIM is a wholly
owned subsidiary of BlackRock, Inc. which was founded in 1988. BIM’s principal
office is located at 1 University Square Drive, Princeton, NJ 08540. As of
June 30, 2024, BIM had approximately $327.46 billion in assets under
management.
NOMURA CORPORATE RESEARCH AND ASSET MANAGEMENT INC.
(“NOMURA”). Nomura has managed a
portion of the Fund since June 2016. Nomura’s principal office is located at
Worldwide Plaza, 309 West 49th Street, New York,
NY 10019-7316. Nomura was founded in March 1991 as a subsidiary of Nomura
Holding America Inc. and is a registered investment adviser. As of June 30,
2024, Nomura had approximately $35.9 billion in assets under management.
POLEN CAPITAL CREDIT, LLC (“POLEN
CREDIT”). Polen Credit has managed
a portion of the Fund since September 2012. Polen Credit, a Massachusetts
limited liability company and wholly owned-subsidiary of Polen Capital
Management, LLC (previously defined as “Polen”), was founded in 1996 and is
located at 1075 Main Street, Suite 320, Waltham, Massachusetts 02451. As of May
31, 2024, Polen Credit approximately $7.61 billion in assets under management.
LEGAL
PROCEEDINGS
On
or about February 14, 2020, Marc S. Kirschner, as Trustee for NWHI
Litigation Trust (“Litigation Trustee”) and Wilmington Savings Fund Society,
FSB, as indenture Trustee (“Indenture Trustee”) for several series of notes
issued by Nine West Holdings, Inc. (“Nine West”), filed separate complaints
(docket nos. 20-cv-01129 and 20-cv-01136, respectively ) in the United States
District Court for the Northern District of Illinois against a group of
defendants that includes three Northern Funds that had invested in The Jones
Group Inc. (“Jones Group”), including the Small Cap Core Fund, Small Cap Index
Fund and Small Cap Value Fund (for purposes of this discussion only, together,
the “Small Cap Funds”). The claims stem from a series of merger transactions
(“Transactions”) entered into by Jones Group, Nine West and others in 2014 that
allegedly rendered Jones Group insolvent. The matters in these proceedings were
transferred from the United States District Court for the Northern District of
Illinois to the United States District Court for the Southern District of New
York (the “District Court”) to centralize the litigation, and were assigned to
the Honorable Jed S. Rakoff for coordinated or consolidated pretrial
proceedings. The Small Cap Funds allegedly received the following amounts as a
result of the Transactions: Small Cap Core Fund ($134,265), Small Cap Index Fund
($683,610), and Small Cap Value Fund ($4,010,685). The Litigation Trustee and
Indenture Trustee (for purposes of this discussion only, collectively, the
“Trustees”) sought to claw back these proceeds for the benefit of the Trust and
the noteholders, respectively, on the basis that they were fraudulent
conveyances. On June 29, 2020, the former public shareholder defendants,
including the Small Cap Funds, filed a motion to dismiss on the basis that the
payments allegedly made to them in connection with the Transactions were
shielded from the fraudulent conveyance claims under Section 546(e) of the
Bankruptcy Code. On August 27, 2020, the District Court dismissed all
fraudulent conveyance claims against the former public shareholder defendants,
including the claims against the Small Cap Funds. The Trustees appealed from
that decision to the U.S. Court of Appeals for the Second Circuit. On
November 27, 2023, the Second Circuit affirmed the District Court’s
dismissal of the Trustees’ claims against the former Jones Group shareholders,
except the claims against certain former Jones Group directors, officers, and
employees who received payment for their shares through NineWest’s payroll
provider. Although certain of these former Jones Group employees petitioned the
Second Circuit for rehearing of the appeal, the Trustees did not seek rehearing.
On January 3, 2024, the Second Circuit denied the employee shareholders’
petition for rehearing. On April 2, 2024, the employee shareholders filed a
petition with the Supreme Court of the United States for a writ of certiorari.
The Trustees elected not to oppose the petition or file a cross-petition. On
May 13, 2024, the Supreme Court of the United States denied the employee
shareholders’ petition. On May 15, 2024, the Second Circuit filed a mandate
formally closing the appeal. As a result, all claims against the Small Cap Funds
in this action remain dismissed and this action is closed.
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OTHER
FUND SERVICES
TNTC
serves as Transfer Agent and Custodian for each Fund. The Transfer Agent
performs various shareholder servicing functions, and any shareholder inquiries
should be directed to it. TNTC also performs certain administrative services for
the Funds pursuant to a sub-administration agreement with NTI. NTI pays TNTC for
its sub-administration services out of its management fees, which do not
represent additional expenses to the Funds.
TNTC,
as Transfer Agent, is entitled to transfer agent fees at an annual rate of
0.0385% of the average daily net assets of each Fund. TNTC, as Custodian,
receives an amount based on a pre-determined schedule of charges approved by the
Trust’s Board of Trustees.
Pursuant
to an exemptive order issued by the SEC, TNTC also may render securities lending
services to the Funds. For such services, TNTC would receive a percentage of
securities lending revenue generated for the Funds. In addition, cash collateral
received by the Funds in connection with a securities loan may be invested in
shares of other registered or unregistered funds that pay investment advisory or
other fees to NTI, TNTC or an affiliate.
Each
Fund may invest its uninvested cash in a money market fund advised by the
Investment Adviser or its affiliates. Accordingly, each Fund will bear
indirectly a proportionate share of that money market fund’s operating expenses.
These operating expenses include the management, transfer agent and custody fees
that the money market fund pays to the Investment Adviser and/or its affiliates.
The uninvested cash of each of the Funds is invested in the Northern
Institutional Funds U.S. Government Portfolio (the “Portfolio”). The total
annual fund operating expenses after expense reimbursement (other than certain
excepted expenses as described in the fees and expenses table of the Portfolio’s
prospectus) on any assets invested in the Portfolio are at an annual rate of
0.25% of the average daily NAV of those assets. However, to the extent of any
duplicative advisory fees, NTI has contractually agreed to reimburse the
management fees payable by each Fund in an amount equal to the net management
fee NTI earns on the amount invested by the Fund in money market mutual funds
managed by NTI.
TNTC,
NTI and other Northern Trust affiliates may provide other services to the Funds
and receive compensation for such services, if consistent with the 1940 Act and
the rules, exemptive orders and no-action letters issued by the SEC thereunder.
Unless required, investors in a Fund may or may not receive specific notice of
such additional services and fees.
Shares
of the Trust are distributed by Northern Funds Distributors, LLC (“NFD”), a
wholly owned subsidiary of Foreside Financial Group, LLC (dba ACA Group), Three
Canal Plaza, Suite 100, Portland, Maine, 04101. NFD is not affiliated with TNTC,
NTI, or any other Northern Trust affiliate.
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PURCHASING
AND SELLING SHARES
THE
TRUST IS A FAMILY OF NO-LOAD MUTUAL FUNDS THAT OFFERS A SELECTION OF FUNDS TO
INVESTORS, EACH WITH A DISTINCT INVESTMENT OBJECTIVE AND RISK/REWARD
PROFILE.
The
descriptions in the Fund Summaries may help you decide whether a Fund or Funds
fit your investment needs. Keep in mind, however, that no guarantee can be made
that a Fund will meet its investment objective, and no Fund should be relied
upon as a complete investment program. The Trust also offers money market funds,
which are described in a separate prospectus.
Please
note that the fee and expense information shown under “Fees and Expenses of the
Fund” in the Fund Summaries does not reflect any charges that may be imposed by
TNTC, its affiliates, financial intermediaries and other institutions on their
customers. (For more information, please see “Account Policies and Other
Information—Financial Intermediaries”.)
SHARE
CLASSES – SMALL CAP CORE, U.S. QUALITY ESG AND GLOBAL SUSTAINABILITY INDEX FUNDS
ONLY
The
Small Cap Core Fund, U.S. Quality ESG Fund and Global Sustainability Index Fund
are authorized to offer two classes of shares: Class I shares and
Class K shares. The below information pertains only to the Small Cap Core
Fund, U.S. Quality ESG Fund and Global Sustainability Index Fund. All other
Funds in this prospectus offer a single class of shares (the “Shares” class),
except Ultra-Short Fixed Income Fund. The Ultra-Short Fixed Income Fund is
authorized to offer two classes of shares: Shares Class and Siebert Williams
Shank Shares. Siebert Williams Shank Shares are offered in a separate
prospectus.
∎ |
|
Class I
shares are available to investors purchasing only through an authorized
intermediary that has entered into a service agreement and receives a
service fee from a Fund. |
∎ |
|
Class K
shares are available to investors purchasing directly with the Trust and
through an account at Northern Trust (or an affiliate) or an authorized
intermediary that does not receive (1) a service fee from a Fund, or
(2) a revenue share fee, a distribution fee or other service fee from
NTI. |
Shares
of each class bear their pro rata portion of all operating expenses paid by a
Fund, except for service fee amounts payable under the Service Plan that has
been adopted for the Funds’ Class I shares.
Under
the Service Plan for Class I shares of the Funds, NTI and the Trust are
authorized to enter into written agreements on behalf of the Funds with
financial intermediaries (including banks, trust companies, brokers, investment
advisers, securities dealers, financial institutions and other industry
professionals) that are shareholders or dealers of record or which have a
servicing relationship with the beneficial owners of the Funds (collectively,
“Service Organizations”). Pursuant to such agreements, Service Organizations
provide support services to their clients who beneficially own Class I
shares of the Funds.
The
Service Plan provides for payments at an annual rate of up to 0.15% of the
average daily NAV of Class I shares of the Funds beneficially owned by such
clients.
NTI
has contractually agreed to limit the payments pursuant to the Service Plan to
the following annual rates (expressed as a ratio of the average daily NAV of the
Class I shares of the Fund):
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Fund |
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Class I Service
Fee
Limit |
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Small
Cap Core Fund |
|
|
0.10% |
|
U.S.
Quality ESG Fund |
|
|
0.10% |
|
Global
Sustainability Index Fund |
|
|
0.05% |
|
PURCHASING
SHARES
You
may purchase Shares Class of a Fund and Class K shares of the Small
Cap Core Fund, U.S. Quality ESG Fund and Global Sustainability Index Fund
directly from the Trust or, if you maintain certain accounts, through Northern
Trust and certain authorized intermediaries. Class I shares of a Fund may
only be purchased through certain authorized intermediaries. With certain
limited exceptions, each class of the Funds is generally available only to
investors residing in the United States or through a United States based
financial intermediary and may not be distributed by a foreign financial
intermediary. If you have any questions or need assistance in opening an
investment account or purchasing shares, call 800-595-9111.
OPENING
AN ACCOUNT
THROUGH AN AUTHORIZED INTERMEDIARY. The Trust may authorize
certain institutions acting as financial intermediaries (including banks, trust
companies, brokers and investment advisers) to accept purchase orders from their
customers on behalf of the Funds. See “Account Policies and Other
Information—Financial Intermediaries” for additional information regarding
purchases of Fund shares through authorized intermediaries. If you purchase
shares through an authorized intermediary, that intermediary may impose
different investment minimums than those set forth by the Funds as described in
this Prospectus. The Funds are not
|
| |
200 |
|
NORTHERN FUNDS
PROSPECTUS |
responsible
for any investment minimums imposed by authorized intermediaries or for
notifying shareholders of any changes to them.
DIRECTLY FROM THE FUNDS. You may open a
shareholder account and purchase Shares Class of a Fund and Class K
shares of the Small Cap Core Fund, U.S. Quality ESG Fund and Global
Sustainability Index Fund directly from the Funds with a minimum initial
investment per Fund of $2,500 ($500 for an IRA; $250 under the Automatic
Investment Plan; and $500 for employees of Northern Trust and its affiliates).
The minimum subsequent investment for Shares and Class K shares is $50
(except for reinvestments of distributions for which there is no minimum). The
Funds reserve the right to waive these minimums.
For
your convenience, there are a number of ways to invest directly in the
Funds:
BY
MAIL
∎ |
|
Read
this Prospectus carefully. |
∎ |
|
Complete
and sign the New Account Application. |
∎ |
|
Enclose
a check payable to Northern Funds. |
∎ |
|
If
you are investing on behalf of a corporation or other entity, your New
Account Application must be accompanied by acceptable evidence of
authority (if applicable). |
∎ |
|
Mail
your check, acceptable evidence of authority (if applicable) and completed
New Account Application to: |
Northern
Funds
P.O.
Box 75986
Chicago,
Illinois 60675-5986
∎ |
|
Additional
documentation may be required to fulfill the requirements of the “Customer
Identification Program.” |
∎ |
|
For
overnight delivery use the following address: |
Northern
Funds
c/o
The Northern Trust Company
333
South Wabash Avenue
Chicago,
Illinois 60604
∎ |
|
FOR
SUBSEQUENT INVESTMENTS: |
|
∎ |
|
Enclose
your check with the investment slip portion of the confirmation of your
previous investment; or |
|
∎ |
|
Indicate
on your check or a separate piece of paper your name, address and account
number. |
All
checks must be payable in U.S. dollars and drawn on a bank located in the United
States. Cash, traveler’s checks, money orders and third party checks are not
acceptable.
BY
WIRE OR AUTOMATED CLEARING HOUSE (“ACH”) TRANSFER
TO
OPEN A NEW ACCOUNT:
∎ |
|
For
information and/or instructions regarding the purchase of Shares
Class or Class K shares of the Small Cap Core Fund, U.S. Quality
ESG Fund and Global Sustainability Index Fund, call the Northern Funds
Center at 800-595-9111. |
∎ |
|
Complete
a New Account Application and send it to: |
Northern
Funds
P.O.
Box 75986
Chicago,
Illinois 60675-5986
TO
ADD TO AN EXISTING ACCOUNT:
∎ |
|
Have
your bank wire federal funds or effect an ACH transfer
to: |
The
Northern Trust Company
Chicago,
Illinois
ABA
Routing No. 0710-00152
(Reference
10-Digit Fund account number, with no spaces (e.g., ##########))
(Reference
Shareholder’s Name)
BY
DIRECT DEPOSIT
TO
PURCHASE ADDITIONAL SHARES:
∎ |
|
Determine
if your employer has direct deposit capabilities through the
ACH. |
∎ |
|
Have
your employer send payments to: |
ABA
Routing No. 0710-00152
(Reference
10-Digit Fund account number, with no spaces (e.g., ##########))
(Reference
Shareholder’s Name)
∎ |
|
The
minimum periodic investment for direct deposit is
$50. |
BY
AUTOMATIC INVESTMENT
TO
OPEN A NEW ACCOUNT:
∎ |
|
Complete
a New Account Application, including the Automatic Investment
section. |
Northern
Funds
P.O.
Box 75986
Chicago,
Illinois 60675-5986
∎ |
|
The
minimum initial investment in each of the Funds is $250; $50 for monthly
minimum additions. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
201 |
TO
ADD TO AN EXISTING ACCOUNT:
∎ |
|
Call
800-595-9111 to obtain an Automatic Investment Plan
Form. |
∎ |
|
The
minimum for automatic investment additions is
$50. |
If
you discontinue participation in the plan, the Funds reserve the right to redeem
your account involuntarily, upon 30 days’ written notice, if the account’s NAV
is $1,000 or less. Involuntary redemptions will not be made if the value of
shares in an account falls below the minimum amount solely because of a decline
in the Fund’s NAV.
BY
DIRECTED REINVESTMENT
You
may elect to have your income dividend and capital gain distributions
automatically invested in another Northern Funds account.
∎ |
|
Complete
the “Choose Your Dividend and Capital Gain Distributions” section on the
New Account Application. |
∎ |
|
Reinvestments
can only be directed to an existing Northern Funds account (which must
meet the minimum investment requirement). |
BY
EXCHANGE
All Funds except the Small Cap Core Fund, U.S. Quality
ESG Fund and Global Sustainability Index Fund:
You
may open a new account or add to an existing account by exchanging Shares
Class shares of one fund of the Trust for: (1) Shares
Class shares of any other fund offered by the Trust, or where available
through your Northern Funds account or certain financial intermediaries, or
(2) Class K shares of the Small Cap Core Fund, U.S. Quality ESG Fund
and Global Sustainability Index Fund. See “Selling Shares—By Exchange.”
Small Cap Core Fund, U.S. Quality ESG Fund and Global
Sustainability Index Fund Only:
With
respect to the Small Cap Core Fund, U.S. Quality ESG Fund and Global
Sustainability Index Fund, you may open a new account or add to an existing
account by exchanging Class K shares or Class I shares of the Small
Cap Core Fund, U.S. Quality ESG Fund and Global Sustainability Index Fund for
shares of the same class of Small Cap Core Fund, U.S. Quality ESG Fund or Global
Sustainability Index Fund or for the Shares class of another fund offered by the
Trust. See “Selling Shares—By Exchange.”
BY
INTERNET
You
may initiate transactions between Northern Trust banking and Northern Funds
accounts by using Northern Trust Private Passport.
For
details and to sign up for this service, go to northerntrust.com/funds or
contact your Relationship Manager.
THROUGH
NORTHERN TRUST AND OTHER INSTITUTIONS
If
you have an account with Northern Trust, you may purchase Shares Class and
Class K shares through Northern Trust. You also may purchase shares of any
class through other financial institutions that have entered into agreements
with the Trust. To determine whether you may purchase shares through your
institution, contact your institution directly or call 800-595-9111. Northern
Trust and other financial institutions may impose charges against your account,
which will reduce the net return on an investment in a Fund. These charges may
include asset allocation fees, account maintenance fees, sweep fees,
compensating balance requirements or other charges based upon account
transactions, assets or income.
SELLING
SHARES
THROUGH AN AUTHORIZED INTERMEDIARY. If you purchase shares
from an authorized intermediary, you may sell (redeem) shares by contacting your
financial intermediary. See “Account Policies and Other Information—Financial
Intermediaries” for additional information regarding sales (redemptions) of Fund
shares through authorized intermediaries.
REDEEMING
AND EXCHANGING DIRECTLY FROM THE FUNDS
If
you purchased Shares Class or Class K shares directly from the Funds
or, if you purchased your Shares Class or Class K shares through an
account at Northern Trust or another financial institution and you appear on
Fund records as the registered holder, you may redeem all or part of your shares
using one of the methods described below.
BY
MAIL
SEND
A WRITTEN REQUEST TO:
Northern
Funds
P.O.
Box 75986
Chicago,
Illinois 60675-5986
THE
REDEMPTION REQUEST MUST INCLUDE:
∎ |
|
The
number of shares or the dollar amount to be
redeemed; |
∎ |
|
The
Fund account number; |
∎ |
|
The
signatures of all account owners; |
|
| |
202 |
|
NORTHERN FUNDS
PROSPECTUS |
∎ |
|
A
signature guarantee also is required if: |
|
∎ |
|
The
proceeds are to be sent elsewhere than the address of record,
or |
|
∎ |
|
The
redemption amount is greater than $100,000. |
BY
WIRE
If
you authorize wire redemptions on your New Account Application, you can redeem
shares and have the proceeds sent by federal wire transfer to a previously
designated bank account.
∎ |
|
You
will be charged $15 for each wire redemption unless the designated bank
account is maintained at Northern Trust or an affiliated
bank. |
∎ |
|
Call
the Transfer Agent at 800-595-9111 for
instructions. |
∎ |
|
The
minimum amount that may be redeemed by this method is
$250. |
BY
SYSTEMATIC WITHDRAWAL
If
you own Shares Class or Class K shares of a Fund with a minimum value
of $10,000, you may elect to have a fixed sum redeemed at regular intervals and
distributed in cash or reinvested in one or more other funds of the Trust.
∎ |
|
Call
800-595-9111 for an application form and additional
information. |
∎ |
|
The
minimum amount is $250 per withdrawal. |
BY
EXCHANGE
The
Trust offers you the ability to exchange Shares Class or Class K
shares of one fund in the Trust for the Shares Class or Class K shares
of another fund in the Trust. If you hold your shares through certain financial
intermediaries, you may have limited exchangeability among the Funds and into
other funds of the Trust.
∎ |
|
When
opening an account, complete the Exchange Privilege section of the New
Account Application or, if your account is already opened, send a written
request to: |
Northern
Funds
P.O.
Box 75986
Chicago,
Illinois 60675-5986
∎ |
|
Shares
being exchanged must have a value of at least $1,000 ($2,500 if a new
account is being established by the exchange, $500 if the new account is
an IRA). |
∎ |
|
Call
800-595-9111 for more information. |
BY
TELEPHONE
If
you authorize the telephone privilege on your New Account Application, you may
redeem shares by telephone.
∎ |
|
If
your account is already opened, send a written request
to: |
Northern
Funds
P.O.
Box 75986
Chicago,
Illinois 60675-5986
∎ |
|
The
request must be signed by each owner of the account and must be
accompanied by signature guarantees. |
∎ |
|
Call
800-595-9111 to use the telephone privilege. |
∎ |
|
During
periods of unusual economic or market activity, telephone redemptions may
be difficult to implement. In such event, shareholders should follow the
procedures outlined above under “Selling Shares—By Mail” and outlined
below under “Selling Shares—By Internet.” |
BY
INTERNET
You
may initiate transactions between Northern Trust banking and Northern Funds
accounts by using Northern Trust Private Passport.
For
details and to sign up for this service, go to northerntrust.com/funds or
contact your Relationship Manager.
REDEEMING
AND EXCHANGING THROUGH NORTHERN TRUST AND OTHER INSTITUTIONS
If
you purchased your shares through an account at Northern Trust or through
another financial institution, you may redeem or exchange your shares according
to the instructions pertaining to that account.
∎ |
|
Although
the Trust imposes no charges when you redeem shares of a Fund (other than
the 2.00% redemption fee charged for shares of the International Equity
Fund, Emerging Markets Equity Index Fund, Global Real Estate Index Fund,
International Equity Index Fund, Global Sustainability Index Fund, High
Yield Fixed Income Fund, and each of the Active M/Multi-Manager Funds held
for 30 days or less after purchase), when shares are purchased through an
account at Northern Trust or through other financial institutions, a fee
may be charged by those institutions for providing services in connection
with your account. |
∎ |
|
Contact
your account representative at Northern Trust or at another financial
institution for more information about redemptions or
exchanges. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
203 |
CHOOSING
A SHARE CLASS - SMALL CAP CORE FUND, U.S. QUALITY ESG FUND AND GLOBAL
SUSTAINABILITY INDEX FUND
FUNDS
CONTACT INFORMATION
Additional
information about the Small Cap Core Fund, U.S. Quality ESG Fund and Global
Sustainability Index Fund, including class features and policies, can be
obtained, free of charge, at northernfunds.com, by calling toll-free at
800‑595‑9111, or by writing to Northern Funds, P.O. Box 75986,
Chicago, Illinois 60675-5986.
SUMMARY
OF SHARE CLASS FEATURES
Each
share class has its own investment eligibility criteria, cost structure and
other features. You may not be eligible to invest in every share class. Your
financial intermediary may not make every share class available or may cease to
make available one or more share classes of a Fund. The share class of a Fund
you select through your intermediary may have higher fees than other share
classes of the same Fund available through other financial intermediaries. An
investor transacting in a class of a Fund’s shares without any front-end sales
charge, contingent deferred sales charge (CDSC), or other asset-based fee for
sales or distribution, such as a 12b-1 fee, may be required to pay a commission
to the financial intermediary for effecting such transactions. Each investor’s
personal situation is different and you may wish to discuss with your financial
intermediary the share classes a Fund offers, which share classes are available
to you and which share class(es) is/are appropriate to you. In all instances, it
is your responsibility to notify your financial intermediary or the Fund at the
time of purchase of any relationship or other facts that may qualify you for
sales charge waivers or discounts. The Fund, the Distributor and the Transfer
Agent do not provide investment advice or make recommendations regarding Fund
share classes. Your financial intermediary may provide advice and
recommendations to you, such as which share class(es) is/are appropriate for
you.
When
deciding which class of shares to buy, you should consider, among other things,
the fees (e.g., service fees) and expenses for each share class.
SHARE
CLASS FEATURES
Not
all series of the Trust offer every class of shares. The Funds offer the classes
of shares set forth on the cover of this prospectus. The following summarizes
the primary features of Class K shares and Class I shares.
|
|
|
| |
Share
Class |
|
Eligible Investors; Minimum
Initial Investments |
|
Maximum Service Fees(a) |
Class K |
|
Eligibility: Investors who
purchase directly with Northern Funds, through an account at Northern
Trust (or an affiliate) or an authorized intermediary that does not
receive (1) a service fee from a Fund, and/or (2) a revenue share
fee, a distribution fee for distribution and or other service fees from
NTI.
Minimum Initial Investment: The minimum
initial investment is $2,500 ($500 for an IRA; $250 under the Automatic
Investment Plan; and $500 for employees of Northern Trust and its
affiliates).(b) |
|
None |
Class I |
|
Eligibility: Investors purchasing shares
through certain external intermediaries who have entered into a service
agreement and receive a service fee from a Fund.
Minimum Initial Investment: There is no
minimum initial or subsequent investment amounts for Class I shares
imposed by the Funds.(b) |
|
Up
to 0.15% service fee.
Contractually limited
to 0.10% for the U.S. Quality ESG Fund and Small Cap Core Fund.
Contractually
limited to 0.05% for the Global Sustainability Index
Fund. |
(a) |
The 0.15% service fee is the maximum applicable
fee under the Fund’s Amended and Restated Service Plan. Because these fees
are paid out of Fund assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying
other types of distribution and/or service fees. For more information on
service fees, see Choosing a Share Class – Service Fees.
|
(b) |
An authorized intermediary may impose different
investment minimums than those set forth above. The Funds are not
responsible for any investment minimums imposed by authorized
intermediaries or for notifying shareholders of any changes to them.
|
The
Board has approved, and the Northern Funds have adopted, an amended and restated
service plan that sets the service fees that are periodically deducted from the
Funds’ Class I shares. These fees are calculated daily and are intended to
compensate eligible financial intermediaries for directly or indirectly
providing services to shareholders. Because the fees are paid out of a Fund’s
assets on an ongoing basis, they will increase the cost of your investment over
time.
|
| |
204 |
|
NORTHERN FUNDS
PROSPECTUS |
The
table below shows the maximum annual service fees (as an annual percentage of
average daily net assets) and the total amount of such fees applicable to
Class I shares and Class K shares of each Fund:
|
|
|
|
|
|
|
| |
Fund |
|
Maximum Service Fee |
|
|
Contractual Fee Limitation |
|
Small
Cap Core Fund |
|
|
|
| |
|
| |
Class K |
|
|
None |
|
|
|
None |
|
Class I |
|
|
0.15% |
|
|
|
0.10% |
|
U.S.
Quality ESG Fund |
|
|
|
| |
|
| |
Class K |
|
|
None |
|
|
|
None |
|
Class I |
|
|
0.15% |
|
|
|
0.10% |
|
Global
Sustainability Index Fund |
|
|
|
| |
|
| |
Class K |
|
|
None |
|
|
|
None |
|
Class I |
|
|
0.15% |
|
|
|
0.05% |
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
205 |
ACCOUNT
POLICIES AND OTHER INFORMATION
CALCULATING SHARE PRICE. The Trust issues shares
and redeems shares at NAV. The NAV for each class of shares of a Fund is
calculated by dividing the value of the Fund’s net assets attributed to that
class by the number of the Fund’s outstanding shares of the class. For each
class of shares, the NAV is calculated on each Business Day (see “Business Day”)
as of 3:00 p.m. Central time for each Fund. Shares of the Fixed Income Funds,
Tax-Exempt Fixed Income Funds, and the Multi-Manager High Yield Opportunity Fund
may be priced on days when the New York Stock Exchange (the “Exchange”) is
closed if the Securities Industry and Financial Markets Association (“SIFMA”)
recommends that the bond markets remain open for all or part of the day or on
the days when the Federal Reserve Bank of New York is open. The NAV used in
determining the price of your shares is the one calculated after your purchase,
exchange or redemption order is received in good order. See “Good Order.”
Equity
securities listed on a recognized U.S. securities exchange or quoted on the
NASDAQ National Market System, including shares of exchange-traded funds, are
priced at the last quoted sale price, or the official closing price on the
primary exchange or market on which they are traded on the valuation date.
Securities with no reported sale on the valuation date are priced at the most
recent quoted bid price.
The
Board has designated the Investment Adviser as the valuation designee pursuant
to Rule 2a-5 under the 1940 Act to perform fair value determinations relating to
any or all Fund investments, subject to oversight by the Board. Accordingly, any
securities for which market quotations are not readily available, or for which
the available price has been determined to not represent a reliable, current
market value, are valued at fair value as determined in good faith by the
Investment Adviser in accordance with valuation procedures approved by the Board
(the “Valuation Procedures”). Circumstances in which securities may be fair
valued include periods when trading in a security is suspended, the exchange or
market on which a security trades closes early, the trading volume in a security
is limited, corporate actions and announcements take place, or regulatory news
is released such as governmental approvals. The Investment Adviser, in its
discretion, may make adjustments to the prices of securities held by a Fund if
an event occurs after the publication of market values normally used on behalf
of a Fund but before the time as of which the Fund calculates its NAV, depending
on the nature and significance of the event, consistent with applicable
regulatory guidance and the Valuation Procedures. This may occur particularly
with respect to certain foreign securities held by a Fund, in which case the
Investment Adviser may use adjustment factors obtained from an independent fair
value pricing service that are intended to reflect more accurately the value of
those securities as of the time the Fund’s NAV is calculated. Other events that
can trigger fair valuing of foreign securities include, for example, significant
fluctuations in general market indicators, governmental actions, or natural
disasters. The use of fair valuation involves the risk that the values used by
the Investment Adviser to price a Fund’s investments may be higher or lower than
the values used by other unaffiliated investment companies and investors to
price the same investments. Short-term obligations, which are debt instruments
with a maturity of 60 days or less, held by a Fund are valued at their amortized
cost which, according to the Investment Adviser, approximates fair
value.
A
Fund may hold foreign securities that trade on weekends or other days when the
Fund does not price its shares. Therefore, the value of such securities may
change on days when shareholders will not be able to purchase or redeem
shares.
If
a Fund invests in other underlying funds, other than funds that are
exchange-traded, the investing Fund will calculate its NAV using the NAV of the
underlying fund in which it invests.
TIMING OF PURCHASE REQUESTS. Purchase requests
received in good order and accepted by the Transfer Agent or other authorized
intermediary by 3:00 p.m. Central time on any Business Day will be executed the
day they are received by either the Transfer Agent or other authorized
intermediary, at the NAV next calculated after receipt of your purchase order in
good order for the applicable Fund(s), provided that one of the following
occurs:
∎ |
|
The
Transfer Agent receives payment by 3:00 p.m. Central time on the same
Business Day; or |
∎ |
|
The
requests are placed by a financial or authorized intermediary that has
entered into a servicing agreement with the Trust or its agent and payment
in federal or other immediately available funds is received by the
Transfer Agent in accordance with the terms of the Trust’s or its agent’s
agreement with the intermediary. |
Purchase
requests received in good order by the Transfer Agent or other authorized
intermediary on a non-Business Day or after 3:00 p.m. Central time on any
Business Day will be executed on the next Business Day, at that day’s closing
share price for the applicable Fund(s), provided that payment is made as noted
above.
MISCELLANEOUS
PURCHASE INFORMATION.
∎ |
|
For
shares purchased through a financial intermediary, the financial
intermediary is responsible for transmitting purchase orders and
delivering required funds on a timely basis. Your financial intermediary
may have earlier trading deadlines than those described in this
prospectus. Please contact your financial intermediary for more
information. |
∎ |
|
You
will be responsible for all losses and expenses of a Fund, and purchase
orders may be cancelled, in the event of any failure to make payment
according to the procedures outlined |
|
| |
206 |
|
NORTHERN FUNDS
PROSPECTUS |
|
in
this Prospectus. In addition, a $20 charge will be imposed if a check does
not clear. |
∎ |
|
Exchanges
into a Fund from another Fund in the Trust may be subject to any
redemption fee imposed by the other Fund. |
∎ |
|
You
may initiate transactions between Northern Trust banking and Northern
Funds accounts by using Northern Trust Private Passport. For additional
details, please go to northerntrust.com/funds or contact your Relationship
Manager. |
∎ |
|
The
Trust and its agents each reserve the right, in its sole discretion, to
suspend the offering of shares of a Fund or to reject any purchase or
exchange order, in whole or in part. The Trust also reserves the right to
change or discontinue any of its purchase
procedures. |
∎ |
|
In
certain circumstances, the Trust may advance the time by which purchase
orders must be received. See “Early Closings”. |
∎ |
|
If
the Transfer Agent cannot locate an investor for a period of time
specified by appropriate state law, the investor’s account may be deemed
legally abandoned and then escheated (transferred) to such state’s
unclaimed property administrator in accordance with statutory
requirements. |
TIMING OF REDEMPTION AND EXCHANGE
REQUESTS. Redemption and exchange
requests received in good order by the Transfer Agent or other authorized
intermediary on a Business Day by 3:00 p.m. Central time will be executed on the
same day at the NAV next calculated after receipt of your redemption order in
good order for the applicable Fund(s) (less any applicable redemption fee).
Redemption
and exchange requests received in good order by the Transfer Agent or other
authorized intermediary on a non-Business Day or after 3:00 p.m. Central time on
a Business Day will be executed the next Business Day, at that day’s closing
share price for the applicable Fund(s) (less any applicable redemption
fee).
PAYMENT OF REDEMPTION PROCEEDS. If your account is held
directly with a Fund, it is expected that under normal circumstances the Fund
will typically pay out redemption proceeds to shareholders by the next Business
Day following receipt of a redemption request.
If
your account is held through an intermediary, the length of time to pay
redemption proceeds typically depends, in part, on the terms of the agreement in
place between the intermediary and a Fund. For redemption proceeds that are paid
either directly to you from a Fund or to your intermediary for transmittal to
you, it is expected that under normal circumstances payments will typically be
made by wire, by ACH or by issuing a check by the next Business Day following
receipt of a redemption request in good order from the intermediary by a Fund.
Intermediaries are responsible for timely transmittal of redemption requests by
their customers to the Fund’s transfer agent. Redemption requests that are
processed through investment professionals that utilize the National Securities
Clearing Corporation will generally settle one to three Business Days following
receipt of a redemption request in good order. However, if you have recently
purchased shares with a check or through an electronic transaction, payment may
be delayed as discussed below under “Miscellaneous Redemption
Information.”
It
is expected that payment of redemption proceeds will normally be made from
uninvested cash or short-term investments, proceeds from the sale of portfolio
securities, or borrowing from banks, including through the Trust’s committed,
unsecured credit facility (see “Credit Facility and Borrowing,”). It is possible
that stressed market conditions or large shareholder redemptions may result in
the need for utilization of a Fund’s ability to redeem in-kind in order to meet
shareholder redemption requests. A Fund reserves the right to pay all or part of
your redemption proceeds in readily marketable securities instead of cash
(redemption in-kind). Redemption in-kind proceeds will typically be made by
delivering the selected securities to the redeeming shareholder within seven
days after the receipt of the redemption request in good order by a Fund.
REDEMPTION FEES. The International Equity
Fund, Emerging Markets Equity Index Fund, Global Real Estate Index Fund,
International Equity Index Fund, Global Sustainability Index Fund, High Yield
Fixed Income Fund, and each of the Active M/Multi-Manager Funds charge a 2.00%
redemption fee on the redemption of shares (including by exchange) held for 30
days or less. For the purpose of applying the fee, the Funds use a first-in,
first-out (“FIFO”) method so that shares held longest are treated as being
redeemed first and shares held shortest are treated as being redeemed last. The
redemption fee is paid to the Fund from which the redemption is made, and is
intended to offset the trading, market impact and other costs associated with
short-term money movements in and out of the Fund. The redemption fee may be
collected by deduction from the redemption proceeds or, if assessed after the
redemption transaction, through a separate billing.
The
Funds are authorized to waive the redemption fee for the following
transactions:
∎ |
|
Redemptions
from omnibus accounts and fee-based programs maintained by financial
intermediaries that inform the Fund that they are unable to impose a
redemption fee on their underlying customer
accounts; |
∎ |
|
Redemptions
from employer-sponsored retirement plan
accounts; |
∎ |
|
Redemptions
where the shares were purchased through financial intermediaries that the
Investment Adviser |
|
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NORTHERN FUNDS PROSPECTUS |
|
207 |
|
determines
to have appropriate anti-short-term trading policies in place or as to
which the Investment Adviser has received assurances that look-through
redemption fee procedures or effective anti-short-term trading policies
and procedures are in place; |
∎ |
|
Redemptions
effected pursuant to asset allocation programs, wrap fee programs and
other investment programs offered by financial institutions where
investment decisions are made on a discretionary basis by investment
professionals; |
∎ |
|
Redemptions
pursuant to systematic withdrawal plans and automatic exchange
plans; |
∎ |
|
Redemptions
of shares acquired by reinvestment of dividends, distributions or other
payments; |
∎ |
|
Redemptions
due to the death or the post-purchase disability of the beneficial owner
of the account; |
∎ |
|
Redemptions
to satisfy minimum required distributions from retirement
accounts; |
∎ |
|
Redemptions
representing the return of excess contributions in retirement
accounts; |
∎ |
|
Redemptions
initiated by the Fund; and |
∎ |
|
Redemptions
following investments of contributions in the Fund by participants in
defined contribution plans. |
In
addition to the circumstances noted above, each Fund reserves the right to waive
the redemption fee in its discretion where it believes such waiver is consistent
with the best interests of the Fund, to the extent permitted by law. In
addition, each Fund reserves the right to add, modify or eliminate the
redemption fee or any material changes, such as through a supplement to the
prospectus filed with the SEC, unless otherwise provided by law.
Currently,
the Funds are limited in their ability to assess or collect the redemption fee
on all shares redeemed by financial intermediaries on behalf of their customers.
For example, where a financial intermediary is not able to determine if the
redemption fee applies and/or is not able to assess or collect the fee, or does
not collect the fee at the time of a redemption, a Fund will not receive the
redemption fee. If Fund shares are redeemed by a financial intermediary at the
direction of its customers, the Funds may not know whether a redemption fee is
applicable or the identity of the customer who should pay the redemption fee.
Due to operational requirements, a financial intermediary’s method for tracking
and calculating the redemption fee may differ in some respects from that used by
the Funds. Northern Trust will ask financial intermediaries to assess redemption
fees on shareholder accounts in appropriate cases and remit these fees to the
applicable Fund. However, for the reasons set forth above, there can be no
assurance that the financial intermediaries will properly assess redemption
fees. Customers purchasing shares from financial intermediaries should contact
these intermediaries or refer to their account agreements or plan documents for
more information on how the redemption fee is applied to their shares.
MISCELLANEOUS REDEMPTION
INFORMATION. All redemption proceeds
will be sent by check unless the Transfer Agent is directed otherwise.
Redemption proceeds also may be wired. Redemptions are subject to the following
restrictions:
∎ |
|
The
Trust may require any information from the shareholder reasonably
necessary to ensure that a redemption request has been duly
authorized. |
∎ |
|
Redemption
requests made to the Transfer Agent by mail must be signed by a person
authorized by acceptable documentation on file with the Transfer
Agent. |
∎ |
|
The
Trust reserves the right, on 30 days’ written notice, to redeem the shares
held in any account if, at the time of redemption, the NAV of the
remaining shares in the account falls below $1,000. Involuntary
redemptions will not be made if the value of shares in an account falls
below the minimum solely because of a decline in a Fund’s
NAV. |
∎ |
|
For
shares redeemed through a financial intermediary, the financial
intermediary is responsible for transmitting redemption orders and
crediting your account with redemption proceeds on a timely basis. Your
financial intermediary may have earlier trading deadlines than those
described in this prospectus. Please contact your financial intermediary
for more information. |
∎ |
|
If
you are redeeming recently purchased shares by check or electronic
transaction, your redemption request may not be paid until your check or
electronic transaction has cleared. This may delay your payment for up to
10 days. |
∎ |
|
Subject
to applicable law, the Trust and the Transfer Agent reserve the right to
redeem shares held by any shareholder who provides incorrect or incomplete
account information or when such involuntary redemptions are necessary to
avoid adverse consequences to the Trust and its shareholders or the
Transfer Agent. |
∎ |
|
Subject
to applicable law, the Trust, Northern Trust and their agents reserve the
right to involuntarily redeem or suspend an account at the Fund’s then
current NAV of the applicable share class, in cases of disruptive conduct,
suspected fraudulent or illegal activity, inability to verify the identity
of an investor, or other circumstances determined to be in the best
interest of the Trust and its shareholders. |
∎ |
|
The
Trust, Northern Trust and their agents reserve the right, without notice,
to freeze any account and/or suspend account services when:
(i) notice has been received of a dispute regarding the assets in an
account, or a legal claim against an account; (ii) upon initial
notification to Northern Trust of a |
|
| |
208 |
|
NORTHERN FUNDS
PROSPECTUS |
|
shareholder’s
or authorized agent’s death until Northern Trust receives required
documentation in correct form; or (iii) if there is a reason to
believe a fraudulent transaction may occur or has
occurred. |
∎ |
|
You
may initiate transactions between Northern Trust banking and the Trust’s
accounts by using Northern Trust Private Passport. For additional details,
please go to northerntrust.com/funds or contact your Relationship
Manager. |
∎ |
|
The
Trust reserves the right to change or discontinue any of its redemption
procedures. |
∎ |
|
The
Trust reserves the right to defer crediting, sending or wiring redemption
proceeds for up to 7 days (or such longer period permitted by the SEC)
after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund. The processing of redemptions may
be suspended, and the delivery of redemption proceeds may be delayed
beyond seven days, depending on the circumstances, for any period:
(i) during which the Exchange is closed (other than on holidays or
weekends), or during which trading on the Exchange is restricted;
(ii) when, in accordance with SEC rules and regulations, an emergency
exists that makes the disposal of securities owned by a Fund or the
determination of the fair value of a Fund’s net assets not reasonably
practicable; or (iii) as permitted by order of the SEC for the
protection of Fund shareholders. Redemption payments may also be delayed
in the event of a non-routine closure of the Federal Reserve wire payment
system or applicable Federal Reserve Banks. |
∎ |
|
The
Trust does not permit redemption proceeds to be sent by outgoing
International ACH Transaction (“IAT”). An IAT is a payment transaction
involving a financial institution’s office located outside U.S.
territorial jurisdiction. |
∎ |
|
In
certain circumstances, the Trust may advance the time by which redemption
and exchange orders must be received. See “Early
Closings”. |
EXCHANGE PRIVILEGES. You may exchange Shares
Class shares of one fund in the Trust for Shares Class shares of
another fund in the Trust or Class K shares of the Small Cap Core Fund,
U.S. Quality ESG Fund and Global Sustainability Index Fund only if the
registration of both accounts is identical. You may also exchange Class I
shares or Class K shares of the Small Cap Core Fund, U.S. Quality ESG Fund
and Global Sustainability Index Fund for shares of the same class of Small Cap
Core Fund, U.S. Quality ESG Fund or Global Sustainability Index Fund or for the
Shares Class shares of another fund in the Trust, only if the registration
of both accounts is identical. Both accounts must have the same owner’s name and
title, if applicable. An exchange is a redemption of shares of one fund and the
purchase of shares of another fund in the Trust. If the shares redeemed are held
in a taxable account, an exchange is considered a taxable event and may result
in a gain or loss. The Trust reserves the right to waive or modify minimum
investment requirements in connection with exchanges.
The
Trust reserves the right to change or discontinue the exchange privilege at any
time upon 60 days’ written notice to shareholders and to reject any exchange
request. Exchanges are only available in states where an exchange can legally be
made. Before making an exchange, you should read the Prospectus for the shares
you are acquiring.
POLICIES AND PROCEDURES ON EXCESSIVE TRADING
PRACTICES. In accordance with the
policies and procedures adopted by the Board of Trustees, the Funds discourage
market timing and other excessive trading practices. The Funds are intended to
serve as long-term investment vehicles and are not designed for investors that
engage in short-term trading in violation of the policies and procedures
described below (i.e., a purchase of a Fund’s shares followed shortly thereafter
by a redemption of such shares, or vice versa, in an effort to take advantage of
short-term market movements). Excessive, short-term (market timing) trading
practices may disrupt Fund management strategies, increase brokerage and
administrative costs, harm Fund performance and result in dilution in the value
of Fund shares held by long-term shareholders. The Funds that invest primarily
in foreign securities may be susceptible to the risk of excessive, short-term
trading due to the potential for time zone arbitrage. These risks may be
enhanced with respect to Funds that invest in issuers located in emerging and
frontier markets, as securities of emerging and frontier market issuers tend to
be less liquid than securities of issuers located in developed markets. The
Trust and Northern Trust reserve the right to reject or restrict purchase or
exchange requests from any investor. The Trust and Northern Trust will not be
liable for any loss resulting from rejected purchase or exchange orders. To
minimize harm to the Trust and its shareholders (or Northern Trust), the Trust
(or Northern Trust) will exercise this right if, in the Trust’s (or Northern
Trust’s) judgment, an investor has a history of excessive trading or if an
investor’s trading, in the judgment of the Trust (or Northern Trust), has been
or may be disruptive to a Fund. In making this judgment, trades executed in
multiple accounts under common ownership or control may be considered together
to the extent they can be identified. No waivers of the provisions of the policy
or the practices established to detect and deter market timing and other
excessive trading activity are permitted that would harm the Trust or its
shareholders or would subordinate the interests of the Trust or its shareholders
to those of Northern Trust or any affiliated person or associated person of
Northern Trust.
To
deter excessive shareholder trading, a shareholder is restricted to no more than
two “round trips” in a Fund during a 90-day period. A “round trip” is a
redemption or exchange
|
| |
NORTHERN FUNDS PROSPECTUS |
|
209 |
out
of a Fund followed by a purchase or exchange into the same Fund. The Trust is
authorized to permit more than two “round trips” in a Fund during a 90-day
period if the Trust determines in its reasonable judgment that the Trust’s
excessive trading policies would not be violated. Examples of such transactions
include, but are not limited to, trades involving:
∎ |
|
asset
allocation programs, wrap fee programs and other investment programs
offered by financial institutions where investment decisions are made on a
discretionary basis by investment professionals; |
∎ |
|
systematic
withdrawal plans and automatic exchange plans; |
∎ |
|
reinvestment
of dividends, distributions or other payments; |
∎ |
|
a
death or post-purchase disability of the beneficial owner of the
account; |
∎ |
|
minimum
required distributions from retirement accounts; |
∎ |
|
the
return of excess contributions in retirement accounts;
and |
∎ |
|
redemptions
initiated by a Fund. |
In
addition, the International Equity Fund, Emerging Markets Equity Index Fund,
Global Real Estate Index Fund, International Equity Index Fund, Global
Sustainability Index Fund, High Yield Fixed Income Fund, , and the Active
M/Multi-Manager Funds each impose a redemption fee on redemptions made 30
calendar days or less after purchase subject to certain exceptions. For further
information, please see “Redemption Fees”. As described below and in “Redemption
Fees” it should be noted that the Trust’s ability to monitor and limit the
trading activity of shareholders investing in a Fund through an omnibus account
of a financial intermediary may be significantly limited or absent where the
intermediary maintains the underlying shareholder accounts.
Pursuant
to the policies and procedures adopted by the Board of Trustees, the Trust has
developed criteria to identify trading activity that may be excessive. The
Transfer Agent reviews on a regular, periodic basis available information
relating to the trading activity in the Funds in order to assess the likelihood
that a Fund may be the target of excessive trading. As part of its excessive
trading surveillance process, the Trust, on a periodic basis, examines
transactions that exceed certain monetary thresholds or numerical limits within
a period of time. If, in its judgment, the Trust detects excessive, short-term
trading, whether or not the shareholder has made two round trips in a 90-day
period, the Trust may reject or restrict a purchase or exchange request and may
further seek to close an investor’s account with a Fund.
The
Trust may modify its surveillance procedures and criteria from time to time
without prior notice regarding the detection of excessive trading or to address
specific circumstances. The Trust will use reasonable efforts to apply the
criteria in a manner that, in the Trust’s judgment, will be uniform.
Fund
shares may be held through omnibus arrangements maintained by intermediaries
such as broker-dealers, investment advisers, transfer agents, administrators and
insurance companies. In addition, Fund shares may be held in omnibus 401(k)
plans, retirement plans and other group accounts. Omnibus accounts include
multiple investors and such accounts typically provide the Funds with a net
purchase or redemption request on any given day where the purchases and
redemptions of Fund shares by the investors are netted against one another. The
identities of individual investors whose purchase and redemption orders are
aggregated are not known by the Funds. While Northern Trust may monitor share
turnover at the omnibus account level, a Fund’s ability to monitor and detect
market timing by shareholders or apply any applicable redemption fee in these
omnibus accounts is limited. The netting effect makes it more difficult to
identify, locate and eliminate market timing activities. In addition, those
investors who engage in market timing and other excessive trading activities may
employ a variety of techniques to avoid detection. There can be no assurance
that the Funds and Northern Trust will be able to identify all those who trade
excessively or employ a market timing strategy, and curtail their trading in
every instance.
If
necessary, the Trust may prohibit additional purchases of Fund shares by a
financial intermediary or by certain of the intermediary’s customers. Financial
intermediaries may also monitor their customers’ trading activities in the
Trust. Certain financial intermediaries may monitor their customers for
excessive trading according to their own excessive trading policies. The Trust
may rely on these financial intermediaries’ excessive trading policies in lieu
of applying the Trust’s policies. The financial intermediaries’ excessive
trading policies may differ from the Trust’s policies and there is no assurance
that the procedures used by financial intermediaries will be able to curtail
excessive trading activity in the Trust.
IN-KIND PURCHASES AND REDEMPTIONS. The Trust reserves the
right to accept payment for shares in the form of securities that are
permissible investments for a Fund. The Trust also reserves the right to pay
redemptions by a distribution “in-kind” of securities (instead of cash) from a
Fund. See the SAI for further information about the terms of these purchases and
redemptions.
TELEPHONE TRANSACTIONS. All calls may be
recorded or monitored. The Transfer Agent has adopted procedures in an effort to
establish reasonable safeguards against fraudulent telephone transactions. If
reasonable measures are taken to verify that telephone instructions are genuine,
the Trust and its service providers will not be responsible for any loss
resulting from fraudulent or unauthorized instructions received over the
telephone. In these circumstances, shareholders will bear the risk of loss.
During periods of unusual market activity, you may have trouble placing a
request by telephone. In this event,
|
| |
210 |
|
NORTHERN FUNDS
PROSPECTUS |
consider
sending your request in writing or follow the procedures described in Purchasing
and Selling Shares for initiating transactions by the Internet.
The
proceeds of redemption orders received by telephone will be sent by check, wire
or transfer according to proper instructions. All checks will be made payable to
the shareholder of record and mailed only to the shareholder’s address of
record. The Trust reserves the right to refuse a telephone redemption subject to
applicable law.
MAKING CHANGES TO YOUR ACCOUNT
INFORMATION. You may make changes to
wiring instructions only in writing. You may make changes to an address of
record or certain other account information in writing or by telephone. Written
instructions must be accompanied by acceptable evidence of authority (if
applicable). A signature guarantee also may be required from an institution
participating in the Stock Transfer Agency Medallion Program (“STAMP”).
Additional requirements may be imposed. In accordance with SEC regulations, the
Trust and Transfer Agent may charge a shareholder reasonable costs in locating a
shareholder’s current address.
SIGNATURE GUARANTEES. If a signature guarantee
is required, it must be from an institution participating in STAMP, or other
acceptable evidence of authority (if applicable) must be provided. Additional
requirements may be imposed by the Trust. In addition to the situations
described in this Prospectus, the Trust may require signature guarantees in
other circumstances based on the amount of a redemption request or other
factors.
BUSINESS DAY. A “Business Day” is each
Monday through Friday when the Exchange is open for business. For any given
calendar year, the Funds will be closed on the following holidays or as
observed: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Juneteenth National Independence Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
GOOD ORDER. A purchase, redemption
or exchange request is considered to be “in good order” when all necessary
information is provided and all required documents are properly completed,
signed and delivered, including acceptable evidence of authority (if
applicable). Requests must include the following:
∎ |
|
The
account number (if issued) and Fund name; |
∎ |
|
The
amount of the transaction, in dollar amount or number of
shares; |
∎ |
|
For
redemptions and exchanges (other than online, telephone or wire
redemptions), the signature of all account owners exactly as they are
registered on the account; |
∎ |
|
Required
signature guarantees, if applicable; and |
∎ |
|
Other
supporting legal documents and certified resolutions that might be
required in the case of estates, corporations, trusts and other entities
or forms of ownership. Call 800‑595‑9111 for more information about
documentation that may be required of these
entities. |
Additionally,
a purchase order initiating the opening of an account will not be considered to
be “in good order” unless the investor has provided all information required by
the Trust’s “Customer Identification Program” described below.
CUSTOMER IDENTIFICATION PROGRAM. Federal law requires the
Trust to obtain, verify and record identifying information, which may include
the name, residential or business street address, date of birth (for an
individual), social security or taxpayer identification number or other
identifying information for each investor who opens or reopens an account with
the Trust. Applications without this information, or without an indication that
a social security or taxpayer identification number has been applied for, may
not be accepted. After acceptance, to the extent permitted by applicable law or
the Trust’s customer identification program, the Trust reserves the right to:
(a) place limits on account transactions until an investor’s identity is
verified; (b) refuse an investment in the Trust; or (c) involuntarily
redeem an investor’s shares and close an account in the event that an investor’s
identity is not verified. The Trust and its agents will not be responsible for
any loss in an investor’s account resulting from an investor’s delay in
providing all required identifying information or from closing an account and
redeeming an investor’s shares when an investor’s identity is not verified.
EARLY CLOSINGS. The Funds reserve the
right to advance the time for accepting purchase, redemption or exchange orders
for same Business Day credit when the Exchange and/or bond market close early,
trading on the Exchange is restricted, an emergency arises or as otherwise
permitted by the SEC. Each Fixed Income Fund and the Multi-Manager High Yield
Opportunity Fund reserve the right to advance the time for accepting purchase,
redemption or exchange orders for same Business Day credit when the bond markets
close early. In addition, on any Business Day when SIFMA recommends that the
bond markets close early, each Fixed Income Fund, each Tax-Exempt Fixed Income
Fund and the Multi-Manager High Yield Opportunity Fund reserves the right to
close at or prior to the SIFMA recommended closing time. If a Fund does so, it
will cease granting same Business Day credit for purchase and redemption orders
received at the Fund’s closing time and credit will be given on the next
Business Day.
In
addition, the Board of Trustees of the Trust also may, for any Business Day,
decide to change the time as of which a Fund’s NAV is calculated in response to
new developments such as altered trading hours, or as otherwise permitted by the
SEC.
|
| |
NORTHERN FUNDS PROSPECTUS |
|
211 |
EMERGENCY OR UNUSUAL EVENTS. In the event the
Exchange does not open for business because of an emergency or unusual event,
the Trust may, but is not required to, open one or more Funds for purchase,
redemption and exchange transactions if the Federal Reserve wire payment system
is open.
To
learn whether a Fund is open for business during an emergency situation or
unusual event, please call 800-595-9111 or visit northerntrust.com/funds.
FINANCIAL INTERMEDIARIES. The Trust may authorize
certain institutions acting as financial intermediaries (including banks, trust
companies, brokers and investment advisers) to accept purchase, redemption and
exchange orders from their customers on behalf of the Funds. These authorized
intermediaries also may designate other intermediaries to accept such orders, if
approved by the Trust. A Fund will be deemed to have received an order when the
order is accepted by the authorized intermediary, and the order will be priced
at the Fund’s per share NAV next determined, provided that the authorized
intermediary forwards the order (and payment for any purchase order) to the
Transfer Agent on behalf of the Trust within agreed-upon time periods. If the
order (or payment for any purchase order) is not received by the Transfer Agent
within such time periods, the authorized intermediary may be liable for fees and
losses and the transaction may be cancelled. Orders submitted through a
financial intermediary that has not received authorization to accept orders on a
Fund’s behalf are priced at the Fund’s NAV next calculated by the Fund after it
receives the order from the financial intermediary and accepts it, which may not
occur on the day submitted to the financial intermediary.
The
Trust may enter into agreements with certain financial intermediaries, including
affiliates of Northern Trust that perform support services for their customers
who own Fund shares (“Service Organizations”). These support services may
include:
∎ |
|
assisting
investors in processing purchase, exchange and redemption
requests; |
∎ |
|
processing
dividend and distribution payments from the
Funds; |
∎ |
|
providing
information to customers showing their positions in the Funds;
and |
∎ |
|
providing
subaccounting services with respect to Fund shares beneficially owned by
customers or the information necessary for subaccounting
services. |
For
their services, Service Organizations may receive fees from Class I shares
or Shares of a Fund at annual rates of up to 0.15% of the average daily NAV of
the shares covered by their agreements. Because these fees are paid out of the
Funds’ assets on an on-going basis, they will increase the cost of your
investment in the Funds.
NTI
has contractually agreed to limit the payments pursuant to the Service Plan of
the Class I shares of the Small Cap Core Fund, U.S. Quality ESG Fund and
Global Sustainability Index Fund to the following annual rates (expressed as a
ratio of the average daily NAV of the Class I shares of the Funds):
|
|
|
| |
Fund |
|
Class I Service Fee Limit |
|
Small
Cap Core Fund |
|
|
0.10% |
|
U.S.
Quality ESG Fund |
|
|
0.10% |
|
Global
Sustainability Index Fund |
|
|
0.05% |
|
The
Funds’ arrangements with Service Organizations under the agreements are governed
by a Service Plan, which has been adopted by the Board of Trustees.
Northern
Trust also may provide compensation to certain dealers and Service
Organizations, for marketing and distribution in connection with the Trust.
Northern Trust may also sponsor informational meetings, seminars and other
similar programs designed to market the Trust. The amount of such compensation
and payments may be made on a one-time and/or periodic basis, and may represent
all or a portion of the annual fees earned by the Investment Adviser (after
adjustments). The additional compensation and payments will be paid by Northern
Trust or its affiliates and will not represent an additional expense to the
Trust or its shareholders. Such payments may provide incentives for financial
intermediaries to make shares of the Funds available to their customers, and may
allow the Funds greater access to such parties and their customers than would be
the case if no payments were paid.
Investors
purchasing shares of a Fund through a financial intermediary should read their
account agreements with the financial intermediary carefully. A financial
intermediary’s requirements may differ from those listed in this Prospectus. A
financial intermediary also may impose account charges, such as asset allocation
fees, account maintenance fees and other charges that will reduce the net return
on an investment in a Fund. If an investor has agreed with a particular
financial intermediary to maintain a minimum balance and the balance falls below
this minimum, the investor may be required to redeem all or a portion of the
investor’s investment in a Fund.
Conflict
of interest restrictions may apply to the receipt of compensation by a Service
Organization or other financial intermediary in connection with the investment
of fiduciary funds in Fund shares. Institutions, including banks regulated by
the Comptroller of the Currency, Federal Reserve Board and state banking
commissions, and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal counsel.
State
securities laws regarding the registration of dealers may differ from federal
law. As a result, Service Organizations and
|
| |
212 |
|
NORTHERN FUNDS
PROSPECTUS |
other
financial intermediaries investing in the Funds on behalf of their customers may
be required to register as dealers.
PORTFOLIO HOLDINGS. The Funds, or their duly
authorized service providers, may publicly disclose holdings of all Funds in
accordance with regulatory requirements, such as periodic portfolio disclosure
in filings with the SEC.
A
complete schedule of each Fund’s holdings, current as of calendar quarter-end,
except for the Global Tactical Asset Allocation Fund, each Equity Index Fund,
the Bond Index Fund, U.S. Treasury Index Fund, Tax-Advantaged Ultra-Short Fixed
Income Fund and Ultra-Short Fixed Income Fund, which will be current as of
calendar month-end, will be available on the Trust’s website at
northerntrust.com/funds no earlier than ten (10) calendar days after the
end of the respective period. The Funds will also publish their top ten holdings
on their website, current as of month-end, no earlier than ten
(10) calendar days after the end of the month. For the Global Tactical
Asset Allocation Fund, the information posted to the website is the percentage
of the Fund’s holdings in the Underlying Funds. This information will remain
available on the website at least until the Funds file with the SEC their
semiannual/annual shareholder report or quarterly portfolio holdings report that
includes such period. The Funds may terminate or modify this policy at any time
without further notice to shareholders. A Fund may publish on the Trust’s
website a complete schedule of its portfolio holdings and certain other
information regarding portfolio holdings more frequently in accordance with the
Trust’s policy.
A
further description of the Trust’s Policy on Disclosure of Portfolio Holdings is
available in the SAI.
SHAREHOLDER COMMUNICATIONS. Shareholders of record
will be provided each year with a semiannual report and an annual report as of
September 30 and March 31, respectively. The reports will be made available on
the Funds’ website at
northerntrust.com/united-states/what-we-do/investment-management/northern-funds/literature.
Paper copies of these reports will be mailed to each shareholder of record that
has not elected to receive the reports electronically. You may elect to receive
future reports electronically at any time by contacting your financial
intermediary or, if you invest directly with the Trust, 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 electronically will
apply to all Northern Funds you hold in your account at the financial
intermediary or through an account with the Trust.
If
we have received appropriate written consent, we send a single copy of all
materials, including prospectuses, financial reports, proxy statements or
information statements and other notices to all shareholders who share the same
mailing address, even if more than one person in a household holds shares of a
Fund. If you do not want your mailings combined with those of other members of
your household, you may opt-out at any time by contacting the Northern Funds
Center by telephone at 800-595-9111 or by mail at Northern Funds, P.O. Box
75986, Chicago, Illinois 60675-5986. You also may send an e-mail to
[email protected]. The Funds will begin sending individual copies to you
within 30 days after receipt of your opt-out notice. The Trust may reproduce
this Prospectus in electronic format that may be available on the Internet. If
you have received this Prospectus in electronic format you, or your
representative, may contact the Transfer Agent for a free paper copy of this
Prospectus by writing to the Northern Funds Center at P.O. Box 75986,
Chicago, Illinois 60675-5986, calling 800-595-9111 or by sending an e-mail
to: northern‑
[email protected].
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213 |
DIVIDENDS
AND DISTRIBUTIONS
DIVIDENDS
AND CAPITAL GAIN DISTRIBUTIONS OF EACH FUND ARE AUTOMATICALLY REINVESTED IN
ADDITIONAL SHARES OF THE SAME FUND WITHOUT ANY SALES CHARGE.
You
may, however, elect to have dividends or capital gain distributions (or both)
paid in cash or reinvested in shares of another fund in the Trust at its NAV per
share. If you would like to receive dividends or distributions in cash or have
them reinvested in another fund in the Trust, you must notify the Transfer Agent
in writing. This election will become effective for distributions paid two days
after its receipt by the Transfer Agent. Dividends and distributions only may be
reinvested in a fund in the Trust in which you maintain an account.
Dividend
and capital gain distributions that are returned to a Fund as undeliverable will
be reinvested into your account upon return receipt at the Fund’s then current
NAV. Also, future distributions will be reinvested until the Fund receives valid
delivery instructions.
The
following table summarizes the general distribution policies for each of the
Funds. A Fund may, in some years, pay additional dividends or make additional
distributions to the extent necessary for the Fund to avoid incurring tax
liabilities or for other reasons.
|
|
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Fund |
|
Dividends, if any, Declared and
Paid* |
|
Capital Gains, if any, Declared and Paid |
GLOBAL
TACTICAL ASSET ALLOCATION |
|
Quarterly |
|
Annually |
INCOME
EQUITY |
|
Monthly |
|
Annually |
INTERNATIONAL
EQUITY |
|
Annually |
|
Annually |
LARGE
CAP CORE |
|
Quarterly |
|
Annually |
LARGE
CAP VALUE |
|
Annually |
|
Annually |
SMALL
CAP VALUE |
|
Annually |
|
Annually |
EMERGING
MARKETS EQUITY INDEX |
|
Annually |
|
Annually |
GLOBAL
REAL ESTATE INDEX |
|
Quarterly |
|
Annually |
INTERNATIONAL
EQUITY INDEX |
|
Annually |
|
Annually |
MID
CAP INDEX |
|
Annually |
|
Annually |
SMALL
CAP INDEX |
|
Annually |
|
Annually |
STOCK
INDEX |
|
Quarterly |
|
Annually |
SMALL
CAP CORE |
|
Annually |
|
Annually |
U.S.
QUALITY ESG |
|
Quarterly |
|
Annually |
GLOBAL
SUSTAINABILITY INDEX |
|
Annually |
|
Annually |
BOND
INDEX |
|
Declared daily, paid monthly |
|
Annually |
CORE
BOND |
|
Declared daily,
paid monthly |
|
Annually |
FIXED
INCOME |
|
Declared daily,
paid monthly |
|
Annually |
HIGH
YIELD FIXED INCOME |
|
Declared daily,
paid monthly |
|
Annually |
SHORT
BOND |
|
Declared daily,
paid monthly |
|
Annually |
LIMITED
TERM U.S. GOVERNMENT |
|
Declared daily,
paid monthly |
|
Annually |
TAX-ADVANTAGED
ULTRA-SHORT FIXED INCOME |
|
Declared daily,
paid monthly |
|
Annually |
ULTRA-SHORT
FIXED INCOME |
|
Declared daily,
paid monthly |
|
Annually |
U.S.
GOVERNMENT |
|
Declared daily,
paid monthly |
|
Annually |
U.S.
TREASURY INDEX |
|
Declared daily,
paid monthly |
|
Annually |
ARIZONA
TAX-EXEMPT |
|
Declared daily,
paid monthly |
|
Annually |
CALIFORNIA
INTERMEDIATE TAX-EXEMPT |
|
Declared daily,
paid monthly |
|
Annually |
CALIFORNIA
TAX-EXEMPT |
|
Declared daily,
paid monthly |
|
Annually |
HIGH
YIELD MUNICIPAL |
|
Declared daily,
paid monthly |
|
Annually |
INTERMEDIATE
TAX-EXEMPT |
|
Declared daily,
paid monthly |
|
Annually |
LIMITED
TERM TAX-EXEMPT |
|
Declared daily,
paid monthly |
|
Annually |
TAX-EXEMPT |
|
Declared daily, paid monthly |
|
Annually |
|
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214 |
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NORTHERN FUNDS
PROSPECTUS |
|
|
|
| |
Fund |
|
Dividends, if any, Declared and
Paid* |
|
Capital Gains, if any, Declared and Paid |
ACTIVE
M EMERGING MARKETS EQUITY |
|
Annually |
|
Annually |
ACTIVE
M INTERNATIONAL EQUITY |
|
Annually |
|
Annually |
MULTI-MANAGER
GLOBAL LISTED INFRASTRUCTURE |
|
Quarterly |
|
Annually |
MULTI-MANAGER
GLOBAL REAL ESTATE |
|
Quarterly |
|
Annually |
MULTI-MANAGER
HIGH YIELD OPPORTUNITY |
|
Monthly |
|
Annually |
* |
Shares of Funds that declare dividends daily
are entitled to the dividends declared, if any, by a Fund beginning on the
next Business Day after the purchase order is executed.
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215 |
TAX
CONSIDERATIONS
The
following is a summary of certain tax considerations that may be relevant to an
investor in a Fund. The discussions of the federal income tax consequences in
this Prospectus and the SAI are based on the Internal Revenue Code of 1986, as
amended (the “Code”) and the regulations issued under it, and court decisions
and administrative interpretations, as in effect on the date of this Prospectus.
Future legislative or administrative changes or court decisions may
significantly alter the statements included herein, and any such changes or
decisions may be retroactive. Except where otherwise indicated, the discussion
relates to shareholders who are individual U.S. citizens or residents and is
based on current tax law. You should consult your tax professional for further
information regarding federal, state, local and/or foreign tax consequences
relevant to your specific situation.
DISTRIBUTIONS. Each Fund has elected
and intends to qualify as a regulated investment company for federal income tax
purposes, and to distribute to shareholders substantially all of its net
investment income and net capital gain each year. Except as otherwise noted
below, you will generally be subject to federal income tax on a Fund’s
distributions to you, regardless of whether they are paid in cash or reinvested
in Fund shares. For federal income tax purposes, Fund distributions attributable
to short-term capital gains and net investment income generally are taxable to
you as ordinary income. Distributions attributable to net capital gain (the
excess of net long-term capital gains over net short-term capital losses) of a
Fund generally are taxable to you as long-term capital gains. This is true no
matter how long you own your Fund shares. The maximum long-term capital gain
rate applicable to individuals, estates and trusts is currently 20%. Gains from
REITs and Master Limited Partnerships (“MLPs”) that are unrecaptured
Section 1250 gains are subject to tax at a maximum rate of 25%. U.S.
individuals with “modified adjusted gross income” exceeding $200,000 ($250,000
if married and filing jointly) and trusts and estates with income above certain
thresholds are subject to the Medicare contribution tax on their “net investment
income,” which includes non-exempt interest, dividends and capital gains at a
rate of 3.8%.
The
Tax-Exempt Fixed Income Funds and the Tax-Advantaged Ultra-Short Fixed Income
Fund intend to pay “exempt-interest dividends” that generally are exempt from
federal income tax. However, some dividends will be taxable, such as dividends
that are attributable to gains on bonds that are acquired at a “market discount”
and distributions of short and long-term capital gains. A portion of the
exempt-interest dividends paid by an applicable Fund may be an item of tax
preference for purposes of determining federal alternative minimum tax
liability. Shareholders who are recipients of Social Security Act or Railroad
Retirement benefits should note that exempt interest dividends will be taken
into account in determining the taxability of their benefit payments.
The
Tax-Exempt Fixed Income Funds may invest in tax credit bonds, such as qualified
tax credit bonds, build America bonds, or clean renewable energy bonds. These
bonds provide tax credits to the holder in lieu of some or all of the interest.
Under the Code, a Tax-Exempt Fixed Income Fund may elect to pass through the tax
credits to the shareholders. If a Tax-Exempt Fixed Income Fund makes such an
election, each shareholder will be required to include in gross income an amount
equal to his or her proportionate share of the tax credits and will be allowed
his or her proportionate share of those credits against his or her income tax
liability. Such Tax-Exempt Fixed Income Fund will notify shareholders of their
proportionate share of tax credits, if any, and their income in respect of these
tax credits within sixty days after the close of its taxable year. The 2017 Tax
Cuts and Jobs Act repealed the rules related to tax credit bonds and the
exclusion from gross income for interest on a bond issued to advance refund
another bond and is effective for bonds issued after December 31, 2017, but
does not affect the tax treatment of bonds issued prior to January 1,
2018.
The
California Intermediate Tax-Exempt Fund, the California Tax-Exempt Fund
(together, the “California Funds”) and the Arizona Tax-Exempt Fund expect to pay
dividends that generally are exempt from personal income tax for residents of
those respective states. This exemption will apply, however, only to dividends
that are derived from interest paid on California or Arizona municipal
instruments, respectively, or on certain federal obligations. The State of
Arizona is not authorized to issue general obligation bonds. However, political
subdivisions of the State of Arizona are authorized to issue general obligation
bonds if certain conditions are met. In addition, dividends paid by the
California Funds to corporate shareholders will be subject to California
corporate franchise tax, but generally exempt from California income tax.
If
you receive an exempt-interest dividend with respect to any share of a
Tax-Exempt Fixed Income Fund and the share is held for six months or less, any
loss on the sale or exchange of the share will be disallowed to the extent of
the dividend amount. Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Tax-Exempt Fixed Income Funds generally will not
be deductible for federal income tax purposes.
Except
as stated below, you may be subject to state and local taxes on Fund
distributions and redemptions. State income taxes may not apply, however, to the
portions of each Fund’s distributions, if any, that are attributable to interest
on certain types of federal securities or interest on securities issued by the
particular state or municipalities within the state.
There
are certain tax requirements that each Fund must follow in order to qualify as a
regulated investment company and to avoid federal income taxation. In their
efforts to adhere to these
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216 |
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NORTHERN FUNDS
PROSPECTUS |
requirements,
the Funds may have to limit their investment activity in some types of
instruments.
Distributions
of “qualifying dividends” by a Fund will also generally be taxable to you at
long-term capital gain rates, as long as certain requirements are met. In
general, if 95% or more of the gross income of a Fund (other than net capital
gain) consists of dividends received from domestic corporations or “qualified”
foreign corporations (“qualifying dividends”) and when certain other
requirements are met, then all distributions paid by the Fund to individual
shareholders will be treated as qualifying dividends. But if less than 95% of
the gross income of a Fund (other than net capital gain) consists of qualifying
dividends, then distributions paid by the Fund to individual shareholders will
be qualifying dividends only to the extent they are derived from qualifying
dividends earned by the Fund. For the long-term capital gain rates to apply, you
must have owned your Fund shares for at least 61 days during the 121-day
period beginning on the date that is 60 days before the Fund’s ex-dividend date
(and the Fund will need to have met a similar holding period requirement with
respect to the shares of the corporation paying the qualifying dividend). The
amount of a Fund’s distributions that qualify for this favorable treatment may
be reduced as a result of the Fund’s or an Underlying Fund’s securities lending
activities, if any, by a high portfolio turnover rate or by investments in debt
securities or “non-qualified” foreign corporations.
To
the extent that a Fund invests a portion of its assets in entities that qualify
as REITs for U.S. federal income tax purposes or foreign corporations that are
not “qualified” foreign corporations, distributions attributable to the
dividends from those entities will generally not constitute “qualifying
dividends” for purposes of the long-term capital gain rate. Accordingly,
investors in a Fund should anticipate that all or a portion of the dividends
they receive may be taxable at the higher rates generally applicable to ordinary
income. Passive foreign investment companies are not qualified foreign
corporations for this purpose.
Certain
Funds may make distributions to you of “section 199A dividends” with respect to
qualified dividends that it receives with respect to its investments in REITs. A
section 199A dividend is any dividend or part of such dividend that a Fund pays
to its shareholders and reports as a section 199A dividend in written statements
furnished to its shareholders. Distributions paid by a Fund that are eligible to
be treated as section 199A dividends for a taxable year may not exceed the
“qualified REIT dividends” received by the Fund from REITs reduced by the Fund’s
allocable expenses. Section 199A dividends may be taxed to individuals and
other non-corporate shareholders at a reduced effective federal income tax rate,
provided the shareholder receiving the dividends has satisfied a holding period
requirement for the Fund’s shares and satisfied certain other conditions. For
the lower rates to apply, you must have owned your Fund shares for at least 46
days during the 91‑day period beginning on the date that is 45 days before the
Fund’s ex-dividend date, but only to the extent that you are not under an
obligation (under a short-sale or otherwise) to make related payments with
respect to positions in substantially similar or related property. At this time
it is not possible to determine the amount of dividends a Fund will pay that
will be eligible for the reduced individual income tax rate currently applicable
to qualified dividend income or that would be treated as section 199A
dividends.
The
Fixed Income Funds, Tax-Exempt Fixed Income Funds, and Multi-Manager High Yield
Opportunity Fund will generally invest in debt instruments and not in shares of
stock on which dividend income will be received. As a result, these Funds do not
expect to pay dividends that are eligible for the reduced individual income tax
rate currently applicable to qualified dividend income or treated as section
199A dividends.
A
portion of distributions paid by a Fund to shareholders who are corporations may
also qualify for the dividends-received deduction for corporations, subject to
certain holding period requirements and debt financing limitations. The amount
of the dividends qualifying for this deduction may, however, be reduced as a
result of a Fund’s or an Underlying Fund’s securities lending activities, by a
high portfolio turnover rate or by investments in debt securities or foreign
corporations. It is expected that distributions paid by the Fixed Income Funds,
Tax-Exempt Fixed Income Funds, and Active M/Multi-Manager Funds will generally
not qualify for this deduction.
To
the extent that a Fund invests a portion of its assets in MLPs, Fund
distributions attributable to distributions from those entities will generally
not constitute “qualifying dividends” for purposes of the long-term capital gain
rate. Additionally, a Fund may be allocated items of tax preference or
adjustment for alternative minimum tax purposes from MLPs and will be required
to allocate those items to shareholders.
Dividends
and distributions from each Fund will generally be taxable to you in the tax
year in which they are paid, with one exception. Dividends and distributions
declared by a Fund in October, November or December and paid in January of the
following year are taxed as though they were paid on December 31.
Each
year, the Fund will send you an annual statement (Form 1099) of your
account activity to assist you in completing your federal, state and local tax
returns. Prior to issuing your statement, the Fund makes every effort to obtain
correct information regarding Fund income to reduce the number of corrected
forms mailed to shareholders. However, when necessary, the Fund will send you a
corrected Form 1099 to reflect changes in information regarding fund
income.
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NORTHERN FUNDS PROSPECTUS |
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217 |
The
use of derivatives by a Fund may cause the Fund to realize higher amounts of
ordinary income or short-term capital gain, distributions from which are taxable
to individual shareholders at ordinary income tax rates rather than at the more
favorable tax rates for long-term capital gain. Additionally, other rules
applicable to derivatives may accelerate the recognition of income or gains to
the Fund, defer losses to the Fund, and cause adjustments in the holding periods
of the Fund’s securities. These rules, therefore, could affect the amount,
timing and/or character of distributions to shareholders.
REIT
or MLP investments of a Fund often do not provide complete tax information to
the Fund until after the calendar year-end. Consequently, because of the delay,
it may be necessary for the Fund to request permission to extend the deadline
for issuance of Forms 1099-DIV beyond January 31. Also, under current
provisions of the Code, distributions attributable to operating income of REITs
in which a Fund invests are not eligible for favorable tax treatment as
long-term capital gains, but as noted above, a Fund may classify such
distributions as section 199A dividends.
You
should also note that if you purchase shares of a Fund just before it makes a
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of a portion of your investment. This adverse tax result is
known as “buying into a dividend.”
FOREIGN TAXES. Certain Funds may be
subject to foreign withholding taxes with respect to dividends or interest
received from sources in foreign countries. If more than 50% of the value of the
total assets of a Fund consists of stocks and securities (including debt
securities) of foreign corporations at the close of a taxable year, or if the
Fund is a qualified fund of funds (i.e., a fund at least 50% of the value of the
total assets of which, at the close of each quarter of the taxable year, is
represented by interests in other RICs), the Fund may elect, for federal income
tax purposes, to treat certain foreign taxes paid by them, including generally
any withholding and other foreign income taxes, as paid by their shareholders.
It is anticipated that the International Equity Fund, Emerging Markets Equity
Index Fund, International Equity Index Fund, Active M Emerging Markets Equity
Fund, Multi-Manager Global Listed Infrastructure Fund, Multi-Manager Global Real
Estate Fund, and Active M International Equity Fund may be eligible to make this
election. If these Funds make this election, the amount of such foreign taxes
paid by the Funds will be included in its shareholders’ income pro rata (in
addition to taxable distributions actually received by them), and such
shareholders will be entitled either (1) to credit that proportionate
amount of taxes against U.S. federal income tax liability as a foreign tax
credit (subject to applicable limitations) or (2) to take that amount as an
itemized deduction. A Fund that is not eligible or chooses not to make this
election will be entitled to deduct such taxes in computing the amounts they are
required to distribute.
The
Underlying Funds of the Global Tactical Asset Allocation Fund may be subject to
foreign withholding or foreign taxes on income or gain from certain foreign
securities. In general, these foreign taxes will reduce the taxable income of
the Fund, but will not be passed through to you as to be taken as a deduction or
tax credit.
SALES AND EXCHANGES. The sale, exchange, or
redemption of Fund shares is a taxable event on which a gain or loss may be
recognized. For federal income tax purposes, an exchange of shares of one Fund
for shares of another Fund is considered the same as a sale. The amount of gain
or loss is based on the difference between your tax basis in the Fund shares and
the amount you receive for them upon disposition. Generally, you will recognize
long-term capital gain or loss if you have held your Fund shares for over twelve
months at the time you dispose of them. Gains and losses on shares held for
twelve months or less will generally constitute short-term capital gains, except
that a loss on shares held six months or less will be recharacterized as a
long-term capital loss to the extent of any capital gains distributions that you
have received on the shares. A loss realized on a sale or exchange of Fund
shares may be disallowed under the so-called “wash sale” rules to the extent the
shares disposed of are replaced with other shares of that same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to a dividend reinvestment in shares of the
Fund. If disallowed, the loss will be reflected in an adjustment to the basis of
the shares acquired.
The
Funds are required to compute and report to the Internal Revenue Service (“IRS”)
and furnish to Fund shareholders cost basis information when Fund shares are
sold or exchanged. The Funds have elected to use the average cost method, unless
you instruct the Funds to use a different IRS-accepted cost basis method, or
choose to specifically identify your shares at the time of each sale or
exchange. If your account is held by your broker or other financial advisor,
they may select a different cost basis method. In these cases, please contact
your broker or other financial advisor to obtain information with respect to the
available methods and elections for your account. You should carefully review
the cost basis information provided by the Funds and make any additional basis,
holding period or other adjustments that are required when reporting these
amounts on your federal and state income tax returns. Fund shareholders should
consult with their tax professionals to determine the best IRS-accepted cost
basis method for their tax situation and to obtain more information about how
the new cost basis reporting requirements apply to them.
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NORTHERN FUNDS
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IRAS AND OTHER TAX-QUALIFIED PLANS. One major exception to
the tax principles discussed above is that distributions on, and sales,
exchanges and redemptions of, shares held in an IRA (or other tax-qualified
plan) will not be currently taxable unless the shares were purchased with
borrowed funds.
Shareholders
who are recipients of Social Security Act or Railroad Retirement benefits should
note that exempt interest dividends will be taken into account in determining
the taxability of their benefit payments.
BACKUP WITHHOLDING. The Trust will be
required in certain cases to withhold and remit to the U.S. Treasury 24% of the
dividends, capital gain distributions, and gross sales proceeds paid to any
shareholder (i) who had provided either an incorrect tax identification
number or no number at all, (ii) who is subject to backup withholding by
the Internal Revenue Service for failure to report the receipt of taxable
interest or dividend income properly, or (iii) who has failed to certify to
the Trust, when required to do so, that they are not subject to backup
withholding or that they are an “exempt recipient.”
U.S. TAX TREATMENT OF FOREIGN
SHAREHOLDERS. Nonresident aliens,
foreign corporations and other foreign investors will generally be exempt from
U.S. federal income tax on distributions attributable to net capital gains. The
exemption may not apply, however, if an investment in a Fund is effectively
connected to a trade or business of the foreign investor in the United States or
if the foreign investor is present in the United States for 183 days or
more in a taxable year and certain other conditions are met.
Fund
distributions attributable to other categories of Fund income, such as interest
or dividends from companies whose securities are held by a Fund or an Underlying
Fund of Global Tactical Asset Allocation Fund, will generally be subject to a
30% withholding tax when paid to foreign shareholders. The withholding tax may,
however, be reduced (and, in some cases, eliminated) under an applicable tax
treaty between the United States and a shareholder’s country of residence or
incorporation, provided that the shareholder furnishes the Fund with a properly
completed Form W-8BEN or W-8BEN-E, as applicable, to establish entitlement for
these treaty benefits.
Dividends
reported as short-term capital gain dividends or interest-related dividends are
not subject to U.S. withholding tax.
A
foreign investor will generally not be subject to U.S. tax on gains realized on
sales or exchanges of Fund shares unless the investment in the Fund is
effectively connected to a trade or business of the investor in the United
States or if the investor is present in the United States for 183 days or more
in a taxable year and certain other conditions are met. However, dividends
reported as exempt-interest dividends are generally not subject to U.S.
withholding tax.
Distributions
to foreign shareholders attributable to U.S. real estate gains received from the
sale of U.S. real property interests and real estate gains from REITs or MLPs
will be subject to U.S. withholding tax at rates up to 21%.
If
a foreign shareholder holds more than 5% of a Fund at any time during the 5-year
period ending on the date of disposition or redemption of shares (a “5%
Shareholder”) and the Fund is a U.S. Real Property Holding Corporation (as
defined in the Code), the foreign shareholder will be subject to withholding tax
on the gross proceeds at a 15% rate and may be required to file a U.S. federal
income tax return. Foreign corporations recognizing gain under these rules may
be subject to the U.S. Branch Profits Tax.
In
addition, the Funds are required to withhold 30% tax on certain payments to
certain foreign entities that do not meet specified information reporting
requirements under the Foreign Account Tax Compliance Act.
All
foreign investors should consult their own tax professionals regarding the tax
consequences in the United States and their country of residence of an
investment in a Fund.
STATE AND LOCAL TAXES. You may also be subject
to state and local taxes on income and gain attributable to your ownership of
Fund shares. State income taxes may not apply, however, to the portions of a
Fund’s distributions, if any, that are attributable to interest earned by the
Fund on U.S. government securities. You should consult your tax professional
regarding the tax status of distributions in your state and locality.
CONSULT YOUR TAX PROFESSIONAL. Your investment in the
Funds could have additional tax consequences. You should consult your tax
professional for information regarding all tax consequences applicable to your
investments in a Fund. More tax information relating to the Funds is also
provided in the SAI. This short summary is not intended as a substitute for
careful tax planning.
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NORTHERN FUNDS PROSPECTUS |
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219 |
SECURITIES,
TECHNIQUES AND RISKS
ADDITIONAL
INFORMATION ON INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND
RELATED RISKS, DESCRIPTION OF SECURITIES AND COMMON INVESTMENT TECHNIQUES
The
following provides additional information regarding each Fund’s investment
objective, principal investment strategies and related risks discussed in the
Fund Summaries—Principal Investment Strategies section for each Fund, as well as
information about additional investment strategies and techniques that a Fund
may employ in pursuing its investment objective. The Funds also may make other
types of investments to the extent permitted by applicable law. Additional
information about the Funds, their investment strategies and risks can also be
found in the Funds’ SAI. Future legislative, regulatory, or tax developments may
affect the investments or investment strategies available to NTI in connection
with managing the Funds, which may also adversely affect the Funds’ return
potential and ability of the Funds to achieve their investment objective.
All
investments carry some degree of risk that will affect the value of a Fund’s
investments, its investment performance and the price of its shares. As a
result, loss of money is a risk of investing in each Fund.
Because
certain Funds invest in Underlying Funds, the risks described below for a Fund
are also in reference to the Underlying Funds in which it invests. Accordingly,
references to “Fund” include any Underlying Funds in which the Fund invests, and
to the extent that the Fund invests directly in securities and other
instruments, the risks described below are also directly applicable to the
Fund.
INVESTMENT OBJECTIVES. A Fund’s investment
objective may be changed by the Trust’s Board of Trustees without shareholder
approval. Shareholders will, however, be notified of any changes to a Fund’s
investment objective.
ALTERNATIVE MINIMUM TAX RISK. Although the interest received from
municipal securities generally is exempt from federal income tax, the Fund may
invest a portion of its total assets in municipal securities subject to the
federal alternative minimum tax. Accordingly, investment in the Fund could cause
shareholders to be subject to, or result in an increased liability under, the
federal alternative minimum tax.
ASSET ALLOCATION RISK is the risk that the
selection by the Global Tactical Asset Allocation Fund’s portfolio manager of
the Underlying Funds and the allocation of the Fund’s assets among the various
asset classes and market segments as defined by Northern Trust’s Investment
Policy Committee will not perform as expected. The Fund’s investment in any one
Underlying Fund or asset class may exceed 15% of the Fund’s total assets, which
may cause it to be subject to greater volatility and risk than a more
diversified fund.
ASSET-BACKED AND MORTGAGE-BACKED
SECURITIES. Asset-backed securities
are sponsored by entities such as government agencies, banks, financial
companies and commercial or industrial companies. Asset-backed securities
represent participations in, or are secured by and payable from, pools of assets
such as mortgages, automobile loans, credit card receivables and other financial
assets. In effect, these securities “pass through” the monthly payments that
individual borrowers make on their mortgages or other assets net of any fees
paid to the issuers. Examples of these include guaranteed mortgage pass-through
certificates, collateralized mortgage obligations (“CMOs”) and real estate
mortgage investment conduits (“REMICs”). Examples of asset-backed securities
also include collateralized debt obligations (“CDOs”), which include
collateralized bond obligations (“CBOs”), collateralized loan obligations
(“CLOs”) and other similarly structured securities. A CBO is a trust typically
collateralized by a pool that is backed by a diversified pool of high risk,
below-investment-grade fixed-income securities.
A
CLO is a trust typically collateralized by a pool of loans that may include,
among others, domestic and foreign senior secured loans; senior unsecured loans;
and other subordinate corporate loans, including loans that may be rated
below-investment-grade or equivalent unrated loans.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, each Fund may
purchase securities that are issued or guaranteed by the U.S. government or by
its agencies or instrumentalities. To the extent consistent with their
investment objectives and strategies, the Funds, except for the U.S. Treasury
Index Fund, may purchase these and other types of asset-backed securities that
are “Eligible Securities” as defined by the SEC. Except for the Bond Index Fund,
U.S. Government Fund, Limited Term U.S. Government Fund, Tax-Advantaged
Ultra-Short Fixed Income Fund, Ultra-Short Fixed Income Fund, U.S. Treasury
Index Fund and Tax-Exempt Fixed Income Funds, the Funds, including High Yield
Municipal Fund, to the extent consistent with their investment objectives and
strategies, may also invest in CDOs. Such securities are subject to the same
quality requirements as the other types of fixed-income securities held by a
Fund.
SPECIAL RISKS. Asset-backed and
mortgage-backed securities are subject to credit, interest rate, prepayment,
extension, valuation and liquidity risks. The value of these securities also may
change because of actual or perceived changes in the creditworthiness of the
originator, the service agent, the financial institution providing the credit
support or the counterparty. Unlike mortgage-backed securities issued or
guaranteed by agencies of the U.S. government or government-sponsored
enterprises, mortgage-backed securities issued by private issuers do not have a
government or government-sponsored enterprise guarantee (but may have other
credit enhancement), and may, and frequently do, have less favorable
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collateral,
credit risk or other underwriting characteristics. Credit supports, if any,
generally apply only to a fraction of a security’s value and may be inadequate
to protect investors in the event of a default. When interest rates decline, the
value of an asset-backed or mortgage-backed security with prepayment features
may not increase as much as that of other fixed-income securities. In addition,
non-mortgage asset-backed securities involve certain risks not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the underlying collateral. Credit card
receivables generally are unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws. Automobile
receivables are subject to the risk that the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing the receivables. If the issuer of the security has no
security interest in the related collateral, there is the risk that a Fund could
lose money if the issuer defaults. CBOs and CLOs are generally offered in
tranches that vary in risk and yield. Both CBOs and CLOs can experience
substantial losses due to actual defaults of the underlying collateral,
increased sensitivity to defaults due to collateral default and disappearance of
junior tranches that protect the more senior tranches, market anticipation of
defaults and aversion to CBO or CLO securities as a class. A future economic
downturn could increase the risk that such assets underlying asset-backed
securities purchased by a Fund will also suffer greater levels of default than
were historically experienced. Investments in mortgage-backed securities
comprised of subprime mortgages and investments in other asset-backed securities
of underperforming assets may be subject to a higher degree of credit risk,
valuation risk, and liquidity risk.
COMMODITY-LINKED SECURITIES. To the extent consistent
with their investment objectives and strategies, the Funds may seek to provide
exposure to the investment returns of real assets that trade in the commodity
markets through investments in commodity-linked derivative instruments, which
are designed to provide this exposure without direct investment in physical
commodities. Real assets are assets such as oil, gas, industrial and precious
metals, livestock, and agricultural or meat products, or other items that have
tangible properties, as compared to stocks or bonds, which are financial
instruments. In choosing Underlying Funds, the Investment Adviser seeks to
provide exposure to various commodities and commodity sectors.
SPECIAL RISKS. The value of
commodity-linked derivative instruments may be affected by a variety of factors,
including, but not limited to, overall market movements and other factors
affecting the value of particular industries or commodities, such as weather,
disease, embargoes, acts of war or terrorism, or political and regulatory
developments.
The
prices of commodity-linked derivative instruments may move in different
directions than investments in traditional equity and debt securities when the
value of those traditional securities is declining due to adverse economic
conditions. As an example, during periods of rising inflation, debt securities
have historically tended to decline in value due to the general increase in
prevailing interest rates. Conversely, during those same periods of rising
inflation, the prices of certain commodities, such as oil and metals, have
historically tended to increase. There cannot be any guarantee that these
investments will perform in that manner in the future, and at certain times the
price movements of commodity-linked instruments have been parallel to those of
debt and equity securities. Commodities have historically tended to increase and
decrease in value during different parts of the business cycle than financial
assets. Nevertheless, at various times, commodities prices may move in tandem
with the prices of financial assets and thus may not provide overall portfolio
diversification benefits. Under favorable economic conditions, the Fund’s
investments may be expected to underperform an investment in traditional
securities. Over the long term, the returns on the Fund’s investments are
expected to exhibit low or negative correlation with stocks and bonds.
COMMODITY-RELATED SECURITIES RISK is the risk that
exposure to the commodities markets may subject a Fund to greater volatility
than investments in other kinds of securities. In addition to overall market
movements, commodity-related securities may be adversely impacted by commodity
index volatility, changes in interest rates, or factors affecting a particular
industry or commodity, such as weather, disease (including pandemic), tariffs,
embargoes or other trade barriers, acts of war or terrorism, or political and
regulatory developments.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, the Funds may invest
a portion of their assets in commodity-related securities.
SPECIAL RISKS. Commodity-related
industries throughout the world are subject to greater political, environmental,
and other governmental regulation than many other industries. Changes in
government policies and the need for regulatory approvals may adversely affect
the products and services of companies in the commodities industries. The effect
of future regulations affecting commodity-related industries cannot be
predicted. The value of a Fund’s investments in commodity-related securities may
decline and fluctuate in a rapid and unpredictable manner.
CONVERTIBLE SECURITIES. A convertible security
is a bond or preferred stock that may be converted (exchanged) into the common
stock of the issuing company within a specified time period for a specified
number of shares. Convertible securities offer a way to participate in the
capital appreciation of the
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common
stock into which the securities are convertible, while earning higher current
income than is available from the common stock.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, the Funds, except
for the Limited Term Tax-Exempt Fund, may acquire convertible securities. These
securities are subject to the same rating requirements as fixed-income
securities that are held by a Fund. Convertible securities will be rated
“investment grade” at the time of purchase.
The
Multi-Manager High Yield Opportunity Fund may invest without limitation in
convertible securities that are rated non-investment grade. Each of the other
Active M/Multi-Manager Funds may invest up to 15% of its total assets in
convertible securities that are rated non-investment grade at the time of
purchase, although generally convertible securities will be rated investment
grade at the time of purchase, when the Sub-Advisers determine that such
securities are desirable in light of the Funds’ investment
objectives.
SPECIAL RISKS. The price of a
convertible security normally will vary in some proportion to changes in the
price of the underlying common stock because of either a conversion or exercise
feature. However, the value of a convertible security may not increase or
decrease as rapidly as the underlying common stock. Additionally, convertible
securities may be subject to market risk, credit and counterparty risk, interest
rate risk and other market and issuer-specific risks that apply to the
underlying common stock. While convertible securities generally offer lower
interest or dividend yields than non-convertible fixed-income securities of
similar quality, their value tends to increase as the market value of the
underlying stock increases and to decrease when the value of the underlying
stock decreases, and may vary in price in response to changes in the price of
the underlying common stock, with greater volatility. Also, a Fund may be forced
to convert a security before it would otherwise choose, which may have an
adverse effect on the Fund’s return and its ability to achieve its investment
objective.
CREDIT (OR DEFAULT) RISK. Credit risk, also
called default risk, is the risk that an issuer of fixed income securities held
by a Fund may default on its obligation to pay interest and repay principal.
Generally, the lower the credit rating of a security, the greater the risk that
the issuer of the security will default on its obligation. High quality
securities are generally believed to have relatively low degrees of credit risk.
There is always the risk that the Investment Adviser’s or Sub-Adviser’s analysis
of creditworthiness is incorrect or may change due to market conditions.
Concerns over an issuer’s ability to make principal or interest payments in a
timely manner may cause the value of a fixed income security to decline. The
credit quality of a debt security or of the issuer of a debt security held by a
Fund could deteriorate rapidly, which may impair a Fund’s liquidity or cause a
deterioration in the market value of a Fund’s securities. To the extent that a
Fund focuses its transactions with a limited number of counterparties, it will
be more susceptible to the risks associated with one or more counterparties. In
addition, the Funds may incur expenses in an effort to protect a Fund’s
interests or enforce its rights against an issuer, guarantor or counterparty or
may be hindered or delayed in exercising these rights.
DEBT EXTENSION RISK is the risk that when
interest rates rise, an issuer will exercise its right to pay principal on
certain debt securities held by the Funds later than expected. This will cause
the value of the security, and the Fund’s NAV to decrease and the Fund may lose
opportunities to invest in higher yielding securities.
DEPOSITARY RECEIPTS RISK. Foreign securities may
trade in the form of depositary receipts. In addition to investment risks
associated with the underlying issuer, depositary receipts may expose the Fund
to additional risks associated with non-uniform terms that apply to depositary
receipt programs, including credit exposure to the depository bank and to the
sponsors and other parties with whom the depository bank establishes the
programs, currency, political, economic, market risks and the risk of an
illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted. Depositary receipts may not track the price of the
underlying foreign securities on which they are based, may have limited voting
rights, and may have a distribution subject to a fee charged by the depository.
As a result, equity shares of the underlying issuer may trade at a discount or
premium to the market price of the depositary receipts. Some institutions
issuing depositary receipts may not be sponsored by the issuer. Unsponsored
programs generally expose investors to greater risks than sponsored programs and
do not provide holders with many of the shareholder benefits that come from
investing in a sponsored depositary receipt.
DERIVATIVES. To the extent consistent
with their investment objectives and strategies, a Fund may utilize certain
“derivative” instruments for hedging or speculative purposes. A derivative is a
financial instrument whose value is derived from, or based upon, the performance
of underlying assets, interest or currency exchange rates, or other indices and
may be leveraged. Derivatives include futures contracts, options, swaps, and
forward foreign currency exchange contracts.
A
futures contract is a standardized agreement between two parties to buy or sell
a specified quantity of an underlying asset at a specified price at a specified
future time, with both the purchaser and the seller equally obligated to
complete the transaction at that future time. The value of a futures contract
tends to increase and decrease in tandem with the value of the
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underlying
asset. Depending on the terms of the particular contract, futures contracts are
settled by purchasing an offsetting contract, physically delivering the
underlying asset on the settlement date or paying a cash settlement amount on
the settlement date.
An
option is an agreement between two parties that gives the purchaser of the
option the right to buy or sell a particular asset (commonly a stock, shares of
an ETF, a bond, a currency, a futures contract or even the value represented by
an index) at a later date at an agreed upon price referred to as the “strike”
price. A call option gives the purchaser of the option the right (but not the
obligation) to buy the underlying asset at the strike price, while a put option
gives the purchaser the right (but not the obligation) to sell the underlying
asset at the strike price. In either case, the writer (seller) of the option
incurs the corresponding obligation to fulfill the transaction if the option is
exercised. The price of an option derives from the difference between the strike
price and the value of the underlying asset, the expected volatility of that
underlying asset and the time remaining until the expiration of the
option.
By
selling put and call options, a Fund receives a premium from the option buyer,
which increases the Fund’s return if the option is closed at a gain or expires
out-of-the-money. An option is “out-of-the-money” if the strike price of the
option is below (for a put) or above (for a call) the value of the relevant
underlying asset. If, however, the strike price of the option is above (for a
put) or below (for a call) the value of the relevant underlying asset and/or the
option’s price increases above the price at which it was sold, the Fund may
(1) if the buyer has not exercised the option, close the option contract at
a loss or (2) if the buyer has exercised the option, (i) pay the buyer
the difference between the strike price and the value of underlying asset, or
(ii) deliver (if a call) or purchase (if a put) the underlying asset,
depending on whether the option is cash settled or deliverable.
A
swap contract is an agreement between two parties pursuant to which the parties
exchange payments at specified dates on the basis of a specified notional
amount, with the payments calculated by reference to the price, value or level
of a specified underlying asset, which can be a security, index, reference rate,
commodity, currency or other asset, or a basket of any of the foregoing. The
notional amount of a swap is based on the nominal or face amount of the
reference asset that is used to calculate payments made under that swap; the
notional amount typically is not exchanged between counterparties. The parties
to the swap use variations in the price, value or level of the underlying asset
to calculate payments between them through the life of the swap.
A
forward foreign currency exchange contract is an agreement between parties to
exchange a specified amount of currency at a specified future time at a
specified rate.
INVESTMENT STRATEGY. Under normal market
conditions, a Fund may utilize derivative instruments if consistent with the
Fund’s objective, strategies and overall risk profile. In unusual circumstances,
including times of increased market volatility, a Fund may make more significant
investments in derivatives. A Fund may use derivatives for hedging purposes to
offset a potential loss in one position by establishing an interest in an
opposite position, to gain exposure to certain countries or currencies or for
liquidity management purposes. The Funds may also invest in derivatives for
liquidity purposes.
SPECIAL RISKS. An investment in
derivatives can be more sensitive to changes in interest rates and sudden
fluctuations in market prices than conventional securities. Certain derivatives
do not trade on an established exchange (referred to as over‑the‑counter (OTC)
derivatives) and are simply financial contracts between a Fund and a
counterparty. When a Fund is owed money on an OTC derivative, the Fund is
dependent on the counterparty to pay or, in some cases, deliver the underlying
asset, unless the Fund can otherwise sell its derivative contract to a third
party prior to its expiration. Many counterparties are financial institutions
such as banks and broker-dealers and their creditworthiness (and ability to pay
or perform) may be negatively impacted by factors affecting financial
institutions generally. In addition, in the event that a counterparty becomes
bankrupt or insolvent, a Fund’s ability to recover the collateral that the Fund
has on deposit with the counterparty could be delayed or impaired. For
derivatives traded on a centralized exchange, a Fund generally is dependent upon
the solvency of the relevant exchange clearing house (which acts as a guarantor
for each contractual obligation under such derivatives) for payment on
derivative instruments for which the Fund is owed money.
Many
derivatives do not require a payment up front equal to the economic exposure
created by holding a position in the derivative, which creates a form of
leverage. As a result, an adverse change in the value of the underlying asset
could result in a Fund sustaining a loss that is substantially greater than the
amount invested in the derivative or the anticipated value of the underlying
asset. Leverage may therefore make a Fund’s returns more volatile and increase
the risk of loss. In certain market conditions, losses on derivative instruments
can grow larger while the value of a Fund’s other assets fall, resulting in the
Fund’s derivative positions becoming a larger percentage of the Fund’s
investments.
There
is a smaller pool of buyers and sellers for certain derivatives, particularly
OTC derivatives, than more traditional investments such as stocks. These buyers
and sellers are often financial institutions that may be unable or unwilling to
buy or sell derivatives during times of financial or market stress. Derivative
instruments may therefore be less liquid than more traditional investments and a
Fund may be unable to sell or exit its derivative positions at a desirable time
or price. This risk
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may
be more acute under adverse market conditions, during which a Fund may be most
in need of liquidating its derivative positions. To the extent that a Fund is
unable to exit a derivative position because of market illiquidity, the Fund may
not be able to prevent further losses of value in its derivatives holdings and
the liquidity of the Fund and its ability to meet redemption requests may be
impaired. Another consequence of illiquidity is that a Fund may be required to
hold a derivative instrument to maturity and take or make delivery of the
underlying asset that the Fund’s investment adviser would otherwise have
attempted to avoid.
Derivatives
strategies may not always be successful. For example, hedges are sometimes
subject to imperfect correlation between the derivative and the underlying
asset, and there can be no assurance that a Fund’s hedging transactions will be
effective. The use of hedging may result in certain adverse tax consequences.
Engaging in derivative transactions also involves other risks, including
(a) market risk that a Fund’s derivatives position will lose value;
(b) pricing risk that the value of a derivative instrument will be
difficult to determine; and (d) operations risk that loss will occur as a
result of inadequate systems or human error. Many types of derivatives have been
developed recently and have not been tested over complete market cycles. For
these reasons, a Fund may suffer a loss whether or not the analysis of the
investment advisers or Sub-Advisers is accurate.
Entering
into derivatives contracts may cause a Fund to miss favorable trading
opportunities due to a lack of sufficient cash or readily marketable securities,
and may also cause a Fund to realize losses on offsetting or terminated
derivative contracts or special transactions.
DIVIDEND RISK. As a group, securities
that pay high dividends may fall out of favor with investors and underperform
companies that do not pay high dividends. Also, changes in the dividend policies
of such companies and the capital resources available for such companies’
dividend payments may affect a Fund. There is the possibility that
dividend-paying companies could reduce or eliminate the payment of dividends in
the future or an anticipated acceleration of dividends may not occur.
High-dividend stocks may not experience high earnings growth or capital
appreciation. A Fund’s performance during a broad market advance could suffer
because dividend paying stocks may not experience the same capital appreciation
as non-dividend paying stocks.
Depending
upon market conditions, dividend-paying stocks that meet a Fund’s investment
criteria may not be widely available, or may be highly concentrated in only a
few market sectors. This may increase the volatility of a Fund’s returns and may
limit the ability of the Fund to produce current income while remaining fully
diversified. In addition, the value of dividend-paying common stocks can decline
when interest rates rise, as fixed-income investments become more attractive to
investors. Because the potential for interest rates to rise becomes greater
during a low interest rate environment, this risk may be greater in a period of
low interest rates.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)
CONSIDERATIONS. For all Funds other than
U.S. Quality ESG Fund, Bond Index Fund, U.S. Treasury Index Fund and the Equity
Index Funds, alongside traditional financial and economic analysis (e.g.,
expected return on investment), the Investment Adviser or the Sub-Advisers may
include additional factors and investment characteristics, such as the potential
impacts of ESG or other factors on a particular investment, in their assessment
of portfolio investments.
INVESTMENT STRATEGY. For all Funds other
than U.S. Quality ESG Fund, Bond Index Fund, U.S. Treasury Index Fund, and the
Equity Index Funds, ESG factors are just one of many investment considerations
the Investment Adviser or a Sub-Adviser may examine when evaluating potential
investments for a Fund’s portfolio. Such factors are not solely determinative in
any investment decision made by the Investment Adviser or a Sub-Adviser and
therefore a Fund may still invest in securities of issuers that may be viewed as
having a high ESG risk profile. Any ESG analysis utilized by the Investment
Adviser or Sub-Adviser as part of its investment process may involve the use of
third-party research as well as proprietary research. ESG considerations that
may be assessed as part of a Fund’s investment process may change over time and
may vary across types of eligible investments. The Investment Adviser and
Sub-Advisers do not assess every investment or issuer for ESG factors and, when
they do, not every ESG factor may be identified or evaluated.
SPECIAL RISKS. A Fund may underperform
funds that do not incorporate ESG factors when making investment decisions or
funds that use a different methodology to identify and/or incorporate ESG
factors. ESG is not a uniformly defined characteristic and ESG standards differ
by region and industry. A company’s ESG practices or third-party service
providers’ (e.g., data and/or ratings providers) assessment of a company’s ESG
practices may change over time. Any assessment by the Investment Adviser or
Sub-Adviser of an issuer’s ESG factors is subjective and will likely differ from
that of investors, third-party service providers and other funds. As a result,
securities selected by the Investment Adviser and Sub-Advisers that exhibit ESG
factors may not reflect the beliefs and values of any particular investor. The
Investment Adviser and Sub-Advisers also may be dependent on the availability of
timely, complete and accurate ESG data reported by issuers and/or third-party
service providers, the timeliness, completeness and accuracy of which is out of
the Investment Adviser’s and Sub-Advisers’ control. There is no guarantee that
the evaluation of ESG considerations will be additive to a Fund’s performance.
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ESG
MODEL FOR U.S. QUALITY ESG FUND. The U.S. Quality ESG
Fund intends to invest in large and mid-capitalization U.S. companies that the
Investment Adviser believes meet certain criteria for ESG factors using data
provided by a third-party research vendor, and that exhibit strong business
fundamentals, solid management and reliable cash flows and are located,
headquartered in, incorporated in or otherwise organized in the United States.
As of the date of this prospectus, the Investment Adviser receives such inputs
provided by MSCI ESG Research LLC (“MSCI ESG Research”). The third-party vendor
used by the Investment Adviser, as well as the number of vendors used, is
subject to change over time. The U.S. Quality ESG Fund expects its investments
to be allocated among companies that are large and mid-capitalization and are
diversified in terms of industries.
INVESTMENT STRATEGY. The Investment Adviser
manages the U.S. Quality ESG Fund according to the Investment Adviser’s
quantitative model. To define an investable universe, NTI begins with the
securities of companies included in the Russell 1000® Index, then excludes
securities of companies involved in ESG controversies classified as “very
severe” by MSCI ESG Research under certain global conventions, such as the
United Nations Global Compact Principles, in the areas of environment, social
(human rights and community, labor rights and supply chain, and customers) and
governance. NTI also removes companies that, based on its evaluation of ESG
data, appear to do a poor job of managing their financially relevant ESG risks
and opportunities relative to their industry peers. The ESG data seeks to
consider the company’s exposure to potentially material ESG risks, the quality
of management systems and governance structures to mitigate potential ESG risks,
and where applicable, positioning to meet market demand for the provision of
products and services that have a positive environmental or social contribution.
Companies are evaluated on environmental, social and governance “key issues” as
determined by MSCI ESG Research. All companies in all industries are evaluated
on all governance key issues, while the environmental and social key issues vary
among industries and are selected by MSCI ESG Research for an industry based on
the extent to which the business activities of the companies in each industry
generate large environmental- or social-related externalities.
NTI
also removes companies with material involvement in controversial business
practices, such as tobacco, civilian firearms, thermal coal, unconventional oil
and gas and arctic oil, for profit prisons, and both controversial and
conventional weapons. Pursuant to its quantitative methodology, NTI excludes, at
a minimum, the following companies: (1) those that have any tie to
controversial weapons, as defined by MSCI ESG Research; (2) those that are
manufacturers or producers of nuclear weapons (or critical components or
delivery systems for nuclear weapons) or tobacco products, including those that
grow or process raw tobacco leaves; (3) with respect to civilian firearms,
conventional weapons and tobacco, those that derive 5% or more of their total
annual revenues from certain activities, such as the manufacture, retail or
distribution, of such products; and (4) those that derive 5% or more of
their total annual revenues from the manufacture and supply of key products
necessary for the production of tobacco products. NTI also removes the following
companies pursuant to its methodology: (i) those that derive 5% or more of
their total annual revenues from the mining and sale of thermal coal, subject to
certain exclusions as determined by MSCI ESG Research; (ii) those that
derive 30% or more of their total annual revenues (either reported or estimated)
from thermal coal-based power generation; (iii) those that derive 5% or
more of their total annual revenues (either reported or estimated) from thermal
coal-based power generation or unconventional oil and gas, if the company also
is deemed to have poor low carbon transition risk management (as discussed
herein); (iv) those that derive 1% or more of their total annual revenues
(either reported or estimated) from arctic oil, if the company also is deemed to
have poor low carbon transition risk management (as discussed herein); and
(v) those that derive 5% or more of their total annual revenues from
activities related to for profit prisons. NTI may modify this list of excluded
companies at any time, without shareholder approval or notice. The U.S. Quality
ESG Fund’s ESG criteria is applied to all equity securities that are included in
the Russell 1000® Index,
except that the Fund may at times hold securities that are subject to, or may
hold securities as a result of, certain corporate actions, which securities may
not be evaluated for ESG criteria. ESG criteria are not applied to the Fund’s
investments in derivatives, which include futures contracts. The methodology
utilized by NTI to evaluate ESG criteria in companies is also subject to change
at any time, without shareholder approval or notice. The data for the ESG
criteria and exclusionary screens discussed above is provided by MSCI ESG
Research. Current information on MSCI ESG Research’s methodology for evaluating
ESG criteria is available on MSCI ESG Research’s website.
After
defining the investable universe, NTI evaluates the quality of the remaining
securities and removes those securities that do not meet the proprietary quality
methodology. NTI’s quality methodology rates and ranks securities based on three
categories of financial signals (profitability, management efficiency, and cash
generation). Those securities remaining from the investable universe are also
rated and ranked based on NTI’s evaluation of their ESG characteristics.
The
Fund is then constructed based on an optimization methodology designed to take
active exposure by overweighting and underweighting securities based on their
ESG and relative financial quality rankings. NTI also performs a risk management
analysis in which NTI seeks to measure and manage risk exposure at the security,
sector and portfolio levels
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through
portfolio diversification. NTI makes final purchase decisions based on the
quantitative model described above and on the desired level of diversification.
The U.S. Quality ESG Fund will normally sell a security that NTI believes is no
longer attractive based upon the evaluation criteria described above.
Further,
in making purchase and sell decisions, NTI seeks to create a portfolio comprised
of companies with a lower aggregate carbon footprint than the aggregate carbon
footprint of the companies in the Russell 1000® Index, which includes
consideration of a company’s emissions and carbon reserves as well as a
company’s risk and opportunity alignment with a transition to a low carbon
economy. Low carbon transition refers to the necessary transition of the global
economy from carbon-intensive operations and energy sources to zero- or
low-carbon operations and energy sources.
NTI
uses MSCI ESG Research’s low carbon transition score in its analysis of a
company’s carbon footprint and low carbon transition risk. The low carbon
transition score seeks to measure a company’s exposure to and management of
risks and opportunities related to low carbon transition. An issuer’s low carbon
transition score is designed to measure an issuer’s carbon footprint by
analyzing its Scope 1 and Scope 2 emissions (reported, where available, or
estimated, where not available), as well as its potential carbon emissions from
fossil fuel reserves. In addition, the low carbon transition score seeks to
measure a company’s exposure to low carbon transition risk as driven by the
company’s products and services, as well as its operations. The low carbon
transition score also seeks to measure a company’s efforts to manage low carbon
transition risks and opportunities, which may take the form of governance
structures, risk management, and targets and performance, which may serve to
mitigate the company’s risk exposure. NTI uses MSCI’s low carbon transition
score, among other data points, in seeking to tilt the Fund’s portfolio towards
companies believed to present lower carbon transition risk.
The U.S. Quality ESG Fund is not sponsored, endorsed,
issued, sold or promoted by MSCI ESG Research LLC. MSCI ESG Research does not
make any representation regarding the advisability of investing in the U.S.
Quality ESG Fund or any other Fund. NTI licenses the use of MSCI ESG Research
data and is not affiliated with MSCI ESG Research.
SPECIAL RISKS. The U.S. Quality ESG
Fund’s ESG screening process may limit the investment opportunities available to
the Fund. Therefore, the Fund may underperform or perform differently than other
funds that do or do not have an ESG investment focus, do not use ESG factors,
scores, or screens in their securities selection process, or that use a
different ESG methodology. The Fund’s ESG investment focus may also result in
the Fund investing in securities, industries or sectors that perform differently
or maintain a different risk profile than the market generally or compared to
underlying holdings that are not screened for ESG standards. Information used by
the Fund to evaluate ESG factors, including data provided by the Fund’s
third-party vendor, may not be readily available, complete or accurate, which
could negatively impact the Fund’s ability to accurately determine companies’
ESG ratings, which in turn could negatively impact the Fund’s performance. The
Fund’s assessment of a company, based on the company’s level of involvement in a
particular industry or ESG controversy or the company’s ESG ranking or rating,
may differ from that of other funds or an investor. As a result, the companies
in which the Fund invests may not reflect the beliefs and values of any
particular investor and may not be deemed to exhibit positive or favorable ESG
characteristics if different metrics were used to evaluate them. Currently,
there is a lack of common industry standards relating to the development and
application of ESG criteria which may make it difficult to compare the Fund’s
principal investment strategies with the investment strategies of other funds
that apply certain ESG criteria or that use a different third-party vendor for
ESG data. Regulatory changes or interpretations regarding the definitions and/or
use of ESG criteria could have a material adverse effect on the Fund’s ability
to invest in accordance with its investment policies and/or achieve its
investment objective.
ESG
INDEX INVESTING FOR GLOBAL SUSTAINABILITY FUND. The Global
Sustainability Index Fund seeks to track the performance of the MSCI World ESG
Leaders Index™ (for purposes of this section, the “ESG Index”).
INVESTMENT STRATEGY. The Investment Adviser
uses a “passive” or indexing approach to try to achieve the Global
Sustainability Index Fund’s investment objective. The Fund generally invests in
substantially all of the securities in the ESG Index in approximately the same
proportions as the ESG Index.
The
ESG Index is a free float-adjusted market capitalization-weighted index designed
to represent the performance of companies selected from the MSCI World Index
based on ESG criteria. These criteria exclude companies based on a company’s
involvement in specific businesses activities, as well as a company’s ESG
rating, as determined by MSCI, and its exposure to ESG controversies, as defined
by MSCI. The ESG Index consists of large- and mid-cap companies in 23 developed
market countries, as classified by MSCI.
SPECIAL RISKS. The ESG investment
methodology of the ESG Index may restrict the investments available to the
Global Sustainability Index Fund. This may affect the Fund’s exposure to certain
companies or industries, and could also cause the Fund to forego certain
investment opportunities and underperform or perform differently than the
broader equity market or other funds that do or do not track an ESG index or use
ESG investment criteria. Information used by MSCI to evaluate ESG factors may
not be readily available, complete or accurate, which could negatively impact
MSCI’s ability to apply its ESG standards when compiling the ESG Index, which
could negatively impact the Fund’s performance. Neither the Fund
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nor
NTI can offer assurances that the ESG Index’s methodology or sources of
information will provide an accurate assessment of the issuers of the securities
included in the ESG Index. Currently, there is a lack of common industry
standards relating to the development and application of ESG criteria, and
MSCI’s assessment of a company, based on the company’s level of involvement in a
particular industry or the company’s ESG Rating and ESG Controversies Score, may
differ from that of other funds, other index providers, the Investment Adviser
or an investor. As a result, the companies deemed eligible for inclusion in the
ESG Index may not reflect the beliefs and values of any particular investor and
may not be deemed to exhibit positive or favorable ESG characteristics if
different metrics were used to evaluate them. ESG standards differ by region and
industry, and a company’s ESG practices or MSCI’s or data providers’ assessment
of a company’s ESG practices may change over time.
EQUITY SECURITIES. Equity securities
include common stocks, preferred stocks, investment companies including ETFs,
interests in REITs, convertible securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants, stock purchase rights and synthetic and derivative
instruments that have economic characteristics similar to equity securities.
INVESTMENT STRATEGY. Each Fund may invest in
equity securities to the extent consistent with their investment objectives and
strategies.
SPECIAL RISKS. Investing in equity
securities involves market risk. Market risk is the risk that the value of the
securities in which a Fund invests may go up or down in response to the
prospects of individual issuers and/or general economic conditions. Securities
markets may experience great short-term volatility and may fall sharply at
times. Different markets may behave differently from each other and a foreign
market may move in the opposite direction from the U.S. market. Stock prices
have historically risen and fallen in periodic cycles. In general, the values of
equity investments fluctuate in response to the activities of individual
companies and in response to general market and economic conditions. Individual
companies may report poor results or be negatively affected by industry trends
and developments, and the stock prices of such companies may decline in
response. Price changes may be temporary or may last for extended periods.
Accordingly, the values of the equity investments that a Fund holds may decline
over short or extended periods. This volatility means that the value of your
investment in the Funds may increase or decrease. You could lose money over
short periods due to fluctuation in a Fund’s NAV in response to market
movements, and over longer periods during market downturns.
Over
the past several years, stock markets have experienced substantial price
volatility.
FINANCIAL SERVICES INDUSTRY CONCENTRATION
RISK. The financial
services industry includes the group of industries within the financial services
sector. Asset-backed securities with underlying assets related to the financial
services industry are grouped by the Investment Adviser within the financial
services industry. Companies in the financial services group of industries
include but are not limited to U.S. and non-U.S. companies involved in banking,
mortgage, consumer or specialized finance, investment banking, securities
brokerage, asset management and custody, insurance, financial investment, real
estate and mortgage finance and financial conglomerates, and related
asset-backed securities.
INVESTMENT STRATEGY. The Ultra-Short Fixed
Income Fund will concentrate its investments in the financial services industry.
Therefore, under normal market conditions, the Ultra-Short Fixed Income Fund
will invest at least 25% of its total assets in securities issued by companies
in the financial services industry. The Ultra-Short Fixed Income Fund may,
however, for temporary defensive purposes, invest less than 25% of its total
assets in securities issued by companies in the financial services industry if
warranted due to adverse economic conditions or if investing less than 25% of
its total assets in securities issued by companies in the financial services
industry appears to be in the best interest of shareholders.
SPECIAL RISKS. Because the Ultra-Short
Fixed Income Fund will under normal market conditions invest at least 25% of its
total assets in securities issued by companies in the financial services
industry, the Fund will be subject to greater risk of loss by economic,
business, political or other developments which generally affect this industry.
Specifically, the Fund is vulnerable to conditions that impact companies in the
financial services industry, such as increased competition impacting market
shares and prices, company mergers increasing industry interconnectedness and
cybersecurity attacks exposing protected information. Changes in government
regulation, interest rates and economic downturns can have a significant
negative effect on issuers in the financial services industry, including the
price of the issuer’s securities or ability to meet their payment obligations.
The profitability of financial services companies is dependent on the
availability and cost of capital and can be significantly affected by changes in
interest rates and monetary policy. Financial services companies are also
exposed to losses if borrowers and other counterparties experience financial
problems and/or cannot repay their obligations. Financial services companies
also are subject to extensive government regulation, including policy and
legislative changes in the United States and other countries that are changing
many aspects of financial regulation.
In
many countries, financial services and the companies that provide them are
regulated by governmental entities, which can increase costs for new services or
products and make it difficult to pass increased costs on to consumers. In
certain areas,
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deregulation
of financial services companies has resulted in increased competition and
reduced profitability for certain companies.
The
profitability of many types of financial services companies may be adversely
affected in certain market cycles, including periods of rising interest rates,
which may restrict the availability and increase the cost of capital, and
declining economic conditions, which may cause credit losses due to financial
difficulties of borrowers. Because many types of financial services companies
are vulnerable to these economic cycles, a large portion of the Fund’s
investments may lose value during periods of rising interest rates.
FOREIGN INVESTMENTS. Foreign securities
include direct investments in non-U.S. dollar-denominated securities traded
primarily outside of the United States and U.S. dollar-denominated securities of
foreign issuers. Foreign securities also include indirect investments such as
ADRs, EDRs and GDRs. ADRs are U.S. dollar-denominated receipts representing
shares of foreign-based corporations. ADRs are receipts that are traded in the
United States, and entitle the holder to all dividend and capital gain
distributions that are paid out on the underlying foreign shares. EDRs and GDRs
are receipts that often trade on foreign exchanges. They represent ownership in
an underlying foreign or U.S. security and generally are denominated in a
foreign currency. Foreign government obligations may include debt obligations of
supranational entities, including international organizations (such as The
International Bank for Reconstruction and Development, also known as the World
Bank) and international banking institutions and related government agencies.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, the Funds may invest
in foreign securities, including ADRs, EDRs and GDRs. In determining if a
security is economically tied to a foreign (non-U.S.) country, the Funds
generally look to the country of incorporation of the issuer as listed on
Bloomberg, a widely recognized provider of market information. However, the
Funds may determine a security is economically tied to a foreign country based
on other factors, such as an issuer’s country of domicile, where the majority of
an issuer’s revenues are generated or where an issuer’s primary exchange is
located. As a result, a security may be economically tied to more than one
country. With respect to derivative instruments, the Funds generally consider
such instruments to be economically tied to foreign countries if the underlying
assets of the derivatives are (i) foreign currencies (or baskets or indexes
of such currencies); (ii) instruments or securities that are issued by
foreign governments or by an issuer economically tied to a foreign country as
described above; or (iii) for certain money market instruments, if either
the issuer or the guarantor of such money market instrument is an issuer
economically tied to a foreign country as described above.
The
Global Tactical Asset Allocation Fund, Active M International Equity Fund,
Multi-Manager Global Listed Infrastructure Fund and the Multi-Manager Global
Real Estate Fund expect their foreign investments to be allocated among
companies that are diversified among various regions or countries including the
United States (but no less than three different countries other than the United
States).
Although
they invest primarily in the securities of U.S. issuers, the Income Equity Fund,
Large Cap Value Fund, Small Cap Value Fund, Fixed Income Fund, High Yield Fixed
Income Fund and Short Bond Fund are permitted to invest up to 25% of their total
assets in foreign securities including ADRs, EDRs and GDRs. The Funds also may
invest in foreign time deposits and other short-term instruments. The Limited
Term Tax-Exempt Fund, Limited Term U.S. Government Fund and the U.S. Government
Fund may make limited investments (but in no event more than 20% of their
respective net assets) in supranational obligations. The Tax-Advantaged
Ultra-Short Fixed Income Fund and Ultra-Short Fixed Income Fund may invest in
foreign fixed-income securities that are U.S. dollar-denominated, including
ADRs, foreign time deposits and other short-term instruments. The Core Bond
Fund’s investments in foreign securities are limited to U.S. dollar denominated
investment grade obligations of foreign issuers.
The
Multi-Manager High Yield Opportunity Fund may invest up to 25% of its total
assets in foreign fixed-income securities, including those of issuers located in
emerging market countries.
SPECIAL RISKS. Foreign securities
involve special risks and costs, which are considered by the investment adviser
or Sub-advisers in evaluating the creditworthiness of issuers and making
investment decisions for the Funds. Foreign securities fluctuate in price
because of political, financial, social and economic events in foreign countries
(including, for example, military confrontations, war and terrorism). In
addition, foreign securities may lose value and a Fund may be adversely impacted
by restrictions placed on U.S. investors by U.S. regulations governing foreign
investments. A foreign security could also lose value because of more or less
stringent foreign securities regulations and less stringent accounting and
disclosure standards. In addition, foreign markets may have greater volatility
than domestic markets and foreign securities may be less liquid and harder to
value than domestic securities. Certain foreign markets may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, organizations, entities and/or individuals, changes in
international trading patterns, trade barriers, and other protectionist or
retaliatory measures. International trade barriers or economic sanctions against
foreign countries, organizations, entities and/or individuals may adversely
affect a Fund’s foreign holdings or exposures.
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Foreign
securities, and in particular foreign debt securities, are sensitive to changes
in interest rates. In addition, investment in the securities of foreign
governments involves the risk that foreign governments may default on their
obligations or may otherwise not respect the integrity of their obligations. The
performance of investments in securities denominated in a foreign currency also
will depend, in part, on the strength of the foreign currency against the U.S.
dollar and the interest rate environment in the country issuing the currency.
Absent other events that otherwise could affect the value of a foreign security
(such as a change in the political climate or an issuer’s credit quality),
appreciation in the value of the foreign currency generally results in an
increase in value of a foreign currency-denominated security in terms of U.S.
dollars. A decline in the value of the foreign currency relative to the U.S.
dollar generally results in a decrease in value of a foreign
currency-denominated security. Additionally, many countries throughout the world
are dependent on a healthy U.S. economy and are adversely affected when the U.S.
economy weakens or its markets decline.
Investment
in foreign securities may involve higher costs than investment in U.S.
securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments. Foreign investments also
may involve risks associated with the level of currency exchange rates, less
complete financial information about the issuers, less market liquidity, more
market volatility and political instability. Moreover, clearance and settlement
procedures may differ from those in the U.S. and in certain markets such
procedures have been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions. Future
political and economic developments, the possible imposition of withholding
taxes on dividend income, the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls or freezes on the
convertibility of currency, trade restrictions (including tariffs) or the
adoption of other governmental restrictions might adversely affect an investment
in foreign securities. Additionally, foreign banks and foreign branches of
domestic banks may be subject to less stringent reserve requirements and to
different accounting, auditing and recordkeeping requirements. The Investment
Adviser or Sub-Advisers may determine not to invest in, or may limit a Fund’s
overall investment in, a particular issuer, country or geographic region due to,
among other things, heightened risks regarding repatriation restrictions,
confiscation of assets and property, expropriation or nationalization.
While
the Funds’ investments may, if permitted, be denominated in foreign currencies,
the portfolio securities and other assets held by the Funds are valued in U.S.
dollars. Price fluctuations may occur in the dollar value of foreign securities
because of changing currency exchange rates or, in the case of hedged positions,
because the U.S. dollar declines in value relative to the currency hedged.
Currency exchange rates may fluctuate significantly over short periods of time
causing a Fund’s NAV to fluctuate as well. Currency exchange rates can be
affected unpredictably by the intervention or the failure to intervene by U.S.
or foreign governments or central banks, or by currency controls or political
developments in the United States or abroad. To the extent that a Fund is
invested in foreign securities while also maintaining currency positions, it may
be exposed to greater combined risk. The net currency positions of the Funds may
expose them to risks independent of their securities positions.
EMERGING MARKETS INVESTMENTS. To the extent consistent with their
investment objectives and strategies, the Funds may invest in foreign countries
that are considered emerging markets.
SPECIAL RISKS–EMERGING AND FRONTIER
MARKETS.
Additional risks are involved when investing in countries with emerging
economies or securities markets. Emerging and frontier market countries
generally are located in the Asia and Pacific regions, the Middle East, Eastern
Europe, Central and South America and Africa. Political and economic structures
in many of these countries may be undergoing significant evolution and rapid
development, and these countries may lack the social, political and economic
stability, and impose more governmental limitations on foreign investments, than
more developed countries. In general, the securities markets of these countries
are less liquid, are especially subject to greater price volatility, have
smaller market capitalizations, have less government regulation and are not
subject to as stringent regulatory, disclosures, accounting, auditing,
recordkeeping financial and other reporting requirements as the securities
markets of more developed countries as has historically been the case. Certain
emerging markets may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities
which hinder the PCAOB’s ability to engage in independent oversight or
inspection of accounting firms located in or operating in certain emerging
markets. There is no guarantee that the quality of financial reporting or the
audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Any difficulties of the PCAOB to inspect audit work papers and practices of
PCAOB-registered accounting firms in emerging markets with respect to their
audit work of U.S. reporting companies may impose significant additional risks
associated with investments in emerging markets. As a result of these
limitations, the risks presented by investments in these countries are
heightened.
These
countries also experience issues with securities registration and property
rights because securities laws in many emerging market countries, are relatively
new and unsettled. Therefore, laws regarding foreign investment in
emerging
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market
countries, securities regulation, title to securities, and shareholder rights
may change quickly and unpredictably. Emerging markets countries also may have
less developed legal systems allowing for enforcement of private property rights
and/or redress for injuries to private property, such as bankruptcy. The ability
to bring and enforce actions in emerging market countries, or to obtain
information needed to pursue or enforce such actions, may be limited and
shareholder claims may be difficult or impossible to pursue.
Additionally,
settlement procedures in emerging and frontier market countries are frequently
less developed and reliable than those in the United States, and may involve a
Fund’s delivery of securities before receipt of payment for their sale.
Settlement or registration problems may make it more difficult for a Fund to
value its portfolio securities and could cause the Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund’s inability to complete its contractual obligations. A
Fund’s purchase and sale of portfolio securities in certain emerging and
frontier market countries may be constrained by limitations relating to daily
changes in the prices of listed securities, periodic trading or settlement
volume and/or limitations on aggregate holdings of foreign investors. Such
limitations may be computed based on the aggregate trading volume or holdings of
the Fund, the Investment Adviser, its affiliates and their respective clients
and other service providers. A Fund may not be able to sell securities in
circumstances where price, trading or settlement volume limitations have been
reached. As a result of these and other risks, investments in these countries
generally present a greater risk of loss to a Fund.
Investments
in some emerging and frontier market countries, such as those located in Asia,
may be restricted or controlled. As such, direct investments in securities may
be prohibited and required to be made through investment funds controlled by
such countries. These limitations may increase transaction costs and adversely
affect a security’s liquidity, price, and the rights of a Fund in connection
with the security.
Unanticipated
political, economic or social developments may affect the value of a Fund’s
investments in emerging and frontier market countries and the availability to
the Fund of additional investments in these countries. Some of these countries
may have in the past failed to recognize private property rights and may have at
times nationalized or expropriated the assets of private companies. There have
been occasional limitations on the movements of funds and other assets between
different countries. The small size and inexperience of the securities markets
in certain countries and the limited volume of trading in securities in those
countries may make a Fund’s investments in such countries illiquid and more
volatile than investments in more developed countries, and a Fund may be
required to establish special custodial or other arrangements before making
certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
Many
emerging market countries are subject to rapid currency devaluations and high
inflation and/or economic recession and significant debt levels. These economic
factors can have a material adverse effect on these countries’ economies and
their securities markets. Moreover, many emerging market countries’ economies
are based on only a few industries and/or are heavily dependent on global trade.
Therefore, they may be negatively affected by declining commodity prices,
factors affecting their trading markets and partners, exchange controls and
other trade barriers, currency valuations and other protectionist
measures.
From
time to time, certain of the companies in which a Fund may invest may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed
by the U.S. government and the United Nations and/or countries identified by the
U.S. government as state sponsors of terrorism, which may cause damage to the
company’s reputation. As an investor in such companies, a Fund will be
indirectly subject to those risks.
There is
significant uncertainty regarding how recent wars between Russia and Ukraine in
Europe and Hamas and Israel in the Middle East will evolve. The resulting market
disruptions and volatility are impossible to predict, but could be significant
and have an adverse effect on certain Fund investments as well as Fund
performance and liquidity.
Many
emerging and frontier market countries also impose withholding or other taxes on
foreign investments, which may be substantial and result in lower Fund returns.
In addition, the taxation systems at the federal, regional and local levels in
emerging and frontier market countries may be less transparent and
inconsistently enforced, and subject to sudden change.
The
creditworthiness of firms used by a Fund to effect securities transactions in
emerging and frontier market countries may not be as strong as in more developed
countries. As a result, a Fund could be subject to a greater risk of loss on its
securities transactions if a firm defaults on its responsibilities.
A
Fund’s ability to manage its foreign currency may be restricted in emerging and
frontier market countries. As a result, a significant portion of a Fund’s
currency exposure in these countries may not be covered.
Frontier
market countries generally have smaller economies or less developed capital
markets than traditional emerging markets and, as a result, the risks of
investing in emerging market countries are magnified in frontier market
countries. The economies of frontier market countries are less correlated
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to
global economic cycles than those of their more developed counterparts and their
markets have low trading volumes and the potential for extreme price volatility
and illiquidity. This volatility may be further heightened by the actions of a
few major investors. For example, a substantial increase or decrease in cash
flows of mutual funds investing in these markets could significantly affect
local stock prices and, therefore, the price of
Fund
shares. These factors make investing in frontier market countries significantly
riskier than in other countries and any one of them could cause the price of a
Fund’s shares to decline.
CHINA INVESTMENT RISK. Investment exposure to
China subjects a Fund to risks specific to China. China may be subject to
considerable degrees of economic, political and social instability. China is a
developing market and demonstrates significantly higher volatility from time to
time in comparison to developed markets. Over the past 25 years, the Chinese
government has undertaken reform of economic and market practices and expansion
of the sphere for private ownership of property in China. However, Chinese
markets generally continue to experience inefficiency, volatility and pricing
anomalies resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Internal
social unrest or confrontations with other neighboring countries, including
military conflicts in response to such events, may also disrupt economic
development in China and result in a greater risk of currency fluctuations,
currency convertibility, interest rate fluctuations and higher rates of
inflation. Export growth continues to be a major driver of China’s rapid
economic growth. Reduction in spending on Chinese products and services,
institution of tariffs or other trade barriers, trade or political disputes with
China’s major trading partners, or a downturn in any of the economies of China’s
key trading partners may have an adverse impact on the Chinese economy. Certain
securities issued by companies located or operating in China, such as China
A-shares, are subject to trading restrictions and suspensions, quota limitations
and sudden changes in those limitations, and operational, clearing and
settlement risks.
In
addition, China has experienced outbreaks of infectious illnesses, and the
country may be subject to other public health threats, infectious illnesses,
diseases or similar issues in the future. These or similar outbreaks could
reduce consumer demand or economic output, result in market closures, travel
restrictions or quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect the Fund’s
investments.
In
addition, trade relations between the U.S. and China have recently been
strained. Worsening trade relations between the two countries could adversely
impact the Funds, particularly to the extent that the Chinese government
restricts foreign investments in on-shore Chinese companies or the U.S.
government restricts investments by U.S. investors in China. Worsening trade
relations may also result in market volatility and volatility in the price of
Fund shares. In addition, actions by the U.S. government, such as delisting of
certain Chinese companies from U.S. securities exchanges or otherwise
restricting their operations in the U.S., may negatively impact the value of
such securities held by the Fund.
INDIA INVESTMENT RISK Investments in companies
located or operating in India are subject to risks such as political and
legal uncertainty, religious factors impacting Indian businesses and greater
government control over the economy, currency fluctuations or
blockage, liquidity risk, the rate of inflation, and the risk of nationalization
or expropriation of assets, which may result in higher potential for
losses. Specifically, India’s strained relations with neighboring countries
like Pakistan and China could result in geopolitical risk that has an
adverse impact on the Indian economy and stock market. In addition,
the Reserve Bank of India (“RBI”) has imposed limits on foreign
ownership of Indian securities, which may limit the amount the Fund can
invest in certain types of companies. Further, certain Indian regulatory
approvals, including approvals from the Securities and Exchange Board
of India, the RBI, the central government and the tax authorities (to the
extent that tax benefits need to be utilized), may be required before
the Fund can make investments in the securities of Indian companies.
Capital gains from Indian securities may be subject to local taxation.
Additionally, securities laws in India are relatively new and unsettled and,
consequently, there is a risk of a rapid and unpredictable change in laws.
EUROPEAN UNION INVESTMENT
RISK The
Funds may hold euros and/or euro-denominated bonds and other obligations. The
euro requires participation of multiple sovereign states forming the Euro zone
and is therefore sensitive to the credit and general economic, social and
political positions of each such state, including, each state’s actual and
intended ongoing engagement with and/or support for the other sovereign states
then forming the European Union (“EU”), in particular those within the Euro
zone. Changes in these factors might materially and adversely impact the value
of securities in which a Fund has invested.
European
countries can be significantly affected by the tight fiscal and monetary
controls that the European Economic and Monetary Union (“EMU”) imposes for
membership. Europe’s economies are diverse, its governments are decentralized,
and its cultures vary widely. Several EU countries, including Greece, Ireland,
Italy, Spain and Portugal have faced budget issues, some of which may have
negative long-term effects for the economies of those countries and other EU
countries. There is continued concern about national-level support for the euro
and the accompanying coordination of fiscal and wage policy among EMU member
countries. Member countries are required to maintain tight control over
inflation, public debt, and budget deficit to qualify for membership in the
EMU.
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These
requirements can severely limit the ability of EMU member countries to implement
monetary policy to address regional economic conditions.
In
addition, the United Kingdom withdrew from the EU on January 31, 2020 and
other countries may seek to withdraw from the EU and/or abandon the euro (the
common currency of the EU), which could exacerbate market and currency
volatility in the EU and negatively impact the Funds’ investments in securities
issued by companies located in EU countries. As of May 1, 2021, the EU-UK
Trade and Cooperation Agreement (“TCA”) governs certain aspects of the European
Union’s and the United Kingdom’s relationship. Notwithstanding the TCA,
significant uncertainty remains in the market regarding the ramifications of the
United Kingdom’s withdrawal from the EU. A number of countries in Europe have
suffered terror attacks, and additional attacks may occur in the future. Europe
has also been struggling with mass migration from the Middle East and Africa.
Recent and upcoming European elections could, depending on the outcomes, further
call into question the future direction of the EU. The ultimate effects of these
events and other socio-political or geopolitical issues are not known but could
profoundly affect global economies and markets. The impact of these actions,
especially if they occur in a disorderly fashion, is not clear, but could be
significant and far-reaching. Whether or not a Fund invests in securities of
issuers located in Europe or with significant exposure to European issuers or
countries, these events could negatively affect the value and liquidity of a
Fund’s investments.
Other
economic challenges facing Europe include high levels of public debt,
unemployment, credit rating downgrades, aging populations and heavy regulation
in certain economic sectors. European policy makers have taken unprecedented
steps to respond to the economic crisis and to boost growth in the region, which
has increased the risk that regulatory uncertainty could negatively affect the
value of a Fund’s investments.
As
the EU continues to grow in size with the addition of new member countries, the
candidate countries’ accessions may become more controversial to existing EU
members. Some member states may repudiate certain candidate countries joining
the EU upon concerns about possible economic, immigration and cultural
implications. Also, Russia may be opposed to the expansion of the EU, and other
multi-national organizations such as NATO, to members of the former Soviet bloc
and may, at times, take actions that could negatively impact the EU economic
activity.
JAPAN INVESTMENT RISK. The Japanese economy
may be subject to considerable degrees of economic, political and social
instability, which could negatively impact Japanese issuers. In recent times,
Japan’s economic growth rate has remained low, lagging that of its Asian
neighbors and other major developed economies, and it may remain low in the
future. The Japanese economy is heavily dependent on international trade and has
been adversely affected by trade tariffs, other protectionist measures,
competition from emerging economies and the economic conditions of its trading
partners. Japan’s relations with its neighbors, particularly China, North Korea,
South Korea and Russia, have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most recently, the Japanese
government has shown concern over the increased nuclear and military activity by
North Korea. Strained relations may cause uncertainty in the Japanese markets
and adversely affect the overall Japanese economy in times of crisis. China has
become an important trading partner with Japan, yet the countries’ political
relationship has become strained. Should political tension increase, it could
adversely affect the economy, especially the export sector, and destabilize the
region as a whole. In addition, Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes, volcanic
eruptions, typhoons and tsunamis, and is economically sensitive to environmental
events. Any such event may negatively affect the securities of Japanese
companies held by a Fund
TAIWAN INVESTMENT RISK. Taiwan’s geographic
proximity and history of political contention with China have resulted in
ongoing tensions between the two countries. These tensions may materially affect
the Taiwanese economy and its securities market. Taiwan’s economy is
export-oriented, so reductions in spending on Taiwanese products and services,
labor shortages, institution of tariffs or other trade barriers, or a downturn
in any of the economies of Taiwan’s key trading partners, including the United
States, may have an adverse impact on the Taiwanese economy and the values of
Taiwanese companies. In addition, rising labor costs and increasing
environmental consciousness have led some labor-intensive industries to relocate
to countries with cheaper work forces, and continued labor outsourcing may
adversely affect the Taiwanese economy. Taiwan’s economy is also intricately
linked with the economies of other Asian countries. As a result, political and
social unrest in these other Asian countries could cause further economic and
market uncertainty in Taiwan. Further, Taiwan is a small island state with few
raw material resources and limited land area; therefore, it relies heavily on
imports for its commodity needs. Any fluctuations or shortages in the commodity
markets could have a negative impact on the Taiwanese economy.
SOUTH KOREA INVESTMENT
RISK.
Investments in South Korean issuers involve risks that are specific to South
Korea, including legal, regulatory, political, currency, security, environmental
and economic risks. Substantial political tensions exist between North Korea and
South Korea. Escalated tensions involving the two nations and the outbreak of
hostilities between the two nations, or even the threat of an outbreak of
hostilities, may have a severe adverse effect on the South Korean economy. In
addition, South Korea’s economic growth potential has recently
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been
on a decline because of a rapidly aging population and structural problems,
among other factors. The South Korean economy is heavily reliant on trading
exports, and disruptions or decreases in trade activity could lead to further
declines. The South Korean economy’s dependence on the economies of Asia and the
U.S. means that a reduction in spending by these economies on South Korean
products and services, or negative changes in any of these economies, may cause
an adverse impact on the South Korean economy and, therefore, on a Fund’s
investments. South Korea also is dependent on foreign sources for its energy
needs. A significant increase in energy prices could have an adverse impact on
South Korea’s economy. In addition, South Korea is located in a part of the
world that has historically been prone to natural disasters such as earthquakes,
hurricanes and tsunamis, and is economically sensitive to environmental events.
Any such event may negatively affect the securities of South Korean companies
held by a Fund.
UNITED KINGDOM INVESTMENT
RISK.
Investments in issuers located in the United Kingdom (“UK”) may subject a Fund
to regulatory, political, currency, security and economic risk specific to the
UK. The UK has one of the largest economies in Europe and is heavily dependent
on trade with the EU, and to a lesser extent the United States and China. As a
result, the UK economy may be impacted by changes to the economic health of EU
member countries, the United States and China. In 2016, the UK voted to leave
the EU (commonly known as “Brexit”). On January 31, 2020, the UK officially
withdrew from the EU and the UK entered a transition period which ended on
December 31, 2020. On December 30, 2020, the EU and UK signed the
EU-UK Trade and Cooperation Agreement, or TCA, which is an agreement on the
terms governing certain aspects of the EU’s and the UK’s relationship following
the end of the transition period and which took effect on May 1, 2021.
Notwithstanding the TCA, following the transition period, there is likely to be
considerable uncertainty as to the UK’s post-transition framework. The precise
impact on the UK’s economy as a result of its departure from the EU depends to a
large degree on its ability to conclude favorable trade deals with the EU and
other countries, including the United States, China, India and Japan. While new
trade deals may boost economic growth, such growth may not be able to offset the
increased costs of trade with the EU resulting from the UK’s loss of its
membership in the EU single market. Certain sectors within the UK’s economy may
be particularly affected by Brexit, including the automotive, chemicals,
financial services and professional services. While it is not possible to
determine the precise impact these events may have on a Fund, the impact on the
UK could be significant and could adversely affect the value and liquidity of
investments in the UK.
GEOGRAPHIC RISK is the risk that if a
Fund invests a significant portion of its total assets in certain issuers within
the same country or geographic region, an economic, business or political
development affecting that country or region may affect the value of a Fund’s
investments more than if the Fund’s investments were not so concentrated in such
country or region.
HEDGING RISK. Hedging risk is the risk
that the derivative instruments and other investments that a Fund makes to hedge
its risks will not be precisely correlated with the risks attendant in the
Fund’s investments being hedged. Hedges are sometimes subject to imperfect
matching between the derivative and the underlying security, and there can be no
assurance that a Fund’s hedging transactions will be effective. The use of
hedging may result in certain adverse tax consequences.
HIGH-YIELD SECURITIES. High yield, or
below-investment grade fixed-income securities (sometimes referred to as “junk
bonds”) generally are rated BB or below by S&P, DBRS or Fitch, or Ba or
below by Moody’s (or have received a comparable rating from another NRSRO), or,
if unrated, are determined to be of comparable quality by the Investment Adviser
to the Funds.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, each Fund may invest
in non-investment grade securities.
SPECIAL RISKS. Non-investment grade
fixed-income and convertible securities are considered predominantly speculative
by traditional investment standards. The market value of these low-rated
securities tends to be more sensitive to individual corporate developments and
changes in interest rates and economic conditions than higher-rated securities.
In
addition, they generally present a higher degree of credit risk. Issuers of
low-rated securities are often highly leveraged, so their ability to repay their
debt during an economic downturn or periods of rising interest rates may be
impaired. The risk of loss due to default by these issuers also is greater
because low-rated securities generally are unsecured and often are subordinated
to the rights of other creditors of the issuers of such securities. Investment
by a Fund in defaulted securities poses additional risk of loss should
nonpayment of principal and interest continue in respect of such securities.
Even if such securities are held to maturity, recovery by a Fund of its initial
investment and any anticipated income or appreciation will be uncertain. A Fund
also may incur additional expenses in seeking recovery on defaulted
securities.
The
secondary market for lower quality securities is concentrated in relatively few
market makers and is dominated by institutional investors. Accordingly, the
secondary market for such securities is not as liquid as, and is more volatile
than, the secondary market for higher quality securities. In addition, market
trading volume for these securities generally is lower and the secondary market
for such securities could contract
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under
adverse market or economic conditions, independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the market price and a Fund’s ability to dispose of particular
portfolio investments. A less developed secondary market also may make it more
difficult for a Fund to obtain precise valuations of such securities in its
portfolio.
Investments
in lower quality securities, whether rated or unrated, will be more dependent on
the Investment Adviser’s credit analysis than would be the case with investments
in higher quality securities.
OPTIONS. An option is a type of
derivative instrument that gives the holder the right (but not the obligation)
to buy (a “call”) or sell (a “put”) an asset in the future at an agreed upon
price prior to the expiration date of the option.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, a Fund or Underlying
Fund may write (sell) covered call options, buy put options, buy call options
and write secured put options for hedging (or cross-hedging) purposes, to earn
additional income, gain exposure to certain countries or currencies, in
anticipation of the purchase of securities and for liquidity management
purposes. The Active M/ Multi-Manager Funds may not engage in options
transactions for speculative purposes or to seek to enhance total return.
Options
may relate to particular securities, foreign or domestic securities indices,
financial instruments or foreign currencies or the yield differential between
two securities. A Fund will not purchase put and call options in an amount that
exceeds 5% of its net assets at the time of purchase. The total value of a
Fund’s assets subject to options written by the Fund will not be greater than
25% of its net assets at the time the option is written.
SPECIAL RISKS. Options trading is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary Fund securities transactions. The
value of options can be highly volatile, and their use can result in loss if the
Investment Adviser or Sub-Adviser to the Funds is incorrect in its expectation
of price fluctuations. The successful use of options for hedging purposes also
depends in part on the ability of the Investment Adviser to predict future price
fluctuations and the degree of correlation between the options and securities
markets.
Each
Fund will invest and trade in unlisted over-the-counter options only with firms
deemed creditworthy by the Investment Adviser or Sub-Advisers to the Funds.
However, unlisted options are not subject to the protections afforded purchasers
of listed options by the Options Clearing
Corporation,
which performs the obligations of its members that fail to perform them in
connection with the purchase or sale of options. Therefore, a Fund bears the
risk that the counterparty that wrote the option will be unable or unwilling to
perform its obligations under the option contract.
ILLIQUID OR RESTRICTED INVESTMENTS. An illiquid investment
is defined in Rule 22e-4 under the 1940 Act (“Rule 22e-4”) as an investment that
a Fund reasonably expects cannot be sold or disposed of in current market
conditions in 7 calendar days or less without the sale or disposition
significantly changing the market value of the investment. Illiquid investments
include repurchase agreements and time deposits with notice/termination dates of
more than seven days, certain variable rate demand notes that cannot be called
within seven days, certain insurance funding agreements (see “Insurance Funding
Agreements” below), certain unlisted over-the-counter derivative instruments,
and securities and other financial instruments that, using information obtained
after reasonable inquiry and taking into account relevant market, trading and
investment-specific considerations, are determined to be illiquid. Restricted
securities are those that are subject to resale restrictions such as those
contained in Rule 144A promulgated under the 1933 Act, as further discussed
below.
INVESTMENT STRATEGY. Pursuant to Rule 22e-4,
a Fund may invest up to 15% of its net assets in illiquid investments. An
Underlying Fund that is a money market fund may invest up to 5% of its net
assets in illiquid securities. A domestically traded security that is not
registered under the Securities Act of 1933, as amended (the “1933 Act”) will
not be considered illiquid if the Investment Adviser or Sub-Adviser determines
that an adequate trading market exists for that security. If otherwise
consistent with their investment objectives and strategies, the Funds may
purchase commercial paper issued pursuant to Section 4(a)(2) of the 1933
Act and securities that are not registered under the 1933 Act but can be sold to
“qualified institutional buyers” in accordance with Rule 144A under the 1933 Act
(“Rule 144A Securities”). These securities will not be considered illiquid so
long as the Investment Adviser to the Funds and the investment advisers or
Sub-Advisers determine that, under guidelines approved by their respective Board
of Trustees, the Fund reasonably expects such securities can be sold or disposed
of in current market conditions in seven calendar days or less without the sale
or disposition significantly changing the market value of the investment. The
Trust has implemented a liquidity risk management program and related procedures
to identify illiquid investments pursuant to Rule 22e-4, and the Trustees have
approved the designation of the Investment Adviser to administer the Trust’s
liquidity risk management program and related procedures.
SPECIAL RISKS. Because illiquid and
restricted investments may be difficult to sell at a desirable price, they may
be subject to greater volatility and may result in a loss to a Fund. There can
be no assurance that a trading market will exist at any time for any particular
restricted security. Transaction costs may be higher for restricted securities
and such securities may be
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difficult
to value because market quotations may not be readily available and the
securities may have significant volatility. Also, the Fund may receive only
limited information about the issuer of a given restricted security, and
therefore may be less able to predict a loss. The practice of investing in Rule
144A Securities and commercial paper available to qualified institutional buyers
could increase the level of a Fund’s illiquidity during any period that
qualified institutional buyers become uninterested in purchasing these
securities. Investments purchased by a Fund that are liquid at the time of
purchase may subsequently become illiquid due to events relating to the issuer,
market events, economic conditions and/or investor perception. To the extent an
investment held by a Fund is deemed to be an illiquid investment or a less
liquid investment, a Fund will be exposed to greater liquidity risk.
INFRASTRUCTURE COMPANIES. To the extent consistent
with their investment objectives and strategies, the Funds may invest in
infrastructure companies. A company is considered to be engaged in the
infrastructure business if it derives at least 50% of its revenues or earnings
from, or devotes at least 50% of its assets to, infrastructure-related
activities. The Funds define infrastructure as the systems and networks of
energy, transportation, utilities, communication and other services required for
the normal function of society. Infrastructure companies are involved in, among
other things: (1) the generation, transmission and distribution of electric
energy; (2) the storage, transportation and distribution of natural
resources, such as natural gas, used to produce energy; (3) alternative
energy sources; (4) the building, operation and maintenance of highways,
toll roads, tunnels, bridges and parking lots; (5) the building, operation
and maintenance of airports and ports, railroads and mass transit systems;
(6) telecommunications, including wireless and cable networks;
(7) water treatment and distribution; and (8) other public services
such as health care and education.
SPECIAL
RISKS. Investments in infrastructure-related companies have greater exposure to
the potential adverse economic, regulatory, political and other changes
affecting such entities. Infrastructure-related companies are subject to a
variety of factors that may adversely affect their business or operations
including high interest costs in connection with capital construction programs,
costs associated with compliance with and changes in environmental and other
regulations, difficulty in raising capital in adequate amounts on reasonable
terms in periods of high inflation and unsettled capital markets, the effects of
surplus capacity, increased competition from other providers of services in a
developing deregulatory environment, high leverage, uncertainties concerning the
availability of fuel at reasonable prices, depletion of resources, the effects
of energy conservation policies and other factors. Additionally,
infrastructure-related entities may be subject to regulation by various
governmental authorities and may also be affected by governmental regulation of
rates charged to customers, government budgetary constraints, service
interruption due to environmental, operational or other mishaps and the
imposition of special tariffs and changes in tax laws, regulatory policies and
accounting standards.
Other
factors that may affect the operations of infrastructure-related companies
include innovations in technology that could render the way in which a company
delivers a product or service obsolete, significant changes to the number of
ultimate end-users of a company’s products, increased susceptibility to
terrorist acts or political actions, risks of environmental damage due to a
company’s operations or an accident, and general changes in market sentiment
towards infrastructure and utilities assets.
INTEREST RATE RISK. A Fund’s yield will
vary with changes in interest rates. During periods of rising interest rates,
the market value of a Fund’s securities will tend to be lower than prevailing
market rates and in periods of falling interest rates, the market value of a
Fund’s securities will tend to be higher. A Fund’s yield will vary as short-term
securities in its portfolio mature and the proceeds are reinvested in securities
with different interest rates. In a period of rising interest rates, a Fund’s
yield may not increase proportionately or rise as quickly as the yields of
certain other short-term investments. Investments held by a Fund with longer
maturities will tend to be more sensitive to interest rate changes than
investments with shorter maturities. During periods when inflation rates are
high or rising, or during periods of low interest rates, the Funds may be
subject to a greater risk of rising interest rates. Changing interest rates,
including rates that fall below zero, may have unpredictable effects on the
markets and the Funds’ investments, may result in heightened market volatility,
may impact the liquidity of fixed-income securities and of the Fund, and may
detract from Fund performance. A low or negative interest rate environment may
cause a Fund’s earnings to fall below the Fund’s expense ratio, resulting in low
or negative yield and a decline in the Fund’s NAV.
INVESTMENT COMPANIES (UNDERLYING FUNDS).
Affiliated and
unaffiliated investment companies include, but are not limited to, money market
funds, index funds, “country funds” (i.e., funds that invest primarily in
issuers located in a specific foreign country or region) and ETFs. Affiliated
investment companies are those for which the Investment Adviser or any of its
affiliates serve as investment adviser.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, the Funds may invest
in securities issued by other affiliated or unaffiliated investment companies.
Investments by a Fund in other investment companies, including ETFs, will be
subject to the limitations of the 1940 Act except as permitted by an SEC
exemptive order or
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rule
or no-action relief. The Funds may rely on an SEC exemptive order or rule that
permits them to invest in certain other investment companies, including ETFs,
beyond the limits contained in the 1940 Act, subject to certain terms and
conditions. The Funds may invest their cash balances in money market funds to
the extent permitted by its investment policies and in accordance with rules and
exemptions granted under the 1940 Act. Although the Funds do not expect to do so
in the foreseeable future, each Fund is authorized to invest substantially all
of its assets in an open-end investment company or a series thereof that has
substantially the same investment objective, strategies and fundamental
restrictions as the Fund. To gain exposure to MBS, the Limited Term U.S.
Government Fund and the U.S. Government Fund may invest in shares of one or more
affiliated or unaffiliated Underlying Funds, and the amount may at times exceed
25% of each Fund’s assets.
The
Global Tactical Asset Allocation Fund primarily obtains exposure to a number of
different asset classes by investing in shares of Underlying Funds. The Global
Tactical Asset Allocation Fund may invest in various Underlying Funds that seek
to track certain equity and fixed-income indices; as well as Underlying Funds
that invest in foreign issuers, including issuers located in emerging market
countries in Asia, Latin America, Eastern Europe and Africa; large-, mid- and
small-capitalization stocks; fixed-income securities; mortgage- and asset-backed
securities and structured investment securities, real estate securities,
commodity-related securities and money market investments.
SPECIAL RISKS. Investments in other
investment companies are subject to the risks of investing in the underlying
securities or other instruments that such investment companies own. The value of
the investments of an investment company in which a Fund invests, and the NAVs
or market price of the shares of both the Fund and the underlying investment
companies, will fluctuate in response to various market and economic factors
related to the markets, as well as the financial condition and prospects of
issuers in which the underlying investment companies invest. There can be no
assurance that the underlying investment companies will achieve their investment
objectives, and their performance may be lower than their represented asset
classes.
A
Fund will bear a proportionate share of any fees and expenses paid by the
investment companies in which the Fund invests. Because other investment
companies pay advisory, administrative and/or service fees that are borne
indirectly by investors, such as a Fund, there may be duplication of investment
management and other fees.
Certain
investment companies are not actively managed and their investment advisers may
not attempt to take defensive positions in any market conditions, including
declining markets. This could cause a Fund’s performance to be lower than if the
Fund employed active management with respect to that portion of the Fund’s
portfolio. These investment companies are also subject to “tracking error” risk,
which is the risk that the performance of the investment company using an
index-based strategy will differ from the performance of the reference index it
seeks to track due to differences in securities holdings, operating expenses,
transaction costs, cash flows, operational inefficiencies and tax
considerations.
Certain
investment companies in which the Funds may invest may have a large percentage
of their shares owned by fewer shareholders. Large redemption activity could
result in the investment company incurring additional costs and being forced to
sell portfolio securities at a loss to meet redemptions. Periods of market
illiquidity may exacerbate this risk for fixed income funds. Should the
investment adviser or another financial intermediary change investment
strategies or investment allocations such that fewer assets are invested in an
investment company or an investment company is no longer used as an investment,
the investment company could experience large redemptions of its shares, which
may adversely affect the investment company’s performance. Large redemptions may
also increase expenses for remaining investors, such as a Fund, as the
investment company seeks to manage the outflows of cash by selling portfolio
securities. See “Large Shareholder Risk.” below.
NTI
may be subject to potential conflicts of interest with respect to Fund
investments in affiliated funds, particularly when an Underlying Fund is an ETF
that is thinly traded, an Underlying Fund has low assets, or in determining the
allocation of the Funds’ assets among investment companies. This conflict of
interest arises because NTI may, due to its own financial interest or other
business considerations, have an incentive to invest in funds managed by NTI or
its affiliates rather than investing in funds managed or sponsored by others,
including that fees paid to NTI by some affiliated underlying investment
companies may be higher than unaffiliated investment companies or may be in need
of assets to enhance their appeal to other investors, liquidity and trading
and/or to enable them to carry out their investment strategies. NTI is a
fiduciary to the Fund and is legally obligated to act in the Fund’s best
interest when selecting Underlying Funds. Should the Funds own substantial
portions of shares of the affiliated funds, both the Funds and the affiliated
funds will be subject to risks related to managing the effects of cash flows and
risks described in “Large Shareholder Risk” below. Should NTI seek to minimize
the impact of affiliated fund investment transactions where possible, for
example, by structuring them over a reasonable period of time, the Funds may pay
more or less (for purchase activity) or receive more or less (for redemption
activity) for shares of the Underlying Funds.
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ETF RISK. A Fund’s investment in
an ETF involves additional considerations. In particular, shares of ETFs
are listed and traded on securities exchanges and in over-the-counter
markets, and the purchase and sale of these shares involve transaction
fees and commissions. In addition, shares of an ETF are issued in
“creation units” and are not redeemable individually except upon
termination of the ETF. To redeem, a Fund must accumulate enough shares of
an ETF to reconstitute a creation unit. The liquidity of a small holding
of an ETF, therefore, will depend upon the existence of a secondary
market. Certain ETFs intend to effect creations and redemptions
principally for cash, rather than primarily in-kind because of the nature
of the ETF’s investments. Investments in such ETFs may be less tax
efficient than investments in ETFs that effect creations and redemptions
in-kind. Also, even though the market price of an ETF is derived from the
securities it owns, such price at any given time may be at, below or above
the ETF’s NAV. Additional risks of an investment in ETFs include, but are
not limited to the below: |
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Authorized Participant Concentration
Risk is the risk that only an Authorized Participant may engage in
creation or redemption transactions directly with an ETF. To the extent
that these institutions exit the business or are unable or unwilling to
proceed with creation and/or redemption orders with respect to an ETF and
no other Authorized Participant is able to or is willing to step forward
to create or redeem creation units, the ETF’s shares may trade at a
discount to NAV and possibly face trading halts and/or delisting. This
risk may be heightened for an ETF if it invests in non-U.S. securities or
other securities or instruments that are less widely traded. Such
securities or instruments often involve greater settlement and operational
issues and capital costs for Authorized
Participants. |
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Calculation Methodology Risk. An indexed
ETF’s underlying index relies on various sources of information to assess
the criteria of issuers included in the index, including information that
may be based on assumptions and estimates. Neither an ETF, the index
provider nor its investment adviser can offer assurances that an index’s
calculation methodology or sources of information will provide an accurate
assessment of included issuers or correct valuation of securities, nor can
they guarantee the availability or timeliness of the production of the
index. Errors in respect of the quality, accuracy and completeness of the
data used to compile an underlying index may occur from time to time and
may not be identified and corrected by an index provider for a period of
time or at all, particularly where the indices are less commonly used as
benchmarks by funds or managers. Gains, losses or costs associated with
errors of its index provider or its agents will generally be borne by the
ETF and its shareholders. An index provider or its agents may carry out
additional ad hoc rebalances to an underlying index in order, for example,
to correct an error in the selection of index constituents. A security
included in an underlying index may not exhibit the characteristic or
provide the specific exposure for which it was selected and consequently
the ETF’s holdings may not exhibit returns consistent with that
characteristic or exposure. |
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Market Trading Risk is the risk that an
ETF faces because its shares are listed on a securities exchange,
including the potential lack of an active market for the ETF’s shares,
losses from trading in secondary markets, periods of high volatility and
disruption in the creation/redemption process of the ETF. Any of these
factors may lead to the ETF’s shares trading at a premium or discount to
NAV. Trading in an ETF’s shares may be halted due to market conditions or
for reasons that, in the view of its listing exchange, make trading in the
shares inadvisable. The market prices of an ETF’s shares will generally
fluctuate in accordance with changes in its NAV, changes in the relative
supply of, and demand for, fund shares, and changes in the liquidity, or
the perceived liquidity, of the ETF’s holdings. The market for certain
securities in which an ETF invests may become illiquid under adverse
market conditions or economic conditions independent of any specific
adverse changes in the conditions of a particular issuer. In adverse
market conditions, the ETF’s market price may begin to reflect illiquidity
or pricing uncertainty of the ETF’s portfolio securities, which could lead
to the ETF’s shares trading at a price that is higher or lower than the
ETF’s NAV. At times such differences may be
significant. |
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Tracking Risk. An indexed ETF may not be
able to replicate exactly the performance of the underlying index it
tracks because the total return generated by the securities will be
reduced by transaction costs incurred in adjusting the actual balance of
the securities. In addition, an indexed ETF may incur expenses not
incurred by its underlying index. Certain securities comprising the
underlying index may, from time to time, temporarily be unavailable, which
may further impede the ETF’s ability to track its index or match its
performance. |
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Passive Investment Risk. An indexed ETF
may invest in securities included in, or representative of, its underlying
index regardless of their investment merit or market
conditions. |
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ADDITIONAL RISK CONSIDERATIONS FOR GLOBAL
TACTICAL ASSET ALLOCATION FUND. Because the Global Tactical
Asset Allocation Fund’s investments are primarily concentrated in
Underlying Funds, the Fund’s investment |
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performance
is directly related to the investment performance of the Underlying Funds
it holds. The ability of the Global Tactical Asset Allocation Fund to meet
its investment objective is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among
those Underlying Funds. |
The
Global Tactical Asset Allocation Fund is subject to the risks of investing in
the underlying securities or other instruments that the Underlying Funds own,
including market risk, foreign securities risk, emerging markets risk, emerging
markets risk, investment style risk, management risk, commodity-related
securities risk, credit (or default) risk, debt extension risk, derivatives
risk, geographic risk, sector risk, high-yield risk, interest rate risk, small
and mid-cap stock risk, prepayment (or call) risk, real estate securities risk,
and U.S. government securities risk. The risks of the Underlying Funds’
investments, and of the Fund to the extent the Fund invests in those investments
directly, are discussed in more detail in this Prospectus.
INVESTMENT GRADE SECURITIES. A security is considered
investment grade if, at the time of purchase, it is rated:
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Baa3
or higher by Moody’s; |
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BBB
or higher by Fitch; or |
∎ |
|
BBB
or higher by DBRS Morningstar Ratings Limited
(“DBRS”). |
A
security will be considered investment grade if it receives one of the above
ratings, or a comparable rating from another organization that is recognized as
a Nationally Recognized Statistical Rating Organization (“NRSRO”), even if it
receives a lower rating from other rating organizations. An unrated security
also may be considered investment grade if the Investment Adviser or Sub-Adviser
determines that the security is comparable in quality to a security that has
been rated investment grade.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, the Funds may invest
in investment grade fixed-income securities. The Bond Index Fund, Tax-Advantaged
Ultra-Short Fixed Income Fund and Ultra-Short Fixed Income Fund invest
principally in fixed-income securities that are rated at the time of purchase as
investment grade. Except as stated in the section entitled “Non-Investment Grade
Securities,” fixed-income and convertible securities purchased by the Funds,
except for the Multi-Manager High Yield Opportunity Fund, generally will be
investment grade.
SPECIAL RISKS. Although securities
rated BBB by S&P, DBRS or Fitch, or Baa3 by Moody’s are considered
investment grade, they have certain speculative characteristics. Therefore, they
may be subject to a higher risk of default than obligations with higher ratings.
Subsequent to its purchase by a Fund, a rated security may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by a
Fund and may be in default. The Investment Adviser and Sub-Advisers will
consider such an event in determining whether the Fund should continue to hold
the security.
Generally,
the lower the credit rating of a security, issuer, guarantor or counterparty,
the higher the degree of risk as to payment of interest and return of
principal.
INVESTMENT STYLE RISK. Different investment
styles (e.g., “growth”, “value” or “quantitative”) tend to shift in and out of
favor, depending on market and economic conditions as well as investor
sentiment. A Fund may outperform or underperform other funds that employ a
different investment style. A Fund may also employ a combination of styles that
impact its risk characteristics.
∎ |
|
VALUE INVESTMENT STYLE RISK. Value
stocks are those that are undervalued in comparison to their peers due to
adverse business developments or other factors. Value investing carries
the risk that the market will not recognize a security’s inherent value
for a long time, or that a stock judged to be undervalued by a fund’s
adviser may actually be appropriately priced or overvalued. Value oriented
funds will typically underperform when growth investing is in
favor. |
∎ |
|
QUANTITATIVE INVESTING RISK. The
value of securities or other investments selected using quantitative
analysis can perform differently from the market as a whole or from their
expected performance. This may be as a result of the factors used in
building the multifactor quantitative model, the weights placed on each
factor, the accuracy of historical data utilized, and changing sources of
market returns. |
When
the quantitative models, information and data used in managing a Fund prove to
be incorrect or incomplete, any investment decisions made in reliance on the
models and data may not produce the desired results and a Fund may realize
losses. In addition, any hedging based on faulty models and data may prove to be
unsuccessful. Furthermore, the success of quantitative models is dependent
largely on the accuracy and reliability of the supplied historical data. All
models are susceptible to input errors, which may cause the resulting
information to be incorrect.
LIQUIDITY RISK is the risk that certain
portfolio securities may be less liquid than others, which may make them
difficult or impossible to sell at the time and the price that a Fund would like
or difficult to value. A Fund may have to lower the price, sell other securities
instead or forgo an investment opportunity. In addition, certain assets that a
Fund wants to buy may be difficult or impossible to purchase. Any of these
events could have a negative effect on portfolio management or
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performance.
Liquidity risk may be the result of, among other things, the reduced number and
capacity of traditional market participants to make a market for certain
securities. As a general matter, dealers recently have been less willing to make
markets for certain fixed income securities. The potential for liquidity risk
may be magnified in a rising interest rate environment or other circumstances
where investor redemptions from money market and other fixed income mutual funds
may be higher than normal, potentially causing increased supply in the market
due to selling activity. Funds with principal investment strategies that involve
investments in securities of companies with smaller market capitalizations,
foreign securities, derivatives or securities with potential market and/or
credit risk tend to have the greatest exposure to liquidity risk. All of these
risks may increase during periods of market volatility. The liquidity of certain
assets, such as privately issued and non-investment grade mortgage- and
asset-backed securities, may be difficult to ascertain and may change over time.
Transactions in less liquid securities may entail transaction costs that are
higher than those for transactions in more liquid securities.
LOAN PARTICIPATIONS. A loan participation is
an interest in a loan to a U.S. or foreign company or other borrower which is
administered and sold by a financial intermediary. Each Fund may invest in loan
participations in the form of a direct or co-lending relationship with the
corporate borrower, an assignment of an interest in the loan by a co-lender or
another participant, or a participation in a seller’s share of the loan.
SPECIAL RISKS. Like other debt
obligations, loan participations may be subject to credit risk if the borrower
defaults on making interest payments and repaying the principal. In the case
where a Fund purchases a loan assignment or participation from another lender,
the Fund also is subject to delays, expenses and risks greater than would have
been involved if the Fund had purchased a direct obligation of the borrower. A
Fund’s investments in loan participations and assignments are also subject to
the risk that the financial institution acting as agent for all interests in a
loan might fail financially. It is also possible that the Fund could be held
liable as a co-lender.
LOAN RISK. The primary risk in an
investment in loans is that borrowers may be unable to meet their interest
and/or principal payment obligations. Loans may be unrated, less liquid and more
difficult to value than traditional debt securities. Loans may be made to
finance highly leveraged corporate operations or acquisitions. The highly
leveraged capital structure of the borrowers in such transactions may make such
loans especially vulnerable to adverse changes in financial, economic or market
conditions. Loans in which a Fund may invest may be either collateralized or
uncollateralized and senior or subordinate. Investments in uncollateralized
and/or subordinate loans entail a greater risk of nonpayment than do investments
in loans that hold a more senior position in the
borrower’s
capital structure and/or are secured with collateral. Loans generally are
subject to restrictions on transfer, and only limited opportunities may exist to
sell such loans in secondary markets. As a result, a Fund may be unable to sell
loans at a desired time or price. Extended trade settlement periods for certain
loans may result in cash not being immediately available to a Fund upon sale of
the loan. As a result, a Fund may have to sell other investments with shorter
settlement periods or engage in borrowing transactions to raise cash to meet its
obligations. Loans are also subject to the risk of price declines and to
increases in prevailing interest rates, although the floating rate loans in
which a Fund generally invests are substantially less exposed to this risk than
fixed-rate debt instruments. If the Fund acquires only an assignment or a
participation in a loan made by a third party, the Fund may not be able to
control amendments, waivers or the exercise of any remedies that a lender would
have under a direct loan and may assume liability as a lender. In addition,
loans held by a Fund may not be considered “securities” under the U.S. federal
securities laws and therefore a Fund may not receive the same investor
protections with respect to such investments that are available to purchasers of
investments that are considered “securities” under the federal securities laws.
A Fund may experience relatively greater difficulty or delays in enforcing its
rights on its holdings of covenant lite loans than its holdings of loans or
securities with financial maintenance covenants, which may result in losses to
the Fund, especially during a downturn in the credit cycle.
MANAGEMENT RISK is the risk that
actively managed Funds could experience losses if the investment adviser’s or
sub-advisers’ judgment about markets, interest rates or the attractiveness,
relative values, liquidity, or potential appreciation of particular investments
made for the Funds’ portfolios prove to be incorrect. There can be no guarantee
that the investment adviser’s or sub-advisers’ investment decisions and
investment techniques will produce the desired results. Additionally,
legislative, regulatory, or tax developments may adversely affect management of
the Funds and, therefore, the ability of the Funds to achieve their respective
investment objectives.
MARKET RISK is the risk that the
value of the securities in which a Fund invests may go up or down in response to
the prospects of individual issuers and/or general economic conditions.
Securities markets may experience great short-term volatility and may fall
sharply at times. Different markets may behave differently from each other and a
foreign market may move in the opposite direction from the U.S. market. Price
changes may be temporary or last for extended periods. You could lose money over
short periods due to fluctuation in a Fund’s NAV in response to market
movements, and over longer periods during market downturns.
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With
respect to equity investments, stock prices have historically risen and fallen
in periodic cycles. In general, the values of equity investments fluctuate in
response to the activities of individual companies and in response to general
market and economic conditions. Price changes may be temporary or last for
extended periods. Accordingly, the values of the equity investments that a Fund
holds may decline over short or extended periods. This volatility means that the
value of your investment in a Fund may increase or decrease.
The
United States and international markets have periodically experienced
extraordinary volatility including, substantial price volatility, substantially
lower valuations, reduced liquidity, credit downgrades, increased likelihood of
default and valuation difficulties. As a result, many of the risks described in
this Prospectus may be heightened. The U.S. government has historically taken
numerous steps to alleviate these market concerns, including without limitation,
acquiring ownership interests in distressed institutions. However, there is no
assurance that such actions will be successful or that the U.S. Government will
continue to support distressed institutions. Continuing market problems and
government intervention in the economy may adversely affect the Funds.
MARKET EVENTS RISK relates to the increased
volatility, depressed valuations, decreased liquidity and heightened uncertainty
in the financial markets throughout the world during the past decade. These
conditions may recur.
The
U.S. government and the Federal Reserve, as well as certain foreign governments
and central banks, have taken steps to support financial markets, including
through interest rate changes. This and other government intervention may not
work as intended, particularly if the efforts are perceived by investors as
being unlikely to achieve the desired results. Governmental or central bank
actions, including interest rate increases, measures to address budget deficits,
or contrary actions by different governments, as well as downgrades of sovereign
debt, fluctuations in oil and commodity prices, dramatic changes in currency
exchange rates and geopolitical events (including war and terror attacks) could
negatively affect financial markets generally, increase market volatility and
reduce the value and liquidity of securities in which a Fund invests.
Policy
and legislative changes in the United States and in other countries may also
contribute to decreased liquidity and increased volatility in the financial
markets.
Political
turmoil within the U.S. and abroad may also impact the Funds. Although the U.S.
government has historically honored its credit obligations, it remains possible
that the U.S. could default on its obligations. While it is impossible to
predict the consequences of such an unprecedented event, it is likely that a
default by the U.S. would be highly disruptive to the U.S. and global securities
markets and could significantly impair the value of the Funds’ investments.
Similarly, political events within the United States at times have resulted, and
may in the future result, in a shutdown of government services, which could
negatively affect the U.S. economy, decrease the value of many Fund investments,
and increase uncertainty in or impair the operation of the U.S. or other
securities markets. Economies and financial markets throughout the world are
increasingly interconnected. Economic, financial or political events, trading
and tariff arrangements, terrorism, natural disasters, public health emergencies
(including pandemics and epidemics) and other circumstances in one country or
region could have profound impacts on global economies or markets. As a result,
whether or not a Fund directly invests in securities of issuers located in or
with significant exposure to the countries directly affected, the value and
liquidity of a Fund’s investments may be negatively affected.
RECENT MARKET EVENTS. Geopolitical and other
risks, including environmental and public health risks, may add to instability
in the world economy and markets generally. As a result of increasingly
interconnected global economies and financial markets, the value and liquidity
of a Fund’s investments may be negatively affected by events impacting a country
or region, regardless of whether the Fund invests in issuers located in or with
significant exposure to such country or region.
Governmental
authorities and regulators throughout the world, such as the U.S. Federal
Reserve, have in the past responded to major economic disruptions with changes
to fiscal and monetary policy, including but not limited to, direct capital
infusions, new monetary programs, and dramatically lower interest rates. Such
policy changes may adversely affect the value, volatility and liquidity of
dividend and interest paying securities.
Although
multiple asset classes may be affected by a market disruption, the duration and
effects may not be the same for all types of assets. To the extent a Fund may
overweight its investments in certain countries, companies, industries or market
sectors, such position will increase the Fund’s exposure to risk of loss from
adverse developments affecting those countries, companies, industries or
sectors. These conditions could result in a Fund’s inability to achieve its
investment objectives, cause the postponement of reconstitution or rebalance
dates for benchmark indices, adversely affect the prices and liquidity of the
securities and other instruments in which a Fund invests, negatively impact a
Fund’s performance, and cause losses on your investment in a Fund. You should
also review this prospectus and the SAI to understand each Fund’s discretion to
implement temporary defensive measures, as well as the circumstances in which a
Fund may satisfy redemption requests in-kind.
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MASTER LIMITED PARTNERSHIPS. An MLP is a publicly
traded company organized as a limited partnership or limited liability company
and treated as a partnership for federal income tax purposes. MLPs may derive
income and gains from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting gas, oil,
or products thereof), or the marketing of any mineral or natural resources. MLPs
generally have two classes of owners, the general partner and limited partners.
The general partner of an MLP is typically owned by one or more of the
following: a major energy company, an investment fund, or the direct management
of the MLP. The general partner may be structured as a private or publicly
traded corporation or other entity. The general partner typically controls the
operations and management of the MLP through an up to 2% equity interest in the
MLP plus, in many cases, ownership of common units and subordinated units.
Limited partners own the remainder of the partnership, through ownership of
common units, and have a limited role in the partnership’s operations and
management.
INVESTMENT STRATEGY. With respect to the
Global Tactical Asset Allocation Fund, certain of the Underlying Funds may
invest in MLPs. The Multi-Manager Global Listed Infrastructure Fund may invest
up to 25% of its net assets in energy-related companies organized as MLPs and
their affiliates. The other Funds may also invest in MLPs to the extent
consistent with their investment objectives and strategies.
SPECIAL RISKS. As compared to common
stockholders of a corporation, holders of MLP units have more limited control
and limited rights to vote on matters affecting the partnership and the
potential for a conflict of interest exists between common unit holders and an
MLP’s limited partners. In addition, there are certain tax risks associated with
an investment in MLP units and conflicts of interest may exist between common
unit holders and the general partner, including those arising from incentive
distribution payments. MLPs may also be sensitive to changes in interest rates
and during periods of interest rate volatility, may not provide attractive
returns.
A
change in current tax law, or a change in the business of a given MLP, could
result in an MLP being treated as a corporation for U.S. federal income tax
purposes, which would result in such MLP being required to pay U.S. federal
income tax on its taxable income. Thus, if any of the MLPs owned by a Fund were
treated as corporations for U.S. federal income tax purposes, the after-tax
return to the Fund with respect to its investment in such MLPs would be
materially reduced, which could cause a decline in the value of the common
stock.
To
the extent that a Fund invests in the equity securities of an MLP, the Fund will
be a limited partner or member in such MLP. Accordingly, the Fund will be
required to include in its taxable income the Fund’s allocable share of the
income, gains, losses, deductions and expenses recognized by each such MLP,
regardless of whether the MLP distributes cash to the Fund. The Fund may have to
sell investments to provide cash to make required distributions if its allocable
share of an MLP’s income and gains is not offset by the MLP’s tax deductions,
losses and credits and the MLP does not distribute sufficient cash. The portion,
if any, of a distribution received by the Fund from an MLP that is offset by the
MLP’s tax deductions, losses or credits is essentially treated as a return of
capital. The percentage of an MLP’s income and gains that is offset by tax
deductions, losses and credits will fluctuate over time for various reasons. A
significant slowdown in acquisition activity or capital spending by MLPs held in
the Fund’s portfolio could result in a reduction of depreciation deductions,
which may result in increased current taxable income for the Fund.
If
a Fund has investments in equity securities of MLPs, the Fund’s earnings and
profits may be calculated using accounting methods that are different from those
used for calculating taxable income. Because of these differences, the Fund may
make distributions out of its current or accumulated earnings and profits, which
will be treated as taxable dividends, even in years in which the Fund’s
distributions exceed its taxable income. In addition, changes in tax laws or
regulations, or future interpretations of such laws or regulations, could
adversely affect the Fund or the MLP investments in which the Fund
invests.
MULTI-MANAGER RISK is the risk that the
sub-advisers’ investment styles will not always be complementary and may, at
times, be contrary, or that the investment adviser’s allocation of assets
amongst sub-advisers will not achieve the intended result, which could
negatively impact the performance of a Fund. For example, it is possible
that a sub-adviser may purchase a security for a Fund at the same time that
another sub-adviser sells the same security, resulting in higher expenses
without accomplishing any net investment result; or that several sub-advisers
purchase the same security at the same time, without aggregating their
transactions, resulting in higher expenses. Similarly, under certain market
conditions, a sub-adviser may believe that temporary, defensive investments
in short-term instruments or cash are appropriate when another sub-adviser
believes continued exposure to the equity markets is appropriate for its
allocated portion of a Fund. Sub-advisers may underperform the market generally
or underperform other investment managers that could have been selected for a
Fund.
MUNICIPAL AND RELATED INSTRUMENTS. Municipal instruments include debt
obligations issued by or on behalf of states, territories and possessions of the
United States and their political subdivisions, agencies, authorities and
instrumentalities.
Municipal
instruments include both “general” and “revenue” bonds and may be issued to
obtain funds for various public purposes. General obligations are secured by the
issuer’s pledge
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NORTHERN FUNDS PROSPECTUS |
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241 |
of
its full faith, credit and taxing power. Revenue obligations are payable only
from the revenues derived from a particular facility or class of facilities. In
some cases, revenue bonds also are payable from the proceeds of a special excise
or other specific revenue source such as lease payments from the user of a
facility being financed. Some municipal instruments, known as private activity
bonds, are issued to finance projects for private companies. Private activity
bonds are usually revenue obligations since they typically are payable by the
private user of the facilities financed by the bonds.
Municipal
instruments also include “moral obligation” bonds, municipal leases,
certificates of participation and asset-backed securities such as custodial
receipts. Moral obligation bonds are supported by a moral commitment but not a
legal obligation of a state or municipality. Municipal leases and participation
certificates present the risk that the state or municipality involved will not
appropriate the monies to meet scheduled payments on an annual basis. Custodial
receipts represent interests in municipal instruments held by a trustee or
custodian.
Certain
municipal obligations are issued with interest rates that adjust periodically.
Such municipal floating-rate debt obligations are generally indexed to the
Securities Industry and Financial Market Association index, the Consumer Price
Index or other indices. Municipal floating-rate debt obligations include, but
are not limited to, municipal floating rate notes, floating-rate notes issued by
tender option bond trusts, auction rate preferred securities, synthetic
floating-rate securities (e.g., a fixed-rate instrument that is subject to a
swap agreement converting a fixed rate to a floating rate) and other municipal
instruments with floating interest rates (such as variable rate demand preferred
shares and variable rate term preferred shares).
Municipal
instruments also include tax-exempt derivative instruments that have interest
rates that reset inversely to changing short-term rates and/or have imbedded
interest rate floors and caps that require the issuer to pay an adjusted
interest rate if market rates fall below or rise above a specified rate.
A
Fund may acquire “stand-by commitments” relating to the municipal instruments it
holds. Under a stand-by commitment, a dealer agrees to purchase, at the Fund’s
option, specified municipal instruments at a specified price. A stand-by
commitment may increase the cost, and thereby reduce the yield, of the municipal
instruments to which the commitment relates. A Fund will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights for trading purposes.
INVESTMENT STRATEGY. The Fixed Income Funds
may invest from time to time in municipal instruments or other securities issued
by state and local governmental bodies. Generally, this will occur when the
yield of municipal instruments, on a pre-tax basis, is comparable to that of
other permitted short-term taxable investments. Dividends paid by the Fixed
Income Funds on such investments will be taxable to shareholders.
The
Tax-Exempt Fixed Income Funds invest primarily in municipal instruments.
Although it is not their current policy to do so on a regular basis, these Funds
may invest more than 25% of their total assets in municipal instruments the
interest upon which is paid solely by governmental issuers from revenues of
similar projects. However, they do not intend to invest more than 25% of the
value of their total assets in industrial development bonds or similar
obligations where the non-governmental entities supplying the revenues to be
paid are in the same industry.
The
California Funds expect to make significant investments in California municipal
instruments and the Arizona Tax-Exempt Fund expects to make significant
investments in Arizona municipal instruments. The other Tax-Exempt Fixed Income
Funds also may invest from time to time more than 25% of the value of their
total assets in municipal instruments whose issuers are in the same state.
SPECIAL RISKS. Municipal instruments
may be backed by letters of credit, insurance or other forms of credit
enhancement issued by foreign and domestic banks, insurance companies and other
financial institutions. If the credit quality of these banks, insurance
companies and financial institutions declines, a Fund could suffer a loss to the
extent that the Fund is relying upon this credit support. Foreign institutions
can present special risks relating to higher transaction and custody costs, the
imposition of additional taxes by foreign governments, less complete financial
information, less market liquidity, more market volatility and political
instability. Foreign banks, insurance companies and financial institutions may
be subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements than U.S. banks.
In
addition, a single enhancement provider may provide credit enhancement to more
than one of a Fund’s investments. Having multiple securities credit enhanced by
the same enhancement provider will increase the adverse effects on a Fund that
are likely to result from a downgrading of, or a default by, such an enhancement
provider. Adverse developments in the banking or bond insurance industries also
may negatively affect a Fund.
Bond
insurers that provide credit enhancement for large segments of the fixed-income
markets, particularly the municipal bond market, may be more susceptible to
being downgraded or defaulting during recessions or similar periods of economic
stress. Municipal bonds may be covered by insurance that guarantees timely
interest payments and repayment of principal on maturity. If a bond’s insurer
fails to fulfill its obligations or loses its credit rating, the value of the
bond could drop. Insurance does not protect a
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Fund
or its shareholders from losses caused by declines in a bond’s market value.
Also, an insurance company’s exposure to securities involving subprime mortgages
may cause a municipal bond insurer’s rating to be downgraded or may cause the
bond insurer to become insolvent, which may affect the prices and liquidity of
municipal obligations insured by the insurance company.
In
addition, when a substantial portion of a Fund’s assets is invested in
instruments that are used to finance facilities involving a particular industry,
whose issuers are in the same state or which otherwise are related, there is a
possibility that an economic, business or political development affecting one
instrument would likewise affect the related instrument.
Some
tax-exempt derivative instruments represent relatively recent innovations in the
municipal bond markets, and the trading market for these instruments is less
developed than the markets for traditional types of municipal instruments. It
is, therefore, uncertain how these instruments will perform under different
economic and interest-rate scenarios. Also, because these instruments may be
leveraged, their market values may be more volatile than other types of
municipal instruments and may present greater potential for capital gain or
loss. The possibility of default by the issuer or the issuer’s credit provider
may be greater for tax-exempt derivative instruments than for other types of
instruments. In some cases, it may be difficult to determine the fair value of a
derivative instrument because of a lack of reliable objective information, and
an established secondary market for some instruments may not exist. In many
cases, the Internal Revenue Service has not ruled on whether the interest
received on a tax-exempt derivative instrument is tax-exempt and, accordingly,
purchases of such instruments are based on the opinion of counsel to the
sponsors of the instruments.
In
recent periods an increasing number of municipal issuers have defaulted on
obligations, been downgraded or commenced insolvency proceedings. Any of these
effects could have a significant impact on the prices of some or all of the
municipal instruments held by the Funds.
NON-DIVERSIFICATION RISK is the risk that certain
Funds that are classified as non-diversified, or that can become non-diversified
in seeking to track an underlying index, can invest a greater portion of their
assets in the obligations or securities of a small number of issuers or any
single issuer than a diversified fund can. In such circumstances, a change in
the value of one or a few issuers’ securities will therefore affect the value of
the Fund more than if it was a diversified fund.
PORTFOLIO TURNOVER RISK. The Investment Adviser
and Sub-Advisers will not consider the portfolio turnover rate a limiting factor
in making investment decisions for certain Funds. A high portfolio turnover rate
(100% or more) is likely to involve higher brokerage commissions and other
transaction costs, which could reduce a Fund’s return. It also may result in
higher short-term capital gains that are taxable to shareholders when
distributed. Distributions may be derived primarily from short-term capital
gains that are taxable as ordinary income. Short-term capital gains and losses
realized by the Fund are not eligible to offset a shareholder’s short-term
capital losses or gains, respectively, earned from other investments.
Additionally,
the portfolio turnover rates for the Active M/Multi-Manager Funds are likely to
be higher than the rates for comparable mutual funds with a single portfolio
manager. Each of the Funds’ Sub-Advisers makes decisions to buy or sell
securities independently from other Sub-Advisers. Thus, one Sub-Adviser for a
Fund may be selling a security when another Sub-Adviser for the Fund, or a
Sub-Adviser for another Fund, is purchasing that same security. Additionally,
when a Fund replaces a Sub-Adviser, the new Sub-Adviser may restructure the
investment portfolio, which may increase the Fund’s portfolio turnover rate. See
“Financial Highlights” for the Funds’ historical portfolio turnover rates.
PREFERRED STOCK. Preferred stocks are
securities that represent an ownership interest providing the holder with claims
on the issuer’s earnings and assets before common stock owners but after bond
owners.
INVESTMENT STRATEGY. To the extent
consistent with their investment objectives and strategies, the Funds, except
the U.S. Treasury Index Fund, may invest in preferred stocks.
SPECIAL RISKS. Unlike most debt
securities, the obligations of an issuer of preferred stock, including dividend
and other payment obligations, typically may not be accelerated by the holders
of such preferred stock on the occurrence of an event of default or other
non-compliance by the issuer of the preferred stock. Preferred stock is
sensitive to changes in an issuer’s creditworthiness and changes to interest
rates, and may decline in value as interest rates rise.
PREPAYMENT (OR CALL) RISK is the risk that an
issuer could exercise its right to pay principal on an obligation held by the
Fund (such as an asset-backed security) earlier than expected. The exercise of
such right may result in a decreased rate of return and a decline in value of
those obligations and, accordingly, a decline in the Fund’s NAV. Issuers may be
more likely to prepay when interest rates fall, when credit spreads change, or
when an issuer’s credit quality improves. If this happens, the Fund may be
unable to recoup all of its initial investment, will not benefit from the rise
in the market price of the securities that normally accompanies a decline in
interest rates, and will also suffer from having to reinvest in lower yielding
securities. The Fund may also lose any premium it paid to purchase the
securities.
REAL ESTATE INVESTMENT TRUSTS. REITs are pooled
investment vehicles that invest primarily in either real estate or real estate
related loans.
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INVESTMENT STRATEGY. The Funds may invest in
REITs to the extent consistent with their investment objectives and strategies.
SPECIAL RISKS. The value of a REIT is
affected by changes in the value of the properties owned by the REIT or securing
mortgage loans held by the REIT. REITs are dependent upon cash flow from their
investments to repay financing costs and the ability of a REIT’s manager. REITs
are also subject to risks generally associated with investments in real estate.
These risks include: changes in the value of real estate properties and
difficulties in valuing and trading real estate; risks related to general and
local economic conditions; overbuilding and increased competition; increases in
property taxes and operating expenses; changes in zoning laws; casualty and
condemnation losses; variations in rental income; changes in the appeal of
property to tenants; tenant bankruptcies and other credit problems; and changes
in interest rates. To the extent that assets underlying a REIT are concentrated
geographically, by property type or in certain other respects, these risks may
be heightened. A Fund will indirectly bear its proportionate share of any
expenses, including management fees, paid by a REIT in which it invests.
REITs
are subject to a highly technical and complex set of provisions in the Code. It
is possible that a Fund may invest in a real estate company that purports to be
a REIT and that the company could fail to qualify as a REIT. In the event of any
such unexpected failure to qualify as a REIT, the company would be subject to
corporate-level taxation, significantly reducing the return to a Fund on its
investment in such company. REITs could possibly fail to qualify for tax free
pass-through of income under the Code, or to maintain their exemptions from
registration under the 1940 Act. The above factors may also adversely affect a
borrower’s or a lessee’s ability to meet its obligations to the REIT. In the
event of a default by a borrower or lessee, the REIT may experience delays in
enforcing its rights as a mortgagee or lessor and may incur substantial costs
associated with protecting its investments.
In
addition, the value of such securities may fluctuate in response to the market’s
perception of the creditworthiness of the issuers of mortgage-related securities
owned by a Fund. Because investments in mortgage-related securities are interest
sensitive, the ability of the issuer to reinvest or to reinvest favorably in
underlying mortgages may be limited by government regulation or tax policy. For
example, action by the Board of Governors of the Federal Reserve System to limit
the growth of the nation’s money supply may cause interest rates to rise and
thereby reduce the volume of new residential mortgages. Additionally, although
mortgages and mortgage-related securities are generally supported by some form
of government or private guarantees and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligation.
REITs
(especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT’s investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT’s investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT’s investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
The
REIT investments of a Fund often do not provide complete tax information to the
Fund until after the calendar year-end. Consequently, because of the delay, it
may be necessary for the Fund to request permission to extend the deadline for
issuance of Forms 1099-DIV beyond January 31. Also, under current
provisions of the Code, distributions attributable to operating income of REITs
in which the Fund invests are not eligible for favorable tax treatment as
long-term capital gains and will be taxable to shareholders as ordinary
income.
In
addition, under recent tax legislation, individuals and certain other
noncorporate entities are generally eligible for a 20% deduction with respect to
taxable ordinary dividends from REITs. To the extent a Fund designates dividends
it pays to shareholders as “section 199A dividends,” shareholders may be
eligible for the 20% deduction with respect to such dividends. The amount of
section 199A dividends that a Fund may pay and report to shareholders is limited
to the excess of the ordinary REIT dividends, other than capital gain dividends
and portions of REIT dividends designated as qualified dividend income, that
such Fund receives from REITs for a taxable year over such Fund’s expenses
allocable to such dividends.
REAL ESTATE SECURITIES. Investment in real estate securities present
special risk considerations.
INVESTMENT STRATEGY. The Funds may invest in
real estate securities to the extent consistent with their investment objectives
and strategies.
SPECIAL RISKS. The performance of real
estate securities may be significantly impacted by the performance of real
estate markets.
Property
values may fall due to increasing vacancies or declining rents resulting from
economic, legal, cultural or technological developments. The price of real
estate company shares also may drop because of the failure of borrowers to pay
their loans and poor management. Many real estate companies utilize leverage,
which increases investment risk and could adversely affect a company’s
operations and market value in periods of rising interest rates as well as risks
normally associated with debt financing. Real property investments are subject
to varying degrees of risk. The yields available from investments in real estate
depend on the amount of income and
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capital
appreciation generated by the related properties. Income and real estate values
may also be adversely affected by such factors as applicable domestic and
foreign laws (e.g., Americans with
Disabilities Act and tax laws), interest rate levels and the availability of
financing. If the properties do not generate sufficient income to meet operating
expenses, including, where applicable, debt service, ground lease payments,
tenant improvements, third-party leasing commissions and other capital
expenditures, the income and ability of the real estate company to make payments
of any interest and principal on its debt securities will be adversely affected.
In addition, real property may be subject to the quality of credit extended and
defaults by borrowers and tenants. Negative economic impacts caused by COVID-19
and sustained higher interest rates have resulted in increased occurrences of
commercial and residential real estate default. In addition, demand for some
categories of leased commercial and retail space has weakened in light of the
prevalence of remote work arrangements. The performance of the economy in each
of the countries and regions in which the real estate owned by a Fund is located
affects occupancy, market rental rates and expenses and, consequently, has an
impact on the income from such properties and their underlying values. The
financial results of major local employers also may have an impact on the cash
flow and value of certain properties. In addition, real estate investments are
relatively illiquid and, therefore, the ability of real estate companies to vary
their portfolios promptly in response to changes in economic or other conditions
is limited. A real estate company such as a REIT may also have joint venture
investments in certain of its properties and, consequently, its ability to
control decisions relating to such properties may be limited.
REPURCHASE AGREEMENTS. Repurchase agreements
involve the purchase of securities by a Fund subject to the seller’s agreement
to repurchase them at a mutually agreed upon date and price.
INVESTMENT STRATEGY. To the extent
consistent with their respective investment objectives and strategies, each Fund
may enter into repurchase agreements with domestic and foreign financial
institutions such as banks and broker-dealers that are deemed to be creditworthy
by the Investment Adviser or Sub-Advisers. Although the securities subject to a
repurchase agreement may have maturities exceeding one year, settlement of the
agreement generally will not occur more than one year after a Fund acquires the
securities.
SPECIAL RISKS. In the event of a
default, a Fund will suffer a loss to the extent that the proceeds from the sale
of the underlying securities and other collateral are less than the repurchase
price and the Fund’s costs associated with delay and enforcement of the
repurchase agreement. In addition, in the event of bankruptcy, a Fund could
suffer additional losses if a court determines that the Fund’s interest in the
collateral is unenforceable by the Fund. If a Fund enters into a repurchase
agreement with a foreign financial institution, it may be subject to the same
risks associated with foreign investments (see “Foreign Investments”). Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations, entities
and/or individuals, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. International trade barriers or
economic sanctions against foreign countries, organizations, entities and/or
individuals may adversely affect the credit worthiness of a foreign financial
institution. Additionally, foreign banks and foreign branches of domestic banks
may be subject to less stringent reserve requirements and to different
accounting, auditing and recordkeeping requirements.
The
Funds intend to enter into transactions with counterparties that are
creditworthy at the time of the transactions. There is always the risk that the
Investment Adviser’s analysis of creditworthiness is incorrect or may change due
to market conditions. To the extent that a Fund focuses its transactions with a
limited number of counterparties, it will be more susceptible to the risks
associated with one or more counterparties.
With
respect to collateral received in repurchase transactions or other investments,
a Fund may have significant exposure to the financial services and mortgage
markets. Such exposure, depending on market conditions, could have a negative
impact on the Fund, including minimizing the value of any collateral.
RISKS RELATED TO CERTAIN BUSINESS
RELATIONSHIPS. In certain instances,
employees of Polen Credit, including portfolio managers of the Multi-Manager
High Yield Opportunity Fund, may sit on the board of a portfolio company held by
one or more Polen Credit clients, including the Multi-Manager High Yield
Opportunity Fund. Such service may give rise to actual or potential conflicts of
interest (or perceived conflicts of interest). For example, Polen Credit may
receive material non-public information of a company because one of its
employees sits on its board of directors. In such circumstances, the issuer of
such security will be placed on Polen Credit’s “Restricted List,” and Polen
Credit will not trade securities issued by such issuer in secondary transactions
until the material, non-public information becomes public and/or no longer
material, or trading is otherwise permitted in accordance with applicable law.
The length of time that Polen Credit may be subject to such restrictions on
trading with respect to its client portfolios may cause such investments to be
classified as illiquid and may be significant. This may prevent the Fund from
acquiring or disposing of securities at a favorable time and may cause the Fund
to forego certain investment opportunities. Polen Credit has adopted written
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guidelines
designed to address potential conflicts of interest that may arise in connection
with a portfolio manager’s service on the board of a portfolio company held by
one or more Polen Credit clients. Specifically, these guidelines, among
other items (i) establishes reporting guidelines for any actual or
potential conflicts of interest; (ii) depending on the facts and
circumstances, requires the employee to recuse themselves from also
participating in any investment decision with respect to Polen Credit’s clients
(with another Polen Credit investment professional, such as a co-portfolio
manager, thereby assuming the responsibility to take any appropriate investment
management activities on behalf of the Fund in accordance with Polen Credit’s
fiduciary responsibilities); and (iii) where recusal does not mitigate the
conflict or as otherwise required, provides for disclosure to affected Polen
Credit clients of the material facts and circumstances of the conflict.
SECTOR RISK is the risk that
companies in similar businesses may be similarly affected by particular economic
or market events, which may in certain circumstances, cause the value of
securities of all companies in a particular sector to decrease.
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CONSUMER DISCRETIONARY SECTOR
RISK. Companies operating in the consumer discretionary
sector may be affected by fluctuations in supply and demand, supply
chains, and changes in consumer demographics and preferences, including
that such companies’ consumer products or services may become obsolete.
The success of consumer product manufacturers and retailers is tied
closely to the performance of domestic and international economies.
Moreover, changes in consumer spending as a result of world events,
political and economic conditions, government regulation, commodity price
volatility, changes in interest and exchange rates, imposition of import
or export controls, increased competition, depletion of resources and
labor relations also may adversely affect these companies. Companies in
the consumer discretionary sector depend heavily on disposable household
income and consumer confidence and spending and may be strongly affected
by social trends, changing consumer taste and marketing campaigns. These
companies may be subject to severe competition, which may have an adverse
impact on their profitability. |
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FINANCIALS SECTOR RISK. Companies
operating in the U.S. and non-U.S. financials sector of the economy,
including those in the banking industry, are often subject to extensive
governmental regulation and intervention, which limits their activities,
the prices they can charge and the amount of capital they must maintain.
Governmental regulation may change frequently and may have significant
adverse consequences for companies in the financials sector, including
effects not intended by such regulation. The impact of recent or future
regulation on any individual financial company, the banking industry or on
the sector as a whole cannot be predicted. The valuation of financial
companies has been and continues to be subject to unprecedented volatility
and may be influenced by unpredictable factors, including interest rate
changes and sovereign debt default. Certain risks may impact the value of
investments in the financials sector more severely than those of
investments outside this sector, including the risks associated with
companies that operate with substantial financial leverage. In addition,
certain financial companies are subject to intense competitive pressures,
including market share and price competition. Companies in the financials
sector may also be adversely affected by increases in interest rates and
loan losses, decreases in the availability of money or asset valuations,
credit rating downgrades and adverse conditions in other related markets.
Insurance companies, in particular, may be subject to severe price
competition and/or rate regulation, which may have an adverse impact on
their profitability. Additionally, financial services companies may also
have concentrated portfolios, which makes them vulnerable to unstable
economic conditions. |
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Companies
in the financials sector are exposed directly to the credit risk of their
borrowers who at times may be unable to meet their obligations to the
financial services companies. Further, companies in the financials sectors
may have significant exposure to the same borrowers and counterparties.
This interconnectedness causes risk, including cross-default risk, which
may result in significant negative impacts to the financial condition of
companies having direct exposure to the defaulting counterparty.
Instability in the financial markets has caused certain financial
companies to incur large losses. Some financial companies experienced
declines in the valuations of their assets, took actions to raise capital
(such as the issuance of debt or equity securities), or even ceased
operations. Some financial companies borrowed significant amounts of
capital from government sources and may face future government imposed
restrictions on their businesses or increased government. In addition,
cyberattacks and technology malfunctions have become increasingly frequent
in the financials sector, causing significant losses to companies
operating in this sector. |
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HEALTH CARE SECTOR RISK. Companies
operating in the health care sector may be negatively affected by
scientific or technological developments, research and development costs,
increased competition within the health care sector, impacting prices and
demand for products or services, rapid product obsolescence and patent
expirations. In addition, the profitability of companies in the health
care sector may be adversely affected by restrictions on reimbursements
for medical expenses, increased costs of medical products and services,
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personnel
and an emphasis on outpatient services. Health care companies are also
subject to extensive litigation based on product liability. The activities
of healthcare companies are largely monitored and regulated by state and
local governments, and a significant portion of health care services are
funded or subsidized by the government. As such, the price of securities
of health care companies may fluctuate widely due to changes in
legislation or other government regulations, including uncertainty
regarding health care reform and its long-term impact, reductions in
government funding and the unpredictability of winning government
approvals. In recent years, governments have come under pressure to reduce
healthcare costs, which could adversely affect government funding
available for healthcare products, services and
facilities. |
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INDUSTRIALS SECTOR RISK. Changes
in government regulation, particularly with respect to the environment,
world events and economic conditions may adversely affect the companies
operating in the industrials sector. These companies are at risk for
environmental damage claims and product liability claims. Industrial
companies also may be adversely affected by events that cause commodity
price volatility, changes in exchange rates, imposition of import or
export controls, increased competition, depletion of resources,
technological developments, labor relations and changes in the supply of
and demand for their specific products or services or for industrials
sector products in general. Companies in the industrials sector tend to
significantly rely on government demand for their products and services
and may be adversely affected by decreases in government
spending. |
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INFORMATION TECHNOLOGY SECTOR
RISK. Companies operating in the information technology
sector may produce or use products or services that prove commercially
unsuccessful, become obsolete or become adversely impacted by increased
government regulation. Competitive pressures in the technology industry,
both domestically and internationally, may affect negatively the financial
condition of technology companies, and a substantial investment in
technology securities may subject the Funds to more volatile price
movements than a more diversified securities portfolio. In certain
instances, technology securities may experience significant price
movements caused by disproportionate investor optimism or pessimism with
little or no basis in fundamental economic conditions. Technology
companies may have limited product lines, markets, financial resources or
personnel. The products of technology companies may face obsolescence due
to rapid technological developments, changing consumer needs or investor
perception of a company or its products, frequent and new product
introduction, unpredictable changes in growth rates and competition for
the services of qualified personnel. Companies in the information
technology sector are heavily dependent on patent and intellectual
property rights. The loss or impairment of these rights may adversely
affect the profitability of these companies. In addition to the foregoing
risks, technology companies operating in the health sciences and
healthcare sector may be subject to product liability litigation. As a
result of these and other reasons, investments in the technology sector
can experience sudden and rapid appreciation and depreciation. Factors
that may also significantly affect the market value of securities of
issuers in the information technology sector include the failure to
obtain, or delays in obtaining, financing or regulatory
approvals. |
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In
addition, companies that develop or sell computer hardware or software and
peripheral products, including computer components, present additional
risks. These companies are often dependent on the existence and health of
their related industries or other products with or for which they are
designed to be used, and face highly competitive pressures, product
licensing, trademark and patent uncertainties and rapid technological
changes, which may have a significant effect on their financial condition.
For example, an increasing number of companies and new product offerings
can lead to price cuts and slower selling cycles, and many of these
companies may be dependent on the success of a principal product, may rely
on sole source providers and third-party manufacturers, and may experience
difficulties in managing growth. |
SMALL AND MID CAP INVESTMENTS. Investments in small and
mid-capitalization companies involve greater risk and more abrupt or erratic
price movements than investments in larger capitalization stocks. Among the
reasons for the greater price volatility of these investments are the less
certain growth or earnings prospects of smaller firms and the lower degree of
liquidity in the markets for such securities. Small and mid-capitalization
companies may be thinly traded and may have to be sold at a discount from
current market prices or in small lots over an extended period of time. In
addition, these securities are subject to the risk that during certain periods
the liquidity of particular issuers or industries, or all securities in
particular investment categories, will shrink or disappear suddenly and without
warning as a result of adverse economic or market conditions, or adverse
investor perceptions whether or not accurate. Because of the lack of sufficient
market liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in price.
Small and mid-capitalization companies include “unseasoned” issuers that do not
have an established financial history; often have limited product lines, markets
or financial resources; may depend on or use a few key personnel for
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management
or upon a small or inexperienced management group; and may be susceptible to
losses and risks of bankruptcy. Small and mid-capitalization companies may be
operating at a loss or have significant variations in operating results; may be
engaged in a rapidly changing business with products subject to a substantial
risk of obsolescence; may require substantial additional capital to support
their operations, to finance expansion or to maintain their competitive
position; and may have substantial borrowings or may otherwise have a weak
financial condition. In addition, these companies may face intense competition,
including competition from companies with greater financial resources, more
extensive development, manufacturing, marketing, and other capabilities, and a
larger number of qualified managerial and technical personnel. Transaction costs
for small and mid-capitalization investments are often higher than those of
larger capitalization companies. Investments in small and mid-capitalization
companies may be more difficult to price precisely than other types of
securities because of their characteristics and lower trading volumes. As a
result, their performance may be more volatile and they can face a greater risk
of business failure, which could increase the volatility of a Fund’s
investments.
Securities
of small and mid-capitalization companies may lack sufficient market liquidity
to enable a Fund to effect sales at an advantageous time or without a
substantial drop in price.
SPECIAL RISKS AND CONSIDERATIONS APPLICABLE TO THE
CALIFORNIA FUNDS AND THE ARIZONA TAX-EXEMPT FUND. The investments of the California Funds in
California municipal instruments and the Arizona Tax-Exempt Fund in Arizona
municipal instruments raise additional considerations. Payment of the interest
on and the principal of these instruments is dependent upon the continuing
ability of issuers in these states to meet their obligations.
INVESTMENT STRATEGY. As stated above, the
Arizona Tax-Exempt Fund will invest in Arizona municipal instruments and the
California Funds will invest in California municipal instruments. Consequently,
these Funds are more susceptible to factors adversely affecting issuers of
Arizona and California municipal instruments, respectively, and may be riskier
than comparable funds that do not emphasize these issuers to this degree.
SPECIAL RISKS. The information set
forth below and the related information contained in the SAI are derived from
sources that are generally available to investors. The information is intended
to give a recent historical description and is not intended to indicate future
or continuing trends in the financial or other positions of California or
Arizona. It should be noted that the creditworthiness of obligations issued by
local California issuers or local Arizona issuers may be unrelated to the
creditworthiness of obligations issued by the State of California or the State
of Arizona, respectively, and that there is no obligation on the part of either
State to make payment on such respective local obligations in the event of
default.
CALIFORNIA-SPECIFIC RISK is the risk that a Fund
that invests a greater portion of its assets in California municipal instruments
will be more exposed to risks associated with the unique aspects of California’s
economy, political system and government financing structures than a fund that
invests more widely. The following information is intended only as a summary of
certain factors affecting the State’s current financial situation and is not an
exhaustive description of all the conditions to which the issuers of
California’s tax-exempt obligations are subject. Information is derived from
State of California Department of Finance publications and other publicly
available materials. Information contained in such documents has not been
independently verified.
California’s
period of economic expansion following the global financial crisis was cut short
when the COVID-19 pandemic reached U.S. shores in early 2020, resulting in a
sudden and wide-ranging decline in economic activity and rise in unemployment
across many sectors of the California economy. Californians quickly adjusted to
the realities of the pandemic, and boosted by federal actions to support the
economy, experienced a rapid rebound in economic activity over the summer of
2020. However, after two years of unprecedented revenue growth, California has
reported a downturn in revenue driven by a declining stock market and
persistently high inflation in 2022, rising interest rates, and job losses. As
of April 2024, California’s unemployment rate was slightly higher than the
national average.
The
effect of the declining market and rising inflation is ongoing, and the ultimate
outcome and effect on California’s municipal instruments remains unclear. The
2024-25 California budget reflects total reserve balances of $22.2 billion at
the end of the 2024-25 fiscal year and seeks to solve a $46.8 billion deficit
for the 2024-25 fiscal year through a mix of broad-based solutions, including
reduced funding for various items and additional revenue sources.
As
of the date of this Prospectus, the State’s general obligations are assigned
ratings of “AA” by Fitch, “Aa2” by Moody’s, and “AA-” by S&P. Although these
ratings indicate low credit risk, they are among the bottom 50% assigned to
state general obligation bonds in the country. There is no assurance that such
ratings will continue for any given period of time or that they will not be
revised downward or withdrawn entirely if, in the judgment of the particular
rating agency, circumstances so warrant.
These
ratings reflect the State’s credit quality only and do not indicate the
creditworthiness of other tax-exempt securities in which the Fund may invest.
Moreover, the creditworthiness of obligations issued by local California
issuers, such as counties, cities, school districts and other local agencies,
may be
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unrelated
to the creditworthiness of obligations issued by the State, and there is no
obligation on the part of the State to make payment on such local obligations in
the event of default. California’s historical debt burden and uncertain future
developments in light of the residual effects of the COVID-19 pandemic heighten
the risk of investing in bonds issued by the State and its political
subdivisions, agencies, instrumentalities and authorities, including the risk of
potential issuer default. There remains a heightened risk that there could be an
interruption in payments to bondholders in some cases. This possibility, along
with the risk of a downgrade in the credit rating of the State’s general
obligation debt, could result in a reduction in the market value of the bonds
held by the California Funds, which could adversely affect the Funds’ NAV or the
distributions paid by the Funds. The foregoing discussion is a summary of
certain factors affecting the State’s current financial situation and is not an
exhaustive description of all the conditions to which the issuers of the State’s
tax-exempt obligations are subject. The national economy, legislative, legal and
regulatory, social, public health (including pandemics) and environmental
policies and conditions not within the control of the issuers of such bonds
could also have an adverse effect on the financial condition of the State and
its various political subdivisions and agencies. It is not possible to predict
whether or to what extent the current economic and political issues or any other
factors may affect the ability of the State or municipal issuers in California
to pay interest or principal on their bonds or the ability of such bonds to
maintain market value or marketability. The impact of these factors on the NAV
or distributions paid by the California Funds is also unpredictable. In
addition, if the California Funds have difficulty finding high quality
California municipal securities to purchase, the amount of the Funds’ income
that is subject to California taxes could increase.
A
more detailed description of special factors affecting investments in California
municipal instruments is provided in the SAI.
ARIZONA-SPECIFIC RISK is the risk that the
Arizona Tax-Exempt Fund will be more exposed to negative political or economic
factors in Arizona than a Fund that invests more widely. The following
information is intended only as a summary of certain factors affecting the
State’s current financial situation and is not an exhaustive description of all
the conditions to which the issuers of Arizona’s tax-exempt obligations are
subject. Information is derived from State of Arizona Comprehensive Annual
Financial Reports for the relevant fiscal years and other publicly available
documents. Information contained in such documents has not been independently
verified. As of July 1, 2023, Arizona has an estimated population of
7.52 million people. Its State gross domestic product of
$508.34 billion in 2023 is the eighteenth largest. The State has a large
number of retirees who contribute to a lower than average per capita personal
income. Principal economic sectors in Arizona include: aerospace and defense,
construction, trade, government, education, health care, manufacturing, mining,
renewable energy, and tourism. According to economic analysis released by the
Arizona Office of Employment and Population Statistics, as of February 2023, ten
of eleven of Arizona’s major industry sectors are expected to experience growth
through 2025. Exposure to these industries, however, leaves Arizona vulnerable
to an economic slowdown associated with business cycles, political events and
public health crises, including a decline in tourism revenue resulting from a
decline in the value of other currencies relative to the U.S. dollar.
Additionally, because aerospace and defense represent a large share of Arizona’s
manufacturing sector, the State’s economy is vulnerable to federal budget cuts
to military expenditures.
Arizona’s
economy has historically been dependent on population growth. Arizona is the
fourteenth largest state by population and has the twelfth fastest growing
population in the nation.
From
the end of the previous recession in late 2010 through the onset of the most
recent recession in February 2020, Arizona’s economy experienced slow growth,
with gains in job creation, population and income well below the average growth
rates for the 30-year period prior to the recession. As of May 2024, the
seasonally-adjusted unemployment rate was 3.4%, which is lower than the national
average rate as of the same period.
Under
Article 9, Section 5 of the Arizona Constitution, the State cannot issue
general obligation debt surpassing $350,000, but may pledge either dedicated
revenue streams or constructed buildings or equipment acquired as security for
the repayment of long-term debt. Arizona does not issue general obligation
bonds, and its state and local debt levels have remained moderate.
As
of the date of this Prospectus, Moody’s rates the State Aa1 with a stable
outlook, and S&P rates it AA with a stable outlook. There is no assurance
that such ratings will continue for any given period of time or that they will
not be revised downward or withdrawn entirely if, in the judgment of the
particular rating agency, circumstances so warrant.
Because
there are many buyers of Arizona municipal instruments, if existing instruments
decline in quality to below investment grade or if Arizona’s ability to market
further debt obligations were jeopardized, the supply of Arizona investment
grade municipal instruments could become inadequate at certain times. The
national and local economy, legislative, legal and regulatory, social, public
health and environmental policies and conditions not within the control of the
issuers of such bonds could also have an adverse effect on the financial
condition of Arizona and its various political subdivisions and agencies. It is
also possible that amendments to the Arizona constitution, voter initiatives,
legislation, regulations, or
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executive
action would impose additional spending requirements, limit the ability of the
State or local governments to impose taxes, cause budget shortfalls or result in
other conditions that could adversely affect the values of existing obligations,
including obligations that may be held by the Fund.
A
more detailed description of special factors affecting investments in Arizona
municipal instruments is provided in the SAI.
SOVEREIGN DEBT RISK. The Funds may invest in
sovereign debt securities. These securities are issued or guaranteed by foreign
governmental entities. These investments are subject to the risk that a
governmental entity may delay or refuse to pay interest or repay principal on
its sovereign debt, due, for example, to cash flow problems, insufficient
foreign currency reserves, and political considerations. They are also subject
to political risks (e.g., government instability, poor socioeconomic conditions,
corruption, lack of democratic accountability, internal and external conflict,
poor quality of bureaucracy, and religious and ethnic tensions) and economic
risks (e.g., the relative size of the governmental entity’s debt position in
relation to the economy, high foreign debt as a percentage of gross domestic
product or exports, high inflation or deflation, or an overvalued exchange rate)
or a combination of these risks, such as the failure to put in place economic
reforms required by the International Monetary Fund or other multilateral
agencies. If a governmental entity defaults, it may ask for more time in which
to pay or for further loans. There is no legal process for collecting sovereign
debts that a government does not pay nor are there bankruptcy proceedings
through which all or part of the sovereign debt that a governmental entity has
not repaid may be collected.
STRIPPED SECURITIES. These securities are
issued by the U.S. government (or an agency, instrumentality or a sponsored
enterprise), foreign governments, banks and other issuers. They entitle the
holder to receive either interest payments or principal payments that have been
“stripped” from a debt obligation. These obligations include stripped
mortgage-backed securities, which are derivative multi-class mortgage
securities.
The
Treasury Department has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and principal payments on Treasury securities through the
Federal Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as “Separate Trading of
Registered Interest and Principal of Securities” or “STRIPS.” Under the STRIPS
program, a Fund will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Funds may purchase stripped
securities, including securities registered in the STRIPS program.
SPECIAL RISKS. Stripped securities are
very sensitive to changes in interest rates and to the rate of principal
prepayments. A rapid or unexpected change in either interest rates or principal
prepayments could depress the price of stripped securities held by the Funds and
adversely affect a Fund’s total return.
STRUCTURED SECURITIES. The value of structured
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, securities, indices or other financial
indicators (the “Reference”) or the relative change in two or more References.
The interest rate or the principal amount payable upon maturity or redemption
may be increased or decreased depending upon changes in the applicable
Reference. Examples of structured securities include, but are not limited to,
asset-backed commercial paper, structured notes and other debt obligations,
where the principal repayment at maturity is determined by the value of a
specified security or securities index. Structured securities may also include
credit linked notes, which are securities with embedded credit default swaps. An
investor holding a credit linked note generally receives a fixed or floating
coupon and the note’s par value upon maturity, unless the referred credit
defaults or declares bankruptcy, in which case the investor receives the amount
recovered. In effect, investors holding credit linked notes receive a higher
yield in exchange for assuming the risk of a specified credit event.
Structured
securities may also include inverse floating debt securities (“inverse
floaters”). The interest rate on inverse floaters resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of change in
the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.
Structured
securities also include equity linked notes. An equity linked note is a note
whose performance is tied to a single stock, a stock index or a basket of
stocks. Equity linked notes combine the principal protection normally associated
with fixed income investments with the potential for capital appreciation
normally associated with equity investments.
Upon
the maturity of the note, the holder generally receives a return of principal
based on the capital appreciation of the linked securities. Depending on the
terms of the note, equity linked notes may also have a “cap” or “floor” on the
maximum principal amount to be repaid to holders, irrespective of the
performance of the underlying linked securities. For example, a note may
guarantee the repayment of the original principal
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amount
invested (even if the underlying linked securities have negative performance
during the note’s term), but may cap the maximum payment at maturity at a
certain percentage of the issuance price or the return of the underlying linked
securities. Alternatively, the note may not guarantee a full return on the
original principal, but may offer a greater participation in any capital
appreciation of the underlying linked securities. The terms of an equity linked
note may also provide for periodic interest payments to holders at either a
fixed or floating rate. The secondary market for equity linked notes may be
limited, and the lack of liquidity in the secondary market may make these
securities difficult to dispose of and to value.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Funds may invest in
structured securities.
SPECIAL RISKS. Structured securities
present additional risk that the interest paid to a Fund on a structured
security will be less than expected. The terms of some structured securities may
provide that in certain circumstances no principal is due at maturity and,
therefore, a Fund could suffer a total loss of its investment. Structured
securities may be positively or negatively indexed, so that appreciation of the
Reference may produce an increase or decrease in the interest rate or value of
the security at maturity. In addition, changes in the interest rates or the
value of the security at maturity may be a multiple of changes in the value of
the Reference. Consequently, structured securities may entail a greater degree
of market risk than other types of securities. Structured securities also may be
more volatile, less liquid and more difficult to accurately price than less
complex securities due to their derivative nature. As a result, investments in
structured securities may adversely affect a Fund’s NAV. In some cases, it is
possible that a Fund may suffer a total loss on its investment in a structured
security. Structured securities are also subject to counterparty risk.
TRACKING RISK. The Equity Index Funds,
Bond Index Fund, U.S. Treasury Index Fund and certain Underlying Funds seek to
track the performance of their respective underlying indices and are therefore
subject to the risk of tracking variance. Tracking risk is the risk that a
Fund’s performance may vary from the performance of the index as a result of
imperfect correlation between a Fund’s securities and those of the index.
Tracking variance may result from share purchases and redemptions, transaction
costs, expenses, cash holdings, changes in the composition of the index, asset
valuations, costs of entering into foreign currency forward contracts, foreign
currency valuations, market impact, corporate actions (such as mergers and
spin-offs), legal restrictions (such as tax-related diversification requirements
that apply to the Fund but not to the index) and timing variances, among other
factors. This risk may be heightened during times of increased market volatility
or other unusual market conditions. Due to limitations on investments in
illiquid investments and/or purchasing and selling such investments, a Fund may
be unable to achieve a high degree of correlation with the Fund’s index.
Tracking variance may prevent a Fund from achieving its investment objective.
Market disruptions, regulatory restrictions or other abnormal market conditions
could have an adverse effect on a Fund’s ability to adjust its exposure to the
required levels in order to track the index or cause delays in the index’s
rebalancing or rebalancing schedule. During any such delay, it is possible that
the index and, in turn, a Fund will deviate from the index’s stated methodology
and therefore experience returns different than those that would have been
achieved under a normal rebalancing or reconstitution schedule. Because each
Fund is designed to maintain a high level of exposure to the respective index at
all times, it will not take any steps to invest defensively or otherwise reduce
the risk of loss during market downturns.
UNDERLYING FUND RISK. The Global Tactical
Asset Allocation Fund’s investments are primarily concentrated in Underlying
Funds, and the Fund’s investment performance is directly related to the
investment performance of the Underlying Funds it holds. The ability of the
Global Tactical Asset Allocation Fund to meet its investment objective is
directly related to the ability of the Underlying Funds to meet their objectives
as well as the allocation among those Underlying Funds. The value of the
Underlying Funds’ investments, and the NAVs of the shares of both the Global
Tactical Asset Allocation Fund and the Underlying Funds, will fluctuate in
response to various market and economic factors related to the equity and
fixed-income markets, as well as the financial condition and prospects of
issuers in which the Underlying Funds invest. There can be no assurance that the
investment objectives of the Underlying Funds will be achieved.
The
Global Tactical Asset Allocation Fund’s expense structure may result in lower
investment returns. By investing in the Underlying Funds indirectly through the
Global Tactical Asset Allocation Fund, you will incur not only a proportionate
share of the expenses of the Underlying Funds held by the Fund (including
operational costs and investment management fees), but also expenses of the
Fund.
U.S. GOVERNMENT SECURITIES. These instruments
include U.S. Treasury obligations, such as bills, notes and bonds, which
generally differ only in terms of their interest rates, maturities and time of
issuance. They also include obligations issued or guaranteed by the U.S.
government or by its agencies, instrumentalities or sponsored enterprises.
Securities guaranteed as to principal and interest by the U.S. government or by
its agencies, instrumentalities or sponsored enterprises are deemed to include
(a) securities for which the payment of principal and interest is backed by
an irrevocable letter of credit issued by the U.S. government or by an agency,
instrumentality or sponsored enterprise thereof, and (b) participations in
loans made to foreign governments or their agencies that are so
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guaranteed.
U.S. treasury obligations also include floating rate public obligations of the
U.S. Treasury.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, a Fund may invest in a variety
of U.S. Treasury obligations and, except for the U.S. Treasury Index Fund, also
may invest in other obligations issued or guaranteed by the U.S. government or
by its agencies, instrumentalities or sponsored enterprises (including zero
coupon securities).
SPECIAL RISKS. Not all U.S. government
obligations carry the same credit support. Although many U.S. government
securities are issued by entities chartered or sponsored by Acts of Congress,
such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks, such securities
are neither issued nor guaranteed by the U.S. Treasury and, therefore, are not
backed by the full faith and credit of the United States. Some, such as those of
Ginnie Mae, are supported by the full faith and credit of the U.S. Treasury,
although this guarantee applies only to principal and interest payments and does
not apply to losses resulting from declines in the market value of these
securities. Other obligations, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the U.S. Treasury; and
others are supported by the discretionary authority of the U.S. government to
purchase the agency’s obligations. Still others are supported only by the credit
of the instrumentality or sponsored enterprise. The maximum potential liability
of the issuers of some U.S. government securities may greatly exceed their
current resources, including their legal right to support from the U.S.
Treasury. It is possible that these issuers will not have the funds to meet
their payment obligations in the future. No assurance can be given that the U.S.
government would provide financial support to its agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law. In addition, the
secondary market for certain participations in loans made to foreign governments
or their agencies may be limited.
An
agency of the U.S. government has placed Fannie Mae and Freddie Mac into
conservatorship, a statutory process with the objective of returning the
entities to normal business operations. As a result, these securities are
subject to more credit risk than U.S. government securities that are supported
by the full faith and credit of the United States (e.g., U.S. Treasury
bonds).
To
the extent a Fund invests in debt instruments or securities of non-U.S.
government entities that are backed by the full faith and credit of the United
States, pursuant to the FDIC Debt Guarantee Program (the “Debt Guarantee
Program”) or other similar programs, there is a possibility that the guarantee
provided under the Debt Guarantee Program or other similar programs may be
discontinued or modified at a later date.
Floating
rate public obligations of the U.S. Treasury (“Floating Rate Notes” or “FRNs”)
have interest rates that adjust periodically. FRNs’ floating interest rates may
be higher or lower than the interest rates of fixed-rate bonds of comparable
quality with similar maturities. Securities with floating rates can be less
sensitive to interest rate changes than securities with fixed interest rates,
but may decline in value and negatively impact a Fund, particularly if changes
in prevailing interest rates are more frequent or sudden than the rate changes
for the FRNs, which only occur periodically (see “Variable and Floating Rate
Instruments” below). U.S. government securities include zero coupon securities,
which tend to be subject to greater market risk than interest-paying securities
of similar maturities.
Additionally,
securities issued or guaranteed by the U.S. government, its agencies,
instrumentalities and sponsored enterprises have historically involved little
risk of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such securities held by a Fund may
vary.
VALUATION RISK. The sale price a Fund
could receive for a security may differ from the Fund’s valuation of the
security, particularly for securities that trade in low volume or volatile
markets, or that are valued using a fair value methodology. Because portfolio
securities of certain Funds may be traded on non-U.S. exchanges, and non-U.S.
exchanges may be open on days when the Fund does not price its shares, the value
of the securities in the Fund’s portfolio may change on days when shareholders
will not be able to purchase or sell the Fund’s shares. In addition, a Fund’s
ability to value its investments may be impacted by technological issues and/or
errors by pricing services or other third-party service providers.
WARRANTS. A warrant represents the
right to purchase a security at a predetermined price for a specified period of
time.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, a Fund may invest in warrants
and similar rights. The Multi-Manager High Yield Opportunity Fund may invest in
warrants that are acquired in connection with its investments in debt or
convertible securities as part of its principal investment strategy. A Fund also
may purchase bonds that are issued in tandem with warrants.
SPECIAL RISKS. Warrants are derivative
instruments that present risks similar to options.
ZERO COUPON, PAY-IN-KIND AND CAPITAL APPRECIATION
BONDS. These are securities
issued at a discount from their face value because interest payments typically
are postponed until maturity. Interest payments on pay-in-kind securities are
payable by the delivery of additional securities. The amount of the discount
rate varies depending on factors such as the time
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remaining
until maturity, prevailing interest rates, a security’s liquidity and the
issuer’s credit quality. These securities also may take the form of debt
securities that have been stripped of their interest payments.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Funds may invest in zero
coupon, pay-in-kind and capital appreciation bonds. The Multi-Manager High Yield
Opportunity Fund may invest in zero coupon, pay-in-kind and capital appreciation
bonds as part of its principal investment strategy.
SPECIAL RISKS. The market prices of
zero coupon, pay-in-kind and capital appreciation bonds generally are more
volatile than the market prices of interest-bearing securities and are likely to
respond to a greater degree to changes in interest rates than interest-bearing
securities having similar maturities and credit quality. A Fund’s or Underlying
Fund’s investments in zero coupon, pay-in-kind and capital appreciation bonds
may require the Fund or Underlying Fund to sell some of its securities to
generate sufficient cash to satisfy certain income distribution requirements.
OTHER SECURITIES AND RISKS. Additionally, to the
extent consistent with their investment objectives and strategies, the Funds or
Underlying Funds may purchase other types of securities or instruments similar
to those described in these sections. You should carefully consider the risks
discussed in these sections before investing in a Fund.
Each
Fund can also use the investment techniques and strategies described below. The
Fund might not use all of these techniques or strategies or might only use them
from time to time.
BORROWINGS AND REVERSE REPURCHASE
AGREEMENTS. The Funds may borrow
money from banks and may enter into reverse repurchase agreements with banks and
other financial institutions.
INVESTMENT STRATEGY. Each Fund may borrow
money from banks and enter into reverse repurchase agreements with banks and
other financial institutions in amounts not exceeding one-third of the value of
its total assets (including the amount borrowed). The Funds may enter into
reverse repurchase agreements when the Investment Adviser or a Sub-Adviser
expects that the interest income to be earned from the investment of the
transaction proceeds will be greater than the related interest expense.
SPECIAL RISKS. Borrowings and reverse
repurchase agreements involve leveraging. Reverse repurchase agreements involve
the sale of securities held by a Fund subject to the Fund’s agreement to
repurchase them at a mutually agreed upon date and price (including interest).
If the securities held by the Funds decline in value while these transactions
are outstanding, the NAV of the Funds’ outstanding shares will decline in value
by proportionately more than the decline in value of the securities.
In
addition, reverse repurchase agreements involve the risks that (a) the
interest income earned by a Fund (from the investment of the proceeds) will be
less than the interest expense of the transaction; (b) the market value of
the securities sold by a Fund will decline below the price the Fund is obligated
to pay to repurchase the securities; and (c) the securities may not be
returned to the Fund.
CREDIT FACILITY AND BORROWING. The Funds, the other
funds of the Trust, and affiliated funds of Northern Institutional Funds (for
purposes of this discussion, the “Borrowing Funds”) have jointly entered into a
revolving credit facility (the “Credit Facility”) whereby the Borrowing Funds
may borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. Pursuant to the Credit Facility, the
participating Borrowing Funds may borrow up to an aggregate commitment amount of
$250 million (the “Commitment Limit”) at any time, subject to asset
coverage and other legal, regulatory or contractual limitations as specified in
the Credit Facility and under the 1940 Act. Borrowing results in interest
expense and other fees and expenses for the Borrowing Funds that may impact a
Fund’s expenses, including any net expense ratios. The costs of borrowing may
reduce a Borrowing Fund’s yield. If a Borrowing Fund borrows pursuant to the
Credit Facility, it is charged interest at a variable rate. Each Borrowing Fund
also pays a commitment fee equal to its pro rata share of the unused portion of
the Credit Facility. The availability of funds under the Credit Facility can be
affected by other participating Borrowing Funds’ borrowings under the Credit
Facility. As such, a Borrowing Fund may be unable to borrow (or borrow further)
under the Credit Facility if the Commitment Limit has been reached.
CUSTODIAL RECEIPTS. Custodial receipts are
participations in trusts that hold U.S. government, bank, corporate or other
obligations. U.S. Treasury securities are sold under such names as TIGRs
(Treasury Income Growth Receipts) and CATS (Certificates of Accrual on Treasury
Securities). Like other stripped obligations, custodial receipts entitle the
holder to future interest payments or principal payments or both on securities
held by the custodian.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Funds may invest a portion
of their assets in custodial receipts.
SPECIAL RISKS. Like other stripped
securities (which are described below), stripped custodial receipts may be
subject to greater price volatility than ordinary debt obligations because of
the way in which their principal and interest are returned to investors.
Custodial receipts may not be considered obligations of the U.S. government or
other issuer of the security held by
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the
custodian for the purpose of securities laws. If for tax purposes a Fund is not
considered to be the owner of the securities held in the underlying trust or
custodial account, the Fund may suffer adverse tax consequences. As a holder of
custodial receipts, a Fund will bear its proportionate share of the fees or
expenses charged to the custodial account.
EXCHANGE RATE-RELATED SECURITIES. Exchange rate-related
securities represent certain foreign debt obligations whose principal values are
linked to a foreign currency but which are repaid in U.S. dollars.
INVESTMENT STRATEGY. The Equity Funds, Equity
Index Funds, Bond Index Fund, Active M/Multi-Manager Funds and certain
Underlying Funds may invest in exchange rate-related securities.
SPECIAL RISKS. The principal payable on
an exchange rate-related security is subject to currency risk. In addition, the
potential illiquidity and high volatility of the foreign exchange market may
make exchange rate-related securities difficult to sell prior to maturity at an
appropriate price. intervention.
INITIAL PUBLIC OFFERINGS (“IPO”). An IPO is a company’s
first offering of stock to the public.
INVESTMENT STRATEGY. At times, and to the
extent consistent with their investment objectives and strategies the Funds may
invest in IPOs.
SPECIAL RISKS. An IPO presents the risk
that the market value of IPO shares will fluctuate considerably due to factors
such as the absence of a prior public market, unseasoned trading, the small
number of shares available for trading and limited information about the issuer.
The purchase of IPO shares may involve high transaction costs. IPO shares are
subject to market risk and liquidity risk. When a Fund’s asset base is small, a
significant portion of the Fund’s performance could be attributable to
investments in IPOs because such investments would have a magnified impact on
the Fund. As a Fund’s assets grow, the effect of the Fund’s investments in IPOs
on the Fund’s performance probably will decline, which could reduce the Fund’s
performance. Because of the price volatility of IPO shares, a Fund may choose to
hold IPO shares for a very short period of time. This may increase the turnover
of a portfolio and may lead to increased expenses to the Fund, such as
commissions and transaction costs. By selling IPO shares, the Fund may realize
taxable gains it subsequently will distribute to shareholders. In addition, the
market for IPO shares can be speculative and/or inactive for extended periods of
time. There is no assurance that a Fund will be able to obtain allocable
portions of IPO shares. The limited number of shares available for trading in
some IPOs may make it more difficult for a Fund to buy or sell significant
amounts of shares without an unfavorable impact on prevailing prices. Investors
in IPO shares can be affected by substantial dilution in the value of their
shares, by sales of additional shares and by concentration of control in
existing management and principal shareholders. The Funds’ investments in IPO
shares may include the securities of “unseasoned” companies (companies with less
than three years of continuous operations), which present risks considerably
greater than common stocks of more established companies.
These
companies may have limited operating histories and their prospects for
profitability may be uncertain. These companies may be involved in new and
evolving businesses and may be vulnerable to competition and changes in
technology, markets and economic conditions. They may be more dependent on key
managers and third parties and may have limited product lines.
INSURANCE FUNDING AGREEMENTS. An insurance funding
agreement (“IFA”) is an agreement that requires a Fund to make cash
contributions to a deposit fund of an insurance company’s general account. The
insurance company then credits interest to the Fund for a set time period.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Funds may invest in IFAs
issued by insurance companies that meet quality and credit standards established
by the Investment Adviser to the Funds. The Multi-Manager Global Listed
Infrastructure Fund, and Multi-Manager High Yield Opportunity Fund will not
invest in IFAs.
SPECIAL RISKS. IFAs are not insured by
a government agency—they are backed only by the insurance company that issues
them. As a result, they are subject to default risk of the non-governmental
issuer. In addition, the transfer of IFAs may be restricted and an active
secondary market in IFAs currently does not exist. This means that it may be
difficult or impossible to sell an IFA at an appropriate price or that these
investments may be considered illiquid.
INTERFUND BORROWING AND LENDING. The SEC has granted an
exemption permitting the Funds to participate in an interfund borrowing and
lending program. This interfund borrowing and lending program allows the Funds
to borrow money from other funds in the Trust and other affiliated portfolios of
Northern Institutional Funds (each a “Portfolio” and together, the “Portfolios”)
advised by NTI, and to lend money to other funds in the Trust, for temporary or
emergency purposes. The interfund borrowing and lending program is currently not
operational. The interfund borrowing and lending program is subject to a number
of conditions, including, among other things, the requirements that (1) a
Fund may not borrow or lend money through the program unless it receives a more
favorable interest rate than is available from a bank loan rate or investment
yield rate, respectively; (2) loans will be secured on an equal priority
basis with at least an equivalent percentage of collateral to loan value as any
outstanding bank loan that requires collateral; (3) loans will
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have
a maturity no longer than that of any outstanding bank loan (and in any event
not over seven days); (4) if an event of default occurs under any agreement
evidencing an outstanding bank loan to a Fund, the event of default will
automatically (without need for action or notice by the lending fund or
Portfolio) constitute an immediate event of default under the Interfund Lending
Agreement entitling the lending fund or Portfolio to call the interfund loan
(and exercise all rights with respect to any collateral) and that such call will
be made if the bank exercises its right to call its loan under its agreement
with a Fund; (5) a Fund may not borrow money if the loan would cause its
outstanding borrowings from all sources to exceed 10% of its net assets at the
time of the loan, except that a Fund may borrow up to 33 1/3% of its total assets
through the program or from other sources if each interfund loan is secured by
the pledge of segregated collateral with a market value of at least 102% of the
outstanding principal value of the loan; (6) a Fund may not loan money if
the loan would cause its aggregate outstanding loans through the program to
exceed 15% of its net assets at the time of the loan; (7) a Fund’s
interfund loans to any one fund shall not exceed 5% of the lending Fund’s net
assets; and (8) a Fund’s borrowings through the program will not exceed the
greater of 125% of the Fund’s total net cash redemptions or 102% of the Fund’s
sales fails (when a sale of securities “fails” due to circumstances beyond the
Fund’s control) for the preceding seven calendar days as measured at the time of
the loan. In addition, a Fund may participate in the interfund borrowing and
lending program only if and to the extent that such participation is consistent
with the Fund’s investment objective and policies. The Board of Trustees of the
Trust is responsible for overseeing the interfund borrowing and lending program.
A delay in repayment to a lending Fund could result in a lost investment
opportunity or additional lending costs.
LENDING OF SECURITIES. In order to generate
additional income, the Funds may lend securities to banks, brokers and dealers
or other qualified institutions. In exchange, the Funds will receive collateral
equal to at least 100% of the value of the securities loaned.
INVESTMENT STRATEGY. Securities lending may
represent no more than one-third of the value of a Fund’s total assets
(including the loan collateral). Any cash collateral received by a Fund in
connection with these loans may be invested in a variety of short-term
investments, either directly or indirectly through money market portfolios. Loan
collateral (including any investment of the collateral) is not included in the
calculation of the percentage limitations described elsewhere in this Prospectus
regarding each Fund’s investments in particular types of securities. The
securities lending program is not currently operational, although an Underlying
Fund may lend up to one-third of the value of its total assets through its
securities lending program.
SPECIAL RISKS. A principal risk when
lending portfolio securities is that the borrower might become insolvent or
refuse to honor its obligation to return the securities. In this event, a Fund
could experience delays in recovering its securities and possibly may incur a
capital loss. Upon return of the loaned securities, the Fund would be required
to return the related cash collateral to the borrower and may be required to
liquidate portfolio securities in order to do so. To the extent that the
portfolio securities acquired with such collateral have decreased in value, it
may result in the Fund realizing a loss at a time when it would not otherwise do
so. As such, securities lending may introduce leverage into the Fund.
Additionally, the amount of a Fund’s distributions that qualify for taxation at
reduced long-term capital gains rates for individuals, as well as the amount of
a Fund’s distributions that qualify for the dividends received deduction
available to corporate shareholders (together, “qualifying dividends”), may be
reduced as a result of a Fund’s securities lending activities. This is because
any dividends paid on securities while on loan will not be deemed to have been
received by a Fund, and the equivalent amount paid to a Fund by the borrower of
the securities will not be deemed to be a qualifying dividend.
MORTGAGE DOLLAR ROLLS. A mortgage dollar roll
involves the sale of securities for delivery in the future (generally within
30 days). A Fund simultaneously contracts with the same counterparty to
repurchase substantially similar (same type, coupon and maturity) but not
identical securities on a specified future date. During the roll period, the
Fund loses the right to receive principal and interest paid on the securities
sold. However, the Fund benefits to the extent of any difference between
(a) the price received for the securities sold and (b) the lower
forward price for the future purchase and/or fee income plus the interest earned
on the cash proceeds of the securities sold.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Funds may invest in
mortgage dollar rolls in an effort to enhance performance. For financial
reporting and tax purposes, the Funds treat mortgage dollar rolls as two
separate transactions: one involving the purchase of a security and a separate
transaction involving a sale. The Funds currently do not intend to enter into
mortgage dollar rolls that are accounted for as financing and do not treat them
as borrowings.
SPECIAL RISKS. Successful use of
mortgage dollar rolls depends upon an investment adviser’s or sub-adviser’s
ability to predict correctly interest rates and mortgage prepayments. If the
investment adviser or sub-adviser is incorrect in its prediction, certain Funds
may experience a loss. Unless the benefits of a mortgage dollar roll exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the roll, the use of
this technique will diminish the Fund’s performance.
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The
Limited Term U.S. Government Fund, U.S. Government Fund, and/or certain
Underlying Funds may seek to obtain exposure to mortgage-related securities
through to-be-announced (“TBA”) transactions. Default or bankruptcy of a
counterparty to a TBA transaction would expose a Fund to possible loss because
of adverse market action, expenses or delays in connection with the purchase or
sale of the mortgage-related securities specified in the TBA transaction. A Fund
may acquire interests in mortgage pools through means other than such
standardized contracts for future delivery.
SHORT SALES AGAINST-THE-BOX. A short sale
against-the-box is a short sale such that at all times when the short position
is open the seller owns or has the right to obtain, at no added cost, an equal
amount of securities identical to those sold short.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Equity Funds, Equity Index
Funds, certain Underlying Funds, High Yield Fixed Income Fund, and Active
M/Multi-Manager Funds may make short sales against-the-box.
SPECIAL RISKS. If a Fund sells
securities short against-the-box, it may protect itself from loss if the price
of the securities declines in the future, but will lose the opportunity to
profit on such securities if the price rises. If a Fund effects a short sale of
securities at a time when it has an unrealized gain on the securities, it may be
required to recognize that gain as if it actually had sold the securities (as a
“constructive sale”) on the date it effects the short sale. However, such
constructive sale treatment may not apply if the Fund closes out the short
position with securities other than the appreciated securities held at the time
of the short sale and if certain other conditions are satisfied. Uncertainty
regarding the tax consequences of effecting short sales may limit the extent to
which a Fund may effect short sales.
TEMPORARY INVESTMENTS. To the extent consistent
with their investment objectives and strategies, the Funds temporarily may hold
cash and/or invest in short-term obligations including U.S. government
obligations, high quality money market instruments (including commercial paper
and obligations of foreign and domestic banks such as certificates of deposit,
bank and deposit notes, bankers’ acceptances and fixed time deposits) and
repurchase agreements with maturities of 13 months or less.
INVESTMENT STRATEGY. A Fund temporarily may
hold cash or invest all or any portion of its assets in short-term obligations
pending investment, to meet anticipated redemption requests, or with respect to
the Active M/Multi-Manager Funds, to manage a reallocation of assets to a
Sub-Adviser. Except for the U.S. Treasury Index Fund, a Fund also may hold cash
or invest in short-term obligations, longer-term debt obligations or preferred
stock as a temporary measure mainly designed to limit a Fund’s losses in
response to adverse market, economic or other conditions when the Investment
Adviser or Sub-Adviser believes that it is in the best interest of the Fund to
pursue such a defensive strategy. The Investment Adviser or Sub-Advisers may,
however, choose not to make such temporary investments even in very volatile or
adverse market conditions.
SPECIAL RISKS. A Fund may not achieve
its investment objective when it holds cash or invests its assets in short-term
obligations or otherwise makes temporary investments. In low interest rate
environments, cash and cash equivalent assets may not generate income in excess
of Fund expenses and therefore would impact the Fund’s performance. A Fund also
may miss investment opportunities and have a lower total return than if it
remained fully invested during these periods.
VARIABLE AND FLOATING RATE INSTRUMENTS.
Variable and floating
rate instruments have interest rates that periodically are adjusted either at
set intervals or that float at a margin tied to a specified index rate. These
instruments include floating rate Treasury obligations, variable amount master
demand notes and long-term variable and floating rate bonds (sometimes referred
to as “Put Bonds”) where the Fund obtains at the time of purchase the right to
put the bond back to the issuer or a third party at par at a specified date and
leveraged inverse floating rate instruments (“inverse floaters”). An inverse
floater is leveraged to the extent that its interest rate varies by an amount
that exceeds the amount of the variation in the index rate of interest. Some
variable and floating rate instruments have interest rates that periodically are
adjusted as a result of changes in inflation rates.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, the Funds may invest in
variable or floating rate instruments.
SPECIAL RISKS. Variable and floating
rate instruments are subject to many of the same risks as fixed rate
instruments, particularly credit risk and default risk, which could impede their
value. Because there is no active secondary market for certain variable and
floating rate instruments, they may be more difficult to sell if the issuer
defaults on its payment obligations or during periods when the Funds are not
entitled to exercise their demand rights. As a result, the Funds could suffer a
loss with respect to these instruments. In addition, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer’s or guarantor’s creditworthiness. In addition,
there may be a lag between an actual change in the underlying interest rate
benchmark and the reset time for an interest payment of a variable or floating
instrument, which could harm or benefit a Fund, depending on the interest rate
environment or other circumstances. In a rising interest rate environment, for
example, a floating or variable rate instrument that does not reset immediately
would prevent a Fund from taking full advantage of rising interest rates in a
timely manner.
|
| |
256 |
|
NORTHERN FUNDS
PROSPECTUS |
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS
AND FORWARD COMMITMENTS. A purchase of
“when-issued” securities refers to a transaction made conditionally because the
securities, although authorized, have not yet been issued. A delayed delivery or
forward commitment transaction involves a contract to purchase or sell
securities for a fixed price at a future date beyond the customary settlement
period.
INVESTMENT STRATEGY. To the extent consistent
with their investment objectives and strategies, a Fund may purchase or sell
securities on a when-issued, delayed delivery or forward commitment basis.
Although the Funds generally would purchase securities in these transactions
with the intention of acquiring the securities, the Funds may dispose of such
securities prior to settlement if the Investment Adviser or Sub-Adviser deems it
appropriate to do so.
SPECIAL RISKS. Purchasing securities on
a when-issued, delayed delivery or forward commitment basis involves the risk
that the value of the securities may decrease by the time they actually are
issued or delivered. Conversely, selling securities in these transactions
involves the risk that the value of the securities may increase by the time they
actually are issued or delivered.
Therefore,
these transactions may have a leveraging effect on a Fund, making the value of
an investment in the Fund more volatile and increasing the Fund’s overall
investment exposure. These transactions also involve the risk that the
counterparty may fail to deliver the security or cash on the settlement date. If
this occurs, a Fund may lose both the investment opportunity for the assets it
set aside to pay for the security and any gain in the security’s price.
The
following provides additional risk information regarding investing in the
Funds.
CYBERSECURITY RISK. With the increased use
of the Internet and because information technology (“IT”) systems and digital
data underlie most of the Funds’ operations, the Funds and their investment
adviser, custodian, transfer agent, distributor and other service providers and
the financial intermediaries of each (collectively “Service Providers”) are
exposed to the risk that their operations and data may be compromised as a
result of internal and external cyber-failures, breaches or attacks (“Cyber
Risk”). This could occur as a result of malicious or criminal cyber-attacks.
Cyber-attacks include actions taken to: (i) steal or corrupt data
maintained online or digitally, (ii) gain unauthorized access to or release
confidential information, (iii) shut down a Fund or Service Provider
website through denial-of-service attacks, or (iv) otherwise disrupt normal
business operations. However, events arising from human error, faulty or
inadequately implemented policies and procedures or other systems failures
unrelated to any external cyber-threat may have effects similar to those caused
by deliberate cyber-attacks.
Successful
cyber-attacks or other cyber-failures or events affecting the Funds or their
Service Providers may adversely impact a Fund or its shareholders. For instance,
such attacks, failures or other events may interfere with the processing of
shareholder transactions, impact a Fund’s ability to calculate its NAV, cause
the release of private shareholder information or confidential Fund information,
impede trading, or cause reputational damage. Such attacks, failures or other
events could also subject the Funds or their Service Providers to regulatory
fines, penalties or financial losses, reimbursement or other compensation costs,
and/or additional compliance costs. Insurance protection and contractual
indemnification provisions may be insufficient to cover these losses. The Funds
or their Service Providers may also incur significant costs to manage and
control Cyber Risk. While the Funds and their Service Providers have established
IT and data security programs and have in place business continuity plans and
other systems designed to prevent losses and mitigate Cyber Risk, there are
inherent limitations in such plans and systems, including the possibility that
certain risks have not been identified or that cyber-attacks may be highly
sophisticated. Furthermore, the Funds have limited ability to prevent or
mitigate cybersecurity incidents affecting Service Providers, and such Service
Providers may have limited indemnification obligations to the Funds or their
investment adviser, and the Funds cannot control the cybersecurity plans and
systems put in place by the Service Providers or any other third parties whose
operation may affect the Funds or their shareholders. The Funds and their
shareholders could be negatively impacted as a result.
INFLATION-INDEXED SECURITIES RISK is the risk that certain
Funds may be required to liquidate certain investments when it is not
advantageous to do so in order to make distributions to shareholders. The U.S.
Treasury has guaranteed that in the event of a drop in prices, it would repay
the par amount of its inflation-indexed securities. Inflation-indexed securities
issued by corporations generally do not guarantee repayment of principal. Any
increase in the principal amount of an inflation-indexed security will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity. As a result, a Fund may be required to make annual
distributions to shareholders that exceed the cash the Fund received, which may
cause the Fund to liquidate certain investments when it is not advantageous to
do so. In periods of deflation, a Fund may not receive any income from an
inflation-indexed security, which may cause amounts previously distributed to be
characterized in some circumstances as a return of capital.
LARGE SHAREHOLDER RISK. To the extent a
significant percentage of the shares of a Fund are owned or controlled by a
small number of account shareholders (or a single account shareholder),
including funds or accounts over which the
|
| |
NORTHERN FUNDS PROSPECTUS |
|
257 |
Investment
Adviser, an affiliate of the Investment Adviser or a third-party intermediary
has investment discretion, such as those investing through one or more model
portfolios, the Fund is subject to the risk that those shareholders or groups of
shareholders may purchase or redeem Fund shares in significant amounts rapidly
or unexpectedly, including as a result of an asset allocation decision made by
the Investment Adviser, an affiliate of the Investment Adviser or a third-party
intermediary and may adversely affect a Fund’s performance. Such redemptions may
force the Investment Adviser to sell portfolio securities or invest cash when
the Investment Adviser would not otherwise choose to do so. Redemptions by a
large shareholder or groups of shareholders may also affect the liquidity of a
Fund’s portfolio, increase the Fund’s transaction costs, and accelerate the
increase of taxable income and/or gains. In addition, a large shareholder
redemption could result in each Fund’s current expenses being allocated over a
smaller asset base, leading to an increase in each such Fund’s expense ratio.
Large shareholder purchases or having a more concentrated shareholder base may
adversely affect the Funds’ performance to the extent that the Funds are delayed
in investing new cash or otherwise maintain a larger cash position than they
ordinarily would. There can be no assurance that any large shareholder or large
group of shareholders would not redeem their investment or that the size of a
Fund would be maintained.
MATURITY RISK. Certain Funds that invest in fixed income
securities will maintain the dollar-weighted average maturity of its portfolio
within a specified range. However, the maturities of certain instruments, such
as variable and floating rate instruments, are subject to estimation. In
addition, in calculating average weighted maturities, the maturity of mortgage
and other asset-backed securities will be based on estimates of average life. As
a result, the Funds cannot guarantee that these estimates will, in fact, be
accurate or that their average maturities will remain within any specified
limits.
OPERATIONAL RISK. The Investment Adviser
and Sub-Advisers, where applicable, to the Funds and other Fund service
providers may be subject to operational risk and may experience disruptions and
operating errors. In particular, these errors or failures in systems and
technology, including operational risks associated with reliance on third party
service providers, may adversely affect a Fund’s ability to calculate its NAV in
a timely manner, including over a potentially extended period. Moreover,
disruptions (for example, pandemics and health crises) that cause prolonged
periods of remote work or significant employee absences at the Funds’ service
providers could impact the ability to conduct the Funds’ operations. While
service providers are required to have appropriate operational risk management
policies and procedures in place, their methods of operational risk management
may differ from those of the Funds in the setting of priorities, the personnel
and resources available or the effectiveness of relevant controls. The
Investment Adviser, through its monitoring and oversight of service providers,
seeks to ensure that service providers take appropriate precautions to avoid and
mitigate risks that could lead to disruptions and operating errors. However, it
is not possible for the Investment Adviser, Sub-Advisers or other Fund service
providers to identify all of the operational risks that may affect a Fund or to
develop processes and controls to completely eliminate or mitigate their
occurrence or effects.
The
Funds may invest in other securities and are subject to further restrictions and
risks that are described in the SAI. Additional information about the Funds,
their investments and related risks can also be found in “Investment Objectives
and Strategies” in the SAI.
|
| |
258 |
|
NORTHERN FUNDS
PROSPECTUS |
FINANCIAL
HIGHLIGHTS
THE
FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND A FUND’S
FINANCIAL PERFORMANCE FOR THE PAST FIVE YEARS OR, IF SHORTER, THE APPLICABLE
PERIOD OF OPERATIONS FOR THE FUND OR ITS SHARE CLASS.
Certain
information reflects the financial results for a single Fund share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Fund for a share held for the entire period (assuming
reinvestment of all dividends and distributions).
This
information has been derived from financial statements that have been audited by
Deloitte & Touche LLP, an independent registered public accounting
firm, whose report, along with the Funds’ financial statements, are included in
the Funds’ annual report. Copies of the semiannual and annual report are
available upon request and without charge. The Funds’ annual report, which is
available upon request and without charge by calling 800-595-9111, is also
available on the Trust’s website at
northerntrust.com/united-states/what-we-do/investment-management/northern-funds/literature
or by following the hyperlink:
https://www.sec.gov/Archives/edgar/data/916620/000119312524154992/d835120dncsr.htm
|
| |
NORTHERN FUNDS PROSPECTUS |
|
259 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
GLOBAL
TACTICAL ASSET ALLOCATION FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$11.92 |
|
|
|
$13.68 |
|
|
|
$13.74 |
|
|
|
$11.11 |
|
|
|
$12.69 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.44 |
|
|
|
0.38 |
|
|
|
0.33 |
(1) |
|
|
0.31 |
|
|
|
0.36 |
|
Net realized and unrealized gains
(losses) |
|
|
0.72 |
|
|
|
(1.26 |
) |
|
|
0.22 |
|
|
|
3.18 |
|
|
|
(1.60 |
) |
Total
from Investment Operations |
|
|
1.16 |
|
|
|
(0.88 |
) |
|
|
0.55 |
|
|
|
3.49 |
|
|
|
(1.24 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.44 |
) |
|
|
(0.37 |
) |
|
|
(0.31 |
) |
|
|
(0.32 |
) |
|
|
(0.34 |
) |
From net realized gains |
|
|
— |
|
|
|
(0.51 |
) |
|
|
(0.30 |
) |
|
|
(0.54 |
) |
|
|
— |
|
Total
Distributions Paid |
|
|
(0.44 |
) |
|
|
(0.88 |
) |
|
|
(0.61 |
) |
|
|
(0.86 |
) |
|
|
(0.34 |
) |
Net Asset Value, End of Year |
|
|
$12.64 |
|
|
|
$11.92 |
|
|
|
$13.68 |
|
|
|
$13.74 |
|
|
|
$11.11 |
|
Total
Return(2) |
|
|
9.95 |
% |
|
|
(6.27 |
)% |
|
|
3.92 |
% |
|
|
31.94 |
% |
|
|
(10.14 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$91,432 |
|
|
|
$101,835 |
|
|
|
$128,119 |
|
|
|
$120,727 |
|
|
|
$101,156 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(3) |
|
|
0.27 |
%(4)(5) |
|
|
0.26 |
%(5) |
|
|
0.26 |
% |
|
|
0.26 |
%(5) |
|
|
0.26 |
%(5) |
Expenses,
before reimbursements and credits(3) |
|
|
0.40 |
% |
|
|
0.39 |
% |
|
|
0.39 |
% |
|
|
0.40 |
% |
|
|
0.40 |
% |
Net
investment income, net of reimbursements and credits |
|
|
3.58 |
%(4)(5) |
|
|
3.01 |
%(5) |
|
|
2.45 |
% |
|
|
2.32 |
%(5) |
|
|
2.85 |
%(5) |
Net
investment income, before reimbursements and credits |
|
|
3.45 |
% |
|
|
2.88 |
% |
|
|
2.32 |
% |
|
|
2.18 |
% |
|
|
2.71 |
% |
Portfolio Turnover Rate |
|
|
38.30 |
% |
|
|
34.86 |
% |
|
|
60.88 |
% |
|
|
50.89 |
% |
|
|
48.38 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
less than $1,000. The reimbursements represent less than $0.01 per share
and had no effect on the Fund’s total return.
|
(2) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(3) |
Expense ratios reflect only the direct expenses
of the Fund and not any expenses associated with the underlying funds.
|
(4) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(5) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $1,000, less than $1,000, approximately
$1,000 and less than $2,000, which represent less than 0.01 percent
of average net assets for the fiscal years ended March 31, 2024,
2023, 2021 and 2020, respectively. Subject to the contractual expense
limitation and absent the additional reimbursements, net investment income
and reimbursements would have been decreased and net expenses would have
been increased by a corresponding amount.
|
|
| |
260 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
INCOME
EQUITY FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$13.26 |
|
|
|
$15.07 |
|
|
|
$14.81 |
|
|
|
$10.42 |
|
|
|
$12.95 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.30 |
|
|
|
0.28 |
|
|
|
0.19 |
|
|
|
0.20 |
|
|
|
0.26 |
|
Net realized and unrealized gains
(losses) |
|
|
3.10 |
|
|
|
(1.33 |
) |
|
|
2.24 |
|
|
|
5.28 |
|
|
|
(1.63 |
) |
Total
from Investment Operations |
|
|
3.40 |
|
|
|
(1.05 |
) |
|
|
2.43 |
|
|
|
5.48 |
|
|
|
(1.37 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.31 |
) |
|
|
(0.28 |
) |
|
|
(0.18 |
) |
|
|
(0.25 |
) |
|
|
(0.26 |
) |
From net realized gains |
|
|
(0.68 |
) |
|
|
(0.48 |
) |
|
|
(1.99 |
) |
|
|
(0.84 |
) |
|
|
(0.90 |
) |
Total
Distributions Paid |
|
|
(0.99 |
) |
|
|
(0.76 |
) |
|
|
(2.17 |
) |
|
|
(1.09 |
) |
|
|
(1.16 |
) |
Net Asset Value, End of Year |
|
|
$15.67 |
|
|
|
$13.26 |
|
|
|
$15.07 |
|
|
|
$14.81 |
|
|
|
$10.42 |
|
Total
Return(1) |
|
|
26.54 |
% |
|
|
(6.78 |
)% |
|
|
16.31 |
% |
|
|
53.57 |
% |
|
|
(12.44 |
)%(2) |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$169,820 |
|
|
|
$138,543 |
|
|
|
$164,466 |
|
|
|
$149,908 |
|
|
|
$115,562 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(3) |
|
|
0.49 |
%(4) |
|
|
0.66 |
% |
|
|
1.01 |
% |
|
|
1.01 |
% |
|
|
1.02 |
% |
Expenses,
before reimbursements and credits |
|
|
0.63 |
% |
|
|
0.80 |
% |
|
|
1.16 |
% |
|
|
1.18 |
% |
|
|
1.12 |
% |
Net
investment income, net of reimbursements and credits(3) |
|
|
2.14 |
%(4) |
|
|
2.10 |
% |
|
|
1.18 |
% |
|
|
1.51 |
% |
|
|
1.89 |
% |
Net
investment income, before reimbursements and credits |
|
|
2.00 |
% |
|
|
1.96 |
% |
|
|
1.03 |
% |
|
|
1.34 |
% |
|
|
1.79 |
% |
Portfolio Turnover Rate |
|
|
25.40 |
% |
|
|
34.87 |
% |
|
|
30.55 |
% |
|
|
27.94 |
% |
|
|
76.34 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
During the fiscal year ended March 31,
2020, the Fund received monies related to certain nonrecurring litigation
proceeds. If these monies were not received, the total return would have
been (12.98)%. |
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $3,000, $1,000, $1,000, $1,000 and $1,000,
which represent less than 0.01 percent of average net assets for the
fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(4) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
261 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
INTERNATIONAL EQUITY FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.42 |
|
|
|
$9.70 |
|
|
|
$9.68 |
|
|
|
$7.14 |
|
|
|
$9.36 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.29 |
|
|
|
0.29 |
|
|
|
0.25 |
(1) |
|
|
0.45 |
|
|
|
0.37 |
|
Net realized and unrealized gains
(losses) |
|
|
1.10 |
|
|
|
(0.31 |
) |
|
|
0.10 |
|
|
|
2.63 |
|
|
|
(2.23 |
) |
Total
from Investment Operations |
|
|
1.39 |
|
|
|
(0.02 |
) |
|
|
0.35 |
|
|
|
3.08 |
|
|
|
(1.86 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(2) |
|
|
(0.57 |
) |
|
|
(0.26 |
) |
|
|
(0.33 |
) |
|
|
(0.54 |
) |
|
|
(0.36 |
) |
Total
Distributions Paid |
|
|
(0.57 |
) |
|
|
(0.26 |
) |
|
|
(0.33 |
) |
|
|
(0.54 |
) |
|
|
(0.36 |
) |
Net Asset Value, End of Year |
|
|
$10.24 |
|
|
|
$9.42 |
|
|
|
$9.70 |
|
|
|
$9.68 |
|
|
|
$7.14 |
|
Total
Return(3) |
|
|
15.07 |
% |
|
|
(0.02 |
)% |
|
|
3.49 |
% |
|
|
43.53 |
% |
|
|
(20.78 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$139,669 |
|
|
|
$124,062 |
|
|
|
$124,543 |
|
|
|
$106,032 |
|
|
|
$122,189 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.51 |
%(4)(5) |
|
|
0.51 |
%(5) |
|
|
0.51 |
% |
|
|
0.52 |
%(5) |
|
|
0.55 |
%(5) |
Expenses,
before reimbursements and credits |
|
|
0.65 |
% |
|
|
0.65 |
% |
|
|
0.65 |
% |
|
|
0.75 |
% |
|
|
0.67 |
% |
Net
investment income, net of reimbursements and credits |
|
|
3.01 |
%(4)(5) |
|
|
3.28 |
%(5) |
|
|
2.91 |
% |
|
|
2.73 |
%(5) |
|
|
3.14 |
%(5) |
Net
investment income, before reimbursements and credits |
|
|
2.87 |
% |
|
|
3.14 |
% |
|
|
2.77 |
% |
|
|
2.50 |
% |
|
|
3.02 |
% |
Portfolio Turnover Rate |
|
|
47.19 |
% |
|
|
46.55 |
% |
|
|
41.96 |
% |
|
|
63.81 |
% |
|
|
33.97 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $5,000. The reimbursements represent less than $0.01 per
share. Without these reimbursements, the total return would have been
3.48%. |
(2) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(3) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(4) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(5) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $2,000, $1,000, $1,000 and $1,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
262 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LARGE
CAP CORE FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$22.78 |
|
|
|
$25.71 |
|
|
|
$25.24 |
|
|
|
$16.46 |
|
|
|
$19.36 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.32 |
|
|
|
0.31 |
|
|
|
0.30 |
|
|
|
0.31 |
|
|
|
0.39 |
|
Net realized and unrealized gains
(losses) |
|
|
6.56 |
|
|
|
(2.16 |
) |
|
|
4.09 |
|
|
|
8.79 |
|
|
|
(2.44 |
) |
Total
from Investment Operations |
|
|
6.88 |
|
|
|
(1.85 |
) |
|
|
4.39 |
|
|
|
9.10 |
|
|
|
(2.05 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.31 |
) |
|
|
(0.31 |
) |
|
|
(0.30 |
) |
|
|
(0.32 |
) |
|
|
(0.39 |
) |
From net realized gains |
|
|
(1.87 |
) |
|
|
(0.77 |
) |
|
|
(3.62 |
) |
|
|
— |
|
|
|
(0.46 |
) |
Total
Distributions Paid |
|
|
(2.18 |
) |
|
|
(1.08 |
) |
|
|
(3.92 |
) |
|
|
(0.32 |
) |
|
|
(0.85 |
) |
Net Asset Value, End of Year |
|
|
$27.48 |
|
|
|
$22.78 |
|
|
|
$25.71 |
|
|
|
$25.24 |
|
|
|
$16.46 |
|
Total
Return(1) |
|
|
31.46 |
% |
|
|
(7.00 |
)% |
|
|
17.18 |
% |
|
|
55.62 |
% |
|
|
(11.28 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$285,930 |
|
|
|
$242,606 |
|
|
|
$289,337 |
|
|
|
$270,545 |
|
|
|
$164,695 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.45 |
%(3) |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.46 |
% |
Expenses,
before reimbursements and credits |
|
|
0.55 |
% |
|
|
0.56 |
% |
|
|
0.55 |
% |
|
|
0.57 |
% |
|
|
0.56 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
1.27 |
%(3) |
|
|
1.35 |
% |
|
|
1.10 |
% |
|
|
1.47 |
% |
|
|
1.85 |
% |
Net
investment income, before reimbursements and credits |
|
|
1.17 |
% |
|
|
1.24 |
% |
|
|
1.00 |
% |
|
|
1.35 |
% |
|
|
1.75 |
% |
Portfolio Turnover Rate |
|
|
44.46 |
% |
|
|
38.46 |
% |
|
|
44.93 |
% |
|
|
38.54 |
% |
|
|
37.90 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $3,000, $3,000, less than $1,000 and
approximately $2,000 and $1,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
263 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LARGE
CAP VALUE FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$18.61 |
|
|
|
$21.27 |
|
|
|
$20.39 |
|
|
|
$12.85 |
|
|
|
$16.42 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.42 |
|
|
|
0.39 |
|
|
|
0.35 |
|
|
|
0.38 |
|
|
|
0.41 |
|
Net realized and unrealized gains
(losses) |
|
|
3.38 |
|
|
|
(1.49 |
) |
|
|
2.28 |
|
|
|
7.42 |
|
|
|
(3.62 |
) |
Total
from Investment Operations |
|
|
3.80 |
|
|
|
(1.10 |
) |
|
|
2.63 |
|
|
|
7.80 |
|
|
|
(3.21 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.65 |
) |
|
|
(0.24 |
) |
|
|
(0.43 |
) |
|
|
(0.26 |
) |
|
|
(0.36 |
) |
From net realized gains |
|
|
(0.43 |
) |
|
|
(1.32 |
) |
|
|
(1.32 |
) |
|
|
— |
|
|
|
— |
|
Total
Distributions Paid |
|
|
(1.08 |
) |
|
|
(1.56 |
) |
|
|
(1.75 |
) |
|
|
(0.26 |
) |
|
|
(0.36 |
) |
Net Asset Value, End of Year |
|
|
$21.33 |
|
|
|
$18.61 |
|
|
|
$21.27 |
|
|
|
$20.39 |
|
|
|
$12.85 |
|
Total
Return(1) |
|
|
21.04 |
% |
|
|
(5.18 |
)% |
|
|
13.00 |
% |
|
|
61.02 |
% |
|
|
(20.16 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$65,127 |
|
|
|
$59,007 |
|
|
|
$67,714 |
|
|
|
$63,821 |
|
|
|
$45,786 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.57 |
%(2)(3) |
|
|
0.56 |
%(3) |
|
|
0.57 |
% |
|
|
0.57 |
%(3) |
|
|
0.55 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.76 |
% |
|
|
0.75 |
% |
|
|
0.80 |
% |
|
|
0.89 |
% |
|
|
0.83 |
% |
Net
investment income, net of reimbursements and credits |
|
|
1.99 |
%(2)(3) |
|
|
1.99 |
%(3) |
|
|
1.55 |
% |
|
|
2.05 |
%(3) |
|
|
2.04 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
1.80 |
% |
|
|
1.80 |
% |
|
|
1.32 |
% |
|
|
1.73 |
% |
|
|
1.76 |
% |
Portfolio Turnover Rate |
|
|
38.42 |
% |
|
|
78.33 |
% |
|
|
75.05 |
% |
|
|
74.86 |
% |
|
|
80.40 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $1,000, less than $1,000, $1,000 and
approximately $1,000, which represent less than 0.01 percent of
average net assets for the fiscal years ended March 31, 2024, 2023,
2021 and 2020, respectively. Subject to the contractual expense limitation
and absent the additional reimbursements, net investment income and
reimbursements would have been decreased and net expenses would have been
increased by a corresponding amount. |
|
| |
264 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
SMALL
CAP VALUE FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$18.10 |
|
|
|
$20.71 |
|
|
|
$23.46 |
|
|
|
$13.49 |
|
|
|
$20.18 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.22 |
|
|
|
0.22 |
|
|
|
0.18 |
|
|
|
0.20 |
|
|
|
0.22 |
|
Net realized and unrealized gains
(losses) |
|
|
3.13 |
|
|
|
(1.78 |
) |
|
|
0.56 |
|
|
|
10.15 |
|
|
|
(5.45 |
) |
Total
from Investment Operations |
|
|
3.35 |
|
|
|
(1.56 |
) |
|
|
0.74 |
|
|
|
10.35 |
|
|
|
(5.23 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.30 |
) |
|
|
(0.16 |
) |
|
|
(0.19 |
) |
|
|
(0.22 |
) |
|
|
(0.23 |
) |
From net realized gains |
|
|
(1.06 |
) |
|
|
(0.89 |
) |
|
|
(3.30 |
) |
|
|
(0.16 |
) |
|
|
(1.23 |
) |
Total
Distributions Paid |
|
|
(1.36 |
) |
|
|
(1.05 |
) |
|
|
(3.49 |
) |
|
|
(0.38 |
) |
|
|
(1.46 |
) |
Net Asset Value, End of Year |
|
|
$20.09 |
|
|
|
$18.10 |
|
|
|
$20.71 |
|
|
|
$23.46 |
|
|
|
$13.49 |
|
Total
Return(1) |
|
|
18.78 |
% |
|
|
(7.50 |
)% |
|
|
3.29 |
% |
|
|
77.32 |
% |
|
|
(28.43 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$1,105,022 |
|
|
|
$1,617,670 |
|
|
|
$2,293,215 |
|
|
|
$2,974,261 |
|
|
|
$2,076,900 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
1.00 |
%(3) |
|
|
1.00 |
% |
|
|
1.00 |
% |
|
|
1.00 |
% |
|
|
1.00 |
% |
Expenses,
before reimbursements and credits |
|
|
1.15 |
% |
|
|
1.13 |
% |
|
|
1.15 |
% |
|
|
1.13 |
% |
|
|
1.10 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
1.14 |
%(3) |
|
|
1.08 |
% |
|
|
0.69 |
% |
|
|
1.05 |
% |
|
|
1.09 |
% |
Net
investment income, before reimbursements and credits |
|
|
0.99 |
% |
|
|
0.95 |
% |
|
|
0.54 |
% |
|
|
0.92 |
% |
|
|
0.99 |
% |
Portfolio Turnover Rate |
|
|
18.61 |
% |
|
|
13.25 |
% |
|
|
20.41 |
% |
|
|
27.79 |
% |
|
|
14.18 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $85,000, $63,000, $3,000, $59,000 and
$138,000, which represent less than 0.01 percent of average net
assets for the fiscal years ended March 31, 2024, 2023, 2022, 2021
and 2020, respectively. Subject to the contractual expense limitation and
absent the additional reimbursements, net investment income and
reimbursements would have been decreased and net expenses would have been
increased by a corresponding amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
265 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
SMALL
CAP CORE FUND |
|
CLASS K |
|
Selected per share data |
|
YEAR ENDED MARCH 31, 2024 |
|
|
YEAR ENDED MARCH 31, 2023 |
|
|
YEAR ENDED MARCH 31, 2022 |
|
|
PERIOD ENDED MARCH 31, 2021(1) |
|
Net Asset
Value, Beginning of Period |
|
|
$25.40 |
|
|
|
$27.82 |
|
|
|
$32.58 |
|
|
|
$23.46 |
|
INCOME FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.31 |
|
|
|
0.28 |
|
|
|
0.24 |
|
|
|
0.13 |
|
Net realized and unrealized gains
(losses) |
|
|
4.84 |
|
|
|
(2.53 |
) |
|
|
(0.33 |
) |
|
|
10.42 |
|
Total
from Investment Operations |
|
|
5.15 |
|
|
|
(2.25 |
) |
|
|
(0.09 |
) |
|
|
10.55 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.56 |
) |
|
|
(0.09 |
) |
|
|
(0.17 |
) |
|
|
(0.21 |
) |
From net realized gains |
|
|
(1.32 |
) |
|
|
(0.08 |
) |
|
|
(4.50 |
) |
|
|
(1.22 |
) |
Total
Distributions Paid |
|
|
(1.88 |
) |
|
|
(0.17 |
) |
|
|
(4.67 |
) |
|
|
(1.43 |
) |
Net Asset Value, End of Period |
|
|
$28.67 |
|
|
|
$25.40 |
|
|
|
$27.82 |
|
|
|
$32.58 |
|
Total
Return(2) |
|
|
20.74 |
% |
|
|
(8.08 |
)% |
|
|
(0.54 |
)% |
|
|
45.82 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of period |
|
|
$264,729 |
|
|
|
$240,538 |
|
|
|
$279,376 |
|
|
|
$287,618 |
|
Ratio to average net assets of:(3) |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(4) |
|
|
0.49 |
%(5) |
|
|
0.49 |
% |
|
|
0.49 |
% |
|
|
0.49 |
% |
Expenses,
before reimbursements and credits |
|
|
0.54 |
% |
|
|
0.54 |
% |
|
|
0.54 |
% |
|
|
0.57 |
% |
Net
investment income, net of reimbursements and credits(4) |
|
|
1.12 |
%(5) |
|
|
1.13 |
% |
|
|
0.70 |
% |
|
|
0.67 |
%(6) |
Net
investment income, before reimbursements and credits |
|
|
1.07 |
% |
|
|
1.08 |
% |
|
|
0.65 |
% |
|
|
0.59 |
%(6) |
Portfolio Turnover Rate |
|
|
15.33 |
% |
|
|
13.01 |
% |
|
|
15.47 |
% |
|
|
26.59 |
% |
(1) |
For the period from July 30, 2020
(commencement of class operations) through March 31, 2021.
|
(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 fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $12,000, $12,000, $1,000 and $1,000 which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2022 and for the period
July 30, 2020 (commencement of class operations) to March 31,
2021, respectively. Subject to the contractual expense limitation and
absent the additional reimbursements, net investment income and
reimbursements would have been decreased and net expenses would have been
increased by a corresponding amount. |
(5) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(6) |
As the Fund commenced operation of Class K
shares on July 30, 2020, annualized net investment income may not be
reflective of actual amounts the Fund might obtain in a full year of
operation. |
|
| |
266 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
SMALL
CAP CORE FUND |
|
CLASS I |
|
Selected per share data |
|
YEAR ENDED MARCH 31, 2024 |
|
|
YEAR ENDED MARCH 31, 2023 |
|
|
YEAR ENDED MARCH 31, 2022 |
|
|
PERIOD ENDED MARCH 31, 2021(1) |
|
Net Asset
Value, Beginning of Period |
|
|
$25.37 |
|
|
|
$27.77 |
|
|
|
$32.56 |
|
|
|
$23.46 |
|
INCOME FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.29 |
|
|
|
0.30 |
|
|
|
0.17 |
|
|
|
0.12 |
|
Net realized and unrealized gains
(losses) |
|
|
4.83 |
|
|
|
(2.56 |
) |
|
|
(0.30 |
) |
|
|
10.41 |
|
Total
from Investment Operations |
|
|
5.12 |
|
|
|
(2.26 |
) |
|
|
(0.13 |
) |
|
|
10.53 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.55 |
) |
|
|
(0.06 |
) |
|
|
(0.16 |
) |
|
|
(0.21 |
) |
From net realized gains |
|
|
(1.32 |
) |
|
|
(0.08 |
) |
|
|
(4.50 |
) |
|
|
(1.22 |
) |
Total
Distributions Paid |
|
|
(1.87 |
) |
|
|
(0.14 |
) |
|
|
(4.66 |
) |
|
|
(1.43 |
) |
Net Asset Value, End of Period |
|
|
$28.62 |
|
|
|
$25.37 |
|
|
|
$27.77 |
|
|
|
$32.56 |
|
Total
Return(2) |
|
|
20.62 |
% |
|
|
(8.18 |
)% |
|
|
(0.63 |
)% |
|
|
45.72 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of period |
|
|
$219,869 |
|
|
|
$193,854 |
|
|
|
$226,545 |
|
|
|
$254,387 |
|
Ratio to average net assets of:(3) |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(4) |
|
|
0.59 |
%(5) |
|
|
0.59 |
% |
|
|
0.59 |
% |
|
|
0.59 |
% |
Expenses,
before reimbursements and credits |
|
|
0.64 |
% |
|
|
0.64 |
% |
|
|
0.64 |
% |
|
|
0.67 |
% |
Net
investment income, net of reimbursements and credits(4) |
|
|
1.02 |
%(5) |
|
|
1.03 |
% |
|
|
0.59 |
% |
|
|
0.57 |
%(6) |
Net
investment income, before reimbursements and credits |
|
|
0.97 |
% |
|
|
0.98 |
% |
|
|
0.54 |
% |
|
|
0.49 |
%(6) |
Portfolio Turnover Rate |
|
|
15.33 |
% |
|
|
13.01 |
% |
|
|
15.47 |
% |
|
|
26.59 |
% |
(1) |
For the period from July 30, 2020
(commencement of class operations) through March 31, 2021.
|
(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 fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $10,000, $10,000, $1,000 and $1,000 which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2022 and for the period
July 30, 2020 (commencement of class operations) to March 31,
2021, respectively. Subject to the contractual expense limitation and
absent the additional reimbursements, net investment income and
reimbursements would have been decreased and net expenses would have been
increased by a corresponding amount. |
(5) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(6) |
As the Fund commenced operation of Class I
shares on July 30, 2020, annualized net investment income may not be
reflective of actual amounts the Fund might obtain in a full year of
operation. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
267 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S.
QUALITY ESG FUND |
|
CLASS K |
|
Selected per share data |
|
YEAR ENDED MARCH 31, 2024 |
|
|
YEAR ENDED MARCH 31, 2023 |
|
|
YEAR ENDED MARCH 31, 2022 |
|
|
PERIOD ENDED MARCH 31, 2021(1) |
|
Net Asset
Value, Beginning of Period |
|
|
$15.30 |
|
|
|
$17.26 |
|
|
|
$16.12 |
|
|
|
$13.00 |
|
INCOME FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.22 |
|
|
|
0.22 |
|
|
|
0.16 |
|
|
|
0.10 |
|
Net realized and unrealized gains
(losses) |
|
|
4.05 |
|
|
|
(1.58 |
) |
|
|
2.09 |
|
|
|
3.21 |
|
Total
from Investment Operations |
|
|
4.27 |
|
|
|
(1.36 |
) |
|
|
2.25 |
|
|
|
3.31 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.22 |
) |
|
|
(0.22 |
) |
|
|
(0.16 |
) |
|
|
(0.11 |
) |
From net realized gains |
|
|
— |
|
|
|
(0.38 |
) |
|
|
(0.95 |
) |
|
|
(0.08 |
) |
Total
Distributions Paid |
|
|
(0.22 |
) |
|
|
(0.60 |
) |
|
|
(1.11 |
) |
|
|
(0.19 |
) |
Net Asset Value, End of Period |
|
|
$19.35 |
|
|
|
$15.30 |
|
|
|
$17.26 |
|
|
|
$16.12 |
|
Total
Return(2) |
|
|
28.06 |
% |
|
|
(7.70 |
)% |
|
|
13.71 |
% |
|
|
25.59 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of period |
|
|
$427,431 |
|
|
|
$375,837 |
|
|
|
$482,259 |
|
|
|
$298,204 |
|
Ratio to average net assets of:(3) |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(4) |
|
|
0.39 |
%(5) |
|
|
0.39 |
% |
|
|
0.39 |
% |
|
|
0.39 |
% |
Expenses,
before reimbursements and credits |
|
|
0.44 |
% |
|
|
0.44 |
% |
|
|
0.44 |
% |
|
|
0.51 |
% |
Net
investment income, net of reimbursements and credits(4) |
|
|
1.27 |
%(5) |
|
|
1.37 |
% |
|
|
0.95 |
% |
|
|
1.06 |
%(6) |
Net
investment income, before reimbursements and credits |
|
|
1.22 |
% |
|
|
1.32 |
% |
|
|
0.90 |
% |
|
|
0.94 |
%(6) |
Portfolio Turnover Rate |
|
|
36.53 |
% |
|
|
45.72 |
% |
|
|
29.11 |
% |
|
|
28.66 |
% |
(1) |
For the period from July 30, 2020
(commencement of class operations) through March 31, 2021.
|
(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 fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $6,000, $7,000, $3,000 and $3,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2022 and for the period
July 30, 2020 (commencement of class operations) to March 31,
2021, respectively. Subject to the contractual expense limitation and
absent the additional reimbursements, net investment income and
reimbursements would have been decreased and net expenses would have been
increased by a corresponding amount. |
(5) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(6) |
As the Fund commenced operation of Class K
shares on July 30, 2020, annualized net investment income may not be
reflective of actual amounts the Fund might obtain in a full year of
operation. |
|
| |
268 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S.
QUALITY ESG FUND |
|
CLASS I |
|
Selected per share data |
|
YEAR ENDED MARCH 31, 2024 |
|
|
YEAR ENDED MARCH 31, 2023 |
|
|
YEAR ENDED MARCH 31, 2022 |
|
|
PERIOD ENDED MARCH 31, 2021(1) |
|
Net Asset
Value, Beginning of Period |
|
|
$15.28 |
|
|
|
$17.25 |
|
|
|
$16.12 |
|
|
|
$13.66 |
|
INCOME FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.21 |
|
|
|
0.18 |
|
|
|
0.15 |
|
|
|
0.08 |
|
Net realized and unrealized gains
(losses) |
|
|
4.04 |
|
|
|
(1.56 |
) |
|
|
2.09 |
|
|
|
2.56 |
|
Total
from Investment Operations |
|
|
4.25 |
|
|
|
(1.38 |
) |
|
|
2.24 |
|
|
|
2.64 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.20 |
) |
|
|
(0.21 |
) |
|
|
(0.16 |
) |
|
|
(0.10 |
) |
From net realized gains |
|
|
— |
|
|
|
(0.38 |
) |
|
|
(0.95 |
) |
|
|
(0.08 |
) |
Total
Distributions Paid |
|
|
(0.20 |
) |
|
|
(0.59 |
) |
|
|
(1.11 |
) |
|
|
(0.18 |
) |
Net Asset Value, End of Period |
|
|
$19.33 |
|
|
|
$15.28 |
|
|
|
$17.25 |
|
|
|
$16.12 |
|
Total
Return(2) |
|
|
28.01 |
% |
|
|
(7.79 |
)% |
|
|
13.62 |
% |
|
|
19.46 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of period |
|
|
$28,241 |
|
|
|
$18,181 |
|
|
|
$2,186 |
|
|
|
$83 |
|
Ratio to average net assets of:(3) |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.49 |
%(4)(5) |
|
|
0.49 |
%(5) |
|
|
0.49 |
% |
|
|
0.49 |
% |
Expenses,
before reimbursements and credits |
|
|
0.54 |
% |
|
|
0.55 |
% |
|
|
0.53 |
% |
|
|
0.61 |
% |
Net
investment income, net of reimbursements and credits |
|
|
1.17 |
%(4)(5) |
|
|
1.27 |
%(5) |
|
|
1.02 |
% |
|
|
0.91 |
%(6) |
Net
investment income, before reimbursements and credits |
|
|
1.12 |
% |
|
|
1.21 |
% |
|
|
0.98 |
% |
|
|
0.79 |
%(6) |
Portfolio Turnover Rate |
|
|
36.53 |
% |
|
|
45.72 |
% |
|
|
29.11 |
% |
|
|
28.66 |
% |
(1) |
For the period from August 21, 2020
(commencement of class operations) through March 31, 2021.
|
(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 impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(5) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of less than $1,000 and $1,000 which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024 and 2023, respectively. Subject to the contractual
expense limitation and absent the additional reimbursements, net
investment income and reimbursements would have been decreased and net
expenses would have been increased by a corresponding amount.
|
(6) |
As the Fund commenced operation of Class I
shares on August 21, 2020, annualized net investment income may not
be reflective of actual amounts the Fund might obtain in a full year of
operation. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
269 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
EMERGING MARKETS EQUITY INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$10.64 |
|
|
|
$12.15 |
|
|
|
$14.32 |
|
|
|
$9.25 |
|
|
|
$11.70 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.30 |
|
|
|
0.34 |
|
|
|
0.29 |
(1) |
|
|
0.20 |
(2) |
|
|
0.37 |
|
Net realized and unrealized gains
(losses) |
|
|
0.44 |
|
|
|
(1.60 |
) |
|
|
(2.08 |
) |
|
|
5.20 |
|
|
|
(2.43 |
) |
Total
from Investment Operations |
|
|
0.74 |
|
|
|
(1.26 |
) |
|
|
(1.79 |
) |
|
|
5.40 |
|
|
|
(2.06 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(3) |
|
|
(0.41 |
) |
|
|
(0.25 |
) |
|
|
(0.38 |
) |
|
|
(0.33 |
) |
|
|
(0.39 |
) |
Total
Distributions Paid |
|
|
(0.41 |
) |
|
|
(0.25 |
) |
|
|
(0.38 |
) |
|
|
(0.33 |
) |
|
|
(0.39 |
) |
Net Asset Value, End of Year |
|
|
$10.97 |
|
|
|
$10.64 |
|
|
|
$12.15 |
|
|
|
$14.32 |
|
|
|
$9.25 |
|
Total
Return(4) |
|
|
7.17 |
% |
|
|
(10.30 |
)%(5) |
|
|
(12.69 |
)% |
|
|
58.51 |
% |
|
|
(18.36 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$1,618,793 |
|
|
|
$1,515,201 |
|
|
|
$1,949,107 |
|
|
|
$2,412,779 |
|
|
|
$1,594,038 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.14 |
%(6) |
|
|
0.22 |
%(7) |
|
|
0.30 |
%(7) |
|
|
0.30 |
%(7) |
|
|
0.30 |
%(7) |
Expenses,
before reimbursements and credits |
|
|
0.29 |
% |
|
|
0.33 |
% |
|
|
0.34 |
% |
|
|
0.34 |
% |
|
|
0.35 |
% |
Net
investment income, net of reimbursements and credits |
|
|
2.67 |
%(6) |
|
|
3.10 |
%(7) |
|
|
2.18 |
%(7) |
|
|
1.76 |
%(7) |
|
|
3.07 |
%(7) |
Net
investment income, before reimbursements and credits |
|
|
2.52 |
% |
|
|
2.99 |
% |
|
|
2.14 |
% |
|
|
1.72 |
% |
|
|
3.02 |
% |
Portfolio Turnover Rate |
|
|
44.18 |
% |
|
|
57.68 |
% |
|
|
20.35 |
% |
|
|
74.68 |
% |
|
|
45.08 |
% |
(1) |
The Fund received reimbursements from Northern
Trust Investments, Inc. of approximately $10,000. The reimbursements
represents less than $0.01 per share and had no effect on the Fund’s total
return. |
(2) |
The Northern Trust Company reimbursed the Fund
approximately $151,000. The reimbursements represent less than $0.01 per
share. Without these reimbursements, the total return would have been
58.44%. |
(3) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(4) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(5) |
The Northern Trust Company reimbursed the Fund
approximately $5,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(6) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(7) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $15,000, $1,000, $21,000 and $26,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2023, 2022, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
270 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
GLOBAL
REAL ESTATE INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$8.97 |
|
|
|
$11.62 |
|
|
|
$10.67 |
|
|
|
$8.22 |
|
|
|
$11.05 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.28 |
|
|
|
0.26 |
|
|
|
0.24 |
(1) |
|
|
0.04 |
|
|
|
0.34 |
|
Net realized and unrealized gains
(losses) |
|
|
0.50 |
|
|
|
(2.67 |
) |
|
|
1.03 |
|
|
|
2.64 |
|
|
|
(2.67 |
) |
Total
from Investment Operations |
|
|
0.78 |
|
|
|
(2.41 |
) |
|
|
1.27 |
|
|
|
2.68 |
|
|
|
(2.33 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(2) |
|
|
(0.24 |
) |
|
|
(0.15 |
) |
|
|
(0.32 |
) |
|
|
(0.23 |
) |
|
|
(0.50 |
) |
Return of capital |
|
|
— |
|
|
|
(0.09 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
Distributions Paid |
|
|
(0.24 |
) |
|
|
(0.24 |
) |
|
|
(0.32 |
) |
|
|
(0.23 |
) |
|
|
(0.50 |
) |
Net Asset Value, End of Year |
|
|
$9.51 |
|
|
|
$8.97 |
|
|
|
$11.62 |
|
|
|
$10.67 |
|
|
|
$8.22 |
|
Total
Return(3) |
|
|
8.85 |
% |
|
|
(20.74 |
)%(4) |
|
|
11.84 |
% |
|
|
33.25 |
%(5) |
|
|
(22.11 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$988,349 |
|
|
|
$998,910 |
|
|
|
$1,492,882 |
|
|
|
$1,432,173 |
|
|
|
$1,780,428 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(6) |
|
|
0.47 |
%(7) |
|
|
0.47 |
% |
|
|
0.48 |
% |
|
|
0.48 |
% |
|
|
0.49 |
% |
Expenses,
before reimbursements and credits |
|
|
0.48 |
% |
|
|
0.49 |
% |
|
|
0.48 |
% |
|
|
0.48 |
% |
|
|
0.49 |
% |
Net
investment income, net of reimbursements and credits(6) |
|
|
3.18 |
%(7) |
|
|
2.96 |
% |
|
|
2.23 |
% |
|
|
2.55 |
% |
|
|
2.81 |
% |
Net
investment income, before reimbursements and credits |
|
|
3.17 |
% |
|
|
2.94 |
% |
|
|
2.23 |
% |
|
|
2.55 |
% |
|
|
2.81 |
% |
Portfolio Turnover Rate |
|
|
5.96 |
% |
|
|
7.48 |
% |
|
|
5.75 |
% |
|
|
7.27 |
% |
|
|
6.91 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $7,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(3) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(4) |
The Northern Trust Company reimbursed the Fund
approximately $10,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(5) |
During the fiscal year ended March 31,
2021, the Fund received monies related to certain nonrecurring litigation
proceeds. If these monies were not received, the total return would have
been 33.11%. |
(6) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $30,000, $18,000, $1,000, $8,000 and
$32,000, which represent less than 0.01 percent of average net assets
for the fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(7) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
271 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
INTERNATIONAL EQUITY INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$13.13 |
|
|
|
$13.50 |
|
|
|
$13.92 |
|
|
|
$9.84 |
|
|
|
$11.86 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.43 |
|
|
|
0.40 |
|
|
|
0.37 |
(1) |
|
|
0.28 |
|
|
|
0.35 |
(2) |
Net realized and unrealized gains
(losses) |
|
|
1.56 |
|
|
|
(0.44 |
) |
|
|
(0.33 |
) |
|
|
4.08 |
|
|
|
(1.98 |
) |
Total
from Investment Operations |
|
|
1.99 |
|
|
|
(0.04 |
) |
|
|
0.04 |
|
|
|
4.36 |
|
|
|
(1.63 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(3) |
|
|
(0.47 |
) |
|
|
(0.33 |
) |
|
|
(0.46 |
) |
|
|
(0.28 |
) |
|
|
(0.39 |
) |
Total
Distributions Paid |
|
|
(0.47 |
) |
|
|
(0.33 |
) |
|
|
(0.46 |
) |
|
|
(0.28 |
) |
|
|
(0.39 |
) |
Net Asset Value, End of Year |
|
|
$14.65 |
|
|
|
$13.13 |
|
|
|
$13.50 |
|
|
|
$13.92 |
|
|
|
$9.84 |
|
Total
Return(4) |
|
|
15.38 |
% |
|
|
(0.11 |
)% |
|
|
0.13 |
% |
|
|
44.22 |
% |
|
|
(14.46 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$4,894,332 |
|
|
|
$4,479,806 |
|
|
|
$4,851,381 |
|
|
|
$5,379,675 |
|
|
|
$4,100,160 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.10 |
%(5) |
|
|
0.17 |
%(6) |
|
|
0.24 |
% |
|
|
0.24 |
%(6) |
|
|
0.25 |
%(6) |
Expenses,
before reimbursements and credits |
|
|
0.16 |
% |
|
|
0.20 |
% |
|
|
0.24 |
% |
|
|
0.24 |
% |
|
|
0.26 |
% |
Net
investment income, net of reimbursements and credits |
|
|
3.06 |
%(5) |
|
|
3.20 |
%(6) |
|
|
2.61 |
% |
|
|
2.26 |
%(6) |
|
|
2.85 |
%(6) |
Net
investment income, before reimbursements and credits |
|
|
3.00 |
% |
|
|
3.17 |
% |
|
|
2.61 |
% |
|
|
2.26 |
% |
|
|
2.84 |
% |
Portfolio Turnover Rate |
|
|
21.42 |
% |
|
|
20.88 |
% |
|
|
20.76 |
% |
|
|
21.26 |
% |
|
|
10.17 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $6,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
The Northern Trust Company reimbursed the Fund
approximately $69,000. The reimbursement represents less than $0.01 per
share and had no effect on the Fund’s total return.
|
(3) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(4) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(5) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(6) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $6,000, $12,000 and $30,000, which represent
less than 0.01 percent of average net assets for the fiscal years
ended March 31, 2023, 2021 and 2020, respectively. Subject to the
contractual expense limitation and absent the additional reimbursements,
net investment income and reimbursements would have been decreased and net
expenses would have been increased by a corresponding amount.
|
|
| |
272 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
MID CAP
INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$19.23 |
|
|
|
$22.41 |
|
|
|
$23.76 |
|
|
|
$13.59 |
|
|
|
$17.95 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.33 |
|
|
|
0.32 |
|
|
|
0.28 |
|
|
|
0.26 |
|
|
|
0.28 |
|
Net realized and unrealized gains
(losses) |
|
|
3.98 |
|
|
|
(1.57 |
) |
|
|
0.80 |
|
|
|
10.91 |
|
|
|
(4.21 |
) |
Total
from Investment Operations |
|
|
4.31 |
|
|
|
(1.25 |
) |
|
|
1.08 |
|
|
|
11.17 |
|
|
|
(3.93 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.34 |
) |
|
|
(0.30 |
) |
|
|
(0.25 |
) |
|
|
(0.26 |
) |
|
|
(0.27 |
) |
From net realized gains |
|
|
(1.26 |
) |
|
|
(1.63 |
) |
|
|
(2.18 |
) |
|
|
(0.74 |
) |
|
|
(0.16 |
) |
Total
Distributions Paid |
|
|
(1.60 |
) |
|
|
(1.93 |
) |
|
|
(2.43 |
) |
|
|
(1.00 |
) |
|
|
(0.43 |
) |
Net Asset Value, End of Year |
|
|
$21.94 |
|
|
|
$19.23 |
|
|
|
$22.41 |
|
|
|
$23.76 |
|
|
|
$13.59 |
|
Total
Return(1) |
|
|
23.25 |
% |
|
|
(5.28 |
)% |
|
|
4.44 |
% |
|
|
83.26 |
% |
|
|
(22.61 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$2,140,097 |
|
|
|
$1,999,551 |
|
|
|
$2,439,401 |
|
|
|
$2,523,727 |
|
|
|
$1,700,510 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.10 |
%(2) |
|
|
0.12 |
%(3) |
|
|
0.15 |
%(3) |
|
|
0.15 |
%(3) |
|
|
0.15 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.16 |
% |
|
|
0.18 |
% |
|
|
0.19 |
% |
|
|
0.19 |
% |
|
|
0.18 |
% |
Net
investment income, net of reimbursements and credits |
|
|
1.54 |
%(2) |
|
|
1.48 |
%(3) |
|
|
1.13 |
%(3) |
|
|
1.25 |
%(3) |
|
|
1.52 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
1.48 |
% |
|
|
1.42 |
% |
|
|
1.09 |
% |
|
|
1.21 |
% |
|
|
1.49 |
% |
Portfolio Turnover Rate |
|
|
21.60 |
% |
|
|
13.39 |
% |
|
|
15.17 |
% |
|
|
18.73 |
% |
|
|
18.15 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $15,000, $2,000, $17,000 and $72,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2023, 2022, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
273 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
SMALL
CAP INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$11.96 |
|
|
|
$14.40 |
|
|
|
$17.24 |
|
|
|
$9.18 |
|
|
|
$12.34 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.18 |
|
|
|
0.18 |
|
|
|
0.15 |
|
|
|
0.12 |
|
|
|
0.14 |
|
Net realized and unrealized gains
(losses) |
|
|
2.15 |
|
|
|
(1.88 |
) |
|
|
(1.10 |
) |
|
|
8.48 |
|
|
|
(3.07 |
) |
Total
from Investment Operations |
|
|
2.33 |
|
|
|
(1.70 |
) |
|
|
(0.95 |
) |
|
|
8.60 |
|
|
|
(2.93 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.21 |
) |
|
|
(0.14 |
) |
|
|
(0.13 |
) |
|
|
(0.15 |
) |
|
|
(0.14 |
) |
From net realized gains |
|
|
(0.06 |
) |
|
|
(0.60 |
) |
|
|
(1.76 |
) |
|
|
(0.39 |
) |
|
|
(0.09 |
) |
Total
Distributions Paid |
|
|
(0.27 |
) |
|
|
(0.74 |
) |
|
|
(1.89 |
) |
|
|
(0.54 |
) |
|
|
(0.23 |
) |
Net Asset Value, End of Year |
|
|
$14.02 |
|
|
|
$11.96 |
|
|
|
$14.40 |
|
|
|
$17.24 |
|
|
|
$9.18 |
|
Total
Return(1) |
|
|
19.59 |
% |
|
|
(11.68 |
)% |
|
|
(5.88 |
)% |
|
|
94.41 |
% |
|
|
(24.28 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$1,183,459 |
|
|
|
$1,163,077 |
|
|
|
$1,535,414 |
|
|
|
$1,606,895 |
|
|
|
$887,429 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.10 |
%(2) |
|
|
0.12 |
%(3) |
|
|
0.15 |
%(3) |
|
|
0.15 |
%(3) |
|
|
0.15 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.16 |
% |
|
|
0.18 |
% |
|
|
0.19 |
% |
|
|
0.19 |
% |
|
|
0.19 |
% |
Net
investment income, net of reimbursements and credits |
|
|
1.34 |
%(2) |
|
|
1.38 |
%(3) |
|
|
0.88 |
%(3) |
|
|
0.93 |
%(3) |
|
|
1.13 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
1.28 |
% |
|
|
1.32 |
% |
|
|
0.84 |
% |
|
|
0.89 |
% |
|
|
1.09 |
% |
Portfolio Turnover Rate |
|
|
11.87 |
% |
|
|
13.66 |
% |
|
|
25.57 |
% |
|
|
20.62 |
% |
|
|
18.36 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $4,000, $1,000, $14,000 and $32,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2023, 2022, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
274 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
STOCK
INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$43.69 |
|
|
|
$49.65 |
|
|
|
$44.44 |
|
|
|
$29.61 |
|
|
|
$32.74 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.75 |
|
|
|
0.71 |
|
|
|
0.62 |
|
|
|
0.61 |
|
|
|
0.65 |
|
Net realized and unrealized gains
(losses) |
|
|
11.99 |
|
|
|
(4.72 |
) |
|
|
6.29 |
|
|
|
15.87 |
|
|
|
(2.87 |
) |
Total
from Investment Operations |
|
|
12.74 |
|
|
|
(4.01 |
) |
|
|
6.91 |
|
|
|
16.48 |
|
|
|
(2.22 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.75 |
) |
|
|
(0.71 |
) |
|
|
(0.62 |
) |
|
|
(0.61 |
) |
|
|
(0.65 |
) |
From net realized gains |
|
|
(1.70 |
) |
|
|
(1.24 |
) |
|
|
(1.08 |
) |
|
|
(1.04 |
) |
|
|
(0.26 |
) |
Total
Distributions Paid |
|
|
(2.45 |
) |
|
|
(1.95 |
) |
|
|
(1.70 |
) |
|
|
(1.65 |
) |
|
|
(0.91 |
) |
Net Asset Value, End of Year |
|
|
$53.98 |
|
|
|
$43.69 |
|
|
|
$49.65 |
|
|
|
$44.44 |
|
|
|
$29.61 |
|
Total
Return(1) |
|
|
29.82 |
% |
|
|
(7.82 |
)% |
|
|
15.51 |
%(2) |
|
|
56.22 |
% |
|
|
(7.10 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$13,290,697 |
|
|
|
$10,729,781 |
|
|
|
$12,467,719 |
|
|
|
$11,225,431 |
|
|
|
$7,933,222 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.05 |
%(3) |
|
|
0.07 |
%(4) |
|
|
0.10 |
%(4) |
|
|
0.10 |
%(4) |
|
|
0.10 |
%(4) |
Expenses,
before reimbursements and credits |
|
|
0.09 |
% |
|
|
0.11 |
% |
|
|
0.13 |
% |
|
|
0.13 |
% |
|
|
0.12 |
% |
Net
investment income, net of reimbursements and credits |
|
|
1.55 |
%(3) |
|
|
1.62 |
%(4) |
|
|
1.26 |
%(4) |
|
|
1.54 |
%(4) |
|
|
1.88 |
%(4) |
Net
investment income, before reimbursements and credits |
|
|
1.51 |
% |
|
|
1.58 |
% |
|
|
1.23 |
% |
|
|
1.51 |
% |
|
|
1.86 |
% |
Portfolio Turnover Rate |
|
|
2.74 |
% |
|
|
2.96 |
% |
|
|
3.11 |
% |
|
|
4.66 |
% |
|
|
5.15 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The Northern Trust Company reimbursed the Fund
approximately $2,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(4) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $39,000, $7,000, $85,000 and $205,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2023, 2022, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
275 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
GLOBAL
SUSTAINABILITY INDEX FUND |
|
CLASS K |
|
Selected per share data |
|
YEAR ENDED MARCH 31, 2024 |
|
|
YEAR ENDED MARCH 31, 2023 |
|
|
YEAR ENDED MARCH 31, 2022 |
|
|
PERIOD ENDED MARCH 31, 2021(1) |
|
Net Asset
Value, Beginning of Period |
|
|
$17.92 |
|
|
|
$19.57 |
|
|
|
$18.67 |
|
|
|
$15.50 |
|
INCOME FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.31 |
|
|
|
0.31 |
|
|
|
0.30 |
(2) |
|
|
0.19 |
|
Net realized and unrealized gains
(losses) |
|
|
4.53 |
|
|
|
(1.64 |
) |
|
|
1.70 |
|
|
|
3.27 |
|
Total
from Investment Operations |
|
|
4.84 |
|
|
|
(1.33 |
) |
|
|
2.00 |
|
|
|
3.46 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(3) |
|
|
(0.33 |
) |
|
|
(0.26 |
) |
|
|
(0.28 |
) |
|
|
(0.29 |
) |
From net realized gains |
|
|
— |
|
|
|
(0.06 |
) |
|
|
(0.82 |
) |
|
|
— |
(4) |
Total
Distributions Paid |
|
|
(0.33 |
) |
|
|
(0.32 |
) |
|
|
(1.10 |
) |
|
|
(0.29 |
) |
Net Asset Value, End of Period |
|
|
$22.43 |
|
|
|
$17.92 |
|
|
|
$19.57 |
|
|
|
$18.67 |
|
Total
Return(5) |
|
|
27.20 |
% |
|
|
(6.67 |
)% |
|
|
10.48 |
% |
|
|
22.44 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of period |
|
|
$857,489 |
|
|
|
$736,028 |
|
|
|
$740,470 |
|
|
|
$513,860 |
|
Ratio to average net assets of:(6) |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(7) |
|
|
0.24 |
%(8) |
|
|
0.24 |
% |
|
|
0.24 |
% |
|
|
0.25 |
% |
Expenses,
before reimbursements and credits |
|
|
0.24 |
% |
|
|
0.24 |
% |
|
|
0.24 |
% |
|
|
0.27 |
% |
Net
investment income, net of reimbursements and credits(7) |
|
|
1.67 |
%(8) |
|
|
1.86 |
% |
|
|
1.49 |
% |
|
|
1.62 |
%(9) |
Net
investment income, before reimbursements and credits |
|
|
1.67 |
% |
|
|
1.86 |
% |
|
|
1.49 |
% |
|
|
1.60 |
%(9) |
Portfolio Turnover Rate |
|
|
15.57 |
% |
|
|
19.49 |
% |
|
|
8.31 |
% |
|
|
29.04 |
% |
(1) |
For the period from July 30, 2020
(commencement of class operations) through March 31, 2021.
|
(2) |
The Northern Trust Company reimbursed the Fund
less than $1,000. The reimbursements represent less than $0.01 per share
and had no effect on the Fund’s total return.
|
(3) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(4) |
Per share amounts were less than $0.01 per
share. |
(5) |
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. |
(6) |
Annualized for periods less than one year.
|
(7) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $28,000, $12,000, $1,000 and $2,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2022 and for the period
July 30, 2020 (commencement of class operations) to March 31,
2021, respectively. Subject to the contractual expense limitation and
absent the additional reimbursements, net investment income and
reimbursements would have been decreased and net expenses would have been
increased by a corresponding amount. |
(8) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(9) |
As the Fund commenced operation of Class K
shares on July 30, 2020, annualized net investment income may not be
reflective of actual amounts the Fund might obtain in a full year of
operation. |
|
| |
276 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
GLOBAL
SUSTAINABILITY INDEX FUND |
|
|
|
|
CLASS I |
|
|
|
|
|
|
|
Selected per share data |
|
YEAR ENDED MARCH 31, 2024 |
|
|
YEAR ENDED MARCH 31, 2023 |
|
|
YEAR ENDED MARCH 31, 2022 |
|
|
PERIOD ENDED MARCH 31, 2021(1) |
|
Net Asset
Value, Beginning of Period |
|
|
$17.91 |
|
|
|
$19.56 |
|
|
|
$18.66 |
|
|
|
$15.50 |
|
INCOME FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.24 |
|
|
|
0.29 |
|
|
|
0.23 |
(2) |
|
|
0.19 |
|
Net realized and unrealized gains
(losses) |
|
|
4.58 |
|
|
|
(1.62 |
) |
|
|
1.77 |
|
|
|
3.26 |
|
Total
from Investment Operations |
|
|
4.82 |
|
|
|
(1.33 |
) |
|
|
2.00 |
|
|
|
3.45 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(3) |
|
|
(0.32 |
) |
|
|
(0.26 |
) |
|
|
(0.28 |
) |
|
|
(0.29 |
) |
From net realized gains |
|
|
— |
|
|
|
(0.06 |
) |
|
|
(0.82 |
) |
|
|
— |
(4) |
Total
Distributions Paid |
|
|
(0.32 |
) |
|
|
(0.32 |
) |
|
|
(1.10 |
) |
|
|
(0.29 |
) |
Net Asset Value, End of Period |
|
|
$22.41 |
|
|
|
$17.91 |
|
|
|
$19.56 |
|
|
|
$18.66 |
|
Total
Return(5) |
|
|
27.11 |
% |
|
|
(6.72 |
)% |
|
|
10.47 |
% |
|
|
22.35 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of period |
|
|
$1,289,065 |
|
|
|
$793,201 |
|
|
|
$732,245 |
|
|
|
$474,771 |
|
Ratio to average net assets of:(6) |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(7) |
|
|
0.29 |
%(8) |
|
|
0.29 |
% |
|
|
0.29 |
% |
|
|
0.30 |
% |
Expenses,
before reimbursements and credits |
|
|
0.29 |
% |
|
|
0.29 |
% |
|
|
0.29 |
% |
|
|
0.31 |
% |
Net
investment income, net of reimbursements and credits(7) |
|
|
1.62 |
%(8) |
|
|
1.83 |
% |
|
|
1.48 |
% |
|
|
1.57 |
%(9) |
Net
investment income, before reimbursements and credits |
|
|
1.62 |
% |
|
|
1.83 |
% |
|
|
1.48 |
% |
|
|
1.56 |
%(9) |
Portfolio Turnover Rate |
|
|
15.57 |
% |
|
|
19.49 |
% |
|
|
8.31 |
% |
|
|
29.04 |
% |
(1) |
For the period from July 30, 2020
(commencement of class operations) through March 31, 2021.
|
(2) |
The Northern Trust Company reimbursed the Fund
less than $1,000. The reimbursements represent less than $0.01 per share
and had no effect on the Fund’s total return.
|
(3) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(4) |
Per share amounts were less than $0.01 per
share. |
(5) |
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. |
(6) |
Annualized for periods less than one year.
|
(7) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $34,000, $12,000, $1,000 and $2,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2022 and for the period
July 30, 2020 (commencement of class operations) to March 31,
2021, respectively. Subject to the contractual expense limitation and
absent the additional reimbursements, net investment income and
reimbursements would have been decreased and net expenses would have been
increased by a corresponding amount. |
(8) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(9) |
As the Fund commenced operation of Class I
shares on July 30, 2020, annualized net investment income may not be
reflective of actual amounts the Fund might obtain in a full year of
operation. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
277 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BOND
INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.31 |
|
|
|
$10.04 |
|
|
|
$10.75 |
|
|
|
$11.05 |
|
|
|
$10.45 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.31 |
|
|
|
0.24 |
|
|
|
0.19 |
|
|
|
0.22 |
|
|
|
0.28 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.17 |
) |
|
|
(0.72 |
) |
|
|
(0.63 |
) |
|
|
(0.17 |
) |
|
|
0.65 |
|
Total
from Investment Operations |
|
|
0.14 |
|
|
|
(0.48 |
) |
|
|
(0.44 |
) |
|
|
0.05 |
|
|
|
0.93 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.31 |
) |
|
|
(0.25 |
) |
|
|
(0.22 |
) |
|
|
(0.25 |
) |
|
|
(0.30 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.05 |
) |
|
|
(0.10 |
) |
|
|
(0.03 |
) |
Total
Distributions Paid |
|
|
(0.31 |
) |
|
|
(0.25 |
) |
|
|
(0.27 |
) |
|
|
(0.35 |
) |
|
|
(0.33 |
) |
Net Asset Value, End of Year |
|
|
$9.14 |
|
|
|
$9.31 |
|
|
|
$10.04 |
|
|
|
$10.75 |
|
|
|
$11.05 |
|
Total
Return(1) |
|
|
1.60 |
% |
|
|
(4.77 |
)% |
|
|
(4.22 |
)% |
|
|
0.36 |
% |
|
|
9.01 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$2,357,166 |
|
|
|
$2,181,197 |
|
|
|
$2,677,710 |
|
|
|
$3,252,218 |
|
|
|
$2,936,072 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.07 |
%(2) |
|
|
0.11 |
%(3) |
|
|
0.15 |
%(3) |
|
|
0.15 |
%(3) |
|
|
0.15 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.12 |
% |
|
|
0.15 |
% |
|
|
0.19 |
% |
|
|
0.19 |
% |
|
|
0.18 |
% |
Net
investment income, net of reimbursements and credits |
|
|
3.37 |
%(2) |
|
|
2.53 |
%(3) |
|
|
1.77 |
%(3) |
|
|
1.91 |
%(3) |
|
|
2.63 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
3.32 |
% |
|
|
2.49 |
% |
|
|
1.73 |
% |
|
|
1.87 |
% |
|
|
2.60 |
% |
Portfolio Turnover Rate |
|
|
47.00 |
% |
|
|
45.33 |
% |
|
|
48.74 |
% |
|
|
75.38 |
% |
|
|
53.74 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $27,000, $1,000, $92,000 and $83,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2023, 2022, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
278 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CORE
BOND FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.06 |
|
|
|
$9.82 |
|
|
|
$10.43 |
|
|
|
$10.47 |
|
|
|
$10.08 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.33 |
|
|
|
0.25 |
|
|
|
0.13 |
|
|
|
0.15 |
|
|
|
0.23 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.18 |
) |
|
|
(0.74 |
) |
|
|
(0.56 |
) |
|
|
0.18 |
|
|
|
0.43 |
|
Total
from Investment Operations |
|
|
0.15 |
|
|
|
(0.49 |
) |
|
|
(0.43 |
) |
|
|
0.33 |
|
|
|
0.66 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.34 |
) |
|
|
(0.27 |
) |
|
|
(0.18 |
) |
|
|
(0.19 |
) |
|
|
(0.27 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.18 |
) |
|
|
— |
|
Total
Distributions Paid |
|
|
(0.34 |
) |
|
|
(0.27 |
) |
|
|
(0.18 |
) |
|
|
(0.37 |
) |
|
|
(0.27 |
) |
Net Asset Value, End of Year |
|
|
$8.87 |
|
|
|
$9.06 |
|
|
|
$9.82 |
|
|
|
$10.43 |
|
|
|
$10.47 |
|
Total
Return(1) |
|
|
1.77 |
% |
|
|
(4.92 |
)% |
|
|
(4.18 |
)% |
|
|
3.08 |
% |
|
|
6.57 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$91,706 |
|
|
|
$112,206 |
|
|
|
$189,112 |
|
|
|
$253,092 |
|
|
|
$194,834 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.41 |
%(3) |
|
|
0.41 |
% |
|
|
0.41 |
% |
|
|
0.40 |
% |
|
|
0.41 |
% |
Expenses,
before reimbursements and credits |
|
|
0.51 |
% |
|
|
0.49 |
% |
|
|
0.47 |
% |
|
|
0.47 |
% |
|
|
0.47 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
3.78 |
%(3) |
|
|
2.84 |
% |
|
|
1.32 |
% |
|
|
1.26 |
% |
|
|
2.33 |
% |
Net
investment income, before reimbursements and credits |
|
|
3.68 |
% |
|
|
2.76 |
% |
|
|
1.26 |
% |
|
|
1.19 |
% |
|
|
2.27 |
% |
Portfolio Turnover Rate |
|
|
78.68 |
% |
|
|
247.32 |
% |
|
|
319.16 |
% |
|
|
326.11 |
% |
|
|
485.45 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $6,000, $6,000, $1,000, $10,000 and $15,000,
which represent less than 0.01 percent of average net assets for the
fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
279 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FIXED
INCOME FUND |
|
|
|
|
SHARES |
|
|
|
|
|
|
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.02 |
|
|
|
$9.84 |
|
|
|
$10.45 |
|
|
|
$10.18 |
|
|
|
$9.97 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.34 |
|
|
|
0.28 |
|
|
|
0.20 |
(1) |
|
|
0.19 |
|
|
|
0.27 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.15 |
) |
|
|
(0.80 |
) |
|
|
(0.56 |
) |
|
|
0.38 |
|
|
|
0.24 |
|
Total
from Investment Operations |
|
|
0.19 |
|
|
|
(0.52 |
) |
|
|
(0.36 |
) |
|
|
0.57 |
|
|
|
0.51 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(2) |
|
|
(0.35 |
) |
|
|
(0.30 |
) |
|
|
(0.25 |
) |
|
|
(0.24 |
) |
|
|
(0.30 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.06 |
) |
|
|
— |
|
Total
Distributions Paid |
|
|
(0.35 |
) |
|
|
(0.30 |
) |
|
|
(0.25 |
) |
|
|
(0.30 |
) |
|
|
(0.30 |
) |
Net Asset Value, End of Year |
|
|
$8.86 |
|
|
|
$9.02 |
|
|
|
$9.84 |
|
|
|
$10.45 |
|
|
|
$10.18 |
|
Total
Return(3) |
|
|
2.20 |
% |
|
|
(5.23 |
)% |
|
|
(3.58 |
)% |
|
|
5.63 |
%(4) |
|
|
5.11 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$347,529 |
|
|
|
$481,875 |
|
|
|
$696,741 |
|
|
|
$822,261 |
|
|
|
$841,826 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(5) |
|
|
0.45 |
%(6) |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.45 |
% |
Expenses,
before reimbursements and credits |
|
|
0.51 |
% |
|
|
0.50 |
% |
|
|
0.49 |
% |
|
|
0.49 |
% |
|
|
0.49 |
% |
Net
investment income, net of reimbursements and credits(5) |
|
|
3.82 |
%(6) |
|
|
3.17 |
% |
|
|
1.95 |
% |
|
|
1.83 |
% |
|
|
2.66 |
% |
Net
investment income, before reimbursements and credits |
|
|
3.76 |
% |
|
|
3.12 |
% |
|
|
1.91 |
% |
|
|
1.79 |
% |
|
|
2.62 |
% |
Portfolio Turnover Rate |
|
|
81.39 |
% |
|
|
188.84 |
% |
|
|
248.30 |
% |
|
|
261.29 |
% |
|
|
439.40 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
less than $1,000. The reimbursements represent less than $0.01 per share.
Without theses reimbursements, the total return would have been ‑3.59%.
|
(2) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(3) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(4) |
During the fiscal year ended March 31,
2021, the Fund received monies related to certain nonrecurring litigation
proceeds. If these monies were not received, the total return would have
been 5.62%. |
(5) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $13,000, $18,000, less than $1,000 and
approximately $25,000 and $55,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(6) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
280 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
HIGH
YIELD FIXED INCOME FUND |
|
|
|
|
SHARES |
|
|
|
|
|
|
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$5.75 |
|
|
|
$6.39 |
|
|
|
$6.78 |
|
|
|
$5.57 |
|
|
|
$6.60 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.39 |
|
|
|
0.35 |
|
|
|
0.35 |
(1) |
|
|
0.36 |
|
|
|
0.40 |
|
Net realized and unrealized gains
(losses) |
|
|
0.24 |
|
|
|
(0.62 |
) |
|
|
(0.38 |
) |
|
|
1.21 |
|
|
|
(1.02 |
) |
Total
from Investment Operations |
|
|
0.63 |
|
|
|
(0.27 |
) |
|
|
(0.03 |
) |
|
|
1.57 |
|
|
|
(0.62 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(2) |
|
|
(0.40 |
) |
|
|
(0.37 |
) |
|
|
(0.36 |
) |
|
|
(0.36 |
) |
|
|
(0.41 |
) |
Total
Distributions Paid |
|
|
(0.40 |
) |
|
|
(0.37 |
) |
|
|
(0.36 |
) |
|
|
(0.36 |
) |
|
|
(0.41 |
) |
Net Asset Value, End of Year |
|
|
$5.98 |
|
|
|
$5.75 |
|
|
|
$6.39 |
|
|
|
$6.78 |
|
|
|
$5.57 |
|
Total
Return(3) |
|
|
11.28 |
% |
|
|
(4.08 |
)% |
|
|
(0.61 |
)% |
|
|
28.40 |
% |
|
|
(9.96 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$2,670,169 |
|
|
|
$2,846,355 |
|
|
|
$3,879,135 |
|
|
|
$3,330,270 |
|
|
|
$3,153,247 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(4) |
|
|
0.60 |
%(5) |
|
|
0.68 |
% |
|
|
0.78 |
% |
|
|
0.78 |
% |
|
|
0.78 |
% |
Expenses,
before reimbursements and credits |
|
|
0.64 |
% |
|
|
0.72 |
% |
|
|
0.83 |
% |
|
|
0.83 |
% |
|
|
0.82 |
% |
Net
investment income, net of reimbursements and credits(4) |
|
|
6.70 |
%(5) |
|
|
6.15 |
% |
|
|
5.17 |
% |
|
|
5.62 |
% |
|
|
6.10 |
% |
Net
investment income, before reimbursements and credits |
|
|
6.66 |
% |
|
|
6.11 |
% |
|
|
5.12 |
% |
|
|
5.57 |
% |
|
|
6.06 |
% |
Portfolio Turnover Rate |
|
|
33.79 |
% |
|
|
20.68 |
% |
|
|
30.32 |
% |
|
|
54.82 |
% |
|
|
47.65 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $8,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(3) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(4) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $126,000, $186,000, $9,000, $70,000 and
$94,000, which represent less than 0.01 percent of average net assets
for the fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(5) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
281 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
SHORT
BOND FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$17.98 |
|
|
|
$18.30 |
|
|
|
$19.06 |
|
|
|
$18.59 |
|
|
|
$18.67 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.57 |
|
|
|
0.33 |
|
|
|
0.20 |
|
|
|
0.32 |
|
|
|
0.45 |
|
Net realized and unrealized gains
(losses) |
|
|
0.10 |
|
|
|
(0.31 |
) |
|
|
(0.74 |
) |
|
|
0.49 |
|
|
|
(0.07 |
) |
Total
from Investment Operations |
|
|
0.67 |
|
|
|
0.02 |
|
|
|
(0.54 |
) |
|
|
0.81 |
|
|
|
0.38 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.59 |
) |
|
|
(0.34 |
) |
|
|
(0.22 |
) |
|
|
(0.34 |
) |
|
|
(0.46 |
) |
Total
Distributions Paid |
|
|
(0.59 |
) |
|
|
(0.34 |
) |
|
|
(0.22 |
) |
|
|
(0.34 |
) |
|
|
(0.46 |
) |
Net Asset Value, End of Year |
|
|
$18.06 |
|
|
|
$17.98 |
|
|
|
$18.30 |
|
|
|
$19.06 |
|
|
|
$18.59 |
|
Total
Return(1) |
|
|
3.78 |
% |
|
|
0.20 |
% |
|
|
(2.88 |
)% |
|
|
4.34 |
% |
|
|
2.04 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$271,751 |
|
|
|
$339,725 |
|
|
|
$425,415 |
|
|
|
$437,099 |
|
|
|
$371,803 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.40 |
%(3) |
|
|
0.40 |
% |
|
|
0.40 |
% |
|
|
0.40 |
% |
|
|
0.40 |
% |
Expenses,
before reimbursements and credits |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.44 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
3.18 |
%(3) |
|
|
1.86 |
% |
|
|
1.05 |
% |
|
|
1.64 |
% |
|
|
2.40 |
% |
Net
investment income, before reimbursements and credits |
|
|
3.13 |
% |
|
|
1.81 |
% |
|
|
1.00 |
% |
|
|
1.59 |
% |
|
|
2.36 |
% |
Portfolio Turnover Rate |
|
|
78.89 |
% |
|
|
76.98 |
% |
|
|
45.52 |
% |
|
|
57.85 |
% |
|
|
95.09 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $8,000, $16,000, $10,000, $6,000 and
$10,000, which represent less than 0.01 percent of average net assets
for the fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
282 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LIMITED
TERM U.S. GOVERNMENT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.29 |
|
|
|
$9.55 |
|
|
|
$10.02 |
|
|
|
$10.06 |
|
|
|
$9.60 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.26 |
|
|
|
0.20 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.14 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.07 |
) |
|
|
(0.26 |
) |
|
|
(0.46 |
) |
|
|
(0.03 |
) |
|
|
0.47 |
|
Total
from Investment Operations |
|
|
0.19 |
|
|
|
(0.06 |
) |
|
|
(0.45 |
) |
|
|
(0.02 |
) |
|
|
0.61 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.26 |
) |
|
|
(0.20 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.15 |
) |
Total
Distributions Paid |
|
|
(0.26 |
) |
|
|
(0.20 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.15 |
) |
Net Asset Value, End of Year |
|
|
$9.22 |
|
|
|
$9.29 |
|
|
|
$9.55 |
|
|
|
$10.02 |
|
|
|
$10.06 |
|
Total
Return(1) |
|
|
2.11 |
% |
|
|
(0.58 |
)% |
|
|
(4.43 |
)% |
|
|
(0.26 |
)% |
|
|
6.34 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$29,455 |
|
|
|
$54,473 |
|
|
|
$47,975 |
|
|
|
$63,809 |
|
|
|
$58,501 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.42 |
%(2)(3) |
|
|
0.42 |
%(3) |
|
|
0.42 |
% |
|
|
0.41 |
%(3) |
|
|
0.42 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.64 |
% |
|
|
0.58 |
% |
|
|
0.58 |
% |
|
|
0.54 |
% |
|
|
0.62 |
% |
Net
investment income, net of reimbursements and credits |
|
|
2.83 |
%(2)(3) |
|
|
2.20 |
%(3) |
|
|
0.17 |
% |
|
|
0.02 |
%(3) |
|
|
1.41 |
%(3) |
Net
investment income (loss), before reimbursements and credits |
|
|
2.61 |
% |
|
|
2.04 |
% |
|
|
0.01 |
% |
|
|
(0.11 |
)% |
|
|
1.21 |
% |
Portfolio Turnover Rate |
|
|
46.49 |
% |
|
|
335.99 |
% |
|
|
411.02 |
% |
|
|
445.85 |
% |
|
|
838.97 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of less than $1,000, approximately $4,000, $4,000 and $8,000,
which represent less than 0.01 percent of average net assets for the
fiscal years ended March 31, 2024, 2023, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
283 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TAX-ADVANTAGED ULTRA-SHORT FIXED INCOME
FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$10.01 |
|
|
|
$10.01 |
|
|
|
$10.21 |
|
|
|
$10.14 |
|
|
|
$10.14 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.30 |
|
|
|
0.15 |
|
|
|
0.05 |
|
|
|
0.08 |
|
|
|
0.16 |
|
Net realized and unrealized gains
(losses) |
|
|
0.12 |
|
|
|
— |
|
|
|
(0.19 |
) |
|
|
0.08 |
|
|
|
0.01 |
|
Total
from Investment Operations |
|
|
0.42 |
|
|
|
0.15 |
|
|
|
(0.14 |
) |
|
|
0.16 |
|
|
|
0.17 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.30 |
) |
|
|
(0.15 |
) |
|
|
(0.05 |
) |
|
|
(0.08 |
) |
|
|
(0.16 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
Total
Distributions Paid |
|
|
(0.30 |
) |
|
|
(0.15 |
) |
|
|
(0.06 |
) |
|
|
(0.09 |
) |
|
|
(0.17 |
) |
Net Asset Value, End of Year |
|
|
$10.13 |
|
|
|
$10.01 |
|
|
|
$10.01 |
|
|
|
$10.21 |
|
|
|
$10.14 |
|
Total
Return(1) |
|
|
4.23 |
% |
|
|
1.58 |
% |
|
|
(1.41 |
)% |
|
|
1.59 |
% |
|
|
1.61 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$2,505,779 |
|
|
|
$2,379,867 |
|
|
|
$3,993,867 |
|
|
|
$4,861,104 |
|
|
|
$3,737,559 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.25 |
%(2)(3) |
|
|
0.25 |
%(3) |
|
|
0.25 |
% |
|
|
0.25 |
%(3) |
|
|
0.25 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.28 |
% |
|
|
0.28 |
% |
|
|
0.27 |
% |
|
|
0.27 |
% |
|
|
0.27 |
% |
Net
investment income, net of reimbursements and credits |
|
|
2.96 |
%(2)(3) |
|
|
1.48 |
%(3) |
|
|
0.48 |
% |
|
|
0.74 |
%(3) |
|
|
1.52 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
2.93 |
% |
|
|
1.45 |
% |
|
|
0.46 |
% |
|
|
0.72 |
% |
|
|
1.50 |
% |
Portfolio Turnover Rate |
|
|
43.74 |
% |
|
|
43.43 |
% |
|
|
84.82 |
% |
|
|
79.08 |
% |
|
|
70.19 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $215,000, $66,000, $139,000 and $175,000,
which represent 0.01 percent of average net assets for the fiscal
year ended March 31, 2024 and less than 0.01 percent of average
net assets for the fiscal years ended 2023, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
284 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ULTRA-SHORT FIXED INCOME FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$10.03 |
|
|
|
$10.08 |
|
|
|
$10.31 |
|
|
|
$10.10 |
|
|
|
$10.19 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.42 |
|
|
|
0.21 |
|
|
|
0.06 |
|
|
|
0.11 |
|
|
|
0.24 |
|
Net realized and unrealized gains
(losses) |
|
|
0.23 |
|
|
|
(0.04 |
) |
|
|
(0.21 |
) |
|
|
0.23 |
|
|
|
(0.09 |
) |
Total
from Investment Operations |
|
|
0.65 |
|
|
|
0.17 |
|
|
|
(0.15 |
) |
|
|
0.34 |
|
|
|
0.15 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.43 |
) |
|
|
(0.22 |
) |
|
|
(0.06 |
) |
|
|
(0.11 |
) |
|
|
(0.24 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
— |
|
Total
Distributions Paid |
|
|
(0.43 |
) |
|
|
(0.22 |
) |
|
|
(0.08 |
) |
|
|
(0.13 |
) |
|
|
(0.24 |
) |
Net Asset Value, End of Year |
|
|
$10.25 |
|
|
|
$10.03 |
|
|
|
$10.08 |
|
|
|
$10.31 |
|
|
|
$10.10 |
|
Total
Return(1) |
|
|
6.59 |
% |
|
|
1.77 |
% |
|
|
(1.44 |
)% |
|
|
3.29 |
% |
|
|
1.45 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$1,593,840 |
|
|
|
$2,372,561 |
|
|
|
$3,179,581 |
|
|
|
$3,690,747 |
|
|
|
$2,189,187 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.25 |
%(3) |
|
|
0.25 |
% |
|
|
0.25 |
% |
|
|
0.25 |
% |
|
|
0.25 |
% |
Expenses,
before reimbursements and credits |
|
|
0.29 |
% |
|
|
0.28 |
% |
|
|
0.28 |
% |
|
|
0.28 |
% |
|
|
0.28 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
4.14 |
%(3) |
|
|
2.14 |
% |
|
|
0.55 |
% |
|
|
0.94 |
% |
|
|
2.33 |
% |
Net
investment income, before reimbursements and credits |
|
|
4.10 |
% |
|
|
2.11 |
% |
|
|
0.52 |
% |
|
|
0.91 |
% |
|
|
2.30 |
% |
Portfolio Turnover Rate |
|
|
21.16 |
% |
|
|
25.09 |
% |
|
|
76.61 |
% |
|
|
73.99 |
% |
|
|
75.95 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $133,000, $118,000, $7,000, $142,000 and
$43,000, which represent less than 0.01 percent of average net assets
for the fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
285 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S.
GOVERNMENT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$8.87 |
|
|
|
$9.23 |
|
|
|
$9.71 |
|
|
|
$10.17 |
|
|
|
$9.50 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.25 |
|
|
|
0.19 |
|
|
|
0.04 |
|
|
|
0.01 |
|
|
|
0.14 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.11 |
) |
|
|
(0.35 |
) |
|
|
(0.47 |
) |
|
|
(0.16 |
) |
|
|
0.68 |
|
Total
from Investment Operations |
|
|
0.14 |
|
|
|
(0.16 |
) |
|
|
(0.43 |
) |
|
|
(0.15 |
) |
|
|
0.82 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.26 |
) |
|
|
(0.20 |
) |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
|
|
(0.15 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
|
|
(0.28 |
) |
|
|
— |
|
Total
Distributions Paid |
|
|
(0.26 |
) |
|
|
(0.20 |
) |
|
|
(0.05 |
) |
|
|
(0.31 |
) |
|
|
(0.15 |
) |
Net Asset Value, End of Year |
|
|
$8.75 |
|
|
|
$8.87 |
|
|
|
$9.23 |
|
|
|
$9.71 |
|
|
|
$10.17 |
|
Total
Return(1) |
|
|
1.60 |
% |
|
|
(1.72 |
)% |
|
|
(4.48 |
)% |
|
|
(1.58 |
)% |
|
|
8.66 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$24,680 |
|
|
|
$48,751 |
|
|
|
$44,292 |
|
|
|
$53,343 |
|
|
|
$39,379 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.43 |
%(2)(3) |
|
|
0.42 |
%(3) |
|
|
0.43 |
% |
|
|
0.42 |
%(3) |
|
|
0.43 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.63 |
% |
|
|
0.60 |
% |
|
|
0.61 |
% |
|
|
0.57 |
% |
|
|
0.73 |
% |
Net
investment income, net of reimbursements and credits |
|
|
2.75 |
%(2)(3) |
|
|
2.25 |
%(3) |
|
|
0.36 |
% |
|
|
0.11 |
%(3) |
|
|
1.43 |
%(3) |
Net
investment income (loss), before reimbursements and credits |
|
|
2.55 |
% |
|
|
2.07 |
% |
|
|
0.18 |
% |
|
|
(0.04 |
)% |
|
|
1.13 |
% |
Portfolio Turnover Rate |
|
|
59.75 |
% |
|
|
344.21 |
% |
|
|
492.24 |
% |
|
|
517.52 |
% |
|
|
854.95 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $1,000, $5,000, $2,000 and $4,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
286 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S.
TREASURY INDEX FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$19.67 |
|
|
|
$21.02 |
|
|
|
$22.31 |
|
|
|
$23.79 |
|
|
|
$21.43 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.48 |
|
|
|
0.36 |
|
|
|
0.31 |
|
|
|
0.33 |
|
|
|
0.45 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.51 |
) |
|
|
(1.35 |
) |
|
|
(1.10 |
) |
|
|
(1.48 |
) |
|
|
2.36 |
|
Total
from Investment Operations |
|
|
(0.03 |
) |
|
|
(0.99 |
) |
|
|
(0.79 |
) |
|
|
(1.15 |
) |
|
|
2.81 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.48 |
) |
|
|
(0.36 |
) |
|
|
(0.31 |
) |
|
|
(0.33 |
) |
|
|
(0.45 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.19 |
) |
|
|
— |
|
|
|
— |
|
Total
Distributions Paid |
|
|
(0.48 |
) |
|
|
(0.36 |
) |
|
|
(0.50 |
) |
|
|
(0.33 |
) |
|
|
(0.45 |
) |
Net Asset Value, End of Year |
|
|
$19.16 |
|
|
|
$19.67 |
|
|
|
$21.02 |
|
|
|
$22.31 |
|
|
|
$23.79 |
|
Total
Return(1) |
|
|
(0.10 |
)% |
|
|
(4.65 |
)% |
|
|
(3.65 |
)% |
|
|
(4.89 |
)% |
|
|
13.29 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$70,859 |
|
|
|
$81,145 |
|
|
|
$87,117 |
|
|
|
$100,374 |
|
|
|
$103,045 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.16 |
%(3) |
|
|
0.16 |
% |
|
|
0.16 |
% |
|
|
0.16 |
% |
|
|
0.16 |
% |
Expenses,
before reimbursements and credits |
|
|
0.27 |
% |
|
|
0.27 |
% |
|
|
0.27 |
% |
|
|
0.26 |
% |
|
|
0.28 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
2.51 |
%(3) |
|
|
1.86 |
% |
|
|
1.38 |
% |
|
|
1.40 |
% |
|
|
2.04 |
% |
Net
investment income, before reimbursements and credits |
|
|
2.40 |
% |
|
|
1.75 |
% |
|
|
1.27 |
% |
|
|
1.30 |
% |
|
|
1.92 |
% |
Portfolio Turnover Rate |
|
|
24.25 |
% |
|
|
28.48 |
% |
|
|
32.19 |
% |
|
|
59.23 |
% |
|
|
50.28 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $1,000, $1,000, less than $1,000 and
approximately $1,000 and $1,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
287 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ARIZONA
TAX-EXEMPT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.74 |
|
|
|
$10.13 |
|
|
|
$10.86 |
|
|
|
$10.77 |
|
|
|
$10.65 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.32 |
|
|
|
0.30 |
|
|
|
0.23 |
|
|
|
0.25 |
|
|
|
0.28 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.07 |
) |
|
|
(0.39 |
) |
|
|
(0.73 |
) |
|
|
0.09 |
|
|
|
0.12 |
|
Total
from Investment Operations |
|
|
0.25 |
|
|
|
(0.09 |
) |
|
|
(0.50 |
) |
|
|
0.34 |
|
|
|
0.40 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.32 |
) |
|
|
(0.30 |
) |
|
|
(0.23 |
) |
|
|
(0.25 |
) |
|
|
(0.28 |
) |
Total
Distributions Paid |
|
|
(0.32 |
) |
|
|
(0.30 |
) |
|
|
(0.23 |
) |
|
|
(0.25 |
) |
|
|
(0.28 |
) |
Net Asset Value, End of Year |
|
|
$9.67 |
|
|
|
$9.74 |
|
|
|
$10.13 |
|
|
|
$10.86 |
|
|
|
$10.77 |
|
Total
Return(1) |
|
|
2.62 |
% |
|
|
(0.82 |
)% |
|
|
(4.74 |
)% |
|
|
3.19 |
% |
|
|
3.86 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$63,291 |
|
|
|
$77,678 |
|
|
|
$142,101 |
|
|
|
$168,504 |
|
|
|
$135,533 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.47 |
%(3) |
|
|
0.46 |
% |
|
|
0.46 |
% |
|
|
0.46 |
% |
|
|
0.46 |
% |
Expenses,
before reimbursements and credits |
|
|
0.66 |
% |
|
|
0.62 |
% |
|
|
0.60 |
% |
|
|
0.58 |
% |
|
|
0.60 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
3.29 |
%(3) |
|
|
3.03 |
% |
|
|
2.09 |
% |
|
|
2.29 |
% |
|
|
2.56 |
% |
Net
investment income, before reimbursements and credits |
|
|
3.10 |
% |
|
|
2.87 |
% |
|
|
1.95 |
% |
|
|
2.17 |
% |
|
|
2.42 |
% |
Portfolio Turnover Rate |
|
|
5.51 |
% |
|
|
16.84 |
% |
|
|
32.67 |
% |
|
|
17.20 |
% |
|
|
63.33 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $3,000, $5,000, $500, $5,000 and $10,000,
which represent less than 0.01 percent of average net assets for the
fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
288 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CALIFORNIA INTERMEDIATE
TAX-EXEMPT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.89 |
|
|
|
$10.17 |
|
|
|
$10.94 |
|
|
|
$10.74 |
|
|
|
$10.68 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.26 |
|
|
|
0.23 |
|
|
|
0.21 |
|
|
|
0.24 |
|
|
|
0.27 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.04 |
) |
|
|
(0.28 |
) |
|
|
(0.77 |
) |
|
|
0.22 |
|
|
|
0.06 |
|
Total
from Investment Operations |
|
|
0.22 |
|
|
|
(0.05 |
) |
|
|
(0.56 |
) |
|
|
0.46 |
|
|
|
0.33 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.26 |
) |
|
|
(0.23 |
) |
|
|
(0.21 |
) |
|
|
(0.24 |
) |
|
|
(0.27 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.02 |
) |
|
|
— |
(1) |
Total
Distributions Paid |
|
|
(0.26 |
) |
|
|
(0.23 |
) |
|
|
(0.21 |
) |
|
|
(0.26 |
) |
|
|
(0.27 |
) |
Net Asset Value, End of Year |
|
|
$9.85 |
|
|
|
$9.89 |
|
|
|
$10.17 |
|
|
|
$10.94 |
|
|
|
$10.74 |
|
Total
Return(2) |
|
|
2.29 |
% |
|
|
(0.39 |
)% |
|
|
(5.20 |
)% |
|
|
4.29 |
% |
|
|
3.11 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$249,373 |
|
|
|
$273,437 |
|
|
|
$483,410 |
|
|
|
$533,617 |
|
|
|
$493,284 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(3) |
|
|
0.45 |
%(4) |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.45 |
% |
|
|
0.45 |
% |
Expenses,
before reimbursements and credits |
|
|
0.52 |
% |
|
|
0.51 |
% |
|
|
0.51 |
% |
|
|
0.50 |
% |
|
|
0.50 |
% |
Net
investment income, net of reimbursements and credits(3) |
|
|
2.66 |
%(4) |
|
|
2.37 |
% |
|
|
1.95 |
% |
|
|
2.18 |
% |
|
|
2.48 |
% |
Net
investment income, before reimbursements and credits |
|
|
2.59 |
% |
|
|
2.31 |
% |
|
|
1.89 |
% |
|
|
2.13 |
% |
|
|
2.43 |
% |
Portfolio Turnover Rate |
|
|
14.35 |
% |
|
|
4.49 |
% |
|
|
19.44 |
% |
|
|
16.87 |
% |
|
|
31.63 |
% |
(1) |
Per share amounts from distributions paid from
net realized gains were less than $0.01 per share.
|
(2) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $19,000, $17,000, less than $1,000 and
approximately $19,000 and $26,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(4) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
289 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CALIFORNIA TAX-EXEMPT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$10.52 |
|
|
|
$10.91 |
|
|
|
$11.80 |
|
|
|
$11.65 |
|
|
|
$11.56 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.32 |
|
|
|
0.27 |
|
|
|
0.24 |
|
|
|
0.29 |
|
|
|
0.33 |
|
Net realized and unrealized gains
(losses) |
|
|
0.01 |
|
|
|
(0.39 |
) |
|
|
(0.85 |
) |
|
|
0.21 |
|
|
|
0.16 |
|
Total
from Investment Operations |
|
|
0.33 |
|
|
|
(0.12 |
) |
|
|
(0.61 |
) |
|
|
0.50 |
|
|
|
0.49 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.32 |
) |
|
|
(0.27 |
) |
|
|
(0.24 |
) |
|
|
(0.29 |
) |
|
|
(0.33 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.04 |
) |
|
|
(0.06 |
) |
|
|
(0.07 |
) |
Total
Distributions Paid |
|
|
(0.32 |
) |
|
|
(0.27 |
) |
|
|
(0.28 |
) |
|
|
(0.35 |
) |
|
|
(0.40 |
) |
Net Asset Value, End of Year |
|
|
$10.53 |
|
|
|
$10.52 |
|
|
|
$10.91 |
|
|
|
$11.80 |
|
|
|
$11.65 |
|
Total
Return(1) |
|
|
3.25 |
% |
|
|
(1.02 |
)% |
|
|
(5.35 |
)% |
|
|
4.32 |
% |
|
|
4.27 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$150,553 |
|
|
|
$162,392 |
|
|
|
$199,909 |
|
|
|
$218,042 |
|
|
|
$193,318 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.46 |
%(3) |
|
|
0.45 |
% |
|
|
0.46 |
% |
|
|
0.45 |
% |
|
|
0.46 |
% |
Expenses,
before reimbursements and credits |
|
|
0.55 |
% |
|
|
0.55 |
% |
|
|
0.55 |
% |
|
|
0.55 |
% |
|
|
0.55 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
3.09 |
%(3) |
|
|
2.60 |
% |
|
|
2.00 |
% |
|
|
2.46 |
% |
|
|
2.78 |
% |
Net
investment income, before reimbursements and credits |
|
|
3.00 |
% |
|
|
2.50 |
% |
|
|
1.91 |
% |
|
|
2.36 |
% |
|
|
2.69 |
% |
Portfolio Turnover Rate |
|
|
20.78 |
% |
|
|
23.45 |
% |
|
|
30.33 |
% |
|
|
28.48 |
% |
|
|
55.08 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $14,000, $13,000, less than $1,000 and
approximately $9,000 and $16,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
290 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
HIGH
YIELD MUNICIPAL FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$7.37 |
|
|
|
$8.31 |
|
|
|
$8.95 |
|
|
|
$8.31 |
|
|
|
$8.70 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.34 |
|
|
|
0.31 |
|
|
|
0.28 |
|
|
|
0.32 |
|
|
|
0.34 |
|
Net realized and unrealized gains
(losses) |
|
|
0.05 |
|
|
|
(0.94 |
) |
|
|
(0.64 |
) |
|
|
0.64 |
|
|
|
(0.39 |
) |
Total
from Investment Operations |
|
|
0.39 |
|
|
|
(0.63 |
) |
|
|
(0.36 |
) |
|
|
0.96 |
|
|
|
(0.05 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.34 |
) |
|
|
(0.31 |
) |
|
|
(0.28 |
) |
|
|
(0.32 |
) |
|
|
(0.34 |
) |
Total
Distributions Paid |
|
|
(0.34 |
) |
|
|
(0.31 |
) |
|
|
(0.28 |
) |
|
|
(0.32 |
) |
|
|
(0.34 |
) |
Net Asset Value, End of Year |
|
|
$7.42 |
|
|
|
$7.37 |
|
|
|
$8.31 |
|
|
|
$8.95 |
|
|
|
$8.31 |
|
Total
Return(1) |
|
|
5.47 |
% |
|
|
(7.48 |
)% |
|
|
(4.27 |
)% |
|
|
11.75 |
% |
|
|
(0.68 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$339,530 |
|
|
|
$385,439 |
|
|
|
$773,185 |
|
|
|
$598,937 |
|
|
|
$509,834 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(2) |
|
|
0.58 |
%(3) |
|
|
0.59 |
% |
|
|
0.60 |
% |
|
|
0.60 |
% |
|
|
0.60 |
% |
Expenses,
before reimbursements and credits |
|
|
0.64 |
% |
|
|
0.71 |
% |
|
|
0.83 |
% |
|
|
0.84 |
% |
|
|
0.84 |
% |
Net
investment income, net of reimbursements and credits(2) |
|
|
4.64 |
%(3) |
|
|
4.14 |
% |
|
|
3.05 |
% |
|
|
3.71 |
% |
|
|
3.87 |
% |
Net
investment income, before reimbursements and credits |
|
|
4.58 |
% |
|
|
4.02 |
% |
|
|
2.82 |
% |
|
|
3.47 |
% |
|
|
3.63 |
% |
Portfolio Turnover Rate |
|
|
14.76 |
% |
|
|
11.97 |
% |
|
|
21.90 |
% |
|
|
33.75 |
% |
|
|
47.62 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $41,000, $19,000, $1,000, $18,000 and
$24,000, which represent 0.01 percent of average net assets for the
fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(3) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
291 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
INTERMEDIATE TAX-EXEMPT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.85 |
|
|
|
$10.14 |
|
|
|
$10.83 |
|
|
|
$10.68 |
|
|
|
$10.57 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.28 |
|
|
|
0.25 |
|
|
|
0.19 |
|
|
|
0.21 |
|
|
|
0.24 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.06 |
) |
|
|
(0.29 |
) |
|
|
(0.65 |
) |
|
|
0.22 |
|
|
|
0.15 |
|
Total
from Investment Operations |
|
|
0.22 |
|
|
|
(0.04 |
) |
|
|
(0.46 |
) |
|
|
0.43 |
|
|
|
0.39 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.28 |
) |
|
|
(0.25 |
) |
|
|
(0.19 |
) |
|
|
(0.21 |
) |
|
|
(0.24 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.04 |
) |
|
|
(0.07 |
) |
|
|
(0.04 |
) |
Total
Distributions Paid |
|
|
(0.28 |
) |
|
|
(0.25 |
) |
|
|
(0.23 |
) |
|
|
(0.28 |
) |
|
|
(0.28 |
) |
Net Asset Value, End of Year |
|
|
$9.79 |
|
|
|
$9.85 |
|
|
|
$10.14 |
|
|
|
$10.83 |
|
|
|
$10.68 |
|
Total
Return(1) |
|
|
2.29 |
% |
|
|
(0.29 |
)% |
|
|
(4.35 |
)% |
|
|
4.01 |
% |
|
|
3.72 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$1,261,591 |
|
|
|
$1,535,752 |
|
|
|
$2,685,118 |
|
|
|
$3,073,366 |
|
|
|
$3,017,951 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.45 |
%(2)(3) |
|
|
0.45 |
%(3) |
|
|
0.45 |
% |
|
|
0.45 |
%(3) |
|
|
0.45 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.50 |
% |
|
|
0.49 |
% |
|
|
0.48 |
% |
|
|
0.48 |
% |
|
|
0.47 |
% |
Net
investment income, net of reimbursements and credits |
|
|
2.88 |
%(2)(3) |
|
|
2.55 |
%(3) |
|
|
1.73 |
% |
|
|
1.90 |
%(3) |
|
|
2.23 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
2.83 |
% |
|
|
2.51 |
% |
|
|
1.70 |
% |
|
|
1.87 |
% |
|
|
2.21 |
% |
Portfolio Turnover Rate |
|
|
18.08 |
% |
|
|
16.89 |
% |
|
|
79.63 |
% |
|
|
82.72 |
% |
|
|
127.62 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $64,000, $46,000, $104,000 and $267,000,
which represent less than 0.01 percent of average net assets for the
fiscal years ended March 31, 2024, 2023, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
292 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LIMITED
TERM TAX-EXEMPT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.92 |
|
|
|
$9.93 |
|
|
|
$10.43 |
|
|
|
$10.35 |
|
|
|
$10.37 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.21 |
|
|
|
0.16 |
|
|
|
0.09 |
|
|
|
0.12 |
|
|
|
0.18 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.04 |
) |
|
|
(0.01 |
) |
|
|
(0.41 |
) |
|
|
0.24 |
|
|
|
0.04 |
|
Total
from Investment Operations |
|
|
0.17 |
|
|
|
0.15 |
|
|
|
(0.32 |
) |
|
|
0.36 |
|
|
|
0.22 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.21 |
) |
|
|
(0.16 |
) |
|
|
(0.09 |
) |
|
|
(0.12 |
) |
|
|
(0.18 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.09 |
) |
|
|
(0.16 |
) |
|
|
(0.06 |
) |
Total
Distributions Paid |
|
|
(0.21 |
) |
|
|
(0.16 |
) |
|
|
(0.18 |
) |
|
|
(0.28 |
) |
|
|
(0.24 |
) |
Net Asset Value, End of Year |
|
|
$9.88 |
|
|
|
$9.92 |
|
|
|
$9.93 |
|
|
|
$10.43 |
|
|
|
$10.35 |
|
Total
Return(1) |
|
|
1.74 |
% |
|
|
1.59 |
% |
|
|
(3.08 |
)% |
|
|
3.47 |
% |
|
|
2.07 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$429,362 |
|
|
|
$556,226 |
|
|
|
$726,540 |
|
|
|
$917,624 |
|
|
|
$880,475 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.45 |
%(2)(3) |
|
|
0.45 |
%(3) |
|
|
0.45 |
% |
|
|
0.45 |
%(3) |
|
|
0.45 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.50 |
% |
|
|
0.50 |
% |
|
|
0.50 |
% |
|
|
0.50 |
% |
|
|
0.49 |
% |
Net
investment income, net of reimbursements and credits |
|
|
2.11 |
%(2)(3) |
|
|
1.66 |
%(3) |
|
|
0.87 |
% |
|
|
1.11 |
%(3) |
|
|
1.71 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
2.06 |
% |
|
|
1.61 |
% |
|
|
0.82 |
% |
|
|
1.06 |
% |
|
|
1.67 |
% |
Portfolio Turnover Rate |
|
|
16.10 |
% |
|
|
49.86 |
% |
|
|
94.18 |
% |
|
|
98.82 |
% |
|
|
126.29 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $21,000, $30,000, $46,000 and $63,000, which
represent less than 0.01 percent of average net assets for the fiscal
years ended March 31, 2024, 2023, 2021 and 2020, respectively.
Subject to the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
|
| |
NORTHERN FUNDS PROSPECTUS |
|
293 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TAX-EXEMPT FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$9.66 |
|
|
|
$10.19 |
|
|
|
$10.96 |
|
|
|
$10.76 |
|
|
|
$10.63 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.34 |
|
|
|
0.31 |
|
|
|
0.21 |
|
|
|
0.24 |
|
|
|
0.30 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.08 |
) |
|
|
(0.53 |
) |
|
|
(0.72 |
) |
|
|
0.24 |
|
|
|
0.16 |
|
Total
from Investment Operations |
|
|
0.26 |
|
|
|
(0.22 |
) |
|
|
(0.51 |
) |
|
|
0.48 |
|
|
|
0.46 |
|
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income |
|
|
(0.34 |
) |
|
|
(0.31 |
) |
|
|
(0.21 |
) |
|
|
(0.24 |
) |
|
|
(0.30 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.05 |
) |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
Total
Distributions Paid |
|
|
(0.34 |
) |
|
|
(0.31 |
) |
|
|
(0.26 |
) |
|
|
(0.28 |
) |
|
|
(0.33 |
) |
Net Asset Value, End of Year |
|
|
$9.58 |
|
|
|
$9.66 |
|
|
|
$10.19 |
|
|
|
$10.96 |
|
|
|
$10.76 |
|
Total
Return(1) |
|
|
2.73 |
% |
|
|
(2.10 |
)% |
|
|
(4.76 |
)% |
|
|
4.46 |
% |
|
|
4.33 |
% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$756,094 |
|
|
|
$788,997 |
|
|
|
$1,661,137 |
|
|
|
$2,020,291 |
|
|
|
$1,639,701 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits |
|
|
0.45 |
%(2)(3) |
|
|
0.45 |
%(3) |
|
|
0.45 |
% |
|
|
0.45 |
%(3) |
|
|
0.45 |
%(3) |
Expenses,
before reimbursements and credits |
|
|
0.50 |
% |
|
|
0.50 |
% |
|
|
0.49 |
% |
|
|
0.49 |
% |
|
|
0.49 |
% |
Net
investment income, net of reimbursements and credits |
|
|
3.52 |
%(2)(3) |
|
|
3.15 |
%(3) |
|
|
1.93 |
% |
|
|
2.13 |
%(3) |
|
|
2.73 |
%(3) |
Net
investment income, before reimbursements and credits |
|
|
3.47 |
% |
|
|
3.10 |
% |
|
|
1.89 |
% |
|
|
2.09 |
% |
|
|
2.69 |
% |
Portfolio Turnover Rate |
|
|
31.74 |
% |
|
|
19.52 |
% |
|
|
86.00 |
% |
|
|
91.58 |
% |
|
|
122.55 |
% |
(1) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(2) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
(3) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $40,000, $26,000, $118,000 and $183,000,
which represent less than 0.01 percent of average net assets for the
fiscal years ended March 31, 2024 and 2023 and 0.02 percent of
average net assets for the fiscal years ended 2021 and 2020, respectively.
|
|
| |
294 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ACTIVE
M EMERGING MARKETS EQUITY FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$13.40 |
|
|
|
$15.38 |
|
|
|
$22.17 |
|
|
|
$14.61 |
|
|
|
$19.49 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.20 |
|
|
|
0.22 |
|
|
|
0.24 |
(1) |
|
|
0.15 |
(2) |
|
|
0.59 |
|
Net realized and unrealized gains
(losses) |
|
|
1.22 |
|
|
|
(2.09 |
) |
|
|
(2.11 |
) |
|
|
8.93 |
(3) |
|
|
(3.84 |
) |
Total
from Investment Operations |
|
|
1.42 |
|
|
|
(1.87 |
) |
|
|
(1.87 |
) |
|
|
9.08 |
|
|
|
(3.25 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(4) |
|
|
(0.25 |
) |
|
|
(0.11 |
) |
|
|
(0.36 |
) |
|
|
(0.20 |
) |
|
|
(0.88 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(4.56 |
) |
|
|
(1.32 |
) |
|
|
(0.75 |
) |
Total
Distributions Paid |
|
|
(0.25 |
) |
|
|
(0.11 |
) |
|
|
(4.92 |
) |
|
|
(1.52 |
) |
|
|
(1.63 |
) |
Net Asset Value, End of Year |
|
|
$14.57 |
|
|
|
$13.40 |
|
|
|
$15.38 |
|
|
|
$22.17 |
|
|
|
$14.61 |
|
Total
Return(5) |
|
|
10.74 |
% |
|
|
(12.09 |
)%(6) |
|
|
(9.64 |
)% |
|
|
62.55 |
% |
|
|
(18.77 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$158,940 |
|
|
|
$173,307 |
|
|
|
$313,365 |
|
|
|
$438,809 |
|
|
|
$338,370 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(7) |
|
|
1.11 |
%(8) |
|
|
1.10 |
% |
|
|
1.10 |
% |
|
|
1.10 |
% |
|
|
1.10 |
% |
Expenses,
before reimbursements and credits |
|
|
1.41 |
% |
|
|
1.30 |
% |
|
|
1.26 |
% |
|
|
1.25 |
% |
|
|
1.26 |
% |
Net
investment income, net of reimbursements and credits(7) |
|
|
1.45 |
%(8) |
|
|
1.45 |
% |
|
|
1.01 |
% |
|
|
0.72 |
% |
|
|
1.85 |
% |
Net
investment income, before reimbursements and credits |
|
|
1.15 |
% |
|
|
1.25 |
% |
|
|
0.85 |
% |
|
|
0.57 |
% |
|
|
1.69 |
% |
Portfolio Turnover Rate |
|
|
97.82 |
% |
|
|
115.02 |
% |
|
|
99.51 |
% |
|
|
134.29 |
% |
|
|
81.32 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $14,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
The Northern Trust Company reimbursed the Fund
approximately $41,000. The reimbursements represent less than $0.01 per
share. Without these reimbursements, the total return would have been
62.53%. |
(3) |
The Fund received reimbursements from Northern
Trust Investments, Inc. of approximately $3,000. The reimbursements
represents less than $0.01 per share and had no effect on the Fund’s total
return. |
(4) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(5) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(6) |
The Northern Trust Company reimbursed the Fund
less than $1,000. The reimbursements represent less than $0.01 per share
and had no effect on the Fund’s total return.
|
(7) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $10,000, $10,000, less than $1,000 and
approximately $10,000 and $17,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(8) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
295 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ACTIVE
M INTERNATIONAL EQUITY FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$11.34 |
|
|
|
$11.45 |
|
|
|
$12.81 |
|
|
|
$8.09 |
|
|
|
$10.38 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.24 |
|
|
|
0.21 |
|
|
|
0.16 |
(1) |
|
|
0.13 |
(2) |
|
|
0.21 |
|
Net realized and unrealized gains
(losses) |
|
|
1.63 |
|
|
|
(0.16 |
) |
|
|
(0.21 |
) |
|
|
4.69 |
(3) |
|
|
(1.85 |
) |
Total
from Investment Operations |
|
|
1.87 |
|
|
|
0.05 |
|
|
|
(0.05 |
) |
|
|
4.82 |
|
|
|
(1.64 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(4) |
|
|
(0.37 |
) |
|
|
(0.16 |
) |
|
|
(0.20 |
) |
|
|
(0.10 |
) |
|
|
(0.26 |
) |
From net realized gains |
|
|
(0.43 |
) |
|
|
— |
|
|
|
(1.11 |
) |
|
|
— |
|
|
|
(0.39 |
) |
Total
Distributions Paid |
|
|
(0.80 |
) |
|
|
(0.16 |
) |
|
|
(1.31 |
) |
|
|
(0.10 |
) |
|
|
(0.65 |
) |
Net Asset Value, End of Year |
|
|
$12.41 |
|
|
|
$11.34 |
|
|
|
$11.45 |
|
|
|
$12.81 |
|
|
|
$8.09 |
|
Total
Return(5) |
|
|
17.10 |
% |
|
|
0.55 |
% |
|
|
(1.04 |
)% |
|
|
59.61 |
% |
|
|
(17.49 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$486,663 |
|
|
|
$479,178 |
|
|
|
$584,015 |
|
|
|
$683,128 |
|
|
|
$558,183 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(6) |
|
|
0.85 |
%(7) |
|
|
0.85 |
% |
|
|
0.84 |
% |
|
|
0.85 |
% |
|
|
0.85 |
% |
Expenses,
before reimbursements and credits |
|
|
0.93 |
% |
|
|
0.93 |
% |
|
|
0.90 |
% |
|
|
0.92 |
% |
|
|
0.93 |
% |
Net
investment income, net of reimbursements and credits(6) |
|
|
1.81 |
%(7) |
|
|
1.66 |
% |
|
|
1.10 |
% |
|
|
0.93 |
% |
|
|
1.86 |
% |
Net
investment income, before reimbursements and credits |
|
|
1.73 |
% |
|
|
1.58 |
% |
|
|
1.04 |
% |
|
|
0.86 |
% |
|
|
1.78 |
% |
Portfolio Turnover Rate |
|
|
37.54 |
% |
|
|
51.69 |
% |
|
|
41.19 |
% |
|
|
51.34 |
% |
|
|
39.52 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $20,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
The Northern Trust Company reimbursed the Fund
approximately $26,000. The reimbursements represent less than $0.01 per
share. Without these reimbursements, the total return would have been
59.59%. |
(3) |
The Fund received reimbursements from Northern
Trust Investments, Inc. of approximately $6,000. The reimbursements
represents less than $0.01 per share and had no effect on the Fund’s total
return. |
(4) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(5) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(6) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $34,000, $23,000, less than $1,000 and
approximately $17,000 and $45,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(7) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
296 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
MULTI-MANAGER GLOBAL LISTED INFRASTRUCTURE
FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$11.96 |
|
|
|
$13.02 |
|
|
|
$12.92 |
|
|
|
$10.48 |
|
|
|
$12.09 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.32 |
|
|
|
0.26 |
|
|
|
0.32 |
(1) |
|
|
0.21 |
|
|
|
0.31 |
|
Net realized and unrealized gains
(losses) |
|
|
(0.07 |
) |
|
|
(0.85 |
) |
|
|
1.10 |
|
|
|
2.47 |
(2) |
|
|
(1.61 |
) |
Total
from Investment Operations |
|
|
0.25 |
|
|
|
(0.59 |
) |
|
|
1.42 |
|
|
|
2.68 |
|
|
|
(1.30 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(3) |
|
|
(0.34 |
) |
|
|
(0.33 |
) |
|
|
(0.28 |
) |
|
|
(0.20 |
) |
|
|
(0.31 |
) |
From net realized gains |
|
|
— |
|
|
|
(0.14 |
) |
|
|
(1.04 |
) |
|
|
(0.04 |
) |
|
|
— |
|
Total
Distributions Paid |
|
|
(0.34 |
) |
|
|
(0.47 |
) |
|
|
(1.32 |
) |
|
|
(0.24 |
) |
|
|
(0.31 |
) |
Net Asset Value, End of Year |
|
|
$11.87 |
|
|
|
$11.96 |
|
|
|
$13.02 |
|
|
|
$12.92 |
|
|
|
$10.48 |
|
Total
Return(4) |
|
|
2.17 |
% |
|
|
(4.43 |
)% |
|
|
11.46 |
% |
|
|
25.81 |
% |
|
|
(11.09 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$968,716 |
|
|
|
$987,476 |
|
|
|
$1,103,323 |
|
|
|
$1,167,594 |
|
|
|
$896,220 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(5) |
|
|
0.96 |
%(6) |
|
|
0.96 |
% |
|
|
0.97 |
% |
|
|
0.96 |
% |
|
|
0.98 |
% |
Expenses,
before reimbursements and credits |
|
|
1.01 |
% |
|
|
0.99 |
% |
|
|
0.97 |
% |
|
|
0.96 |
% |
|
|
0.98 |
% |
Net
investment income, net of reimbursements and credits(5) |
|
|
2.72 |
%(6) |
|
|
2.27 |
% |
|
|
2.38 |
% |
|
|
1.78 |
% |
|
|
2.45 |
% |
Net
investment income, before reimbursements and credits |
|
|
2.67 |
% |
|
|
2.24 |
% |
|
|
2.38 |
% |
|
|
1.78 |
% |
|
|
2.45 |
% |
Portfolio Turnover Rate |
|
|
48.35 |
% |
|
|
57.83 |
% |
|
|
62.31 |
% |
|
|
60.11 |
% |
|
|
80.41 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $13,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
The Fund received reimbursements from Northern
Trust Investments, Inc. of approximately $5,000. The reimbursements
represents less than $0.01 per share and had no effect on the Fund’s total
return. |
(3) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(4) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(5) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $72,000, $57,000, $1,000, $41,000 and
$77,000, which represent less than 0.01 percent of average net assets
for the fiscal years ended March 31, 2024, 2023, 2022, 2021 and 2020,
respectively. Subject to the contractual expense limitation and absent the
additional reimbursements, net investment income and reimbursements would
have been decreased and net expenses would have been increased by a
corresponding amount. |
(6) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
297 |
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
MULTI-MANAGER GLOBAL REAL ESTATE FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$10.02 |
|
|
|
$12.72 |
|
|
|
$11.37 |
|
|
|
$8.67 |
|
|
|
$11.12 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.22 |
|
|
|
0.24 |
|
|
|
0.15 |
(1) |
|
|
0.21 |
|
|
|
0.29 |
|
Net realized and unrealized gains
(losses) |
|
|
0.52 |
|
|
|
(2.74 |
) |
|
|
1.56 |
|
|
|
2.68 |
(2) |
|
|
(2.28 |
) |
Total
from Investment Operations |
|
|
0.74 |
|
|
|
(2.50 |
) |
|
|
1.71 |
|
|
|
2.89 |
|
|
|
(1.99 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(3) |
|
|
(0.21 |
) |
|
|
(0.20 |
) |
|
|
(0.20 |
) |
|
|
(0.19 |
) |
|
|
(0.46 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
(0.16 |
) |
|
|
— |
|
|
|
— |
|
Total
Distributions Paid |
|
|
(0.21 |
) |
|
|
(0.20 |
) |
|
|
(0.36 |
) |
|
|
(0.19 |
) |
|
|
(0.46 |
) |
Net Asset Value, End of Year |
|
|
$10.55 |
|
|
|
$10.02 |
|
|
|
$12.72 |
|
|
|
$11.37 |
|
|
|
$8.67 |
|
Total
Return(4) |
|
|
7.47 |
% |
|
|
(19.64 |
)% |
|
|
15.03 |
%(5) |
|
|
33.59 |
%(6) |
|
|
(18.86 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$126,353 |
|
|
|
$121,173 |
|
|
|
$204,893 |
|
|
|
$181,192 |
|
|
|
$98,568 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(7) |
|
|
0.92 |
%(8) |
|
|
0.92 |
% |
|
|
0.91 |
% |
|
|
0.92 |
% |
|
|
0.94 |
% |
Expenses,
before reimbursements and credits |
|
|
1.08 |
% |
|
|
1.06 |
% |
|
|
1.00 |
% |
|
|
1.04 |
% |
|
|
1.10 |
% |
Net
investment income, net of reimbursements and credits(7) |
|
|
2.17 |
%(8) |
|
|
2.06 |
% |
|
|
1.20 |
% |
|
|
1.73 |
% |
|
|
2.18 |
% |
Net
investment income, before reimbursements and credits |
|
|
2.01 |
% |
|
|
1.92 |
% |
|
|
1.11 |
% |
|
|
1.61 |
% |
|
|
2.02 |
% |
Portfolio Turnover Rate |
|
|
56.04 |
% |
|
|
59.41 |
% |
|
|
42.01 |
% |
|
|
81.36 |
% |
|
|
62.47 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $1,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
The Fund received reimbursements from Northern
Trust Investments, Inc. of approximately $1,000. The reimbursements
represents less than $0.01 per share and had no effect on the Fund’s total
return. |
(3) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(4) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(5) |
During the fiscal year ended March 31,
2022, the Fund received monies related to certain nonrecurring litigation
proceeds. If these monies were not received, the total return would have
been 14.55%. |
(6) |
During the fiscal year ended March 31,
2021, the Fund received monies related to certain nonrecurring litigation
proceeds. If these monies were not received, the total return would have
been 33.09%. |
(7) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $9,000, $7,000, less than $1,000 and
approximately $6,000 and $5,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(8) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
298 |
|
NORTHERN FUNDS
PROSPECTUS |
FOR
THE FISCAL YEARS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
MULTI-MANAGER HIGH
YIELD OPPORTUNITY FUND |
|
SHARES |
|
Selected per share data |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Net Asset
Value, Beginning of Year |
|
|
$8.21 |
|
|
|
$9.05 |
|
|
|
$9.41 |
|
|
|
$7.97 |
|
|
|
$9.56 |
|
INCOME (LOSS) FROM INVESTMENT
OPERATIONS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net investment income |
|
|
0.64 |
|
|
|
0.48 |
|
|
|
0.44 |
(1) |
|
|
0.58 |
|
|
|
0.63 |
|
Net realized and unrealized gains
(losses) |
|
|
0.23 |
|
|
|
(0.84 |
) |
|
|
(0.33 |
) |
|
|
1.46 |
|
|
|
(1.59 |
) |
Total
from Investment Operations |
|
|
0.87 |
|
|
|
(0.36 |
) |
|
|
0.11 |
|
|
|
2.04 |
|
|
|
(0.96 |
) |
LESS DISTRIBUTIONS
PAID: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
From net investment income(2) |
|
|
(0.65 |
) |
|
|
(0.48 |
) |
|
|
(0.47 |
) |
|
|
(0.60 |
) |
|
|
(0.63 |
) |
From net realized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
Distributions Paid |
|
|
(0.65 |
) |
|
|
(0.48 |
) |
|
|
(0.47 |
) |
|
|
(0.60 |
) |
|
|
(0.63 |
) |
Net Asset Value, End of Year |
|
|
$8.43 |
|
|
|
$8.21 |
|
|
|
$9.05 |
|
|
|
$9.41 |
|
|
|
$7.97 |
|
Total
Return(3) |
|
|
11.11 |
% |
|
|
(3.80 |
)% |
|
|
1.06 |
% |
|
|
26.25 |
% |
|
|
(10.79 |
)% |
SUPPLEMENTAL DATA AND
RATIOS: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Net assets, in thousands, end of year |
|
|
$189,611 |
|
|
|
$214,736 |
|
|
|
$180,833 |
|
|
|
$174,617 |
|
|
|
$214,288 |
|
Ratio to average net assets of: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
Expenses,
net of reimbursements and credits(4) |
|
|
0.74 |
%(5) |
|
|
0.85 |
% |
|
|
0.86 |
% |
|
|
0.85 |
% |
|
|
0.86 |
% |
Expenses,
before reimbursements and credits |
|
|
0.83 |
% |
|
|
0.94 |
% |
|
|
0.95 |
% |
|
|
0.95 |
% |
|
|
0.95 |
% |
Net
investment income, net of reimbursements and credits(4) |
|
|
7.76 |
%(5) |
|
|
5.80 |
% |
|
|
4.68 |
% |
|
|
6.27 |
% |
|
|
6.57 |
% |
Net
investment income, before reimbursements and credits |
|
|
7.67 |
% |
|
|
5.71 |
% |
|
|
4.59 |
% |
|
|
6.17 |
% |
|
|
6.48 |
% |
Portfolio Turnover Rate |
|
|
44.77 |
% |
|
|
67.37 |
% |
|
|
64.94 |
% |
|
|
91.41 |
% |
|
|
63.55 |
% |
(1) |
The Northern Trust Company reimbursed the Fund
approximately $1,000. The reimbursements represent less than $0.01 per
share and had no effect on the Fund’s total return.
|
(2) |
Distributions to shareholders from net
investment income include amounts related to foreign currency
transactions, which are treated as ordinary income for federal income tax
purposes. |
(3) |
Assumes investment at net asset value at the
beginning of the year, reinvestment of all dividends and distributions,
and a complete redemption of the investment at net asset value at the end
of the year. |
(4) |
The net expenses and net investment income
ratios include additional reimbursements of management fees incurred in
connection with the investment of uninvested cash in affiliated money
market funds of approximately $14,000, $16,000, less than $1,000 and
approximately $7,000 and $18,000, which represent less than
0.01 percent of average net assets for the fiscal years ended
March 31, 2024, 2023, 2022, 2021 and 2020, respectively. Subject to
the contractual expense limitation and absent the additional
reimbursements, net investment income and reimbursements would have been
decreased and net expenses would have been increased by a corresponding
amount. |
(5) |
The impact on ratios to average net assets due
to any custody credits is less than 0.005%.
|
|
| |
NORTHERN FUNDS PROSPECTUS |
|
299 |
FOR
MORE INFORMATION
ANNUAL/SEMIANNUAL
REPORTS AND STATEMENT OF ADDITIONAL INFORMATION
Additional
information about the Funds’ investments is available in the Funds’ annual and
semiannual reports to shareholders and in Form N-CSR. In the Funds’ annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds’ performance during their last
fiscal year. In Form N-CSR, you will find the Fund’s annual and semi-annual
financial statements.
Additional
information about the Funds and their policies is also available in the Funds’
SAI. The SAI is incorporated by reference into this Prospectus (and is legally
considered part of this Prospectus).
The
Funds’ annual and semiannual reports, the SAI, and other information such as
Fund financial statements are available free upon request by calling the
Northern Funds Center at 800‑595‑9111, by sending an email request to:
northern‑
[email protected], or on Northern Funds’ website at
northerntrust.com/funds. The SAI and other information are available from a
financial intermediary (such as a broker-dealer or bank) through which the
Funds’ shares may be purchased or sold.
TO
OBTAIN OTHER INFORMATION AND FOR SHAREHOLDER INQUIRIES:
BY
TELEPHONE
Call
800-595-9111
BY
MAIL
Northern
Funds
P.O.
Box 75986
Chicago,
Illinois 60675-5986
ON
THE INTERNET
The
Funds’ documents are available online and may be downloaded from:
∎ |
|
The
EDGAR database on the SEC’s website at www.sec.gov
(text-only). |
∎ |
|
Northern
Funds’ website at northerntrust.com/funds. |
Reports
and other information about Northern Funds’ are available on the EDGAR database
on the SEC’s internet site at http://www.sec.gov. You also may obtain copies of
Northern Funds’ documents, after paying a duplicating fee, by electronic
request to:
[email protected].
811-08236
|
|
|
| |
300 |
|
NORTHERN FUNDS PROSPECTUS |
|
NF PRO
COMBO (7/24) |