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Fixed Income:
Almost a bedtime story.
Hey!
Where do you think
you’re going?
The stock market has been
showing signs of life.
And we’re all happy
about that,
And we’re all happy
about that, but
before you consider
rushing back into stocks
can we (please) take a
moment to consider
why you might want to leave
some of your investments in
fixed income.
MUNICIPAL




fixed income.


          HIGH YIELD
MUNICIPAL
              SHORT




 fixed income.
                               SHORT-INTERMEDIATE




ULTRA-SHORT                        INTERMEDIATE


                      HIGH YIELD
U.S. GOVERNMENT

                                             MUNICIPAL
                      SHORT




 fixed income.
                                        SHORT-INTERMEDIATE

              TAX-ADVANTAGED

ULTRA-SHORT                                 INTERMEDIATE


                               HIGH YIELD
We know.
We get it.
Fixed income can’t compete
with the excitement of



                        (yawn)
Rising corporate
earnings
Juicy stock dividends
Charismatic CEOs.
QUESTION:


What’s another word
for thrilling?
ANSWER:




    volat ili t y
Fixed income had its
share of volatility recently.
Fixed income had its
share of volatility recently.


         Psst: Fixed income may also be volatile in the future.
Bonds and bond funds
come with their own risks.
INTEREST RATE RISK




Bonds and bond funds
come with their own risks.
                                       INFLATION RISK



                       DURATION RISK
INTEREST RATE RISK
                             DEFAULT RISK




Bonds and bond funds
come with their own risks.
     CREDIT RISK
                                       INFLATION RISK



                       DURATION RISK
Over the long term,
fixed income could
hardly be accused
of being   thrilling.
Bond Investing Has Avoided Deep Negative Returns
            All-Stock, All-Bond Performance — 1970 to 2008


                      50%

                      40%

                      30%

                      20%
Annual Total Return




                       10%

                        0%

                      –10%

                      –20%

                      –30%                                                               Bonds              Stocks
                      –40%

                      –50%




                                                                                                                                                  2000




                                                                                                                                                                         2006
                                                                                                                                                                  2004




                                                                                                                                                                                 2008
                                                                                                                                                          2002
                                                                                                          1990

                                                                                                                  1992
                                                                   1980




                                                                                  1984




                                                                                                                                          1998
                                                                                                                                  1996
                                                                                          1986

                                                                                                  1988
                                                                           1982
                                    1972
                             1970




                                                           1978




                                                                                                                          1994
                                                   1976
                                           1974




            Past performance is not a guarantee of future results.
            This chart compares the performance of an all-domestic stock portfolio and an all-bond portfolio for the period from January 1, 1970, through December 31, 2008.

            Source: ChartSource, Standard & Poor’s Financial Communications. Domestic stocks are represented by the total returns of Standard & Poor’s Composite Index of 500
            Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by a composite of the total returns of long-term
            U.S. government bonds, derived from yields published by the Federal Reserve, and the Barclays Long-Term Government Bond index (prior to November 2008, the
            Barclays indexes were compiled by Lehman Brothers).
And that’s the way
we like it.
(sigh)
People may like
investing some of their
savings in fixed income
because of what it
may do for them.
Fixed income in a
diversified portfolio could
add that something extra
that may broaden
your world
beyond stocks
of public companies.
LOCAL GOVERNMENTS




beyond stocks
of public companies.
STATE GOVERNMENTS


                    BUILD AMERICA BONDS
LOCAL GOVERNMENTS

      REVENUE BONDS


                                  U.S. TREASURIES


beyond stocks
of public companies.
                              BONDS OF CORPORATIONS
STATE GOVERNMENTS


                      BUILD AMERICA BONDS
And maybe even help cut back
what you pay in taxes.
QUESTION:


Why are you investing?
ANSWER:


Because you want to see
your investments grow.
That’s why you may need
some fixed income.
And bond markets
rally, too!
And when they’re
not rallying
most bonds are
generating income.
Invest in stock and
bond markets together
and you have
the possibility for
growth
Bonds Beat Stocks, Cash and Inflation
Major Asset Classes, Annualized Total Returns — 1988 to 2008
                                                                                                                                                                 Bonds
                                                                                                                                                                 Stocks
                             9.79%                                                                                              9.58%                            Cash
                        10
                                     8.43%                                 8.07%                                                                                 Inflation
                        8

                        6
  Annual Total Return




                                             4.53%
                        4                                                                     3.49%                                                3.30%
                                                     2.82%                                              2.52%                                               2.67%

                        2

                        0

                        –2                                                          –1.38%
                                                                                                                                         –2.19%
                        –4
                                     Past 20 Years                                 Past 10 Years                                         Past 5 Years


Past performance is not a guarantee of future results.
This chart compares the annualized total returns of stocks, bonds and inflation, through December 31, 2008, over the past 5-, 10- and 20-year periods.

Source: ChartSource, Standard & Poor’s Financial Communications. Stocks are represented by the total returns of Standard & Poor’s Composite Index of 500 Stocks,
an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by the total returns of the composite of long-term
government bonds (10+ years), constructed from yields published by the Federal Reserve, and the Barclays Long-Term Government Bond index. Cash is represented by
the composite of the yield of 3-month Treasury bills published by Federal Reserve and the total return of the Barclays 3-Month Treasury Bill index. Inflation is represented
by the change in the Consumer Price Index. Note that prior to November 2008, the Barclays indexes were calculated by Lehman Brothers.
Boring?
Boring?



          (yawn)
We don’t mind putting
you to sleep talking about
fixed income.
We don’t mind putting
you to sleep talking about
fixed income.


                Psst: The show’s almost over.
Because fixed income
is meant to help you
sleep at night.
(zzzzz)
IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and
cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice
see http://www.northerntrust.com/circular230

Risk Considerations
Equity Risk: Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities.
The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.

Bond Risk: Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially
for longer-term issues and in environments of rising interest rates.

U.S. Government Guarantee: U.S. Government guarantees apply only to the underlying securities of certain “government fund” portfolios and not the fund’s shares.

High-Yield Risk: Although a high yield fund’s yield may be higher than that of fixed income funds that purchase higher-rated securities, the potentially higher yield is a function of
the greater risk that a high yield fund’s share price will decline.

Tax-Free/AMT Risk: Tax-exempt funds’ income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax.

Regional Investment Risk: The geographical concentration of a regional fund’s portfolio holdings may involve increased risk.

Diversification alone does not guarantee a profit nor protect against a loss.

There are risks involved in investing including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met.
Risk controls and models do not promise any level of performance or guarantee against loss of principal.

Before investing you should carefully consider the fund’s investment objectives, risks, charges and expenses. This and other information
is in the prospectus, a copy of which may be obtained by calling 877-867-1259. Please read the prospectus carefully before you invest.
Shares of Northern Funds are distributed by Northern Funds Distributors, LLC, Boston, MA 02110, not affiliated with Northern Trust.



                                                                                                                                 NOT FDIC INSURED           May lose value / No bank guarantee
Fixed.ology                                                            SM



       T H E L A N G UAG E O F F I X E D I N C O M E


For information on a variety of fixed-income investing topics, visit
            northerntrustinvestments.com/fixedology

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Fixed Income: Almost A Bedtime Story

  • 1. Fixed Income: Almost a bedtime story.
  • 3. Where do you think you’re going?
  • 4. The stock market has been showing signs of life.
  • 5. And we’re all happy about that,
  • 6. And we’re all happy about that, but
  • 7. before you consider rushing back into stocks
  • 8. can we (please) take a moment to consider
  • 9. why you might want to leave some of your investments in
  • 12. MUNICIPAL SHORT fixed income. SHORT-INTERMEDIATE ULTRA-SHORT INTERMEDIATE HIGH YIELD
  • 13. U.S. GOVERNMENT MUNICIPAL SHORT fixed income. SHORT-INTERMEDIATE TAX-ADVANTAGED ULTRA-SHORT INTERMEDIATE HIGH YIELD
  • 16. Fixed income can’t compete with the excitement of (yawn)
  • 21. ANSWER: volat ili t y
  • 22. Fixed income had its share of volatility recently.
  • 23. Fixed income had its share of volatility recently. Psst: Fixed income may also be volatile in the future.
  • 24. Bonds and bond funds come with their own risks.
  • 25. INTEREST RATE RISK Bonds and bond funds come with their own risks. INFLATION RISK DURATION RISK
  • 26. INTEREST RATE RISK DEFAULT RISK Bonds and bond funds come with their own risks. CREDIT RISK INFLATION RISK DURATION RISK
  • 27. Over the long term,
  • 29. of being thrilling.
  • 30. Bond Investing Has Avoided Deep Negative Returns All-Stock, All-Bond Performance — 1970 to 2008 50% 40% 30% 20% Annual Total Return 10% 0% –10% –20% –30% Bonds Stocks –40% –50% 2000 2006 2004 2008 2002 1990 1992 1980 1984 1998 1996 1986 1988 1982 1972 1970 1978 1994 1976 1974 Past performance is not a guarantee of future results. This chart compares the performance of an all-domestic stock portfolio and an all-bond portfolio for the period from January 1, 1970, through December 31, 2008. Source: ChartSource, Standard & Poor’s Financial Communications. Domestic stocks are represented by the total returns of Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by a composite of the total returns of long-term U.S. government bonds, derived from yields published by the Federal Reserve, and the Barclays Long-Term Government Bond index (prior to November 2008, the Barclays indexes were compiled by Lehman Brothers).
  • 31. And that’s the way we like it.
  • 33. People may like investing some of their savings in fixed income
  • 34. because of what it may do for them.
  • 35. Fixed income in a diversified portfolio could add that something extra
  • 38. LOCAL GOVERNMENTS beyond stocks of public companies. STATE GOVERNMENTS BUILD AMERICA BONDS
  • 39. LOCAL GOVERNMENTS REVENUE BONDS U.S. TREASURIES beyond stocks of public companies. BONDS OF CORPORATIONS STATE GOVERNMENTS BUILD AMERICA BONDS
  • 40. And maybe even help cut back what you pay in taxes.
  • 41. QUESTION: Why are you investing?
  • 42. ANSWER: Because you want to see your investments grow.
  • 43. That’s why you may need some fixed income.
  • 47. Invest in stock and bond markets together
  • 48. and you have the possibility for
  • 50. Bonds Beat Stocks, Cash and Inflation Major Asset Classes, Annualized Total Returns — 1988 to 2008 Bonds Stocks 9.79% 9.58% Cash 10 8.43% 8.07% Inflation 8 6 Annual Total Return 4.53% 4 3.49% 3.30% 2.82% 2.52% 2.67% 2 0 –2 –1.38% –2.19% –4 Past 20 Years Past 10 Years Past 5 Years Past performance is not a guarantee of future results. This chart compares the annualized total returns of stocks, bonds and inflation, through December 31, 2008, over the past 5-, 10- and 20-year periods. Source: ChartSource, Standard & Poor’s Financial Communications. Stocks are represented by the total returns of Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by the total returns of the composite of long-term government bonds (10+ years), constructed from yields published by the Federal Reserve, and the Barclays Long-Term Government Bond index. Cash is represented by the composite of the yield of 3-month Treasury bills published by Federal Reserve and the total return of the Barclays 3-Month Treasury Bill index. Inflation is represented by the change in the Consumer Price Index. Note that prior to November 2008, the Barclays indexes were calculated by Lehman Brothers.
  • 52. Boring? (yawn)
  • 53. We don’t mind putting you to sleep talking about fixed income.
  • 54. We don’t mind putting you to sleep talking about fixed income. Psst: The show’s almost over.
  • 56. is meant to help you sleep at night.
  • 58. IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice see http://www.northerntrust.com/circular230 Risk Considerations Equity Risk: Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. Bond Risk: Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates. U.S. Government Guarantee: U.S. Government guarantees apply only to the underlying securities of certain “government fund” portfolios and not the fund’s shares. High-Yield Risk: Although a high yield fund’s yield may be higher than that of fixed income funds that purchase higher-rated securities, the potentially higher yield is a function of the greater risk that a high yield fund’s share price will decline. Tax-Free/AMT Risk: Tax-exempt funds’ income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax. Regional Investment Risk: The geographical concentration of a regional fund’s portfolio holdings may involve increased risk. Diversification alone does not guarantee a profit nor protect against a loss. There are risks involved in investing including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Before investing you should carefully consider the fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by calling 877-867-1259. Please read the prospectus carefully before you invest. Shares of Northern Funds are distributed by Northern Funds Distributors, LLC, Boston, MA 02110, not affiliated with Northern Trust. NOT FDIC INSURED May lose value / No bank guarantee
  • 59. Fixed.ology SM T H E L A N G UAG E O F F I X E D I N C O M E For information on a variety of fixed-income investing topics, visit northerntrustinvestments.com/fixedology