ANNUAL REPORT - northerntrust.com

1 NORTHERN MONEY MARKET FUNDS. ANNUAL REPORT . M A R C H 31, 2 018. A MESSAGE FROM. BOB BROWNE. CHIEF INVESTMENT OFFICER. The bond market experienced returns of interest rate-sensitive assets, between Powell and his predecessor, headwinds in the 12-month period ended including Treasuries, corporate Janet Yellen. Still, several factors are at March 31, 2018 (the Period ), but the bonds and municipal issues for the full work in determining the extent to which Bloomberg Barclays Aggregate Bond 12-month period ended March 31, 2018. the Federal Reserve will raise Index a measure of performance for High-yield bonds performed interest rates.

2 On one hand, benign domestic, investment-grade somewhat better than investment-grade inflation, the possibility of a trade war bonds nonetheless posted a modest issues, reflecting their higher sensitivity to and increased market volatility could gain of during the period ended economic growth and below-average restrain the Federal Reserve from March 31, 2018. correlation with the direction of interest raising interest rates. Conversely, we Bond market conditions were fairly rates. While rising interest rates can believe the Federal Reserve would stable for the majority of the Period, with eventually take a toll on high yield bonds, require very healthy economic Treasury yields trading in a tight tightening typically needs to occur over a conditions highlighted by faster range through the middle of December.

3 Longer period before there is a growth, rising inflation and agreeable Although the Federal Reserve was in meaningfully negative effect on market investor sentiment to tighten more the midst of an interest rate tightening rate issuers' ability to service their debt. aggressively. cycle, investors generally remained The substantial decline in yield spreads While rising wages are indeed confident that a combination of moderate that has taken place over the past two something to watch, we do not believe growth and muted inflation would allow years has made high yield bonds more that this trend is signaling an upward the Federal Reserve to maintain a expensive, potentially dampening their march in inflation.

4 Generally, as long as gradual approach to raising interest rates. upside potential. higher wages are paired with This backdrop began to change late in The direction of the Federal productivity gains, corporate profit 2017, however, when the passage of a Reserve policy remained a key wild card margins can expand and the markets sweeping tax reform package in the for the market as the Period drew to can remain upbeat. We believe this United States prompted the markets to a close. Specifically, investors remained would open the door for the begin factoring in faster than expected focused on determining how many Federal Reserve to continue raising growth.

5 The wage component of the interest rate hikes may be on tap for the interest rates gradually rather than January 2018 employment REPORT showed remainder of 2018. The presence of a new tightening its policy more quickly in an unexpected increase, sparking fears Chairman of the Board of Governors of order to combat accelerating inflation. that core inflation may finally be set to the Federal Reserve System, Jerome We therefore believe that bonds can rise above the Federal Reserve's 2% Powell, has added some uncertainty. Mr. perform reasonably well during the target level.

6 As a result, the yield on the Powell gave his first public address to the coming months as long as the economy 10-year Treasury note which sat just House Financial Services Committee in remains in the sweet spot of slow, above at the end of November February. His comments were optimistic, steady growth with moderate inflation. 2017 climbed as high as in noting that some of the headwinds the mid-February 2018. Yields subsequently economy faced in previous years Bob Browne moved lower in March 2018, but the have turned into tailwinds. Investors Chief Investment Officer earlier spike was sufficient to depress the largely viewed this as a sign of continuity Northern Trust MONEY MARKET FUNDS.

7 TABLE OF CONTENTS. 2 PORTFOLIO MANAGEMENT COMMENTARY. This REPORT has been prepared for the general 6 STATEMENTS OF ASSETS AND LIABILITIES. information of Northern Funds shareholders. It is not authorized for distribution to 7 STATEMENTS OF OPERATIONS. prospective investors unless accompanied or preceded by a current Northern Funds 8 STATEMENTS OF CHANGES IN NET ASSETS. summary prospectus or prospectus, which contains more complete information about a fund 's investment objectives, risks, fees and 9 FINANCIAL HIGHLIGHTS. expenses. Investors are reminded to read a summary prospectus or prospectus carefully SCHEDULES OF INVESTMENTS.

8 Before investing or sending money. 13 MONEY MARKET fund . This REPORT contains certain forward-looking statements about factors that may affect the Ticker Symbol: NORXX. performance of the funds in the future. These statements are based on Northern Funds' 17 MUNICIPAL MONEY MARKET fund . management predictions and expectations Ticker Symbol: NOMXX. concerning certain future events, such as performance of the economy as a whole and of 28 GOVERNMENT MONEY MARKET fund . specific industry sectors, changes in the levels of interest rates, the impact of developing world Ticker Symbol: NOGXX.

9 Events, and other factors. Management believes these forward-looking statements to be 32 GOVERNMENT SELECT MONEY MARKET fund . reasonable, although they are inherently Ticker Symbol: NOSXX. uncertain and difficult to predict. Actual events may cause adjustments in Northern Funds'. 36 NOTES TO THE FINANCIAL STATEMENTS. management strategies from those currently expected to be employed. 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. You could lose money by investing in the 44 TAX AND DISTRIBUTION INFORMATION. Money Market Funds. Although each of the Money Market Funds seeks to preserve the 45 fund EXPENSES.

10 value of your investment at $ per share, it cannot guarantee it will do so. 46 TRUSTEES AND OFFICERS. The Money Market fund and the Municipal Money Market fund may impose a fee upon 50 INVESTMENT CONSIDERATIONS. the sale of your shares or may temporarily suspend your ability to sell shares if the fund 's 52 FOR MORE INFORMATION. liquidity falls below required minimums because of market conditions or other factors. An investment in a fund is not a deposit of a 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.