NORTHERN FUNDS, 485BPOS, 1996-07-29

NORTHERN FUNDS
485BPOS, 1996-07-29

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<PAGE> 1

As filed with the Securities and Exchange Commission on July 29, 1996

Registration Nos. 33-73404
811-8236
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]

Pre-Effective Amendment No. ___ [ ]

Post-Effective Amendment No. 11 [ X ]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]

Amendment No. 11

Northern Funds
(Exact Name of Registrant as Specified in Charter)

207 E. Buffalo Street
Suite 400
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices)

Registrant's Telephone Number:
1-800-595-9111

Jeffrey A. Dalke, Esquire
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[X] on July 31, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

The Registrant has previously filed a declaration of indefinite registration of
its shares of beneficial interest, $.0001 par value per share, of all classes
of the Registrant, now existing or hereafter created, under the Securities Act
of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. Registrant's Rule 24f-2 Notice with respect to its Money Market
Shares, U.S. Government Money Market Shares, Municipal Money Market Shares,
U.S. Government Select Money Market Shares, California Municipal Money
<PAGE> 2

Market Shares, U.S. Government Shares, Fixed Income Shares, Intermediate
Tax-Exempt Shares, Tax-Exempt Shares, International Fixed Income Shares, Income
Equity Shares, Growth Equity Shares, Select Equity Shares, Small Cap Shares,
International Growth Equity Shares and International Select Equity Shares for
the fiscal year ended March 31, 1996 was filed on May 24, 1996.

<PAGE> 3

This filing includes the Prospectus and Statement of Additional
Information for the Money Market, U.S. Government Money Market, Municipal Money
Market, California Municipal Money Market, U.S. Government Select Money Market,
U.S. Government, Fixed Income, Intermediate Tax-Exempt, Tax-Exempt,
International Fixed Income, Income Equity, Growth Equity, Select Equity, Small
Cap, International Growth Equity, International Select Equity and Technology
Funds.

<PAGE> 4

NORTHERN FUNDS
MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT SELECT MONEY MARKET FUND
CALIFORNIA MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT FUND
FIXED INCOME FUND
INTERMEDIATE TAX-EXEMPT FUND
TAX-EXEMPT FUND
INTERNATIONAL FIXED INCOME FUND
INCOME EQUITY FUND
GROWTH EQUITY FUND
SELECT EQUITY FUND
SMALL CAP FUND
INTERNATIONAL GROWTH EQUITY FUND
INTERNATIONAL SELECT EQUITY FUND
TECHNOLOGY FUND

CROSS REFERENCE SHEET

Pursuant to Rule 485(b)
under the Securities Act of 1933

<TABLE>
<CAPTION>
Form N-1A Item Number Location
- --------------------- --------
<S> <C>
Part A Prospectus Caption
- ------ ------------------

1. Cover Page . . . . . . . . . . . . . . . . . . . Cover Page

2. Synopsis . . . . . . . . . . . . . . . . . . . . Expense Summary

3. Condensed Financial Information . . . . . . . . . Financial Highlights

4. General Description of Registrant . . . . . . . . Cover Page; Investment
Information; Additional Investment
Information, Risks and
Considerations; Management;
Further Information

5. Management of the Fund . . . . . . . . . . . . . Management; Opening an
Account and Purchasing
Shares; Redeeming and
Exchanging Shares

5A. Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . Financial Highlights

6. Capital Stock and Other Securities Opening an Account and Purchasing
Shares; Redeeming and Exchanging
Shares; Distributions and Taxes;
Further Information

7. Purchase of Securities Being Offered Opening an Account and Purchasing
Shares; Redeeming and Exchanging
Shares

8. Redemption or Repurchase . . . . . . . . . . . . Redeeming and Exchanging Shares
</TABLE>
<PAGE> 5

NORTHERN FUNDS

PROSPECTUS
July 31, 1996

Money Market Fund
U.S. Government Money Market Fund
Municipal Money Market Fund
U.S. Government Select Money Market Fund
California Municipal Money Market Fund
U.S. Government Fund
Fixed Income Fund
Intermediate Tax-Exempt Fund
Tax-Exempt Fund
International Fixed Income Fund
Income Equity Fund
Growth Equity Fund
Select Equity Fund
Small Cap Fund
International Growth Equity Fund
International Select Equity Fund
Technology Fund
<PAGE> 6
NORTHERN FUNDS

THE NORTHERN TRUST COMPANY Investment Adviser,
50 S. LaSalle Street Transfer Agent and
Chicago, Illinois 60675 Custodian
1-800-595-9111

The shares offered by this Prospectus represent interests in Northern
Funds, a no-load management investment company consisting of seventeen funds
(the "Funds") designed to offer investors a range of investment opportunities.

Each Fund is advised by The Northern Trust Company ("Northern Trust").
Shares are sold and redeemed without any purchase or redemption charge by
Northern Funds, although Northern Trust and other institutions may charge their
customers for their services in connection with investments.

Northern Funds consists of the following portfolios:

MONEY MARKET FUNDS:
Money Market Fund
U.S. Government Money Market Fund
Municipal Money Market Fund
U.S. Government Select Money Market Fund
California Municipal Money Market Fund

EQUITY FUNDS:
Income Equity Fund
Growth Equity Fund
Select Equity Fund
Small Cap Fund (formerly, Small Cap Growth Fund)
International Growth Equity Fund
International Select Equity Fund
Technology Fund

FIXED INCOME FUNDS:
U.S. Government Fund
Fixed Income Fund
Intermediate Tax-Exempt Fund
Tax-Exempt Fund
International Fixed Income Fund

This Prospectus provides information about the Funds that you should know
before investing. It should be read and retained for future reference.
Further information is included in a statement of additional information dated
July 31, 1996 (the "Additional Statement"), which is incorporated by reference
herein. For a free copy, write to Northern Funds' distributor, Sunstone
Financial Group, Inc., at 207 E. Buffalo Street, Suite 400, Milwaukee,
Wisconsin 53202 or call 1-414-271-5885. The

<PAGE> 7
California Municipal Money Market Fund is not available in certain states.
Please call 1-800-595-9111 to determine availability in your state.

SHARES OF NORTHERN FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED, ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST COMPANY, ITS
PARENT COMPANY OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.

THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND, U.S. GOVERNMENT
MONEY MARKET FUND, MUNICIPAL MONEY MARKET FUND, U.S. GOVERNMENT SELECT MONEY
MARKET FUND OR CALIFORNIA MUNICIPAL MONEY MARKET FUND (TOGETHER, THE "MONEY
MARKET FUNDS") WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.

THE CALIFORNIA MUNICIPAL MONEY MARKET FUND MAY INVEST A SIGNIFICANT
PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER, AND THEREFORE INVESTMENTS IN THIS
FUND MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is July 31, 1996
<PAGE> 8
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXPENSE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . .

INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market Funds . . . . . . . . . . . . . . . . . . . . . . .
Money Market Fund . . . . . . . . . . . . . . . . . . .
U.S. Government Money Market Fund . . . . . . . . . . .
Municipal Money Market Fund . . . . . . . . . . . . . .
U.S. Government Select Money Market Fund . . . . . . . .
California Municipal Money Market Fund . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . .
Fixed Income Funds . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government Fund and Fixed Income Fund . . . . . . .
Intermediate Tax-Exempt Fund and Tax-Exempt Fund . . . .
International Fixed Income Fund . . . . . . . . . . . .
Equity Funds . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Equity Fund . . . . . . . . . . . . . . . . . . .
Growth Equity Fund . . . . . . . . . . . . . . . . . . .
Select Equity Fund . . . . . . . . . . . . . . . . . . .
Small Cap Fund . . . . . . . . . . . . . . . . . . . .
International Growth Equity Fund . . . . . . . . . . . .
International Select Equity Fund . . . . . . . . . . . .
Technology Fund . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . .
California Municipal Money Market Fund -- Additional
Risks and Considerations Regarding California
Investments . . . . . . . . . . . . . . . . . . . . . .
Technology Fund -- Additional Risks and Considerations . . . . .
International Funds -- Further Information . . . . . . . . . . .
Fundamentals of Fixed Income Investing . . . . . . . . . . . . .

ADDITIONAL INVESTMENT INFORMATION, RISKS AND CONSIDERATIONS . . . . . . .
Description of Securities and Investment Techniques . . . . . .
Investment Restrictions . . . . . . . . . . . . . . . . . . . .

OPENING AN ACCOUNT AND PURCHASING SHARES . . . . . . . . . . . . . . . .
Purchasing Shares Directly from the Funds . . . . . . . . . . .
Purchasing Shares Through Northern Trust and Other
Institutions . . . . . . . . . . . . . . . . . . . . . .
Additional Purchase Information . . . . . . . . . . . . . . . .

REDEEMING AND EXCHANGING SHARES . . . . . . . . . . . . . . . . . . . . .
Redeeming and Exchanging Directly from the Funds . . . . . . . .
Redeeming and Exchanging Through Northern Trust and Other
Institutions . . . . . . . . . . . . . . . . . . . . . .

</TABLE>

-i-
<PAGE> 9

<TABLE>
<S> <C>
Additional Redemption and Exchange Information . . . . . . . . .

DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Table . . . . . . . . . . . . . . . . . . . . . . . . . . .

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Trustees . . . . . . . . . . . . . . . . . . . . . . .
Investment Adviser, Transfer Agent and Custodian . . . . . . . .
Administrator and Distributor . . . . . . . . . . . . . . . . .
Service Organizations . . . . . . . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FURTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determining Share Price . . . . . . . . . . . . . . . . . . . .
Advertising Performance . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Reports . . . . . . . . . . . . . . . . . . . . . .
Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . .

</TABLE>

-ii-
<PAGE> 10
HIGHLIGHTS

Q. WHAT IS NORTHERN FUNDS?

A. Northern Funds is an open-end management investment company (commonly
known as a mutual fund) that offers investors the opportunity to
invest in different investment portfolios, each having separate
investment objectives and policies. Northern Funds presently consists
of seventeen portfolios, including money market, domestic and
international fixed income and equity portfolios.

MONEY MARKET FUNDS

MONEY MARKET FUND seeks to maximize current income to the extent
consistent with the preservation of capital and maintenance of
liquidity by investing exclusively in high-quality money market
instruments.

U.S. GOVERNMENT MONEY MARKET FUND seeks to maximize current income to
the extent consistent with the preservation of capital and maintenance
of liquidity by investing exclusively in obligations of the U.S.
Government, its agencies and instrumentalities and related repurchase
agreements.

MUNICIPAL MONEY MARKET FUND seeks, to the extent consistent with the
preservation of capital and prescribed portfolio standards, a high
level of income exempt from regular federal income tax by investing
primarily in municipal instruments.

U.S. GOVERNMENT SELECT MONEY MARKET FUND seeks to maximize current
income to the extent consistent with the preservation of capital and
maintenance of liquidity by investing solely in obligations of the
U.S. Government, its agencies and instrumentalities.

CALIFORNIA MUNICIPAL MONEY MARKET FUND seeks to provide to its
shareholders, to the extent consistent with the preservation of
capital and prescribed portfolio standards, a high level of income
exempt from regular federal income tax and California state personal
income tax.

FIXED INCOME FUNDS

U.S. GOVERNMENT FUND seeks a high level of current income from
investment in U.S. Government securities while maintaining a dollar-
weighted average maturity between one and ten years.

-1-
<PAGE> 11
FIXED INCOME FUND seeks a high level of current income from investment
in fixed income securities while maintaining a dollar-weighted average
maturity between seven and twelve years.

INTERMEDIATE TAX-EXEMPT FUND seeks a high level of current income
exempt from regular federal income tax by investing in municipal
instruments while maintaining a dollar-weighted average maturity
between three and ten years.

TAX-EXEMPT FUND seeks a high level of current income exempt from
regular federal income tax by investing in municipal instruments while
maintaining a dollar-weighted average maturity between ten and thirty
years.

INTERNATIONAL FIXED INCOME FUND seeks to maximize total return
consistent with reasonable risk by investing primarily in bonds and
other fixed income securities of foreign issuers while maintaining a
dollar-weighted average maturity between three and eleven years.

EQUITY FUNDS

INCOME EQUITY FUND seeks a high level of current income by investing
principally in convertible and other equity securities with long- term
capital appreciation as a secondary objective.

GROWTH EQUITY FUND seeks long-term capital appreciation by investing
principally in common and preferred stocks and convertible securities
of growth companies.

SELECT EQUITY FUND seeks long-term capital appreciation by investing
principally in common stocks of growth companies.

SMALL CAP FUND seeks long-term capital appreciation by investing
principally in equity securities of companies with market
capitalizations that are below the median capitalization of stocks
listed on the New York Stock Exchange.

INTERNATIONAL GROWTH EQUITY FUND seeks long-term capital appreciation
by investing principally in equity securities of foreign issuers.

INTERNATIONAL SELECT EQUITY FUND seeks long-term capital appreciation
by investing principally in common stocks of foreign issuers that
Northern Trust believes to be growing more rapidly than their
respective markets.

-2-
<PAGE> 12
TECHNOLOGY FUND seeks long-term capital appreciation by investing
principally in equity securities and securities convertible into
common stock.

Each portfolio is described in further detail in this Prospectus.

Q. WHO ADVISES THE FUNDS?

A. The Northern Trust Company ("Northern Trust"), the principal
subsidiary of Northern Trust Corporation, serves as investment
adviser to Northern Funds. Northern Trust also serves as the Funds'
transfer agent and custodian. Northern Trust administered over
$641.2 billion in assets as of March 31, 1996 in various capacities,
including approximately $114.5 billion for which Northern Trust had
investment management responsibility. See "Management."

Q. HOW DOES ONE BUY AND REDEEM SHARES?

A. Shares of the Funds are distributed by Sunstone Financial Group, Inc.
Shares may be purchased directly from Northern Funds or through a
qualified account at Northern Trust or certain other institutions.
Shares are sold and redeemed without any purchase or redemption charge
by Northern Funds, although Northern Trust and other institutions may
charge their customers for their services in connection with
investments. The minimum initial investment for purchases directly
with Northern Funds is $2,500 ($500 for an IRA; $250 for a spousal
IRA; and $250 under the Automatic Investment Plan). The minimum for
subsequent investments is $50. Northern Trust or other organizations
may impose particular customer account requirements such as minimum
account sizes. Additional share purchase and redemption information
for both purchases and redemptions directly with Northern Funds or
through qualified accounts is provided below under "Opening an Account
and Purchasing Shares" and "Redeeming and Exchanging Shares."

Q. WHAT SHAREHOLDER SERVICES ARE AVAILABLE?

A. Northern Funds offers the advantage of automatic dividend reinvestment
in shares of the same Fund or in another Northern Fund, exchange
privileges among Northern Funds should your investment goals change,
telephone exchange and redemption privileges, an Automatic Investment
Plan (with a reduced minimum initial investment) and a Systematic
Withdrawal Plan. See "Opening an Account and Purchasing Shares" and
"Redeeming and Exchanging Shares." Shares of Northern Funds may be
purchased in connection with a variety of tax-sheltered retirement
plans. See "Further Information -- Retirement Plans."

-3-
<PAGE> 13
Q. WHEN ARE DISTRIBUTIONS MADE?

A. Dividends from the net investment income of the Money Market Funds,
the U.S. Government Fund, the Fixed Income Fund, the Intermediate
Tax-Exempt Fund and the Tax-Exempt Fund are declared daily and paid
monthly. Dividends of the International Fixed Income Fund are
declared daily and paid quarterly. Dividends of the other Funds are
declared and paid as follows: Income Equity Fund -- monthly; Growth
Equity Fund -- quarterly; Select Equity Fund, Small Cap Fund,
International Growth Equity Fund, International Select Equity Fund and
Technology Fund -- annually.

Net realized capital gains of each Fund are distributed at least
annually. See "Distributions and Taxes."

Q. WHAT ARE THE POTENTIAL RISKS PRESENTED BY THE FUNDS' INVESTMENT
PRACTICES?

A. Investing in the Funds involves the risks common to any investment in
securities. The market value of fixed income securities, which
constitutes a major part of the investments of several of the Funds,
will generally vary inversely with changes in prevailing interest
rates as described below under "Investment Information --Fundamentals
of Fixed Income Investing." The fixed income funds will invest in
securities rated investment grade or higher, or will be unrated
securities of comparable quality. However, the international funds
may invest up to 5%, and the equity funds may invest up to 10% of
their total assets (35% for the Income Equity Fund), in convertible
securities rated below investment grade. Several of the Funds may
invest a substantial portion of their assets in foreign securities
directly, and indirectly through the purchase of European Depository
Receipts ("EDRs") and American Depository Receipts ("ADRs"). These
Funds may also enter into foreign currency exchange contracts.
Foreign securities may be subject to certain risks in addition to
those inherent in U.S. investments, including the possible imposition
of exchange control regulations, freezes on convertibility of currency
and adverse changes in foreign currency exchange rates. The
International Fixed Income Fund, as well as Northern Funds' two other
international investment portfolios, may concentrate its investments
in issuers located in certain industrialized countries and may also
invest in issuers located in emerging countries.

Certain risks are presented by the California Municipal Money Market
Fund as a result of its investments in California Municipal
Instruments. See "California Municipal Money Market Fund - Additional
Risks and Considerations Regarding California Investments." In

-4-
<PAGE> 14

addition, the California Municipal Money Market and International
Fixed Income Funds are non-diversified funds which means their
portfolios can be dependent upon the performance of a smaller number
of securities than is the case with the other Funds which are
diversified funds. Each Fund (other than the Money Market Funds) may
engage in certain transactions involving puts and calls. Further,
certain of the Funds may invest in the stocks of smaller companies
which present greater risk and price volatility. The Funds may lend
their securities and enter into repurchase agreements and reverse
repurchase agreements with qualifying banks and broker/dealers which
may involve leveraging. The Funds may also purchase eligible
securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis.
The Funds may invest up to 15% (10% in the case of the Money Market
Funds) of their net assets in illiquid securities.

The Funds may also purchase "derivative" instruments. "Derivative"
instruments are instruments that derive value from the performance of
underlying assets, interest or currency exchange rates, or indices,
and include (but are not limited to) interest rate and currency swaps,
futures contracts, options, forward currency contracts and structured
debt obligations (including collateralized mortgage obligations and
other types of asset-backed securities, "stripped" securities and
various floating rate instruments, including "inverse" floaters).
Derivative instruments present, to varying degrees, market risk that
the performance of the underlying assets, exchange rates or indices
will decline; credit risk that the dealer or other counterparty to the
transaction will fail to pay its obligations; volatility and
leveraging risk that, if interest or exchange rates change adversely,
the value of the "derivative" instrument will decline more than the
assets, rates or indices on which it is based; liquidity risk that a
Fund will be unable to sell a "derivative" instrument when it wants
because of lack of market depth or market disruption; pricing risk
that the value of a "derivative" instrument (such as an option) will
not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur
as a result of inadequate systems and controls, human error or
otherwise. Some "derivative" instruments are more complex than
others, and for those instruments that have been developed recently,
complete information is lacking regarding their actual performance over
entire market cycles. Northern Trust will evaluate the risks
presented by the "derivative" instruments purchased by the Funds, and
will determine, in connection with its day-to-day management of the
Funds, how they will be used in furtherance of the Funds' investment
objectives.

-5-
<PAGE> 15
It is possible, however, that Northern Trust's evaluations will prove
to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Funds will, because of the risks discussed
above, incur loss as a result of their investments in "derivative"
instruments.

The foregoing is a summary of certain of the potential risks presented
by the Funds' investment practices. Details regarding these and other
risks presented by the policies of the Funds are described under
"ADDITIONAL INVESTMENT INFORMATION, RISKS AND CONSIDERATIONS."

-6-
<PAGE> 16
EXPENSE SUMMARY

The following tables will help you understand the expenses you will
bear directly or indirectly as a shareholder of the Funds.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or
selling Fund shares. ANNUAL OPERATING EXPENSES are paid out of a
Fund's assets and include fees for portfolio management, maintenance
of shareholder accounts, general Fund administration, accounting and
other services. Examples based on this information are also
provided.

-7-
<PAGE> 17
<TABLE>
<CAPTION>
CALI-
U.S. FORNIA
U.S. MUNI- GOV'T MUNI-
GOV'T CIPAL SELECT CIPAL
MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases . . . . . . . . . . . . . . . . . . . . . . None None None None None
Sales Charge Imposed on Reinvested
Distributions . . . . . . . . . . . . . . . . . . . . None None None None None
Deferred Sales Charge Imposed on
Redemptions . . . . . . . . . . . . . . . . . . . . . None None None None None
Redemption Fees(1) . . . . . . . . . . . . . . . . . . None None None None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . None None None None None

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee
reductions and waivers) . . . . . . . . . . . . . . . 0.40% 0.40% 0.40% 0.25% 0.30%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after fee
reductions and reimbursements) . . . . . . . . . . . . 0.15% 0.15% 0.15% 0.15% 0.15%
----- ----- ----- ----- -----

TOTAL OPERATING EXPENSES(2)
After Fee Reductions, Waivers
and Reimbursements . . . . . . . . . . . . . . . . . . 0.55% 0.55% 0.55% 0.40% 0.45%
===== ===== ===== ===== =====

EXAMPLE OF EXPENSES(3)
Based on the foregoing table, you
would pay the following expenses on
a $1,000 investment, assuming a 5%
annual return and redemption at the
end of each time period:
One Year . . . . . . . . . . . . . . . . . . . . . . . $6 $6 $6 $4 $5
Three Years . . . . . . . . . . . . . . . . . . . . . . $18 $18 $18 $13 $15
Five Years . . . . . . . . . . . . . . . . . . . . . . $32 $32 $32 $23 $26
Ten Years . . . . . . . . . . . . . . . . . . . . . . . $71 $71 $71 $52 $58
</TABLE>

(1) A fee of $15.00 may be applicable for each wire redemption.
(2) The table and example shown do not reflect any charges that may be
imposed by Northern Trust or other institutions on their customers.
(3) The example should not be considered a representation of past or
future expenses or rates of return. Actual operating expenses and
investment return may be more or less than those shown.

The above information for the Money Market Fund, U.S. Government Money
Market Fund, Municipal Money Market Fund, Government Select Money Market Fund
and California Municipal Money Market Fund reflects the expenses these Funds
incurred for Northern Funds' fiscal year ended March 31, 1996 as restated to
current voluntary fee reductions. Without fee reductions, waivers and
reimbursements, "Management Fees" would be 0.60% for each Fund; "Other
Expenses" would be 0.31%, 0.34%, 0.31%, 0.40% and 0.34%, respectively, for the
Money Market, U.S. Government Money Market, Municipal Money Market, U.S.
Government Select Money Market and California Municipal Money Market Funds; and

-8-
<PAGE> 18

"Total Operating Expenses" would be 0.91%, 0.94%, 0.91%, 1.00% and 0.94%,
respectively. In addition, during the last fiscal year these Funds did not,
and during the current fiscal year the Funds do not expect to, pay any 12b-1
fees (otherwise payable at an annual rate of up to 0.25%) under Northern Funds'
Distribution and Service Plan. For more expense information, see "Management."
<TABLE>
<CAPTION>

INTER-
U.S. INTER- NATIONAL
GOVERN- FIXED MEDIATE TAX- FIXED
MENT INCOME TAX-EXEMPT EXEMPT INCOME
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on Purchases . . . . . . . . . . . . . . . . . None None None None None
Sales Charge Imposed on
Reinvested Distributions . . . . . . . . . . . . . . . None None None None None
Deferred Sales Charge Imposed
on Redemptions . . . . . . . . . . . . . . . . . . . . None None None None None
Redemption Fees(1) . . . . . . . . . . . . . . . . . . None None None None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . None None None None None

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee
reductions and waivers) . . . . . . . . . . . . . . . 0.75% 0.75% 0.70% 0.70% 0.90%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after fee
reductions and reimbursements) . . . . . . . . . . . . 0.15% 0.15% 0.15% 0.15% 0.25%
----- ----- ----- ----- -----

TOTAL OPERATING EXPENSES(2)
After Fee Reductions, Waivers and
Reimbursements . . . . . . . . . . . . . . . . . . . . 0.90% 0.90% 0.85% 0.85% 1.15%
===== ===== ===== ===== =====

EXAMPLE OF EXPENSES(3)
Based on the foregoing table, you
would pay the following expenses on a
$1,000 investment, assuming a 5%
annual return and redemption at the
end of each time period:

One Year . . . . . . . . . . . . . . . . . . . . . . . $ 9 $ 9 $ 9 $ 9 $12
Three Years . . . . . . . . . . . . . . . . . . . . . . $30 $30 $28 $28 $38
Five Years . . . . . . . . . . . . . . . . . . . . . . $51 $51 $48 $48 $65
Ten Years . . . . . . . . . . . . . . . . . . . . . . . $114 $114 $108 $108 $144
</TABLE>

The above information for the U.S. Government Fund, Fixed Income Fund,
Intermediate Tax-Exempt Fund, Tax-Exempt Fund and International Fixed Income
Fund reflects the expenses these Funds incurred for Northern Funds' fiscal year
ended March 31, 1996. Without fee reductions, waivers and reimbursements,
"Management Fees" would be 0.75% for the Intermediate Tax-Exempt and
Tax-Exempt Funds; "Other Expenses" would be .35%, .39%, .33%, .35%

-9-
<PAGE> 19

and 1.10%, respectively, for the U.S. Government, Fixed Income, Intermediate
Tax-Exempt, Tax-Exempt and International Fixed Income Funds; and "Total
Operating Expenses" would be 1.10%, 1.14%, 1.08%, 1.10% and 2.00%,
respectively. In addition, during the last fiscal year these Funds did not,
and during the current fiscal year the Funds do not expect to, pay any 12b-1
fees (otherwise payable at an annual rate of up to 0.25%) under Northern Funds'
Distribution and Service Plan. For more expense information, see "Management."
<TABLE>
<CAPTION>

INTER- INTER-
SMALL NATIONAL NATIONAL TECH-
INCOME GROWTH SELECT CAP GROWTH SELECT NOLOGY
EQUITY EQUITY EQUITY GROWTH EQUITY EQUITY FUND
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on Purchases . . . . . . None None None None None None None
Sales Charge Imposed on
Reinvested Distributions . . . . None None None None None None None
Deferred Sales Charge
Imposed on Redemptions . . . . . None None None None None None None
Redemption Fees(1) . . . . . . . None None None None None None None
Exchange Fees . . . . . . . . . . None None None None None None None

ANNUAL OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees (after
fee reductions
and waivers) . . . . . . . . . . . 0.85% 0.85% 0.85% 0.85% 1.00% 1.00% 1.00%
12b-1 Fees . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after
fee reductions and
reimbursements) . . . . . . . . 0.15% 0.15% 0.15% 0.15% 0.25% 0.25% 0.25%
----- ----- ----- ----- ----- ----- -----

TOTAL OPERATING EXPENSES(2)
After Fee Reductions,
Waivers and
Reimbursements . . . . . . . . 1.00% 1.00% 1.00% 1.00% 1.25% 1.25% 1.25%
===== ===== ===== ===== ===== ===== =====

EXAMPLE OF EXPENSES(3)
Based on the foregoing table,
you would pay the following
expenses on a $1,000
investment, assuming a 5%
annual return and redemption
at the end of each time period:
One Year . . . . . . . . . . . . $10 $10 $10 $10 $13 $13 $13
Three Years . . . . . . . . . . . $33 $33 $33 $33 $41 $41 $41
Five Years . . . . . . . . . . . $57 $57 $57 $57 $71 $71 N/A
Ten Years . . . . . . . . . . . . $126 $126 $126 $126 $155 $155 N/A
</TABLE>

-10-
<PAGE> 20

The above information for the Income Equity Fund, Growth Equity Fund,
Select Equity Fund, Small Cap Fund, International Growth Equity Fund and
International Select Equity Fund reflects the expenses these Funds incurred for
Northern Funds' fiscal year ended March 31, 1996. Since the Technology Fund
did not commence investment operations until May 1, 1996, the information for
that Fund reflects the estimated expenses this Fund expects to pay during the
current fiscal year. Without the fee reductions, waivers and reimbursements,
"Management Fees" would be 1.00%, 1.00%, 1.20%, 1.20%, 1.20%, 1.20% and 1.20%,
respectively, of the average daily net assets of the Income Equity, Growth
Equity, Select Equity, Small Cap , International Growth Equity, International
Select Equity and Technology Funds; "Other Expenses" would be .48%, .36%, .71%,
.41%, .45%, .51% and .45%, respectively; and "Total Operating Expenses" would
be 1.48%, 1.36%, 1.91%, 1.61%, 1.65%, 1.71% and 1.65%, respectively. In
addition, during the last fiscal year these Funds did not, and during the
current fiscal year the Funds do not expect to, pay any 12b-1 fees (otherwise
payable at an annual rate of up to 0.25%) under Northern Funds' Distribution
and Service Plan. For more expense information, see "Management."

FINANCIAL HIGHLIGHTS

The "Financial Highlights" in the following tables set forth selected per share
data and ratios for each of the Funds for the period ended March 31, 1996,
except for the Technology Fund which had not yet commenced operations. The
information has been audited by Northern Funds' independent auditors and should
be read in conjunction with the financial statements and related notes
incorporated by reference into the Additional Statement. Information about the
performance of the Funds is contained in Northern Funds' annual report to
shareholders, which may be obtained without charge by calling the Northern
Funds Center, at 1-800-595-9111 or writing P.O. Box 75986, Chicago, Illinois
60690-6319.

-11-
<PAGE> 21
MONEY MARKET FUNDS

<TABLE>
<CAPTION>
U.S. GOVERNMENT CALIFORNIA
U.S. GOVERNMENT MUNICIPAL SELECT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND FUND
-------------------- -------------------- -------------------- -------------------- ---------------------
Year Period Year Period Year Period Year Period Year Period
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31,
1996 1995(1) 1996 1995(1) 1996 1995(1) 1996 1995(2) 1996 1995(3)
-------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected per
share data
NET ASSET VALUE,
BEGINNING
OF PERIOD . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00

INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income . . . . 0.05 0.04 0.05 0.04 0.03 0.03 0.05 0.02 0.04 0.01

LESS DISTRIBUTIONS
PAID:
From net
investment
income . . . . (0.05) (0.04) (0.05) (0.04) (0.03) (0.03) (0.05) (0.02) (0.04) (0.01)

NET ASSET VALUE,
END OF PERIOD . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00

TOTAL RETURN(4) 5.57% 4.55% 5.46% 4.47% 3.54% 2.90% 5.55% 1.75% 3.63% 1.27%

SUPPLEMENTAL DATA
AND RATIOS:
Net assets,
in thousands,
end of period . $1,061,813 $894,279 $207,105 $227,543 $1,102,789 $927,747 $85,400 $82,162 $165,087 $161,316

Ratio to average
net assets of:(5)
Expenses, net
of waivers
and reimbursements 0.49% 0.45% 0.49% 0.45% 0.49% 0.45% 0.33% 0.30% 0.39% 0.35%

Expenses, before
waivers
and reimbursements 0.91% 0.96% 0.94% 1.01% 0.91% 0.95% 1.00% 1.32% 0.94% 1.07%

Net investment
income, net of
waivers and
reimbursements 5.42% 4.94% 5.33% 4.93% 3.46% 3.10% 5.43% 5.84% 3.55% 3.78%

Net investment
income, before
waivers and
reimbursements 5.00% 4.43% 4.88% 4.37% 3.04% 2.60% 4.76% 4.82% 3.00% 3.06%

</TABLE>

(1) Commenced investment operations on April 11, 1994.
(2) Commenced investment operations on December 12, 1994.
(3) Commenced investment operations on November 29, 1994.
(4) Total return is not annualized for periods less than a full year.
(5) Annualized for periods less than a full year.

-12-
<PAGE> 22
FIXED INCOME FUNDS

<TABLE>
<CAPTION>
FIXED INTERMEDIATE INTERNATIONAL
U.S. GOVERNMENT INCOME TAX-EXEMPT TAX-EXEMPT FIXED INCOME
FUND FUND FUND FUND FUND
-------------------- -------------------- -------------------- -------------------- --------------------
Year Year Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
-------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected per
share data
NET ASSET VALUE,
BEGINNING OF PERIOD $9.84 $10.00 $9.78 $10.00 $10.03 $10.00 $10.08 $10.00 $10.64 $10.00

INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment
income . . . . 0.51 0.50 0.60 0.62 0.41 0.40 0.48 0.48 0.62 0.58

Net realized
and unrealized
gains (losses)
on invest-
ments and
foreign currency
transactions . 0.29 (0.16) 0.48 (0.22) 0.26 0.03 0.29 0.08 -- 0.64

Total Income from
Investment
Operations . . 0.80 0.34 1.08 0.40 0.67 0.43 0.77 0.56 0.62 1.22

LESS DISTRIBUTIONS
PAID:

From net investment
income . . . . (0.51) (0.50) (0.59) (0.62) (0.41) (0.40) (0.48) (0.48) (0.62) (0.56)

From net realized gains (0.07) -- (0.17) -- (0.07) -- (0.02) -- (0.02) --

In excess of net
investment income -- -- -- -- -- -- -- -- -- (0.02)

Total Distributions (0.58) (0.50) (0.76) (0.62) (0.48) (0.40) (0.50) (0.48) (0.64) (0.58)

NET ASSET VALUE,
END OF PERIOD . $10.06 $9.84 $10.10 $9.78 $10.22 $10.03 $10.35 $10.08 $10.62 $10.64

TOTAL RETURN . 7.65% 3.49% 11.18% 4.16% 6.81% 4.38% 7.80% 5.78% 5.84% 12.77%

SUPPLEMENTAL DATA AND RATIOS:
Net assets,
in thousands,
end of period . $149,062 $116,443 $101,339 $65,929 $244,139 $221,251 $125,113 $118,690 $15,665 $13,028

Ratio to average
net assets of:
Expenses, net
of waivers
and reimbursements 0.90% 0.90% 0.90% 0.90% 0.85% 0.85% 0.85% 0.85% 1.15% 1.15%

Expenses, before waivers
and reimbursements 1.10% 1.12% 1.14% 1.18% 1.08% 1.09% 1.10% 1.11% 2.00% 2.42%

Net investment income,
net of waivers and
reimbursements 5.07% 5.20% 5.79% 6.48% 4.01% 4.09% 4.62% 4.95% 5.75% 5.96%

Net investment income,
before waivers and
reimbursements 4.87% 4.98% 5.55% 6.20% 3.78% 3.85% 4.37% 4.69% 4.90% 4.69%

PORTFOLIO TURNOVER
RATE . . . . . 112.00% 42.29% 116.22% 55.27% 137.85% 78.87% 60.50% 54.94% 52.05% 43.24%
</TABLE>

-13-
<PAGE> 23
EQUITY FUNDS

<TABLE>
<CAPTION>
INCOME EQUITY GROWTH EQUITY SELECT EQUITY
FUND FUND FUND
-------------------- -------------------- --------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995(1)
-------------------- -------------------- --------------------
Selected per share data
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD . . . $9.95 $10.00 $10.61 $10.00 $10.77 $10.00

INCOME (LOSS) FROM
INVESTMENT OPERATIONS:

Net investment income . . . 0.34 0.29 0.08 0.08 0.02 0.06

Net realized and
unrealized gains
(losses) on investments,
options, futures contracts
and foreign
currency transactions . . 1.66 (0.08) 2.59 0.60 2.73 0.75

Total Income
(loss) from Investment
Operations . . . . . . . . 2.00 0.21 2.67 0.68 2.75 0.81

LESS DISTRIBUTIONS PAID:
From net
investment income . . . . . (0.36) (0.26) (0.08) (0.07) (0.03) (0.04)

From net realized gains . . -- -- (0.05) -- (0.37) --

In excess of net
investment income . . . . . -- -- -- -- -- --

In excess of accumulated net
realized gains on investment
transactions . . . . . . . -- -- -- -- -- --

Total Distributions . . . . (0.36) (0.26) (0.13) (0.07) (0.40) (0.04)

NET ASSET VALUE,
END OF PERIOD . . . . . . $11.59 $9.95 $13.15 $10.61 $13.12 $10.77

TOTAL RETURN . . . . . . . 20.41% 2.21% 25.13% 6.90% 25.70% 8.18%

SUPPLEMENTAL DATA
AND RATIOS:
Net assets,
in thousands,
end of period . . . . . . . $55,919 $38,954 $224,571 $113,185 $33,842 $15,123

Ratio to average net
assets of:(3)
Expenses, net of waivers
and reimbursements . . . . 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%

Expenses, before waivers and
reimbursements . . . . . . 1.48% 1.55% 1.36% 1.40% 1.91% 2.61%

Net investment income,
net of waivers and
reimbursements . . . . . . 3.17% 3.08% 0.70% 0.86% 0.22% 0.82%

Net investment income
(loss), before waivers and
reimbursements . . . . . . 2.69% 2.53% 0.34% 0.46% (0.69)% (0.79)%

PORTFOLIO
TURNOVER RATE . . . . . . . 67.32% 45.68% 73.20% 82.90% 137.99% 48.88%

</TABLE>

(1) Commenced investment operations on April 6, 1994.
(2) Commenced investment operations on April 5, 1994.
(3) Annualized for periods less than a full year.

-14-
<PAGE> 24
EQUITY FUNDS (CONTINUED)

<TABLE>
<CAPTION>
SMALL INTERNATIONAL INTERNATIONAL
CAP GROWTH GROWTH EQUITY SELECT EQUITY
FUND FUND FUND
-------------------- -------------------- ------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995(2)
-------------------- -------------------- ------------------
Selected per share data
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD . . . . $9.98 $10.00 $9.61 $10.00 $9.78 $10.00

INCOME (LOSS) FROM
INVESTMENT OPERATIONS:

Net investment income . . . 0.05 0.11 0.10 0.04 0.01 0.04

Net realized and unrealized
gains (losses) on investments,
options, futures contracts
and foreign
currency transactions . . . 2.29 (0.05) 0.72 (0.31) 0.99 (0.23)

Total Income (loss) from
Investment Operations . . . 2.34 0.06 0.82 (0.27) 1.00 (0.19)

LESS DISTRIBUTIONS PAID:

From net investment
income . . . . . . . . . . (0.07) (0.08) (0.11) (0.03) (0.02) (0.03)

From net realized gains . . (0.67) -- -- -- -- --

In excess of net
investment income . . . . . -- -- (0.09) -- (0.03) --

In excess of accumulated net
realized gains on investment
transactions . . . . . . . -- -- -- (0.09) -- --

Total Distributions . . . . (0.74) (0.08) (0.20) (0.12) (0.05) (0.03)

NET ASSET VALUE,
END OF PERIOD . . . . . . . $11.58 $9.98 $10.23 $9.61 $10.73 $9.78

TOTAL RETURN . . . . . . . 24.09% 0.57% 8.61% (2.65)% 10.20% (1.95)%

SUPPLEMENTAL DATA
AND RATIOS:

Net assets, in thousands,
end of period . . . . . . $155,238 $76,627 $181,237 $114,673 $102,719 $71,958

Ratio to average
net assets of:(3)
Expenses, net of
waivers and
reimbursements . . . . . . 1.00% 1.00% 1.25% 1.25% 1.25% 1.25%

Expenses, before waivers and
reimbursements . . . . . . 1.61% 1.76% 1.65% 1.71% 1.71% 1.75%

Net investment income,
net of waivers and
reimbursements . . . . . . 0.65% 1.36% 0.92% 0.47% 0.12% 0.47%

Net investment income (loss),
before waivers and
reimbursements . . . . . . 0.04% 0.60% 0.52% 0.01% (0.34)% (0.03)%

PORTFOLIO TURNOVER
RATE . . . . . . . . . . . 46.59% 82.46% 216.86% 158.31% 176.71% 97.69%

</TABLE>

-15-
<PAGE> 25
INVESTMENT INFORMATION

The investment objectives and policies of each of the Funds are described
below. Additional information regarding the securities, investment techniques
and restrictions of each Fund are described under "Additional Investment
Information, Risks and Considerations."

MONEY MARKET FUNDS

MONEY MARKET FUND. The investment objective of the Money Market Fund is to
seek to maximize current income to the extent consistent with the preservation
of capital and the maintenance of liquidity by investing exclusively in high
quality money market instruments. In pursuing its investment objective, the
Money Market Fund may invest in a broad range of government, bank and
commercial obligations that are available in the money markets. In particular,
the Fund may invest in:

(A) U.S. dollar-denominated obligations of U.S. banks with total
assets in excess of $1 billion (including obligations of foreign branches of
such banks);

(B) U.S. dollar-denominated obligations of foreign commercial
banks with total assets in excess of $5 billion;

(C) high quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers rated (at the
time of purchase) A-2 or higher by Standard & Poor's Ratings Group ("S&P"),
Prime-2 or higher by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Co. ("Duff"), F-2 or higher by Fitch Investors
Service, Inc. ("Fitch") or TBW-2 or higher by Thomson BankWatch, Inc. ("TBW");

(D) high grade corporate bonds and unrated notes, paper and other
instruments that are of comparable quality as determined by Northern Trust ;

(E) rated asset-backed securities of non-governmental issuers
(including interests in pools of assets such as mortgages, installment purchase
obligations and credit card receivables);

(F) securities issued or guaranteed as to principal and interest
by the U.S. Government or by its agencies or instrumentalities and custodial
receipts with respect thereto;

(G) dollar-denominated securities issued or guaranteed by one or
more foreign governments or political subdivisions, agencies or
instrumentalities thereof;

-16-
<PAGE> 26
(H) repurchase agreements relating to the above instruments; and

(I) securities issued or guaranteed by state or local governmental
bodies.

U.S. GOVERNMENT MONEY MARKET FUND. The investment objective of the U.S.
Government Money Market Fund is also to seek to maximize current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity by investing exclusively in high quality money market instruments.
The U.S. Government Money Market Fund seeks to achieve its investment objective
by investing in:

(A) securities issued or guaranteed as to principal and interest
by the U.S. Government or by any of its agencies or instrumentalities
(including the International Bank for Reconstruction and Development);

(B) repurchase agreements relating to the above instruments; and

(C) custodial receipts with respect to securities issued or
guaranteed as to principal and interest by the U.S. Government or by any of its
agencies or instrumentalities.

MUNICIPAL MONEY MARKET FUND. The investment objective of the Municipal Money
Market Fund is to seek, to the extent consistent with the preservation of
capital and prescribed portfolio standards, a high level of income exempt from
regular federal income tax by investing primarily in municipal instruments.
The Municipal Money Market Fund seeks to achieve its investment objective by
investing in:

(A) fixed and variable rate notes and similar debt instruments
rated MIG-2, VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by
S&P, AA or higher by Duff or F-2 or higher by Fitch;

(B) tax-exempt commercial paper and similar debt instruments rated
Prime-2 or higher by Moody's, A-2 or higher by S&P, Duff 2 or higher by Duff
or F-2 or higher by Fitch;

(C) high grade municipal bonds and unrated notes, paper or other
instruments that are of comparable quality as determined by Northern Trust;
and

(D) municipal bonds and notes which are guaranteed as to principal
and interest by the U.S. Government or an agency or instrumentality thereof or
which otherwise depend directly or indirectly on the credit of the United
States.

-17-
<PAGE> 27
U.S. GOVERNMENT SELECT MONEY MARKET FUND. The investment objective of the U.S.
Government Select Money Market Fund is to seek to maximize current income to
the extent consistent with the preservation of capital and maintenance of
liquidity by investing exclusively in high quality money market instruments.
The U.S. Government Select Money Market Fund seeks to achieve its investment
objective by investing solely in securities issued or guaranteed as to
principal and interest by the U.S. Government or by any of its agencies or
instrumentalities.

In making investment decisions, Northern Trust will seek to acquire,
during normal market conditions, only those U.S. Government securities the
interest on which is generally exempt from state income taxation. Securities
generally eligible for this exemption include those issued by the U.S. Treasury
and certain U.S. Government agencies and instrumentalities, including the
Tennessee Valley Authority, Federal Home Loan Bank, Federal Farm Credit Banks
Funding Corp. and the Student Loan Marketing Association. The Fund intends to
limit investments to only the foregoing exempt U.S. Government securities.
However, under extraordinary circumstances, such as when appropriate exempt
securities are unavailable, the Fund may make investments in non-exempt U.S.
Government securities, and may hold uninvested cash. See "Distributions and
Taxes" below for certain tax considerations.

CALIFORNIA MUNICIPAL MONEY MARKET FUND. The investment objective of the
California Municipal Money Market Fund is to seek to provide, to the extent
consistent with the preservation of capital and prescribed portfolio standards,
a high level of income exempt from regular federal income tax and California
state personal income tax. The California Municipal Money Market Fund seeks to
achieve its investment objective by investing in:

(A) fixed and variable rate notes and similar debt instruments
rated MIG-2, VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by
S&P, AA or higher by Duff or F-2 or higher by Fitch;

(B) tax-exempt commercial paper and similar debt instruments rated
Prime-2 or higher by Moody's, A-2 or higher by S&P, Duff 2 or higher by Duff
or F-2 or higher by Fitch;

(C) high grade municipal bonds and unrated notes, paper or other
instruments that are of comparable quality as determined by Northern Trust;
and

-18-
<PAGE> 28

Because the California Municipal Money Market Fund concentrates its
investments in obligations issued by California and its political
sub-divisions, an investment in this Fund may be riskier than an investment in
the other Money Market Funds.

OTHER INFORMATION. All securities acquired by the Money Market Funds will be
determined at the time of purchase by Northern Trust to present minimal credit
risks and will be "Eligible Securities" as defined by the Securities and
Exchange Commission (the "SEC"). Eligible Securities are (a) securities that
either (i) have short-term debt ratings at the time of purchase in the two
highest rating categories by at least two unaffiliated nationally recognized
statistical rating organizations ("NRSROs") (or one NRSRO if the security is
rated by only one NRSRO), or (ii) are comparable in priority and security with
an instrument issued by an issuer which has such ratings, and (b) securities
that are unrated (including securities of issuers that have long-term but not
short-term ratings) but are of comparable quality as determined by Northern
Trust.

Each Money Market Fund is managed so that the average maturity of all
instruments in the Fund (on a dollar-weighted basis) will not exceed 90 days.
In no event will the Money Market Funds purchase any securities which mature
more than 397 days from the date of purchase (except for certain variable and
floating rate instruments and securities collateralizing repurchase
agreements). Securities in which the Money Market Funds invest may not earn as
high a level of income as longer term or lower quality securities, which
generally have greater market risk and more fluctuation in market value.

As a matter of fundamental policy, changeable only with the approval
of the holders of a majority of the outstanding shares of a Fund, at least 80%
of the annual gross income of the Municipal Money Market Fund and the
California Municipal Money Market Fund will be derived from debt instruments,
the interest on which is, in the opinion of bond counsel or counsel for the
issuers, exempt from regular income tax ("Municipal Instruments"), except in
extraordinary circumstances such as when Northern Trust believes that market
conditions indicate that the Fund should adopt a temporary defensive posture by
holding uninvested cash or investing in taxable short-term securities ("Taxable
Investments"). In addition, as a non-fundamental policy, under normal market
conditions at least 65% of the value of the California Municipal Money Market
Fund's total assets will be invested in Municipal Instruments the interest on
which, in the opinion of bond counsel for the issuers, is exempt from
California state personal income tax ("California Municipal Instruments").
These opinions may contain various assumptions, qualifications or exceptions
that are reasonably acceptable to Northern Trust. The Municipal Money Market
and California Municipal Money Market Funds are not limited in the amount of

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<PAGE> 29
their assets that may be invested in "private activity bonds" the interest on
which may be treated as an item of tax preference to shareholders under the
federal alternative minimum tax. Taxable Investments will consist exclusively
of instruments that may be purchased by the Money Market Fund. Under normal
market conditions, Taxable Investments will not exceed 20% of the value of the
total assets of either Fund; during temporary defensive periods, however, all
or any portion of a Fund's assets may be invested in such instruments.

FIXED INCOME FUNDS

U.S. GOVERNMENT FUND AND FIXED INCOME FUND. The investment objective of both
the U.S. Government Fund and the Fixed Income Fund is to seek a high level of
current income.

The U.S. Government Fund seeks to achieve its objective by investing
primarily (at least 65% of the value of its total assets during normal market
conditions) in securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and repurchase agreements relating to such
securities. These securities may include mortgage-related securities. The
Fund's dollar-weighted average maturity will be between one and ten years.

The Fixed Income Fund seeks to achieve its objective by investing in a
broad range of fixed income securities while maintaining a dollar-weighted
average maturity between seven and twelve years. The Fund will invest
primarily (at least 65% of the value of its total assets during normal market
conditions) in fixed income securities rated investment grade or better at the
time of purchase (within the four highest rating categories of S&P, Duff, Fitch
or Moody's) or, if unrated, of comparable quality as determined by Northern
Trust. These securities may be of all types and in any proportion, including
obligations of the U.S. Government, its agencies or instrumentalities,
obligations of foreign, state and local governments, obligations of U.S. and
foreign corporations, obligations of U.S. and foreign banks and repurchase
agreements relating to such obligations. The Fund may purchase bonds,
debentures, mortgage and other asset-related securities, zero coupon bonds and
convertible debentures. The Fund may also invest in short-term obligations
that are permissible investments for the Money Market Fund. The obligations of
a foreign issuer will not be purchased by the Fixed Income Fund if, as a result
of the purchase, more than 20% of the Fund's total assets will be invested in
the obligations of issuers within a single foreign country.

Each Fund may utilize options, interest rate swaps and futures
contracts and the Fixed Income Fund may enter into

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<PAGE> 30
forward currency contracts as described more fully under "Additional Investment
Information, Risks and Considerations."

INTERMEDIATE TAX-EXEMPT FUND AND TAX-EXEMPT FUND. The investment objective of
the Intermediate Tax-Exempt Fund is to seek a high level of current income
exempt from regular federal income tax by investing in a broad range of
Municipal Instruments while maintaining a dollar- weighted average maturity
between three and ten years. The Tax-Exempt Fund seeks a high level of current
income exempt from regular federal income tax by investing in a broad range of
Municipal Instruments while maintaining a dollar-weighted average maturity
between ten and thirty years.

Municipal Instruments purchased by the Funds will be investment grade
or better at the time of purchase (within the four highest rating categories of
S&P, Duff, Fitch or Moody's) or, if unrated, of comparable quality as
determined by Northern Trust. Short-term obligations will be limited to those
obligations that are permissible investments for the Municipal Money Market
Fund.

As a matter of fundamental policy, changeable only with the approval
of the holders of a majority of the outstanding shares of a Fund, at least 80%
of each Fund's annual gross income will be derived from Municipal Instruments,
except in extraordinary circumstances, such as when Northern Trust believes
that market conditions indicate that a Fund should adopt a temporary defensive
posture by holding uninvested cash or investing in Taxable Investments.
("Private activity bonds," the interest from which may be treated as an item of
tax preference to shareholders under the federal alternative minimum tax ("AMT
obligations"), will not be counted in determining a Fund's investments in
Municipal Instruments for this purpose.) Under normal market conditions,
Taxable Investments will not exceed 20% of the value of the total assets of a
Fund; during temporary defensive periods, however, all or any portion of a
Fund's assets may be invested in such instruments. Taxable Investments will
consist exclusively of instruments that may be purchased by the Fixed Income
Fund. So long as other suitable Municipal Instruments are available for
investment, neither Fund intends to invest in AMT obligations. Certain
Municipal Instruments purchased by the Funds (such as "moral obligation" bonds)
may be issued by issuers with a "moral" but not legal obligation to provide for
the payment of the bonds. See "Additional Investment Information, Risks and
Considerations -- Description of Securities and Investment Techniques --
Municipal Securities."

INTERNATIONAL FIXED INCOME FUND. The investment objective of the International
Fixed Income Fund is to seek to maximize total return consistent with
reasonable risk. In pursuing its investment objective, the Fund invests
primarily (at least 65% of the value of its total assets under normal market
conditions) in

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<PAGE> 31
a broad range of fixed income securities of foreign issuers. The Fund's
dollar-weighted average maturity will range between three and eleven years.

Securities purchased by the Fund will generally be rated investment
grade or better at the time of purchase (within the four highest rating
categories of S&P, Duff, Fitch or Moody's) or, if unrated, be of comparable
quality as determined by Northern Trust. These securities may include bonds,
debentures, mortgage and other asset-related securities, zero coupon bonds and
convertible debentures (i.e., debentures that may convert into other fixed
income debt) of foreign governments, their agencies, instrumentalities and
political subdivisions; supranational organizations (e.g., the European
Investment Bank and Inter-American Development Bank); and foreign corporations
and banks. The Fund may also invest in obligations of the U.S. Government, its
agencies and instrumentalities (including repurchase agreements collateralized
by such obligations) and of U.S. corporations and banks. Currently, a
substantial portion of the Fund's assets are invested in foreign governmental
obligations. Commercial paper and other short-term obligations acquired by the
Fund will be rated within the two highest rating categories at the time of
purchase or, if unrated, will be determined by Northern Trust to be of
comparable quality.

The International Fixed Income Fund may invest up to 5% of its total
assets in non-investment grade convertible securities that are rated "B" or
higher by at least one major rating agency at the time of purchase or, if
unrated, are determined to be of comparable quality by Northern Trust. See
"Additional Investment Information, Risks and Considerations -- Description of
Securities and Investment Techniques -- Convertible Securities." The
International Fixed Income Fund may make indirect investments in foreign
securities through the purchase of EDRs and ADRs and may enter into forward
currency contracts and utilize options, swaps and futures contracts as more
fully described under "Additional Investment Information, Risks and
Considerations." Pending investment, as a temporary defensive measure and to
meet anticipated redemption requests, the International Fixed Income Fund may
also invest, in accordance with its investment policies, in various short-term
obligations that are permissible investments for the Money Market Fund, as well
as other similar foreign denominated short-term obligations.

The International Fixed Income Fund is classified as a non-diversified
investment company under Investment Company Act of 1940 ("the 1940 Act").
Investment return on a non-diversified portfolio typically is dependent upon
the performance of a smaller number of securities relative to the number held
in a diversified portfolio. Consequently, the change in value of any one
security may affect the overall value of the International Fixed Income Fund
more than it would the other Funds.

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<PAGE> 32
EQUITY FUNDS

INCOME EQUITY FUND. The investment objective of the Income Equity Fund is to
seek a high level of current income with long-term capital appreciation as a
secondary objective. The Fund seeks to achieve its objective by investing,
under normal market conditions, at least 65% of the value of its total assets
in income-producing convertible and other equity securities. Investments are
selected based on factors such as current income, prospects for growth and
possible capital appreciation. The Fund expects to make significant
investments in convertible securities and, at times, may be fully invested in
such securities. Generally, convertible securities will be rated investment
grade or better at the time of purchase or, if unrated, will be determined to
be of comparable quality by Northern Trust. Investment-grade securities are
rated BBB or higher by S&P, Duff or Fitch or Baa or higher by Moody's. Up to
35% of the Fund's total assets may, however, be invested in non- investment
grade convertible securities (commonly referred to as "high risk" or "junk"
bonds) that are rated "B" or higher by at least one major rating agency or, if
unrated, are determined to be of comparable quality by Northern Trust. See
"Additional Investment Information, Risks and Considerations -- Description of
Securities and Investment Techniques -- Convertible Securities."

The Fund may also invest, under normal market conditions, up to 35% of
its total assets in a broad range of bonds and other fixed income securities
rated investment grade or better at the time of purchase. These fixed income
securities will be limited to the types that are permissible investments for
the Fixed Income Fund. The Fund may utilize interest rate swaps as described
more fully under "Additional Investment Information, Risks and Considerations."

GROWTH EQUITY FUND. The investment objective of the Growth Equity Fund is to
seek long-term capital appreciation. Any income received is incidental to this
objective. The Fund seeks to achieve its objective by investing primarily (at
least 65% of the value of its total assets under normal market conditions) in
equity securities (i.e., common and preferred stocks and convertible
securities) of "growth companies" that Northern Trust believes have
demonstrated above average sales and earnings growth and return on equity
relative to their peers and the general market. Investments are selected based
on factors such as financial condition, market share, product leadership,
earnings growth rates as compared with those of relevant competitors, market
valuation in comparison to other stocks and the stock's own historical norms,
improving relative price trend and other investment criteria. The Fund will
have broad sector exposure and emphasis will be on issue selection rather than
sector rotation.

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<PAGE> 33

SELECT EQUITY FUND. The investment objective of the Select Equity Fund is to
seek long-term capital appreciation. Any income received is incidental to this
objective. The Fund pursues its objective by investing, under normal market
conditions, at least 65% of the value of its total assets in common stocks of
companies believed by Northern Trust to have superior quality and growth
characteristics. The Fund is not sector-weighted, and will purchase securities
of companies primarily based on their performance in the following areas over a
five-year period: growth of sales, growth of earnings per share, consistency of
earnings per share growth, return on equity, and low debt relative to total
capital. As companies which perform relatively well in some or all of these
categories often retain their earnings to finance current and future growth,
they generally pay low or no dividends. The Fund intends to invest primarily
in the securities of companies which together with their predecessors have been
in continuous operation for at least five years and have stock market
capitalizations in excess of $500 million.

SMALL CAP FUND. The investment objective of the Small Cap Fund (formerly called
the "Small Cap Growth Fund") is to seek long-term capital appreciation. Any
income received is incidental to this objective. In seeking to attain its
investment objective, the Fund will invest, under normal market conditions, at
least 65% of the value of its total assets in equity securities of companies
with market capitalizations, at the time of purchase, that are below the median
capitalization of stocks listed on the New York Stock Exchange. In selecting
stocks, Northern Trust will consider the relationship between price and book
value, and other factors such as trading volume and bid-ask spreads in an effort
to allow the Fund to achieve cost-effective diversification.

While Northern Trust believes that smaller companies can provide
greater growth potential than larger, more mature firms, investing in the
securities of such companies also involves greater risk, portfolio price
volatility and cost. Historically, small capitalization stocks, which will be
the Fund's primary investments, and stocks of recently organized companies, in
which the Fund may also invest, have been more volatile in price than the larger
capitalization stocks included in the Standard & Poor's 500(R) Composite Stock
Price Index (the "S&P 500 Index"). Among the reasons for this greater price
volatility are the lower degree of market liquidity (the securities of companies
with small stock market capitalizations may trade less frequently and in limited
volume) and the greater sensitivity of small companies to changing economic
conditions. For example, these companies are associated with higher investment
risk due to the greater business risks of small size and limited product lines,
markets, distribution channels and financial and managerial resources.

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<PAGE> 34

The values of small company stocks will frequently fluctuate
independently of the values of larger company stocks. Small company stocks may
decline in price as large company stock prices rise, or rise in price as large
company stock prices decline. You should, therefore, expect that the net asset
value of the Fund's shares will be more volatile than, and may fluctuate
independently of, broad stock market indices such as the S&P 500 Index.

The additional costs associated with the acquisition of small company
stocks include brokerage costs, market impact costs (that is, the increase in
market prices which may result when the Fund purchases thinly traded stock) and
the effect of the "bid-ask" spread in small company stocks. These costs will
be borne by all shareholders and may negatively impact investment performance.

INTERNATIONAL GROWTH EQUITY FUND. The investment objective of the
International Growth Equity Fund is to seek long-term capital appreciation.
Any income received is incidental to this objective. The Fund seeks to achieve
its objective by investing principally in common and preferred stocks and
securities convertible into common stock of foreign issuers. The Fund will,
under normal market conditions, invest at least 65% of the value of its total
assets in equity securities. The Fund emphasizes stocks of companies that
Northern Trust believes to be growing more rapidly than their respective
markets and that have low debt ratios and above-average returns on equity. The
Fund is country-weighted but not sector-weighted and selects investments based
on such factors as financial condition, market share, product leadership,
earnings growth rates as compared with those of relevant competitors in the
same local market, market valuation in comparison to other stocks and the
stock's own historical norms, improving relative price trend and other
investment criteria. The Fund will normally limit its equity investments to
the securities of companies which together with their predecessors have been in
continuous operation for at least five years and have stock market
capitalizations in excess of $200 million. The Fund invests in securities
listed on foreign and domestic securities exchanges and securities traded in
foreign and domestic over-the-counter markets. See "International Funds --
Further Information."

INTERNATIONAL SELECT EQUITY FUND. The investment objective of the
International Select Equity Fund is to seek long-term capital appreciation.
Any income received is incidental to this objective. The Fund will pursue its
objective by investing primarily (at least 65% of the value of its total assets
under normal market conditions) in equity securities of foreign issuers that
Northern Trust believes to be growing more rapidly than their respective
markets, including stocks of companies that have medium to smaller stock market
capitalizations (generally less

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<PAGE> 35
than $1 billion) and that transact a significant level of their business in
countries growing in excess of the world averages. The Fund is neither
country-weighted nor sector-weighted and will invest in stocks of companies
primarily based on their performance in the following areas over a five-year
period: growth of sales, growth of earnings per share, consistency of earnings
per share growth, return on equity and low debt relative to total capital. As
companies which perform relatively well in some or all of these categories
often retain their earnings to finance current and future growth, they
generally pay low or no dividends. The Fund will normally limit its equity
investments to the securities of companies which together with their
predecessors have been in continuous operation for at least five years and have
stock market capitalizations in excess of $200 million. The Fund invests in
securities listed on foreign and domestic securities exchanges and securities
traded in foreign and domestic over-the-counter markets. See "International
Funds -- Further Information."

TECHNOLOGY FUND. The Technology Fund's investment objective is to seek
long-term capital appreciation by investing principally in equity securities
and securities convertible into common stock of companies that develop, produce
or distribute products and services related to advances in technology. In
addition, the Fund will, under normal market conditions, invest at least 65% of
the value of its total assets in securities of companies principally engaged in
technology business activities. Northern Trust will consider an issuer
principally engaged in technology business activities if such issuer is listed
on the Hambrecht and Quist Technology Index (the "H&Q Index"), the SoundView
Technology Index (the "Soundview Index"), the technology grouping of the S&P
500 Index or any other comparable technology index. The H&Q Index is an index
of computer and chip makers, biotechnology concerns and other high-tech
companies, and the SoundView Index is an unweighted index consisting of more
than 100 technology companies.

The Fund emphasizes stocks of companies that Northern Trust believes
have the potential to outperform the market over the next one-to two-year
period. Investments are selected based on factors such as financial condition,
market share, product leadership or market niches, earnings growth rates as
compared with those of relevant competitors, market valuation in comparison to
other stocks and the stock's own historical norms, improving relative price
trend and other investment criteria. Companies in which the Fund may invest
include industrial and business machines; communications; computers, software
and peripheral products; electronics; electronic media; environmental services;
office equipment and supplies; television and video equipment and services; and
satellite technology and equipment. For the purposes of the Fund's industry
concentration policy all of the foregoing companies will be deemed part of the
technology

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<PAGE> 36
industry. See "Additional Investment Information, Risks and Considerations --
Investment Restrictions." Certain of the policies of the Fund present
additional risks which are described under "Technology Fund -- Additional Risks
and Considerations."

OTHER INFORMATION. The Growth Equity, Income Equity, Select Equity, Small Cap,
International Growth Equity, International Select Equity and Technology Funds
may purchase warrants and rights that entitle the holder to buy equity
securities at a specific price for a specific period of time. (Warrants and
rights will not be counted in determining a Fund's investments in equity
securities.) In addition to investing in foreign securities directly, the
International Growth Equity and International Select Equity Funds may make
indirect investments in foreign securities through the purchase of EDRs and
ADRs. Each of the Growth Equity, Income Equity, Select Equity, Small Cap and
Technology Funds may invest up to 10% of its net assets in foreign securities
directly and indirectly through the purchase of EDRs, and up to 25% of its net
assets in ADRs, in addition to short-term investments in foreign time deposits
as discussed below. The Income Equity Fund may enter into interest rate swaps
and the International Growth Equity and International Select Equity Funds may
enter into currency swaps. The Funds may purchase convertible securities,
enter into forward currency contracts and utilize options and futures contracts
as more fully described under "Additional Investment Information, Risks and
Considerations." Pending investment, as a temporary defensive measure and to
meet anticipated redemption requests, the Funds may also invest, in accordance
with their respective investment policies, in various short-term obligations
that are permissible investments for the Money Market Fund and, with respect to
the International Growth Equity and International Select Equity Funds, other
similar foreign denominated short-term obligations.

CALIFORNIA MUNICIPAL MONEY MARKET FUND -- ADDITIONAL RISKS AND CONSIDERATIONS
REGARDING CALIFORNIA INVESTMENTS

The investments of the California Municipal Money Market Fund in
California Municipal Instruments raise additional considerations. Payment of
the interest on and the principal of these instruments is dependent upon the
continuing ability of California issuers to meet their obligations.

The Fund's investments include obligations of California governmental
issuers which rely in whole or in part, directly or indirectly, on real
property taxes as a source of revenue. "Proposition Thirteen" and similar
California constitutional and statutory amendments and initiatives in recent
years have restricted the ability of California taxing entities to increase
real property tax revenues. Other initiative measures approved by California
voters in recent years, through limiting various

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<PAGE> 37
other taxes, have resulted in a substantial reduction in state revenues.
Decreased state revenues may result in reductions in allocations of state
revenues to local governments.

Because of the complex nature of the various initiatives mentioned
above and certain possible ambiguities and inconsistencies in their terms and
the scope of various exemptions and exceptions, as well as the impossibility of
predicting the level of future appropriations for state and local California
governmental entities, it is not possible to determine the impact of these
initiatives and related measures on the ability of California governmental
issuers to pay interest or repay principal on their obligations. There have,
however, been certain adverse developments with respect to California Municipal
Instruments over the past several years.

In addition to the various initiatives discussed above, economic
factors such as the reduction in defense spending, a decline in tourism and
high levels of unemployment have had an adverse impact on the economy of
California. In recent years, these economic factors reduced revenues to the
state government at a time when expenses of state government such as education
costs, various welfare costs and other expenses were rising. Such economic
factors adversely impacted the ability of state and local California
governmental entities to repay debt, and these factors, and others that cannot
be predicted, may have an adverse impact in the future.

In addition to the risk of nonpayment on California Municipal
Instruments, if these obligations decline in quality and are downgraded by the
NRSROs, they may become ineligible for purchase by the Fund. Since there are
large numbers of buyers of these instruments , the supply of California
Municipal Instruments that are eligible for purchase by the Fund could become
inadequate at certain times.

Investors should consider the greater risk inherent in the California
Municipal Money Market Fund's concentration in such obligations versus the
safety that comes with a less geographically concentrated investment portfolio,
and should compare the yield available on a portfolio of California Municipal
Instruments with the yield of a more diversified portfolio including
non-California securities before making an investment decision.

A more detailed description of special factors affecting investments
in California Municipal Instruments is provided in the Additional Statement.

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<PAGE> 38

TECHNOLOGY FUND -- ADDITIONAL RISKS AND CONSIDERATIONS

The Technology Fund's concentration in technology securities presents
special risk considerations. Technology companies may produce or use products
or services that prove commercially unsuccessful, become obsolete or become
adversely impacted by government regulation. Competitive pressures in the
technology industry may affect negatively the financial condition of technology
companies, and the Fund's concentration in technology securities may subject it
to more volatile price movements than a more diversified securities portfolio.
In certain instances, technology securities may experience dramatic price
movements precipitated by investors' excessive optimism or pessimism with
little or no basis in fundamental economic conditions. As a result of these
and other reasons, investments in the technology industry can experience sudden
and rapid appreciation and depreciation. Investors should, therefore, expect
that the net asset value of the Fund's shares will be more volatile than, and
may fluctuate independently of, broad stock market indices such as the S&P 500
Index.

In addition, it is expected that more than 25% of the Technology
Fund's total assets will normally be invested in technology companies which
develop or sell computers, software and peripheral products. In addition to
the risks associated with other technology companies, these companies are often
dependent on the existence and health of other products or industries 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.

The Technology Fund may invest in the stocks of both large and small
companies. While Northern Trust believes that smaller companies can provide
greater growth potential than larger, more mature firms, investing in the
securities of small companies also involves greater risk and portfolio price
volatility as described above under "Investment Information -- Small Cap
Fund."

INTERNATIONAL FUNDS -- FURTHER INFORMATION

The International Fixed Income, International Growth Equity and International
Select Equity Funds (the "International Funds") will be invested at all times
in the securities of issuers located in at least three different foreign
countries. These

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<PAGE> 39
countries may include, but are not limited to, Argentina, Australia, Austria,
Belgium, Brazil, Canada, Chile, Columbia, Denmark, Finland, France, Germany,
Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan,
Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, the
Philippines, Poland, Portugal, Peru, Singapore, South Africa, South Korea,
Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and
Venezuela. Criteria for determining the appropriate distribution of
investments among various countries and regions include prospects for relative
economic growth, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships, and the range of
investment opportunities available to international investors.

Because the securities markets in the following countries are highly
developed, liquid and subject to extensive regulation, the International Growth
Equity and the International Select Equity Funds may invest more than 25% of
their respective total assets in the securities of issuers located in Japan and
the United Kingdom, and the International Fixed Income Fund may invest more
than 25% of its total assets in the securities of issuers located in Canada,
France, Germany, Japan, the United Kingdom and the United States. Investment
in a particular country of 25% or more of a Fund's total assets will make a
Fund's performance more dependent upon the political and economic circumstances
of a particular country than a mutual fund that is more widely diversified
among issuers in different countries. For example, efforts by the member
countries of the European Community to eliminate internal barriers to the free
movement of goods, persons, services and capital have encountered opposition
arising from the conflicting economic, political and cultural interests and
traditions of the member countries and their citizens. The reunification of
the former German Democratic Republic (East Germany) with the Federal Republic
of Germany (West Germany) and other political and social events in Europe have
caused considerable economic and social dislocations. Similarly, events in the
Japanese economy as well as social developments and natural disasters have
affected Japanese securities and currency markets, and have disrupted the
relationship of the Japanese yen with other currencies and with the U.S.
dollar. Future political, economic and social developments can be expected to
produce continuing effects on securities and currency markets. Investment in
foreign securities, including securities of issuers located in the countries
listed above, involves other risks which are described under "Additional
Investment Information, Risks and Considerations."

Certain investments by the International Funds will involve risks
associated with investments in emerging market countries. In addition,
securities issued in certain countries are currently

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<PAGE> 40
accessible to the International Funds only through investment in other
investment companies that are specifically authorized to invest in such
securities. Further information about these matters is provided under
"Additional Investment Information, Risks and Considerations."

FUNDAMENTALS OF FIXED INCOME INVESTING

Even though interest-bearing securities are investments which often
offer a stable stream of income, the prices of fixed income securities are
affected by changes in the prevailing level of interest rates. These
securities experience appreciation when interest rates decline and depreciation
when interest rates rise. A bond fund portfolio consisting of fixed income
securities will react in a similar manner. Generally, the longer the maturity
of a fixed income security, the higher its yield and the greater its price
volatility. Conversely, the shorter the maturity, the lower the yield but the
greater the price stability. The values of fixed income securities also may be
affected by changes in the credit rating or financial condition of the issuing
entities. A security's rating normally depends on the likelihood that the
borrower will meet each interest and principal installment on a timely basis.
As a result, lower-rated bonds typically yield more than higher- rated bonds of
the same maturity. Credit ratings evaluate the safety of principal and
interest payments, not market risk, and rating agencies may or may not make
timely changes in a rating to reflect economic or company conditions that
affect a security's market value. As a result, the ratings of rating services
are used by Northern Trust only as indicators of investment quality. For a
more complete discussion of ratings, see Appendix A to the Additional
Statement.

ADDITIONAL INVESTMENT INFORMATION, RISKS AND CONSIDERATIONS

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

CONVERTIBLE SECURITIES. Each Equity Fund and the International Fixed Income
Fund may invest in convertible securities including convertible bonds,
debentures, and preferred stock. A convertible security may be converted
either at a stated price or rate within a specified period of time into a
specified number of shares of common stock. By investing in convertible
securities, a Fund seeks the opportunity, through the conversion feature, to
participate in a portion of the capital appreciation of the common stock into
which the securities are convertible, while earning higher current income than
is available from the common stock. Convertible securities acquired by a Fund
will usually be rated investment grade by S&P, Moody's, Duff or Fitch or, if
unrated, will be of comparable quality as determined by Northern Trust. A Fund
may, however, acquire convertible securities rated below investment grade when
Northern Trust believes that their investment characteristics make them
desirable, so long as (a)

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<PAGE> 41

under normal market and economic conditions, less than 10% of the Fund's total
assets (35% in the case of the Income Equity Fund and 5% in the case of the
International Fixed Income Fund, International Growth Equity Fund and
International Select Equity Fund) are invested in non-investment grade
convertible securities and (b) any such security will be rated "B" or higher by
at least one major rating agency. As of March 31, 1996, the Income Equity
Fund had the following percentages of its portfolio assets invested in
convertible securities with the following ratings: 0% AAA; 3.9% AA; 16.8% A;
14.3% BBB; 8.5% BB; 10.1B; and 2.0% unrated. For a description of applicable
securities ratings, See Appendix A to the Additional Statement.

Non-investment grade securities (those that are rated "Ba" or lower by
Moody's or "BB" or lower by S&P, Duff or Fitch) are commonly referred to as
"junk bonds." Particular risks associated with lower-rated convertible
securities are: (a) the relative youth and growth of the market for such
securities; (b) the sensitivity of such securities to interest rate and
economic changes; (c) the lower degree of protection of principal and interest
payments; (d) the relatively low trading market liquidity for the securities;
(e) the impact that legislation may have on the high yield bond market (and, in
turn, on a Fund's net asset value and investment practices); and (f) the
creditworthiness of the issuers of such securities. During an economic
downturn or substantial period of rising interest rates, leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. An economic downturn could
also disrupt the market for lower-rated convertible securities and adversely
affect the value of outstanding securities and the ability of the issuers to
repay principal and interest. If the issuer of a convertible security held by
a Fund defaulted, the Fund could incur additional expenses to seek recovery.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower-rated securities
held by a Fund, especially in a thinly traded market.

For purposes of determining the percentage of Fund's assets that is
invested in equity securities, only that portion of the value of convertible
securities attributable to their fixed income characteristics will be deemed to
be a fixed income investment. The remaining value will be deemed to be an
equity investment.

WARRANTS. Each Equity Fund may invest up to 5% of its net assets at the time
of purchase in warrants and similar rights in addition to those that have been
acquired in units or are attached to other securities. Warrants represent
rights to purchase securities at a specific price for a specific period of

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time. A Fund may also purchase bonds that are issued in tandem with warrants
entitling the holder to purchase common stock at a specified price during a
specified period. The prices of warrants do not necessarily correlate with the
prices of the underlying securities.

MUNICIPAL INSTRUMENTS. The Intermediate Tax-Exempt, Tax-Exempt, Municipal
Money Market and California Municipal Money Market Funds (the "Tax-Exempt
Funds") intend to invest primarily in Municipal 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"
obligations. General obligations are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue obligations are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as lease revenue
payments from the user of the facility being financed. Industrial development
bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of an
industrial revenue bond is usually directly related to the credit standing of
the private user of the facility involved.

The Tax-Exempt Funds may also invest in "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of a moral obligation bond is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund (if such a fund has been
established), the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer.

Within the principal classifications of Municipal Instruments
described above there are a variety of categories, including municipal bonds,
municipal notes, municipal leases, custodial receipts and participation
certificates. Municipal notes include tax, revenue and bond anticipation notes
of short maturity, generally less than three years, which are issued to obtain
temporary funds for various public purposes. Municipal leases are obligations
issued by state and local governments or authorities to finance the acquisition
of equipment and facilities. Certain municipal lease obligations may include
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Custodial
receipts are underwritten by securities dealers or banks and evidence ownership
of future interest payments, principal payments or both on certain

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municipal securities. Participation certificates are obligations issued by
state or local governments or authorities to finance the acquisition of
equipment and facilities. They may represent participations in a lease, an
installment purchase contract, or a conditional sales contract. Municipal
leases (and participations in such leases) present the risk that a municipality
will not appropriate funds for the lease payments. Northern Trust, under the
supervision of Northern Funds' Board of Trustees, will determine the credit
quality of any unrated municipal leases on an ongoing basis, including an
assessment of the likelihood that the leases will not be cancelled.

The Tax-Exempt Funds (other than the Municipal Money Market Fund and
California Municipal Money Market Fund) may also hold 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. These derivative instruments represent
beneficial interests in Municipal Instruments that are marketed by investment
banking firms under various names such as FLOATsSM, RITEsSM, SAVRsSM and
RIBsSM. These 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 uncertain how these instruments will perform under different economic and
interest-rate scenarios. Because certain of these instruments are leveraged,
their market values may be more volatile than other types of Municipal
Instruments and may present greater potential for capital gain or loss. On the
other hand, the imbedded option features of other derivative instruments could
limit the amount of appreciation a Fund can realize on its investment, could
cause a Fund to hold a security it might otherwise sell or could force the sale
of a security at inopportune times or for prices that do not reflect current
market value. The possibility of default by the issuer or the issuer's credit
provider may be greater for these 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. Neither the Funds nor Northern Trust will review
the proceedings related to the creation of any tax-exempt derivatives or the
basis for such opinions.

Each Tax-Exempt Fund may acquire "stand-by commitments" relating to
the Municipal Instruments it holds. Under a

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<PAGE> 44
standby 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. The Funds will acquire stand-by
commitments solely to facilitate portfolio liquidity and do not intend to
exercise their rights for trading purposes.

Municipal Instruments purchased by the Tax-Exempt Funds may be backed
by letters of credit or other forms of credit enhancement issued by domestic or
foreign banks and other financial institutions. The credit quality of these
banks and financial institutions could, therefore, cause loss to a Fund that
invests in Municipal Instruments and affect its share price. Foreign letters
of credit may involve certain risks in addition to those of domestic
obligations. Foreign banks and foreign branches of domestic banks may be
subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements than domestic banks.

The Tax-Exempt Funds do not intend to invest 25% or more of the value
of their respective total assets in industrial development bonds or similar
obligations where the non-governmental entities supplying the revenues from
which such bonds or obligations are to be paid are in the same industry. Each
Fund may, however, invest 25% or more of its total assets in Municipal
Instruments the interest on which is paid solely from revenues of similar
projects. In addition, although the Funds, other than the California Municipal
Money Market Fund, do not expect to do so during normal market conditions, each
may invest more than 25% of the value of its total assets in Municipal
Instruments whose issuers are in the same state. The California Municipal
Money Market Fund expects to invest principally in California Municipal
Instruments. When a substantial portion of a Fund's assets is invested in
instruments which are used to finance facilities involving a particular
industry, whose issuers are in the same state or which are otherwise related,
there is a possibility that an economic, business or political development
affecting one instrument would likewise affect the related instruments.

Funds in addition to the Tax-Exempt Funds may invest from time to
time in Municipal Instruments or other securities issued by state and local
governmental bodies when Northern Trust believes such an investment strategy is
in the best interest of Northern Funds' shareholders. Dividends paid by Funds
other than the Tax-Exempt Funds on such investments will be taxable to
shareholders.

FOREIGN SECURITIES. The International Funds intend to invest primarily in the
securities of foreign issuers. In addition, each Equity Fund and the Fixed
Income Fund may invest a portion

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<PAGE> 45
of their assets in such securities, including (except with respect to the Fixed
Income Fund) eurodollar convertible securities, which are fixed income
securities that are issued in U.S. dollars outside the United States and are
convertible into or exchangeable for equity securities of the same or a
different issuer. The Money Market Fund may also invest in dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities. These obligations
may be issued by supranational entities, including international organizations
(such as the European Coal and Steel Community) designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies.

Investment in foreign securities involves special risks. These
include market risk, interest rate risk and the risks of investing in
securities of foreign issuers and of companies whose securities are principally
traded outside the United States and in investments denominated in foreign
currencies. Market risk involves the possibility that stock prices will
decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally
declining prices. These cycles will affect the value of a Fund that invests in
foreign stocks. The holdings of a Fund that invest in fixed income securities
will be sensitive to changes in interest rates and the interest rate
environment. Generally, the prices of bonds and debt securities fluctuate
inversely with interest rate changes. In addition, the performance of
investments in securities denominated in a foreign currency will depend 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 which
could otherwise 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 can be expected to increase the value of a
foreign currency-denominated security in terms of U.S. dollars. A rise in
foreign interest rates or decline in the value of the foreign currency relative
to the U.S. dollar generally can be expected to depress the value of a foreign
currency-denominated security.

There are other risks and costs involved in investing in foreign
securities which are in addition to the usual risks inherent in domestic
investments. Investment in foreign securities involves 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 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. Future

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<PAGE> 46
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 the adoption of
other governmental restrictions might adversely affect an investment in foreign
securities. Additionally, foreign banks and foreign branches of domestic banks
are subject to less stringent reserve requirements, and to different
accounting, auditing and recordkeeping requirements.

The Money Market Fund, the Fixed Income Fund, each Equity Fund and
each International Fund may invest in foreign debt, or the securities of
foreign governments. Several risks exist concerning such investments,
including the risk that foreign governments may default on their obligations,
may not respect the integrity of such debt, may attempt to renegotiate the debt
at a lower rate, and may not honor investments by United States entities or
citizens.

In addition, the International Funds may invest their assets in
countries with emerging economies or securities markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Some of these countries may have in the past failed to
recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may
be heightened. In addition, unanticipated political or social developments may
affect the values of a Fund's investments in those countries and the
availability to a Fund of additional investments in those countries. The small
size and inexperience of the securities markets in certain of such 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 Japan or most Western European 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 of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.

Although a Fund (other than the Money Market Fund) may invest in
securities denominated in foreign currencies, its portfolio securities and
other assets are valued in U.S. dollars. Currency exchange rates may fluctuate
significantly over short periods of time causing, together with other factors,
a Fund's

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<PAGE> 47

net asset value 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 U.S. or abroad. To the extent that a Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, are denominated in the currencies of foreign countries, the Fund
will be more susceptible to the risk of adverse economic and political
developments within those countries. In addition, through the use of forward
currency exchange contracts and other instruments, the respective net currency
positions of the International Funds may expose them to risks independent of
their securities positions. Although the net long and short foreign currency
exposure of the International Funds will not exceed their respective total
asset values, to the extent that a Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater risk
than it would have if it did not maintain the currency positions. The Funds
are also subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.

The International Fixed Income Fund may invest in debt securities
denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts in the currencies of certain of the twelve
member states of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community from time to time to reflect changes in relative values of the
underlying currencies. The Fund may also invest in securities denominated in
other currency "baskets."

Investors should understand that the expense ratios of the
International Funds can be expected to be higher than those of Funds investing
primarily in domestic securities. The costs attributable to investing abroad
are usually higher for several reasons, such as the higher cost of investment
research, higher cost of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.

Dividends and interest payable on a Fund's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such
taxes are not offset by credits or deductions allowed to investors under U.S.
federal income tax law, they may reduce the net return to the shareholders.
See "Distributions and Taxes."

AMERICAN DEPOSITORY RECEIPTS. Each Equity Fund and each International Fund can
invest in ADRs. ADRs are receipts typically issued by a United States bank or
trust company

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<PAGE> 48
evidencing ownership of the underlying foreign securities and are denominated
in U.S. dollars. Some institutions issuing ADRs may not be sponsored by the
issuer.

A non-sponsored depository may not provide the same shareholder information
that a sponsored depository is required to provide under its contractual
arrangement with the issuer.

EUROPEAN DEPOSITORY RECEIPTS. Each Equity Fund and each International Fund can
also invest in EDRs. EDRs are receipts issued by a European financial
institution evidencing ownership of underlying foreign securities and are
usually denominated in foreign currencies. EDRs may not be denominated in the
same currency as the securities they represent. Generally, EDRs, in bearer
form, are designed for use in the European securities markets.

FORWARD CURRENCY EXCHANGE CONTRACTS. The Equity Funds, the International Funds
and the Fixed Income Fund may enter into forward currency exchange contracts in
an effort to hedge all or any portion of their portfolio positions.
Specifically, foreign currency contracts may be used for this purpose to reduce
the level of volatility caused by changes in foreign currency exchange rates or
when such transactions are economically appropriate for the reduction of risks
in the ongoing management of the Fund. The International Funds may also enter
into foreign currency exchange contracts to seek to increase total return when
Northern Trust anticipates that a foreign currency will appreciate or
depreciate in value, but securities denominated in that currency do not in
Northern Trust's view present attractive investment opportunities and are not
held by the Fund. In addition, the International Funds may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
Northern Trust believes that there is a pattern of correlation between the two
currencies.

A forward currency exchange contract is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of contract. Although these contracts may be used to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of such currency increase. Consequently, a Fund may choose to refrain
from entering into such contracts. In connection with its forward currency
exchange contracts, a Fund will create a segregated account of liquid assets,
such as cash, U.S. Government securities or other liquid high grade debt
obligations, or will otherwise cover its position in accordance with applicable
requirements of the SEC.

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<PAGE> 49
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment
objective, each Fund (other than the Money Market Funds) may write covered call
options, buy put options, buy call options and write secured put options for
the purpose of hedging or earning additional income, which may be deemed
speculative or, with respect to the International Funds, cross-hedging. These
options may relate to particular securities, financial instruments, foreign
currencies, stock or bond indices or (in the case of the International Fixed
Income Fund) the yield differential between two securities, and may or may not
be listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Fund will not purchase put and call options where the
aggregate premiums on outstanding options exceed 5% of its net assets at the
time of purchase, and will not write options on more than 25% of the value of
its net assets (measured at the time an option is written). Options trading is
a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections
afforded purchasers of listed options issued by the Options Clearing
Corporation, which performs the obligations of its members if they default.

To the extent consistent with its investment objective, each Fund
(other than the Money Market Funds) may also invest in futures contracts and
options on futures contracts for hedging purposes or to maintain liquidity to
meet potential shareholder redemptions, invest cash balances or dividends or
minimize trading costs. The value of a Fund's futures contracts may equal or
exceed 100% of the Fund's total assets, although a Fund will not purchase or
sell a futures contract unless immediately afterwards the aggregate amount of
margin deposits on its existing futures positions plus the amount of premiums
paid for related futures options is 5% or less of its net assets.

Futures contracts obligate a Fund, at maturity, to take or make
delivery of certain securities, the cash value of a securities index or a
stated quantity of a foreign currency. A Fund may sell a futures contract in
order to offset an expected decrease in the value of its portfolio that might
otherwise result from a market decline or currency exchange fluctuation. A
Fund may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, a Fund may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.

A Fund may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or a
seller of a futures contract at a specified exercise price anytime during the
option

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<PAGE> 50
period. When a Fund sells an option on a futures contract, it becomes
obligated to sell or buy a futures contract if the option is exercised. In
connection with a Fund's position in a futures contract or related option, the
Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.

The primary risks associated with the use of futures contracts and
options are: (a) the imperfect correlation between the change in market value
of the instruments held by a Fund and the price of the futures contract or
option; (b) possible lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures contract when desired; (c)
losses caused by unanticipated market movements, which are potentially
unlimited; and (d) Northern Trust's ability to predict correctly the direction
of securities prices, interest rates, currency exchange rates and other
economic factors. For further discussion of risks involved with domestic and
foreign futures and options, see "Futures Contracts and Related Options" and
Appendix B in the Additional Statement.

Northern Funds intends to comply with the regulations of the Commodity
Futures Trading Commission exempting the Funds from registration as a
"commodity pool operator."

INTEREST RATE AND CURRENCY SWAPS. In order to protect their value from
interest rate fluctuations, the U.S. Government, Fixed Income, Intermediate
Tax-Exempt, Tax-Exempt, International Fixed Income and Income Equity Funds may
enter into interest rate swaps. The Funds expect to enter into interest rate
swaps primarily to preserve a return or spread of a particular investment or
portion of their respective holdings and to protect against an increase in the
price of securities the Funds anticipate purchasing at a later date. Interest
rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). In order to protect against
currency fluctuations, the International Funds may also enter into currency
swaps. Currency swaps involve the exchange of the rights of a Fund and another
party to make or receive payments in specified currencies.

The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each interest rate or currency swap will be
accrued on a daily basis and an amount of liquid assets, such as cash, U.S.
Government securities or other liquid high grade debt securities, having an
aggregate net asset value at least equal to such accrued excess will be
maintained in a segregated account by Northern Funds' custodian. A Fund will
not enter into any interest rate or currency swap unless the unsecured
commercial paper, senior debt, or claims

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<PAGE> 51
paying ability of the other party is rated either A or A-1 or better by S&P,
Duff or Fitch, or A or P-1 or better by Moody's.

UNITED STATES GOVERNMENT OBLIGATIONS. To the extent consistent with their
respective investment objectives, each Fund may invest in a variety of U.S.
Treasury obligations consisting of bills, notes and bonds, which principally
differ only in their interest rates, maturities and time of issuance . The
Funds may also invest in other securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Obligations of certain agencies
and instrumentalities, such as the Government National Mortgage Association
("GNMA"), are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association ("FNMA"), are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association ("SLMA"), are supported only by the credit of the
instrumentalities. No assurance can be given that the U.S. Government would
provide financial support to its agencies or instrumentalities if it is not
obligated to do so by law. Obligations of the International Bank for
Reconstruction and Development (also known as the World Bank) are supported by
subscribed, but unpaid, commitments of its member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future.

Securities guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities 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 an agency or
instrumentality thereof, and (b) participations in loans made to foreign
governments or their agencies that are so guaranteed. The secondary market for
certain of these participations is limited. Such participations will therefore
be regarded as illiquid. No assurance can be given that the U.S. Government
would provide financial support to its agencies or instrumentalities if it is
not obliged to do so by law.

STRIPPED OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Funds may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. Government and other domestic
and foreign obligations. These participations, which may be issued by the U.S.
Government (or a U.S. Government agency or instrumentality) , foreign
governments or private issuers such as banks and other institutions, are issued
at a discount to their "face value," and may include stripped mortgage-backed
securities ("SMBS"), which are derivative multi-class mortgage securities.
Stripped

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<PAGE> 52

securities, particularly SMBS, may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors.

SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool
of mortgage-backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class receives all of the
principal. However, in some cases, one class will receive some of the interest
and most of the principal while the other class will receive most of the
interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, a Fund may fail
to fully recoup its initial investment. The market value of the class
consisting entirely of principal payments can be extremely volatile in response
to changes in interest rates. The yields on a class of SMBS that receives all
or most of the interest are generally higher than prevailing market yields on
other mortgage-backed obligations because their cash flow patterns are also
volatile and there is a greater risk that the initial investment will not be
fully recouped.

SMBS issued by the U.S. Government (or a U.S. Government agency or
instrumentality) may be considered liquid under guidelines established by
Northern Funds' Board of Trustees if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of a Fund's per share net asset value.

CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. To the extent consistent with
their respective investment objectives, the Funds, other than the U.S.
Government Select Money Market Fund, may also purchase participations in trusts
that hold U.S. Treasury securities (such as TIGRs and CATS) or other
obligations where the trust participations evidence ownership in either the
future interest payments or the future principal payments on the obligations.
Like other stripped obligations, these participations are also normally issued
at a discount to their "face value," and can exhibit greater price volatility
than ordinary debt securities because of the way in which their principal and
interest are returned to investors. Investments by the U.S. Government Money
Market Fund in such participations will not exceed 35% of the value of that
Fund's total assets.

ASSET-BACKED SECURITIES. The U.S. Government Fund and U.S. Government Money
Market Fund may purchase securities that are secured or backed by mortgages and
that are issued by the U.S. Government, its agencies or instrumentalities. The
other Funds may purchase asset-backed securities that are secured or backed by
mortgages or other assets (e.g., automobile loans , credit card receivables
and other financial assets) and are issued by

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<PAGE> 53

the U.S. Government, GNMA, FNMA, Federal Home Loan Mortgage Corporation, and
private issuers such as commercial banks, financial companies, finance
subsidiaries of industrial companies, savings and loan associations, mortgage
banks , investment banks and certain special purpose entities. The Funds will
not purchase non-mortgage asset-backed securities that are not rated investment
grade by S&P, Duff, Fitch or Moody's.

Non-mortgage asset-backed securities involve certain risks that are
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 are generally unsecured and the debtors
are entitled to the protection of a number of state and federal consumer credit
laws, many of which have given debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance due. Most issuers of
automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.

The Funds may acquire several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and collateralized
mortgage obligations ("CMOs"), which provide the holder with a specified
interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. Issuers of CMOs ordinarily elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways. The
Funds will not purchase "residual" CMO interests, which normally exhibit
greater price volatility.

The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. As a result, if an
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of

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increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. In
calculating the average weighted maturity of a Fund (other than a Money Market
Fund), the maturity of asset-backed securities will be based on estimates of
average life.

Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise the
value of an asset-backed security generally will decline; however, when
interest rates decline, the value of an asset-backed security with prepayment
features may not increase as much as that of other fixed income securities.

CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Funds, other than the U.S. Government Select Money
Market Fund, may invest in debt obligations of domestic or foreign corporations
and banks, and may acquire commercial obligations issued by Canadian
corporations and Canadian counterparts of U.S. corporations, as well as
Europaper, which is U.S. dollar- denominated commercial paper of a foreign
issuer. Bank obligations may include certificates of deposit, notes, bankers'
acceptances and fixed time deposits. These obligations may be general
obligations of the parent bank or may be limited to the issuing branch or
subsidiary by the terms of specific obligation or by government regulation.
For purposes of determining the permissibility of an investment in bank
obligations, the total assets of a bank are determined on the basis of the
bank's most recent annual financial statements.

EXCHANGE RATE-RELATED SECURITIES. The Income Equity, International Fixed
Income and Fixed Income Funds may each invest in securities for which the
principal repayment at maturity, while paid in U.S. dollars, is determined by
reference to the exchange rate between the U.S. dollar and the currency of one
or more foreign countries ("Exchange Rate-Related Securities"). The interest
payable on these securities is denominated in U.S. dollars and is not subject
to foreign currency risk and, in most cases, is paid at rates higher than most
other similarly rated securities in recognition of the foreign currency risk
component of Exchange Rate-Related Securities.

Investments in Exchange Rate-Related Securities entail certain risks.
There is the possibility of significant changes in rates of exchange between
the U.S. dollar and any foreign

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currency to which an Exchange Rate-Related Security is linked. In addition,
there is no assurance that sufficient trading interest to create a liquid
secondary market will exist for a particular Exchange Rate-Related Security due
to conditions in the debt and foreign currency markets. Illiquidity in the
forward foreign exchange market and the high volatility of the foreign exchange
market may, from time to time, combine to make it difficult to sell an Exchange
Rate-Related Security prior to maturity without incurring a significant price
loss.

GUARANTEED INVESTMENT CONTRACTS. The Fixed Income Fund and the Money Market
Fund may make limited investments in guaranteed investment contracts ("GICs")
issued by highly rated U.S. and foreign insurance companies. Pursuant to
these contracts, a Fund makes cash contributions to a deposit fund of the
insurance company's general account. The insurance company then credits to the
Fund, on a monthly basis, interest which is based on an index (such as the
Salomon Brothers CD Index), but is guaranteed not to be less than a certain
minimum rate. The Money Market Fund and Fixed Income Fund will only purchase
GICs from insurance companies which, at the time of purchase, have assets of $1
billion or more and meet quality and credit standards established by Northern
Trust. Generally, GICs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary market
in GICs does not currently exist. Therefore, GICs will normally be considered
illiquid investments, and will be acquired subject to the limitation on
illiquid investments.

VARIABLE AND FLOATING RATE INSTRUMENTS. In accordance with their respective
investment objectives, the Funds may purchase rated and unrated variable and
floating rate instruments. These instruments may include variable amount
master demand notes that permit the indebtedness to vary in addition to
providing for periodic adjustments in the interest rate. A Fund may purchase
variable and floating rate instruments with stated maturities in excess of its
maturity limitations provided that the Fund may demand payment of the principal
of the instrument at least once within the applicable maturity limitation on
not more than thirty days' notice (unless the instrument is issued or
guaranteed by the U.S. Government or an agency or instrumentality thereof).
Unrated instruments will be determined by Northern Trust to be of comparable
quality at the time of purchase to rated instruments purchasable by the Funds.

The Funds (other than the Money Market Funds) may also invest in
leveraged inverse floating rate debt instruments ("inverse floaters"). The
interest rate of an inverse floater resets in the opposite direction from the
market rate of interest to which it 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 the change in the index

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<PAGE> 56
rate of interest. The higher degree of leverage inherent in inverse floaters
is associated with greater volatility in their market values.

The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Fund to
dispose of the instruments if the issuer defaulted on its payment obligation or
during periods that the Fund is not entitled to exercise demand rights, and a
Fund could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments (including inverse
floaters) will be subject to a Fund's limitation on illiquid investments when
the Fund may not demand payment of the principal amount within seven days and a
reliable trading market is absent. See "Illiquid Securities."

REPURCHASE AGREEMENTS. Each Fund may agree to purchase portfolio securities
from financial institutions subject to the seller's agreement to repurchase
them at a mutually agreed upon date and price ("repurchase agreements").
Although the securities subject to a repurchase agreement may bear maturities
exceeding one year, settlement for the repurchase agreement will never be more
than one year after a Fund's acquisition of the securities and normally will be
within a shorter period of time. Securities subject to repurchase agreements
are held either by Northern Funds' custodian or subcustodian (if any), or in
the Federal Reserve/Treasury Book-Entry System. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement in an amount exceeding the repurchase price (including accrued
interest). Default by the seller would, however, expose a Fund to possible
loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.

REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Fund is authorized to
make limited borrowings as described below under "Investment Restrictions." If
the securities held by a Fund should decline in value while borrowings are
outstanding, the net asset value of the Fund's outstanding shares will decline
in value by proportionately more than the decline in value suffered by the
Fund's securities. Borrowings may be made through reverse repurchase
agreements under which a Fund sells portfolio securities to financial
institutions such as banks and broker/dealers and agrees to repurchase them at
a particular date and price. The Funds may use the proceeds of reverse
repurchase agreements to purchase other securities either maturing, or under an
agreement to resell, on a date simultaneous with or prior to the expiration of
the reverse repurchase agreement. The Funds (other than the Municipal Money
Market, U.S. Government Select Money Market, California Municipal Money Market,
Income Equity, Growth Equity, Select Equity and Small Cap Funds) may utilize
reverse repurchase agreements when it is anticipated that the

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interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. This use
of reverse repurchase agreements may be regarded as leveraging and, therefore,
speculative. Reverse repurchase agreements involve the risks that the interest
income earned in the investment of the proceeds will be less than the interest
expense, that the market value of the securities sold by a Fund may decline
below the price of the securities the Fund is obligated to repurchase and that
the securities may not be returned to the Fund. During the time a reverse
repurchase agreement is outstanding, a Fund will maintain a segregated account
with Northern Funds' custodian containing cash, U.S. Government or other
appropriate liquid high-grade debt securities having a value at least equal to
the repurchase price. A Fund's reverse repurchase agreements, together with
any other borrowings, will not exceed, in the aggregate, 33 1/3% of the value
of its total assets. In addition, whenever borrowings exceed 5% of the Fund's
total assets, the Fund will not make any investments.

SECURITIES LENDING. Each Fund may seek additional income from time to time by
lending securities on a short-term basis to banks, brokers and dealers. The
securities lending agreements will require that the loans be secured by
collateral in cash, cash equivalents, U.S. Government securities or irrevocable
bank letters of credit maintained on a current basis equal in value to at least
the market value of the loaned securities. A Fund may not make such loans in
excess of 33 1/3% of the value of its total assets. Securities loans involve
risks of delay in receiving additional collateral or in recovering the loaned
securities, or possibly loss of rights in the collateral if the borrower of the
securities becomes insolvent.

FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS.
Each Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on
a when-issued, delayed-delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although a Fund
will generally purchase securities with the intention of acquiring them, a Fund
may dispose of securities purchased on a when-issued, delayed-delivery or a
forward commitment basis before settlement when deemed appropriate by Northern
Trust.

INVESTMENT COMPANIES. In connection with the management of its daily cash
positions, each Fund may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of

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valuation. In addition, each Fund may invest in securities issued by other
investment companies if otherwise consistent with its investment objectives and
policies which, with respect to the International Funds, includes shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting
exclusively of securities of issuers located in one or more specified foreign
countries. As a shareholder of another investment company, a Fund will bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses including advisory fees. These expenses would be in
addition to the advisory fees and other expenses the Fund bears directly in
connection with its own operations. Investments in other investment companies
will be subject to the limits imposed by the 1940 Act.

ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% in the case of the
Money Market Funds) of the value of its net assets in illiquid securities.
Illiquid securities generally include repurchase agreements and time deposits
with notice/termination dates in excess of seven days, SMBS issued by private
issuers, interest rate and currency swaps, unlisted over-the-counter options,
GICs and certain securities which are subject to trading restrictions because
they are not registered under the Securities Act of 1933 (the "1933 Act").

If otherwise consistent with its investment objective and policies,
each Fund may purchase commercial paper issued pursuant to Section 4(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. These securities will not be considered illiquid so long as Northern
Trust determines, under guidelines approved by Northern Funds' Board of
Trustees, that an adequate trading market exists. This practice could increase
the level of illiquidity during any period that qualified institutional buyers
become uninterested in purchasing these securities. The ability to sell to
qualified institutional buyers under Rule 144A is a relatively recent
development, and it is not possible to predict how this market will ultimately
develop.

PORTFOLIO TRANSACTIONS AND TURNOVER. Northern Trust's Advisory Agreement
provides that in selecting brokers or dealers to place orders for transactions
(a) involving common and preferred stocks, Northern Trust shall use its best
judgment to obtain the best overall terms available and (b) involving bonds and
other fixed income obligations, Northern Trust shall attempt to obtain best net
price and execution. In assessing the best overall terms available for any
transaction, Northern Trust is to consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or

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dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall terms
available and in selecting the broker or dealer to execute a particular
transaction, Northern Trust may consider the brokerage and research services
provided to the Funds and/or other accounts over which Northern Trust or an
affiliate of Northern Trust exercises investment discretion. These brokerage
and research services may include industry and company analyses, portfolio
services, quantitative data, market information systems and economic and
political consulting and analytical services.

The portfolio turnover rates of the Funds will vary from year to year,
and may be affected by changes in country and currency weightings, as well as
changes in the holdings of specific issuers. Investments in issuers in smaller
or emerging markets may also contribute to portfolio turnover for the
International Funds. High portfolio turnover (100% or more) may result in the
realization of short-term capital gains which are taxable to shareholders as
ordinary income. In addition, higher turnover rates can result in
corresponding increases in commissions and other transaction costs. Northern
Trust will not consider turnover rate a limiting factor in making investment
decisions. The portfolio turnover rates of each Fund (other than the Money
Market Funds and the Technology Fund) for Northern Funds' fiscal year ended
March 31, 1996 are stated under "Financial Highlights." Northern Funds
expects that the annual turnover rate of the Technology Fund will generally not
exceed 150%.

MISCELLANEOUS. After 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 the Fund. Northern Trust will consider such an event in
determining whether the Fund should continue to hold the security. Except for
the convertible securities described above, Northern Trust expects to sell
promptly any securities that are non- investment grade which exceed 5% of a
Fund's net assets, or are below "high quality" in the case of the Money Market
Funds, where it has determined that such sale is in the best interest of the
Fund.

For a description of applicable securities ratings, see Appendix A to
the Additional Statement. Investment grade securities rated BBB by S&P, Duff
or Fitch, or Baa by Moody's have certain speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than in the case
of higher rated securities.

The Funds do not intend to purchase certificates of deposit of
Northern Trust or its affiliate banks, commercial paper issued by Northern
Trust's parent holding company or other securities

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issued or guaranteed by Northern Trust, its parent holding company or their
subsidiaries or affiliates.

INVESTMENT RESTRICTIONS

A Fund's investment objective may be changed by Northern Funds' Board of
Trustees without shareholder approval. Shareholders will, however, be notified
of any changes. Any such change may result in a Fund having an investment
objective different from the objective which the shareholder considered
appropriate at the time of investment in the Fund. No assurance can be
provided that a Fund will achieve its investment objective.

Each Fund has also adopted certain fundamental investment restrictions
that may be changed only with the approval of a majority of a Fund's
outstanding shares. The following description summarizes several of the Funds'
fundamental restrictions, which are set forth in full in the Additional
Statement.

No Fund may:

1. invest 25% or more of its total assets at the time of purchase
in securities of issuers whose principal business activities are in the same
industry (a) with certain limited exceptions set forth in the Additional
Statement and (b) except that the Technology Fund may not invest less than 25%
of its assets at the time of purchase in the securities of issuers principally
engaged in technology business activities, other than during temporary
defensive periods;

2. borrow money except in amounts up to 33 1/3% of the value of
its total assets at the time of borrowing.

3. purchase securities (except U.S. Government securities and
repurchase agreements collateralized by such securities) if more than 5% of its
total assets at the time of purchase will be invested in the securities of any
one issuer, except that up to 25% (50% for the California Municipal Money
Market Fund) of a Fund's total assets may be invested without regard to this 5%
limitation; or

4. subject to the foregoing 25% exception, purchase more than 10%
of the outstanding voting securities of any issuer.

Restrictions 3 and 4 do not apply to the International Fixed Income
Fund. Instead, as a non-fundamental investment restriction, the International
Fixed Income Fund will not hold any securities (except U.S. Government
securities and repurchase agreements collateralized by such securities) that
would cause, at the end of any tax quarter, more than 5% of its total assets to
be invested in the securities of any one issuer, except that

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up to 50% of the Fund's total assets may be invested without regard to this
limitation so long as no more than 25% of the Fund's total assets are invested
in any one issuer (except the U.S. Government, its agencies and
instrumentalities).

In accordance with current SEC regulations (which are more
restrictive than the Funds' fundamental investment restrictions), the Money
Market, U.S. Government Money Market, U.S. Government Select Money Market,
Municipal Money Market and California Municipal Money Market Funds intend, as a
non-fundamental policy, to limit investments in the securities of any single
issuer (other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements collateralized by such
securities) to not more than 5% of the value of their respective total assets
at the time of purchase, except that (a) 25% of the value of the total assets
of the California Municipal Money Market Fund may be invested in fewer than
five issuers; (b) 25% of the value of the total assets of the other Money
Market Funds may be invested in any one issuer for a period of up to three
Business Days; and (c) securities subject to certain unconditional demand
features are subject to different diversification requirements as described in
the Additional Statement. In addition, the Money Market, U.S. Government
Money Market and U.S. Government Select Money Market Funds will limit their
investments in all securities, and the Municipal Money Market and California
Municipal Money Market Funds will limit their investments in certain conduit
securities as described in the Additional Statement, that are not in the
highest rating category as determined by two NRSROs (or one NRSRO if the
security is rated by only one NRSRO) or, if unrated, are not of comparable
quality, to 5% of their total assets, with investments in any one such issuer
being limited to no more than 1% of its total assets or $1 million, whichever
is greater, measured at the time of purchase.

OPENING AN ACCOUNT AND PURCHASING SHARES

An investment account may be opened and shares purchased directly from
Northern Funds by following the instructions below under "Purchasing Shares
Directly from the Funds." If you maintain certain accounts at Northern Trust
or another institution (such as a bank or broker/dealer) that has entered into
an agreement with Northern Funds to provide services to its customers, you may
purchase shares through your institution in accordance with its procedures.
See "Purchasing Shares Through Northern Trust and Other Institutions" below for
more details. If you have any questions or need any assistance in opening an
investment account or purchasing shares, call 1-800-595-9111.

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PURCHASING SHARES DIRECTLY FROM THE FUNDS

For your convenience, there are a number of ways to invest directly
with Northern Funds. When establishing an investment account directly with
Northern Funds, the minimum initial investment in a Fund is $2,500 ($500 for an
IRA; $250 for a spousal IRA; $250 under the Automatic Investment Plan; and $500
for employees of the Northern Trust and its affiliates). The minimum
subsequent investment is $50 (except for reinvestments of distributions for
which there is no minimum). The Funds reserve the right to waive these
minimums.

BY MAIL. You may purchase shares by mail by sending a Purchase Application, a
copy of which accompanies this Prospectus, together with a check or money order
payable to Northern Funds in the envelope provided or by addressing your
envelope to Northern Funds at P.O. Box 75986, Chicago, Illinois 60690-6319.
Additional requirements may be imposed. If using overnight delivery use the
following address: 801 South Canal Street, Chicago, Illinois 60607, Attn:
Northern Funds. Your check must be drawn on a bank located in the U.S. and
must be payable in U.S. dollars. When making subsequent investments, enclose
your check with the return remittance 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.

A $20 fee will be charged by the Transfer Agent if any check used for
investment does not clear. In addition, you will be responsible for any loss
suffered by a Fund. If you purchase shares by check and subsequently request
the redemption of those shares, Northern Funds may delay the payment of
redemption proceeds until the Transfer Agent is satisfied that the check has
cleared, which may take up to 15 days from the purchase date. If you
anticipate redemptions soon after purchase, you may wish to wire funds to avoid
delays. Northern Funds will not accept payment in cash or third party checks
for the purchase of shares.

BY WIRE. You may make initial or subsequent investments in shares of the Funds
by wiring federal funds. If you are opening an account with a wire purchase,
you must call 1-800-595-9111 for instructions prior to wiring funds. You must
promptly complete a Purchase Application and forward it to the Transfer Agent
in the envelope provided herewith, or by addressing your envelope to Northern
Funds at P.O. Box 75986, Chicago, Illinois 60690-6319. Additional
requirements may be imposed. Redemptions will not be paid until your completed
application has been received by the Transfer Agent. If you wish to add to an
existing account by wire purchase, you may wire federal funds to:

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The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152,
(Reference 10 Digit Fund Account Number)
(Reference Shareholder's Name)

DIRECT DEPOSIT. You may purchase additional shares through the Direct Payroll
Deposit Plan offered by Northern Funds. Through this plan, periodic
investments (minimum $50) are made automatically from your payroll check into
your existing Fund account. In order to participate in the plan, your employer
must have direct deposit capabilities through the Automated Clearing House
("ACH") available to its employees. The plan may be used for other direct
deposits, such as social security checks, military allotments, and annuity
payments. Further details about this service may be obtained from the Transfer
Agent by calling 1-800-595-9111. Northern Funds reserves the right, at any
time and without prior notice, to limit or terminate the Direct Payroll Deposit
privilege or its use in any manner by any person.

AUTOMATIC INVESTMENT. Northern Funds offers an Automatic Investment Plan that
allows you to automatically purchase shares on a regular, monthly basis ($250
initial minimum, $50 monthly minimum additions). Under this plan the Transfer
Agent originates an ACH request to your financial institution which forwards
funds periodically to the Transfer Agent to purchase shares. The plan can be
established with any financial institution that participates in the ACH funds
transfer system. No service fee is currently charged by Northern Funds for
participation in the plan. You may establish the plan by completing the
appropriate section on the Purchase Application when opening an account. You
may also establish the plan after an account is opened by completing an
Automatic Investment Plan Application which may be obtained by calling
1-800-595-9111. If an investor discontinues participation in the plan, the
Funds reserve the right to redeem the investor's account involuntarily, upon 60
days' written notice, if the account's net asset value is $1,000 or less.

DIRECTED REINVESTMENTS. In addition to having your income dividends and/or
capital gains distributions reinvested in shares of the Fund from which such
distributions are paid, you may elect the directed reinvestment option and have
dividends and capital gains distributions automatically invested in another
Northern Fund. In addition, systematic withdrawals from one account and
reinvestments in another account may be established. See "Redeeming and
Exchanging Directly from the Funds -- Systematic Withdrawals." Reinvestments
can only be directed to an existing Northern Funds' account (which must meet
the minimum investment requirement). Directed reinvestments may be used to
invest funds from a regular account to another regular account, from a
qualified plan account to another qualified plan account, or from

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a qualified plan account to a regular account. Directed reinvestments from a
qualified plan account to a regular account may have adverse tax consequences
including imposition of a penalty tax and therefore you should consult your own
tax adviser before commencing these transactions.

BY EXCHANGE. You may open a new account or add to an existing account by
exchanging shares of one Fund for shares of any other Fund offered by Northern
Funds. See "Redeeming and Exchanging Shares" for details.

PURCHASING SHARES THROUGH NORTHERN TRUST AND OTHER INSTITUTIONS

Northern Trust customers may purchase shares through their qualified accounts
and should consult with their account officer for additional information and
instructions. Customers of other institutions (together with Northern Trust,
"Service Organizations"), such as banks or broker-dealers that have entered
into agreements with Northern Funds, should contact their account officers for
appropriate purchase instructions. Northern Trust or another Service
Organization may impose particular customer account requirements in connection
with investments in the Funds, such as minimum account size or minimum account
thresholds above which excess cash balances may be invested in Fund shares. To
determine whether you may purchase shares through your institution, contact
your institution directly or call 1-800-595-9111. Purchases (and redemptions)
placed through Northern Trust or another Service Organization are processed
only on days that both Northern Funds and the particular institution are open
for business.

Depending on the terms of the particular account used to purchase Fund
shares, Northern Trust or other institutions may impose charges against the
account. These charges could include asset allocation fees, account
maintenance fees, sweep fees, compensating balance requirements or other
charges based upon account transactions, assets or income. The charges will
reduce the net return on an investment in a Fund. For further discussion of
Service Organizations and the procedures for purchasing (and redeeming) shares
through them, see "Management - - Service Organizations."

ADDITIONAL PURCHASE INFORMATION

EFFECTIVE TIME AND PRICE OF PURCHASES -- NON-MONEY MARKET FUNDS. A purchase
order for Fund shares received by the Transfer Agent by 3:00 p.m. (Chicago
Time) on a Business Day (as defined below under "Further Information --
Miscellaneous") will be priced at the net asset value determined on that day,
provided that either: (a) the order is accompanied by payment of the purchase
price; or (b) the order is placed by Northern Trust or a Service Organization
that is acting on behalf of itself or its qualified

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customer accounts and undertakes to make payment on the next Business Day in
the form of federal funds or other immediately available funds. If an order in
proper form with proper payment is not received by the Transfer Agent by such
time, the order will be processed at the next determined net asset value after
the Transfer Agent has received both an order in proper form and such payment.

EFFECTIVE TIME AND PRICE OF PURCHASES -- MONEY MARKET FUNDS. A purchase order
for Fund shares received by the Transfer Agent by 1:00 p.m. (Chicago Time) on
a Business Day will be executed that day, provided immediately available funds
have been received by the Transfer Agent by that time. If your purchase order
or immediately available funds are not received by the Transfer Agent by 1:00
p.m. (Chicago Time), then your purchase order will be executed on the next
Business Day following the Business Day on which your order and immediately
available funds are received by the Transfer Agent. Purchase orders that are
accompanied by payment in any form other than immediately available funds will
be executed on the next Business Day after the Business Day on which both the
order and payment in proper form are received by the Transfer Agent.

MISCELLANEOUS PURCHASE INFORMATION. You will be responsible for all losses and
expenses of the Funds as a result of a check that does not clear or an ACH
transfer that is rejected. Northern Funds may decline to accept a purchase
order when, in the judgment of Northern Funds or its investment adviser, it
would not be in the best interest of existing shareholders to accept the order.
Federal regulations require that you provide a social security number or other
certified taxpayer identification number upon opening or reopening an account.
Purchase Applications without such a number or an indication that a number has
been applied for will not be accepted. If a number has been applied for, the
number must be provided and certified within sixty days of the date of the
Purchase Application. Payment for shares of a Fund may, in the discretion of
Northern Trust, be made in the form of securities that are permissible
investments for the respective Fund. For further information, see the
Additional Statement. Additions or changes to any information in your account
registration (for example, a change in registration from a joint account to an
individual account) may be made by submitting a written request to the Transfer
Agent accompanied by a signature guarantee by a financial institution that is a
participant in the Stock Transfer Agency Medallion Program ("STAMP") or such
other means or evidence of authority as may be acceptable to the Transfer
Agent. Additional requirements may be imposed. In the interests of economy
and convenience, certificates representing shares of the Funds are not issued.
Northern Funds may reproduce this Prospectus in an electronic format which may
be available on the Internet. If you have received this Prospectus in its
electronic format you, or your

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<PAGE> 66

representative, may contact the Transfer Agent for a free paper copy of this
Prospectus by writing to Northern Funds Center at P.O. Box 75986, Chicago,
Illinois 60690-6319 or by calling 1-800-595-9111.

REDEEMING AND EXCHANGING SHARES

You can arrange to withdraw your investment in the Funds by selling some or all
of your shares. This process is known as "redeeming" your shares. The
procedures for redeeming shares differ depending on whether you purchase your
shares directly from Northern Funds or through Northern Trust or another
Service Organization. If you purchase your shares through an account at
Northern Trust or another Service Organization, you will redeem them in
accordance with the instructions pertaining to that account.

REDEEMING AND EXCHANGING DIRECTLY FROM THE FUNDS

When you purchase your shares directly from Northern Funds, you may redeem or
exchange shares by the methods described below. You may also use any of these
methods if you purchase your shares through an account at Northern Trust or
another Service Organization and you appear on Northern Funds' records as the
registered holder. You may call 1-800-595-9111 if you have any questions
regarding redemptions or exchanges.

Northern Funds imposes no charges when you redeem or exchange shares.
Remember, however, when shares are purchased through Northern Trust or another
Service Organization, a fee may be charged by those institutions for providing
services in connection with your investment.

BY MAIL. You may redeem shares in any number or dollar amount by sending a
written request to Northern Funds, P.O. Box 75986, Chicago, Illinois
60690-6319. The redemption request must state the number of shares or the
dollar amount to be redeemed and identify the Fund account number. If the
redemption proceeds are to be sent elsewhere than the address of record, each
request must be accompanied by a signature guarantee by a financial institution
that participates in STAMP or such other means or evidence of authority as may
be acceptable to the Transfer Agent. In addition, written requests for
redemptions exceeding $50,000 must be accompanied by a signature guarantee by a
financial institution that participates in STAMP or such other means or
evidence of authority as may be acceptable to the Transfer Agent. Additional
requirements may be imposed. A signature notarized by a notary public is
unacceptable. Northern Funds reserves the right to require signature
guarantees in other circumstances based on the amount of the redemption request
or other factors, and may impose additional requirements.

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BY WIRE. If you authorize wire redemptions on your Purchase Application,
shares can be redeemed and the proceeds sent by federal wire transfer to a
previously designated account. You will be charged $15 for each wire
redemption unless the designated account is maintained at Northern Trust or an
affiliated bank. The minimum amount that may be redeemed by this method is
$250. Northern Funds reserves the right to change this minimum or to terminate
the wire redemption privilege at any time without notice. To change bank
instructions, a written request accompanied by a signature guarantee by a
financial institution that participates in STAMP, or such other means or
evidence of authority acceptable to the Transfer Agent, must be sent to
Northern Funds, P.O. Box 75986, Chicago, Illinois 60690-6319. Additional
requirements may be imposed.

BY CHECK. You may also redeem shares of the Money Market Funds by redemption
check in amounts of $250 or more once the checkwriting privilege has been
established. When the check is presented to the Transfer Agent for payment,
the Transfer Agent, as your agent, will cause the particular Fund involved to
redeem a sufficient number of your shares to cover the amount of the check.
Dividends are earned until the check clears the Transfer Agent. You can
establish the checkwriting privilege by checking the appropriate box on the
Purchase Application, or if your Fund account is already opened, by completing
the appropriate form which may be obtained by calling the Transfer Agent at
1-800-595-9111. When establishing checkwriting for an account that is already
opened, the form must be signed by each person whose name appears on the
account accompanied by signature guarantees by a financial institution that
participates in STAMP or such other means or evidence of authority as may be
acceptable to the Transfer Agent. Additional requirements may be imposed.

You may place stop payment requests on checks by calling the Transfer
Agent at 1-800-595-9111. A $20 fee will be charged for each stop payment
request. If there are insufficient shares in your account to cover the amount
of your redemption by check, the check will be returned, marked "insufficient
funds," and a fee of $20 will be charged to the account. You may not use
checks to close an account or redeem shares purchased within the past fifteen
days. Checks you write will not be returned to you, although copies are
available upon request. Northern Funds reserves the right, at any time without
prior notice, to suspend, limit or terminate the checkwriting privilege or its
use in any manner by any person.

SYSTEMATIC WITHDRAWALS. Northern Funds offers a Systematic Withdrawal Plan.
If you own shares of a Fund with a minimum value of $10,000, you may elect to
have a fixed sum redeemed at regular intervals ($250 minimum amount per
withdrawal) and distributed in cash or reinvested in one or more of the other
Funds offered by Northern Funds. See "Purchasing Shares Directly

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from the Funds -- Directed Reinvestments." An application form and additional
information may be obtained from the Transfer Agent by calling 1-800-595-9111.

EXCHANGE PRIVILEGE. Northern Funds offers an exchange privilege that permits
you to exchange shares of one Fund for shares of another Fund offered by
Northern Funds. To establish the exchange privilege, you must check the
appropriate box on the Purchase Application or, if your Fund account is already
opened, you may send a written request to the Transfer Agent, and must
establish or maintain accounts with an identical title in each Fund involved in
an exchange transaction. In addition, the shares being exchanged must have a
value of at least $1,000 ($2,500 if a new account is being established by the
exchange).

Since an excessive number of exchanges may be disadvantageous to
Northern Funds, Northern Funds reserves the right, at any time without prior
notice, to suspend, limit or terminate the exchange privilege of any
shareholder who makes more than eight exchanges of shares in a year and/or two
exchanges of shares in a calendar quarter. A shareholder may continue making
exchanges until notified that the exchange privilege has been suspended,
limited or terminated. Questions regarding the exchange privilege may be
directed to 1-800-595-9111 or to your account officer at your Service
Organization. Exchanges will be processed only when the shares being acquired
can be legally sold in the state of the investor's residence.

Exchanges may have tax consequences. No exchange fee is currently
imposed by Northern Funds on exchanges. Northern Funds reserves, however, the
right to impose a charge in the future.

TELEPHONE PRIVILEGE. This privilege permits you to redeem or exchange shares
by telephone. To establish the telephone privilege, you must check the
appropriate box on the Purchase Application, or if your Fund account is already
opened, you may send a written request to the Transfer Agent. The request must
be signed by each owner of the account and accompanied by signature guarantees
as provided below or such other means or evidence of authority as may be
acceptable to the Transfer Agent. Once you have established the telephone
privilege, you may use the telephone privilege by calling the Transfer Agent at
1-800-595-9111.

The Transfer Agent has adopted procedures in an effort to establish
reasonable safeguards against fraudulent telephone transactions. The proceeds
for redemption orders will be sent by check, by wire transfer or by transfer to
an account maintained at Northern Trust or an affiliated bank. All checks will
be made payable to the shareholder of record and mailed only to the
shareholder's address of record. The address of record for redemption checks
may be changed only by a written request

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<PAGE> 69
accompanied by signature guarantees by a financial institution that
participates in STAMP or such other means or evidence of authority as may be
acceptable to the Transfer Agent and sent to Northern Funds, P.O. Box 75986,
Chicago, Illinois 60690-6319. Additionally, the Transfer Agent utilizes
recorded lines for telephone transactions and will request a form of personal
identification if such identification has been furnished to the Transfer Agent.
Neither Northern Funds nor its Transfer Agent will be responsible for the
authenticity of instructions received by telephone that are reasonably believed
to be genuine. To the extent that Northern Funds fails to use reasonable
procedures to verify the genuineness of telephone instructions, it or its
service providers may be liable for instructions that prove to be fraudulent or
unauthorized. In all other cases, you will bear the risk of loss.

Northern Funds reserves the right to refuse a telephone redemption if
it believes it is advisable to do so. Procedures for redeeming shares by
telephone may be modified or terminated by Northern Funds at any time without
notice. During periods of substantial economic or market change, telephone
redemptions may be difficult to place. If you are unable to contact the
Transfer Agent by telephone, shares may also be redeemed by mail as described
above under the discussion of redemptions by mail.

REDEEMING AND EXCHANGING THROUGH NORTHERN TRUST AND OTHER INSTITUTIONS

If you purchase your shares through an account at Northern Trust or another
Service Organization, you will redeem or exchange them in accordance with the
instructions pertaining to that account. If you are listed on the books of
Northern Funds as the shareholder of record, you may also redeem and exchange
your shares using any of the methods described above under "Redeeming and
Exchanging Directly from the Funds." Questions regarding these redemptions or
exchanges should be directed to your account representative at Northern Trust
or another Service Organization. Although Northern Funds imposes no charges
when you redeem, when shares are purchased through Northern Trust or another
Service Organization a fee may be charged by those institutions for providing
services in connection with your account.

ADDITIONAL REDEMPTION AND EXCHANGE INFORMATION

EFFECTIVE TIME AND PRICE OF REDEMPTIONS AND EXCHANGES. Redemption orders for
shares of a non-Money Market Fund are processed at the net asset value next
determined at 3:00 p.m. (Chicago Time) after receipt in good order by the
Transfer Agent by 3:00 p.m. (Chicago Time) on a Business Day. Redemption
orders for shares of a Money Market Fund are processed at the net asset value
next determined at 1:00 p.m. (Chicago Time) after receipt in good order by the
Transfer Agent by 1:00 p.m. (Chicago Time)

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<PAGE> 70
on a Business Day. Good order means that the request must include the
following information: the account number and Fund name; the amount of the
transaction (as specified in dollars or number of shares); the signatures of
all account owners exactly as they are registered on the account (except for
telephone and wire redemptions); required signature guarantees (if applicable);
and other supporting legal documents that might be required in the case of
estates, corporations, trusts and certain other accounts. Call 1-800-595-9111
for the additional documentation that may be required of these entities.
Exchange orders are likewise processed at the net asset value per share next
determined after receipt in good order by the Transfer Agent on a Business Day.

PAYMENT OF REDEMPTION PROCEEDS -- NON-MONEY MARKET FUNDS. The non-Money Market
Funds will make payment for redeemed shares typically within one or two
Business Days, but no later than the seventh day after receipt by the Transfer
Agent of a request in good order on a Business Day, except as otherwise
provided by the rules of the SEC. However, if any portion of the shares to be
redeemed represents an investment made by check, the Funds may delay the
payment of the redemption proceeds until the Transfer Agent is reasonably
satisfied that the check has been collected, which could take up to fifteen
days from the purchase date. This procedure does not apply to shares purchased
by money order or wire payment.

PAYMENT OF REDEMPTION PROCEEDS -- MONEY MARKET FUNDS. If received by the
Transfer Agent by 1:00 p.m. (Chicago Time) on a Business Day, a redemption
request normally will result in proceeds being sent on the next Business Day,
unless payment in immediately available funds on the same Business Day is
specifically requested. Proceeds for redemption orders received on a
non-Business Day will normally be sent on the second Business Day after receipt
in good order. However, if any portion of the shares to be redeemed represents
an investment made by check, Northern Funds may delay the payment of the
redemption proceeds until the Transfer Agent is reasonably satisfied that the
check has been collected, which could take up to fifteen days from the purchase
date. Northern Funds reserves the right to defer crediting, sending or wiring
redemption proceeds for up to seven days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect a Fund.

MISCELLANEOUS REDEMPTION INFORMATION. All redemption proceeds will be sent by
check unless Northern Trust or the Transfer Agent is directed otherwise. The
ACH system may be utilized for payment of redemption proceeds. Redemptions may
not be processed if a shareholder has failed to submit a completed and signed
Purchase Application. Northern Funds may require any information

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<PAGE> 71
reasonably necessary to ensure that a redemption has been duly authorized.

To relieve Northern Funds of the cost of maintaining uneconomical
accounts, Northern Funds reserves the right to redeem the shares held in any
account if at the time of any redemption of shares in the account, the net
asset value of the remaining shares in the account falls below $1,000. Before
such involuntary redemption would occur, you would be given at least 60 days'
written notice and, during that period, you could make an additional investment
to restore the account to at least the minimum amount, in which case there
would be no such redemption. Involuntary redemptions will not be made because
the value of shares in an account falls below the minimum amount solely because
of a decline in a Fund's net asset value. Any involuntary redemption would be
at net asset value. Northern Funds also reserves the right to redeem shares
involuntarily if it is otherwise appropriate to do so under the 1940 Act (see
"Amortized Cost Valuation" in the Additional Statement).

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

Each Money Market Fund's net investment income is declared as a dividend on
each Business Day on the shares that are outstanding at 1:00 p.m. (Chicago
Time) on the declaration date. Net investment income includes interest accrued
on the Fund's assets less the Fund's estimated expenses. Dividends from net
investment income are paid monthly. Net realized short-term capital gains,
after reduction for capital loss carry-forwards, if any, of a Fund may be
distributed from time to time during Northern Funds' fiscal year (but not less
frequently than annually). The Money Market Funds do not expect to realize net
long-term capital gains.

Dividends from the net investment income of each of the U.S.
Government, Fixed Income, Intermediate Tax-Exempt and Tax-Exempt Funds are
declared daily on each Business Day and paid monthly. Dividends from the net
investment income of the International Fixed Income Fund are declared daily on
each Business Day and paid quarterly. Shares of these five Funds are entitled
to the dividends declared by a Fund beginning on the next Business Day after
the purchase order is executed.

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<PAGE> 72
Dividends from the net investment income of the other Funds are
declared and paid as follows:

<TABLE>
<CAPTION>
DIVIDENDS
FUND DECLARED AND PAID
<S> <C>
Income Equity . . . . . . . . . . . . . . . . Monthly
Growth Equity . . . . . . . . . . . . . . . . Quarterly
Select Equity . . . . . . . . . . . . . . . . Annually

Small Cap . . . . . . . . . . . . . . . . . . Annually

International Growth Equity . . . . . . . . . Annually
International Select Equity . . . . . . . . . Annually
Technology . . . . . . . . . . . . . . . . . Annually
</TABLE>

The net realized capital gains of each Fund are distributed at least
annually.

Dividends and capital gain distributions, if any, will reduce the net
asset value of a Fund (other than a Money Market Fund) by the amount of the
dividend or capital gain distribution. Dividends and capital gain
distributions, if any, are automatically reinvested (without any sales charge
or portfolio transaction fee) in additional shares of the same Fund at their
net asset value determined on the payment date. You may, however, notify the
Transfer Agent in writing that you elect to have dividends and/or capital gain
distributions paid in cash or reinvested in shares of another Fund offered by
Northern Funds at their net asset value determined on the payment date
(provided you maintain an account in such Fund). This election will become
effective for distributions paid two days after its receipt by the Transfer
Agent.

Net loss, if any, from certain foreign currency transactions or
instruments that is otherwise taken into account with respect to the
International Fixed Income Fund in calculating net investment income or net
realized capital gains for accounting purposes may not be taken into account in
determining the amount of dividends to be declared and paid, with the result
that a portion of the Fund's dividends may be treated as a return of capital,
nontaxable to the extent of a shareholder's tax basis in his or her shares.

TAXES

As with any investment, you should consider the tax implications of an
investment in Northern Funds. The following is only a short summary of the
important tax considerations generally affecting the Funds and their
shareholders. You should consult your tax adviser with specific reference to
your own tax situation. Northern Funds will send written notices to
shareholders annually regarding the tax status of distributions made by the
Funds. The Funds will determine annually the

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<PAGE> 73
percentages of their respective net investment income which are exempt from
tax, which constitute an item of tax preference for purposes of the federal
alternative minimum tax, and which are fully taxable, and will apply these
percentages uniformly to all dividends declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day.

FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (the "Code"), meaning that to the
extent a Fund's earnings are distributed to shareholders as required by the
Code, the Fund itself is not required to pay federal income taxes.

To qualify, a Fund will pay as dividends at least 90% of its
investment company taxable income and at least 90% of its net tax-exempt income
(if any) each year. Investment company taxable income includes, but is not
limited to, taxable interest, dividends and short-term capital gains less
expenses. Dividends based on either investment company taxable income or the
excess of net short-term capital gain over net long-term capital loss are
treated as ordinary income in determining gross income for tax purposes,
whether or not the dividends are received in cash or additional shares.
(Federal income taxes for distributions to an IRA or other qualified retirement
account are deferred under the Code.)

Dividends paid by the Tax-Exempt Funds (but not the other Funds) that
are derived from interest on Municipal Instruments ("exempt- interest
dividends") may be excludable from your federal taxable income (unless
because of your particular situation exclusion would be disallowed). You
should note that income that is not subject to federal income taxes may
nevertheless have to be considered along with other adjusted gross income in
determining whether any Social Security payments received by you are subject to
federal income taxes. You should also note that a portion of the
exempt-interest dividends paid by the Intermediate Tax-Exempt Fund and
Tax-Exempt Fund may be, and a portion of such dividends by the Municipal Money
Market and California Municipal Money Market Funds generally will be, an item
of tax preference for both corporate and individual taxpayers in determining
federal alternative minimum and environmental tax liability. (Corporate
taxpayers will be required to take into account all exempt-interest dividends
from the Tax-Exempt Funds in determining certain adjustments for alternative
minimum tax and environmental tax purposes.) If you hold shares for six months
or less, and during that time receive exempt-interest dividends, any loss
realized on the sale of those shares will be disallowed to the extent of the
exempt-interest dividends.

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<PAGE> 74
Any distribution based on the excess of long-term capital gain over
net short-term capital loss will be taxable as a long-term capital gain, no
matter how long you hold Fund shares. If you hold shares for six months or
less, and during that time receive a distribution that is taxable as a
long-term capital gain, any loss realized on the sale of those shares will be
treated as a long-term loss to the extent of the earlier capital gain
distribution.

Before purchasing shares you should consider the effect of any capital
gain distributions and, for those Funds that do not declare dividends daily,
any net income dividends that are expected to be declared or that have been
declared but not yet paid. The per share price will be reduced by the amount
of the payment, so that a shareholder will, in effect, have paid full price for
the shares and then received a portion of the price back as a taxable
distribution. This is because at any given time the value of your shares
includes the undistributed net gains, if any, realized by a Fund on the sale of
portfolio securities, and undistributed dividends and interest received, less
the Fund's expenses. Because such gains and dividends are included in the
price of your shares, when they are distributed, the price of your shares is
reduced by the amount of the distribution. Accordingly, if your distribution
is reinvested in additional shares, the distribution has no effect on the value
of your investment; while you own more shares, the price of each share has been
reduced by the amount of the distribution. Likewise, if you take your
distribution in cash, the value of your shares after the record date will be
reduced by the cash received .

Any dividends declared in October, November or December and payable to
shareholders of record during those months will be deemed to have been paid by
a Fund and received by shareholders on December 31, so long as the dividends
are actually paid, as expected, in January of the following year.

Shareholders may realize a taxable gain or loss when redeeming,
transferring or exchanging their shares (or in using the Systematic Withdrawal
Plan to direct reinvestments), depending on the difference in the prices at
which the shares were originally purchased and when redeemed, transferred or
exchanged.

Dividends and certain interest income earned by a Fund from foreign
securities may be subject to foreign withholding taxes or other taxes. So long
as more than 50% of the value of a Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Fund
may elect, for U.S. federal income tax purposes, to treat certain foreign taxes
paid by it, including generally any withholding taxes and other foreign income
taxes, as paid by its shareholders. It is

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possible that one or more of the International Funds will make this election in
certain years. Should a Fund make the election, the amount of such foreign
taxes paid by the Fund will be included in its shareholders' income pro rata
(in addition to taxable distributions actually received by them), and each
shareholder will be entitled either (a) to credit his proportionate amounts of
such taxes against applicable U.S. federal income tax liabilities, or (b) if
the shareholder itemizes deductions, to deduct such proportionate amounts from
applicable U.S. federal taxable income, if the shareholder so chooses.

If a Fund invests in certain "passive foreign investment companies"
("PFICs"), it would be subject to federal income tax (and possibly additional
interest charges) on a portion of any "excess distribution" or gain from the
disposition of such investments even if it distributes the income to its
shareholders. If a Fund elects to treat the PFIC as a "qualified electing
fund" ("QEF") and the PFIC furnishes certain financial information in the
required form, the Fund instead would be required to include in income each
year its allocable share of the ordinary earnings and net capital gains of the
QEF, whether or not received, and such amounts would be subject to the various
distribution requirements described above. In addition, a Fund could, as an
alternative, treat unrealized gains as though they were realized for tax
purposes.

Northern Funds will be required in certain cases to withhold and remit
to the U.S. Treasury 31% of the dividends and distributions payable to any
investor (i) who has provided either an incorrect Social Security Number or
Taxpayer Identification Number or no number at all, (ii) who is subject to
withholding by the Internal Revenue Service for failure to properly include on
his return payments of interest or dividends, or (iii) who has failed to
certify to Northern Funds, when required to do so, that he is not subject to
backup withholding or is an "exempt recipient."

STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser. In particular, dividends may be taxable under state or local law as
dividend income even though all or part of those dividends come from interest
on obligations that, if held by you directly, would be free of such income
taxes. Additionally, although the U.S. Government Select Money Market Fund
intends to invest principally in U.S. Government securities the interest on
which is generally exempt from state income taxation, you should see your tax
adviser to determine whether distributions from the Fund are exempt in light
of your particular circumstances.

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<PAGE> 76

STATE AND LOCAL TAXES -- CALIFORNIA MUNICIPAL MONEY MARKET FUND. If, at the
close of each quarter of the California Municipal Money Market Fund's taxable
year, at least 50% of the value of its total assets consists of California
Municipal Instruments and certain specified federal obligations, and if the
Fund qualifies as a regulated investment company for federal tax purposes, then
the Fund will be qualified to pay dividends exempt from California state
personal income tax to its shareholders. If the Fund so qualifies, dividends
derived from interest attributable to California Municipal Instruments and such
federal obligations will be exempt from California state personal income tax.
(Such treatment may not apply, however, to investors who are "substantial
users" or "related persons" with respect to facilities financed by portfolio
securities held by the Fund.) Any dividends paid to shareholders subject to
California state franchise tax or California state corporate income tax may be
taxed as ordinary dividends to such shareholders notwithstanding that all or a
portion of such dividends are exempt from California state personal income tax.

Except as noted with respect to the California state personal income
tax, dividends paid by the California Municipal Money Market Fund may be
taxable under state or local law as dividend income even though all or part of
those dividends come from interest on obligations that, if held by you
directly, would be free of such income taxes. Moreover, to the extent, if any,
that dividends paid by the Fund to its shareholders are derived from taxable
interest or from capital gains, such dividends will be subject to federal
income tax and California state personal income tax, if applicable, whether or
not such dividends are reinvested. Future legislative or administrative
changes or court decisions may materially affect the tax consequences of
investing in the Fund.

TAX TABLE

You may find it particularly useful to compare the tax-free yields of the
Tax-Exempt Funds to the equivalent yields from taxable investments. For an
investor in a low tax bracket, it may not be helpful to invest in a tax-exempt
investment if a higher after-tax yield can be achieved from a taxable
instrument.

The following table illustrates the difference between hypothetical
tax-free yields and tax-equivalent yields for different tax brackets. You
should be aware, however, that tax brackets can change over time and that your
tax adviser should be consulted for specific yield calculations.

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<PAGE> 77

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FEDERAL
MARGINAL TAX-EXEMPT YIELDS
TAXABLE INCOME TAX RATE 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
- --------------------------------------------------------------------------------------------------------------------
SINGLE RETURN JOINT RETURN EQUIVALENT TAXABLE YIELDS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$ 24,000 $ 0-$ 40,100 15% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
$ 24,000-$ 58,150 $ 40,100-$ 96,900 28% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
$ 58,150-$121,300 $ 96,900-$147,700 31% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
$121,300-$263,750 $147,700-$263,750 36% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
Over $263,750 Over $263,750 39.6% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

- -------------------------------------------------------------------------------
The tax-exempt yields used here are hypothetical and no assurance can be made
that the Funds will attain any particular yield. A Fund's yield fluctuates as
market conditions change. The tax brackets and related yield calculations are
based on the 1996 federal marginal tax rates indicated in the table. The
table does not reflect the phase out of personal exemptions and itemized
deductions which will apply to certain higher income taxpayers. In addition,
the brackets do not take into consideration the California state personal
income tax.
- -------------------------------------------------------------------------------

MANAGEMENT

BOARD OF TRUSTEES

The business and affairs of Northern Funds are managed under the direction of
its Board of Trustees. The Additional Statement contains the name of each
Trustee and other background information.

INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN

Northern Trust, with offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as Northern Funds' investment adviser, transfer agent and custodian. As
transfer agent, Northern Trust provides various administrative servicing
functions, and any shareholder inquiries may be directed to it.

Northern Trust, a member of the Federal Reserve System, is an Illinois
state-chartered commercial bank and the principal subsidiary of Northern Trust
Corporation, a bank holding company. Northern Trust was formed in 1889 with
capitalization of $1 million. As of March 31, 1996, Northern Trust
Corporation and its subsidiaries had approximately $20.3 billion in assets,
$2.1 billion in deposits and employed over 6,500 persons.

Northern Trust and its affiliates administered in various capacities
(including as master trustee, investment manager or custodian) over $641.2
billion in assets as of March 31, 1996, including over $114.5 billion for
which Northern Trust had investment management responsibility.

Subject to the general supervision of Northern Funds' Board of
Trustees, Northern Trust is responsible for making investment

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decisions for the Funds and placing purchase and sale orders for portfolio
securities. Northern Trust is also responsible for monitoring and preserving
the records required to be maintained under the regulations of the SEC (with
certain exceptions unrelated to its activities for Northern Funds). In making
investment recommendations for the Funds, investment advisory personnel must
not inquire or take into consideration whether issuers of securities proposed
for purchase or sale for the Funds' accounts are customers of Northern Trust's
commercial banking department. These requirements are designed to prevent
investment advisory personnel for the Funds from knowing which companies have
commercial business with Northern Trust and from purchasing securities where
they know the proceeds will be used to repay loans to the bank.

As compensation for its advisory services and its assumption of
related expenses, Northern Trust is entitled to a fee, computed daily and
payable monthly, at an annual rate of .60% of the average daily net assets of
each of the Money Market Funds; .75% of the average daily net assets of each of
the U.S. Government, Fixed Income, Intermediate Tax-Exempt and Tax-Exempt
Funds; .90% of the average daily net assets of the International Fixed Income
Fund; 1.00% of the average daily net assets of each of the Income Equity and
Growth Equity Funds; and 1.20% of the average daily net assets of each of the
Select Equity, Small Cap , International Growth Equity, International Select
Equity and Technology Funds. Although these advisory fee rates (except for the
Money Market Funds) are higher than the rates payable by most mutual funds, the
Board of Trustees believes they are comparable to the rates payable by other
fixed income, equity and international funds.

Northern Trust also receives compensation as Northern Funds' custodian
and transfer agent. The fees payable by the Funds for these services are
described in the Additional Statement.

The Money Market, Fixed Income and Equity Funds are advised by
Northern Trust's Investment Services Group. James M. Snyder, Vice President of
Northern Trust since 1980, Senior Vice President since 1991 and Chief
Investment Officer since 1995, oversees the management of all fixed income,
equity and money market assets managed by Northern Trust and is the head of
Northern's Investment Services Group. Mr. Snyder received his B.S. degree from
Indiana University and his M.B.A. degree from DePaul University. He is a
Chartered Financial Analyst and a member of the Investment Analysts Society of
Chicago.

The portfolio managers primarily responsible for the management of the
investment selections of the Funds (other than the Money Market Funds),
together with information as to their principal business occupations during the
past five years, are shown below.

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FIXED INCOME FUNDS. Primary responsibility for the management of the Fixed
Income Fund and International Fixed Income Fund lies with Michael J. Lannan,
Second Vice President in the Fixed Income Management Division. Mr. Lannan has
had such responsibility for the Funds since they commenced operations in April
1994. Mr. Lannan received his B.A. degree from Harvard University and his
M.B.A. degree from DePaul University. He is a member of the Institute of
Chartered Financial Analysts and the Investment Analysts Society of Chicago.
Mr. Lannan joined Northern Trust in 1986. During the past five years, Mr.
Lannan has managed various fixed income portfolios, including common and
collective trust funds invested in obligations of domestic and foreign issuers.
Primary responsibility for the management of the Intermediate Tax-Exempt Fund
lies with Eric Boeckmann, Second Vice President in Northern Trust's Fixed
Income Management Division. Mr. Boeckmann has had such responsibility for the
Fund since it commenced operations in April 1994. Mr. Boeckmann received his
B.S. degree from the University of Illinois and joined Northern Trust in 1985.
During the past five years, Mr. Boeckmann has managed various municipal bond
portfolios, including common trust funds comprised of municipal securities.
Primary responsibility for the management of the Tax-Exempt Fund lies with
Peter J. Flood, Vice President in Northern Trust's Fixed Income Management
Division and has had such responsibility for the Fund since it commenced
operations in April 1994. Mr. Flood received his S.B. degree from Loyola
University and his M.B.A. degree from the University of Chicago. Mr. Flood
joined Northern Trust in 1979. During the past five years, Mr. Flood has
managed various municipal bond portfolios, including common trust funds
invested in municipal securities. Primary responsibility for the management of
the U.S. Government Fund lies with Monty M. Memler, Second Vice President. Mr.
Memler has had such responsibility for the Fund since November 1994. Mr.
Memler received his B.S. degree from the University of Illinois and his M.B.A.
degree from the University of Chicago. He is a Chartered Financial Analyst and
a member of the Investment Analysts Society of Chicago. Mr. Memler joined
Northern Trust in 1986. During the past five years, Mr. Memler has managed
various fixed income portfolios, including common and collective trust funds
and a mutual fund for another investment company.

EQUITY FUNDS. Primary responsibility for the management of the Income Equity
Fund lies with Theodore T. Southworth, Vice President in the Personal
Investment Management Division since joining Northern Trust in 1984. Mr.
Southworth has had such responsibility for the Fund since November 1995. Mr.
Southworth received his B.A. degree, cum laude, from Harvard College. He is a
Chartered Financial Analyst and a member of the Investment Analysts Society of
Chicago. Primary responsibility for the management of the Growth Equity Fund
lies with Theodore Breckel, Vice President in the Personal Investment
Management Division. Mr. Breckel has had such responsibility for the Fund
since

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February 1995. Mr. Breckel received his A.B. and M.B.A. degrees from Indiana
University and his M.S. degree from DePaul University. He is a Chartered
Financial Analyst and a member of the Investment Analysts Society of Chicago
and the Financial Analysts Federation. He has been with Northern Trust since
1968. He has served in the Personal Investment Management Division since 1985.
Primary responsibility for the management of the Select Equity Fund lies with
Robert N. Streed, Vice President in the Northern Investment Counselors
Division. Mr. Streed has had such responsibility for the Fund since it
commenced operations in April 1994. Mr. Streed received his B.B. degree from
Western Illinois University and his M.B.A. degree from DePaul University. He
is a Chartered Financial Analyst and a member of the Investment Analysts
Society of Chicago and the Association for Investment Management and Research.
Mr. Streed joined Northern Trust in 1990. Prior to joining Northern Trust, he
was a Senior Vice President at Capitol Supervisors, Inc. where he managed an
equity mutual fund and various equity portfolios. Since joining Northern
Trust, Mr. Streed has managed various equity portfolios.

John R. Goodwin, Vice President of Northern Trust since 1987, heads
the Structured Equity Management Division of Northern's Investment Services
Group. Mr. Goodwin received his B.S. degree from Oregon State University and
his M.B.A. degree from the University of Chicago. He is a Chartered Financial
Analyst and a member of the following organizations: the Society of
Quantitative Analysts; the International Society of Financial Analysts; the
Chicago Options/Futures Society; the Investment Analysts Society of Chicago;
and the Association for Investment Management and Research. Primary
responsibility for the management of the Small Cap Fund lies with Susan J.
French, Second Vice President in the Structured Equity Management Division.
Ms. French has had such responsibility for the Fund since it commenced
operations in April, 1994. Ms. French received her B.S. degree from Fairfield
University and is a member of the Investment Analysts Society of Chicago. Ms.
French joined Northern Trust in 1986. During the past five years, Ms. French
has managed short-term investment funds and equity index funds including common
and collective trust funds and a mutual fund for another investment company.

Robert A. LaFleur, Vice President of Northern Trust since 1982 and
Senior Vice President since 1990, is the Chief Investment Strategist and head
of the Funds Global Strategy Management Division of Northern's Investment
Services Group. Mr. LaFleur is responsible for developing and implementing
domestic and global investment strategies for Northern Trust and its affiliate
banks. During the past five years, Mr. LaFleur has managed international
equity portfolios, including common and collective trust funds invested
principally in foreign securities. Primary responsibility for the management
of the International Growth Equity and International Select Equity Funds

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<PAGE> 81

lies with Mr. LaFleur. Mr. LaFleur has had such responsibility for the Funds
since the Funds commenced operations in April 1994. Mr. LaFleur received his
B.S. and M.B.A. degrees from the University of Illinois. He is a Chartered
Financial Analyst and a member of the Financial Analysts Federation and the
Chicago Society of Analysts. John B. Leo has had primary responsibility over
the management of the Technology Fund since it commenced operations in April
1996. Mr. Leo received his B.S. degree from Northern Illinois University and
his M.B.A. degree from the University of Chicago. Mr. Leo joined Northern
Trust in 1984. During the past five years, Mr. Leo has managed equity and bond
portfolios.

ADMINISTRATOR AND DISTRIBUTOR

Sunstone Financial Group, Inc. ("Sunstone"), 207 E. Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202, acts as administrator and distributor for Northern
Funds. Shares of the Funds are sold by Sunstone, as distributor, on a
continuous basis. As compensation for its administrative services (which
include clerical, compliance, regulatory and other services) and the assumption
of related expenses, Sunstone is entitled to a fee, computed daily and payable
monthly, at an annual rate of .15% of Northern Funds' average net assets. No
compensation is payable by Northern Funds to Sunstone for its distribution
services.

SERVICE ORGANIZATIONS

Northern Funds may enter into agreements with Service Organizations such as
banks, corporations, brokers, dealers and other financial institutions,
including Northern Trust, concerning the provision of support and/or
distribution services to their customers who own Fund shares. These services,
which are described more fully in the Additional Statement, may include support
services such as assisting investors in processing administrative 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 with respect to Fund shares beneficially
owned by customers or the information necessary for subaccounting. In
addition, Service Organizations may provide assistance, such as the forwarding
of sales literature and advertising to their customers, in connection with the
distribution of Fund shares. For their services, Service Organizations may
receive fees from a Fund at annual rates of up to .25% of the average daily net
asset value of the shares covered by their agreements.

Service Organizations may charge their customers fees for providing
administrative services in connection with investments in a Fund. Investors
should contact their Service Organization

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<PAGE> 82

with respect to these fees and the particular Service Organization's
procedures for purchasing and redeeming shares. It is the responsibility of
Service Organizations to transmit purchase and redemption orders and record
those orders on a timely basis in accordance with their agreements with their
customers.

Conflict-of-interest restrictions may apply to the receipt of
compensation paid by Northern Funds 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 before entering into
agreements with Northern Funds.

The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting securities.
Accordingly, banks will be engaged under agreements with Northern Funds only to
perform the administrative and investor servicing functions described above,
and will represent that the services provided by them under the agreements will
not be primarily intended to result in the sale of Fund shares.

Agreements that contemplate the provision of distribution services by
Service Organizations are governed by a Distribution and Service Plan (the
"Plan") that has been adopted by Northern Funds pursuant to Rule 12b-1 under
the 1940 Act. No payments are made to Sunstone under the Plan. However,
payments to Service Organizations, including Northern Trust, under the Plan are
not tied directly to their own out-of- pocket expenses and therefore may be
used as they elect (for example, to defray their overhead expenses), and may
exceed their direct and indirect costs.

EXPENSES

Except as set forth above and in the Additional Statement, each Fund is
responsible for the payment of its expenses. These expenses include, without
limitation, the fees and expenses payable to Northern Trust and Sunstone,
brokerage fees and commissions, fees for the registration or qualification of
Fund shares under federal or state securities laws, expenses of the
organization of Northern Funds, taxes, interest, costs of liability insurance,
fidelity bonds, indemnification or contribution, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against Northern Funds for violation of any law, legal, tax and auditing fees
and expenses, expenses of preparing and printing prospectuses, statements of
additional information, proxy materials, reports and notices and the printing
and distributing

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<PAGE> 83
of the same to the Funds' shareholders and regulatory authorities, compensation
and expenses of its Trustees, payments to Service Organizations, fees of
industry organizations such as the Investment Company Institute, and
miscellaneous and extraordinary expenses incurred by Northern Funds.

Northern Trust and Sunstone intend to voluntarily reimburse a portion
of the Funds' expenses and/or reduce their advisory and administrative fees
from the Funds during the current fiscal year. The result of these
reimbursements and fee reductions will be to increase the performance of the
Funds during the periods for which the reductions and reimbursements are made.

FURTHER INFORMATION

DETERMINING SHARE PRICE

Net asset value per share for purposes of purchases and redemptions is
calculated by Northern Trust on each Business Day as of 3:00 p.m. (Chicago
Time) for each non-Money Market Fund, and as of 1:00 p.m. (Chicago Time) for
each Money Market Fund. Net asset value is calculated by dividing the value of
all securities and other assets belonging to a Fund, less the liabilities
charged to a Fund, by the number of the Fund's outstanding shares.

In seeking to maintain a net asset value of $1.00 per share with
respect to each Money Market Fund for purposes of purchases and redemptions,
Northern Funds values the portfolio securities held by each of the Money Market
Funds pursuant to the amortized cost method of valuation described in the
Additional Statement under "Amortized Cost Valuation."

Securities held by the other Funds that are listed on a recognized
U.S. or foreign securities exchange are valued at the last quoted sales price
on the securities exchange on which the securities are primarily traded, except
that securities listed on an exchange in the United Kingdom are valued at the
average of the closing bid and ask prices. If securities listed on a U.S.
exchange are not traded on a valuation date, they will be valued at the last
quoted bid price. If securities traded on a foreign securities exchange are
not traded on a valuation date, they will be valued at the most recent quoted
sales price. Securities that are traded in the U.S. over-the-counter markets,
absent a last quoted sales price, are valued at the last quoted bid price.
Securities which are traded in the foreign over-the-counter markets are valued
at the last sales price, except that such securities traded in the United
Kingdom are valued at the average of the closing bid and ask prices. Any
securities for which no current quotations are readily available are valued at
fair value as determined in good faith by Northern Trust under the supervision
of the Board of Trustees. Temporary short-term

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<PAGE> 84
investments are valued at amortized cost which Northern Trust has determined,
pursuant to Board authorization, approximates market value. Securities may be
valued on the basis of prices provided by independent pricing services when
those prices are believed to reflect the fair market value of the securities.

ADVERTISING PERFORMANCE

The performance of each Fund may be compared to those of other mutual funds
with similar investment objectives and to stock, bond and other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of a Fund may be compared to data prepared by Lipper
Analytical Services, Inc. or to the S&P 500 Index, the Russell 2000 Small
Stock Index, the Consumer Price Index or the Dow Jones Industrial Average. In
addition, performance of the International Funds may be compared to the Morgan
Stanley Capital International Europe, Australia and Far East Index ("EAFE"),
the Morgan Stanley EAFE and Emerging Markets Free Index and the J.P. Morgan
International Government Bond Index, and performance of the Fixed Income and
U.S. Government Funds may be compared to the Lehman Brothers Government Bond
Index (or its two components, the Treasury Bond Index and Agency Bond Index),
the Lehman Brothers Corporate Bond Index and the Lehman Brothers Intermediate
Government Bond Index. Performance of the Intermediate Tax-Exempt and
Tax-Exempt Funds may be compared to the Lehman Brothers Municipal Bond or
5-Year Municipal Bond Indices, and performance of the Income Equity Fund may be
compared to the Merrill Lynch Investment Grade Convertible Bond Index.
Performance of the Technology Fund may be compared to the H&Q Index, the
SoundView Index, the technology grouping of the S&P 500 Index and any other
comparable technology index. Performance data as reported in national
financial publications such as Money Magazine, Forbes, Barron's, The Wall
Street Journal and The New York Times, or in publications of a local or
regional nature, may also be used in comparing the performance of a Fund.

A Fund (other than the Money Market Funds) calculates its total return
on an "average annual total return" basis for various periods from the date the
Fund commences investment operations and for other periods as permitted under
SEC rules. Average annual total return reflects the average annual percentage
change in value of an investment over the measuring period. Total return may
also be calculated on an aggregate total return basis for various periods.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return reflect changes in
the price of a Fund's shares and assume that any dividends and capital gain
distributions are reinvested. When considering average total return figures
for periods longer than one year, you should note that the annual total return
for any one year may

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<PAGE> 85
be more or less than the average for the entire period. A Fund may also
advertise its total return on an aggregate, year-by-year or other basis for
various specified periods through charts, graphs, schedules or quotations.

The yield of a Fund (other than the Money Market Funds) is computed
based on the Fund's net income during a specified 30-day (or one-month)
period. More specifically, the Fund's yield is computed by dividing its per
share net income during the relevant period by the per share net asset value on
the last day of the period and annualizing the result on a semi-annual basis.
The yield of a Money Market Fund is computed based on the Fund's net income
during a specified seven-day period. The net investment income is then
"annualized." That is, the amount of net investment income generated by the
investment during the period is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The "effective"
yield of a Money Market Fund is calculated similarly but, when annualized, the
net investment income generated by the investment is assumed to be reinvested.
The "effective" yield will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.

The tax-equivalent yield for a Tax-Exempt Fund shows the amount of
taxable yield needed to produce an after-tax equivalent of a tax- free yield,
and is calculated by increasing the yield (as calculated above) by the amount
necessary to reflect the payment of federal and/or state income taxes at a
stated rate. The tax-equivalent yield for a Tax-Exempt Fund will always be
higher than the Fund's yield.

Performance is based on historical earnings and is not intended to
indicate future performance. The investment return and principal value of an
investment in a Fund will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Performance data may not provide a
basis for comparison with bank deposits and other investments which provide a
fixed yield for a stated period of time. Changes in the net asset value should
be considered in ascertaining the total return to shareholders for a given
period. Total return data should also be considered in light of the risks
associated with a Fund's composition, quality, operating expenses and market
conditions. Any fees charged by Northern Trust or a Service Organization
directly to its customers in connection with investments in the Funds will not
be included in Northern Funds' calculations of performance data.

VOTING RIGHTS

Northern Funds was formed as a Massachusetts Business Trust on October 12, 1993
under an Agreement and Declaration of Trust (the "Trust Agreement"). The Trust
Agreement permits the Board of

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<PAGE> 86
Trustees to issue an unlimited number of shares of beneficial interest of one
or more separate series representing interests in different investment
portfolios. Northern Funds currently offers seventeen separate Funds, which
are described in this Prospectus.

Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Each series
entitled to vote on a matter will vote in the aggregate and not by series,
except as required by law or when the matter to be voted on affects only the
interests of shareholders of a particular series. The Additional Statement
gives examples of situations where the law requires voting by series. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate shares of Northern Funds may elect all of the Trustees.

Northern Funds does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law.
Pursuant to the Trust Agreement, the Trustees will promptly call a meeting of
shareholders to vote upon the removal of any Trustee when so requested in
writing by the record holders of 10% or more of the outstanding shares. To the
extent required by law, Northern Funds will assist in shareholder
communications in connection with the meeting.

As of July 15, 1996, Northern Trust possessed sole or shared voting
or investment power for its customer accounts with respect to more than 50% of
the outstanding shares of Northern Funds.

SHAREHOLDER REPORTS

Shareholders of record will be provided each year with a semi-annual report
showing portfolio investments and other information as of September 30 and,
after the close of the Funds' fiscal year March 31, with an annual report
containing audited financial statements. To eliminate unnecessary duplication,
only one copy of shareholder reports will be sent to shareholders with the same
mailing address. Shareholders who desire a duplicate copy of shareholder
reports to be mailed to their residence should call 1-800-595-9111.

RETIREMENT PLANS

Shares of the Funds may be purchased in connection with certain tax-sheltered
retirement plans, including profit-sharing plans, 401(k) plans, money purchase
pension plans, target benefit plans and individual retirement accounts.
Further information about how to participate in these plans, the fees charged
and the limits on contributions can be obtained from Northern Trust. To invest
through any of the tax-sheltered retirement plans, please call Northern Trust
for information and the required separate

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<PAGE> 87
application. To determine whether the benefits of a tax-sheltered retirement
plan are available and/or appropriate, a shareholder should consult with a tax
adviser.

MISCELLANEOUS

The address of Northern Funds is 207 E. Buffalo Street, Suite 400, Milwaukee,
Wisconsin 53202 and the telephone number is 1-800-595-9111. Northern Funds is
registered as an open-end management investment company under the 1940 Act, and
each of the Funds (other than the California Municipal Money Market Fund and
the International Fixed Income Fund) is classified under that Act as a
diversified portfolio.

As used in this Prospectus, "Business Day" means each day Northern
Trust and the New York Stock Exchange (the "Exchange) are open, which is Monday
through Friday, except for holidays observed by Northern Trust and/or the
Exchange. In 1996, these holidays are New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday (except for the Money Market Funds), Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving and
Christmas. On days when Northern Trust or the Exchange closes early as a
result of unusual weather or other conditions, the right is reserved to advance
the time by which purchase and redemption requests must be received. In
addition, on any Business Day when the Public Securities Association ("PSA")
recommends that the securities markets close early, the Funds reserve the right
to cease or to advance the deadline for accepting purchase and redemption
orders for same Business Day credit up to one hour before the PSA recommended
closing time. Purchase and redemption requests received after the advanced
closing time will be effected on the next Business Day. Northern Trust is not
required to calculate the net asset value of a Fund on days during which no
shares are tendered to a Fund for redemption and no orders to purchase or sell
shares are received by a Fund, or on days on which there is an insufficient
degree of trading in the Fund's portfolio securities for changes in the value
of such securities to affect materially the net asset value per share.

From time to time, Northern Funds' distributor may provide promotional
incentives to brokers whose representatives have sold or are expected to sell
shares of the Funds. At various times, the distributor may implement programs
under which a broker's sales force may be eligible to win cash or non-cash
awards for sales efforts, and may finance broker sales contests or recognition
programs conforming to criteria established by the distributor. The
distributor may also provide marketing services to brokers consisting of
written informational material relating to sales incentive campaigns conducted
by such brokers for their representatives.

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Northern Trust is sometimes referred to as "The Northern Trust Bank"
in advertisements and other literature.

________________________________

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN NORTHERN FUNDS'
ADDITIONAL STATEMENT IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NORTHERN FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY NORTHERN FUNDS OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.

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<PAGE> 89

33-73404
811-8236

PART B

STATEMENT OF ADDITIONAL INFORMATION

MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT SELECT MONEY MARKET FUND
CALIFORNIA MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT FUND
FIXED INCOME FUND
INTERMEDIATE TAX-EXEMPT FUND
TAX-EXEMPT FUND
INTERNATIONAL FIXED INCOME FUND
INCOME EQUITY FUND
GROWTH EQUITY FUND
SELECT EQUITY FUND
SMALL CAP FUND
(FORMERLY, SMALL CAP GROWTH FUND)
INTERNATIONAL GROWTH EQUITY FUND
INTERNATIONAL SELECT EQUITY FUND
TECHNOLOGY FUND

NORTHERN FUNDS
(THE "TRUST")

This Statement of Additional Information (the "Additional Statement")
dated July 31, 1996 is not a prospectus. This Additional Statement should be
read in conjunction with the Prospectus dated July 31, 1996, as amended or
supplemented from time to time, for the Money Market Fund, U.S. Government
Money Market Fund, Municipal Money Market Fund, U.S. Government Select Money
Market Fund, California Municipal Money Market Fund (collectively, the "Money
Market Funds"), U.S. Government Fund, Fixed Income Fund, Intermediate
Tax-Exempt Fund, Tax-Exempt Fund, International Fixed Income Fund, Income
Equity Fund, Growth Equity Fund, Select Equity Fund, Small Cap Fund,
International Growth Equity Fund, International Select Equity Fund and
Technology Fund (collectively, the "Non-Money Market Funds," and together with
the Money Market Funds, the "Funds") of Northern Funds (the "Prospectus").
Copies of the Prospectus may be obtained without charge from the Transfer
Agent by writing to the Northern Funds Center, P.O. Box 75986, Chicago,
Illinois 60690-9069 or by calling 1-800-595-9111. Capitalized terms not
otherwise defined have the same meaning as in the Prospectus.

<PAGE> 90

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS ADDITIONAL STATEMENT OR IN THE PROSPECTUS
IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NORTHERN FUNDS OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NORTHERN FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

SHARES OF NORTHERN FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED, ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST BANK, ITS
PARENT COMPANY OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.

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<PAGE> 91
INDEX

<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies . . . . . . . . . . . . . . .
Special Risk Factors Relating to California Municipal
Instruments . . . . . . . . . . . . . . . . . . . . . .
Investment Restrictions . . . . . . . . . . . . . . . . . . . .

ADDITIONAL TRUST INFORMATION . . . . . . . . . . . . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . . . . . . . . . . .
Investment Adviser, Transfer Agent and Custodian . . . . . . . .
Administrator and Distributor . . . . . . . . . . . . . . . . .
Service Organizations . . . . . . . . . . . . . . . . . . . . .
Counsel and Auditors . . . . . . . . . . . . . . . . . . . . . .
In-Kind Purchases . . . . . . . . . . . . . . . . . . . . . . .
Automatic Investing Plan . . . . . . . . . . . . . . . . . . . .
Redemptions and Exchanges . . . . . . . . . . . . . . . . . . .

PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market Funds . . . . . . . . . . . . . . . . . . . . . . .
Non-Money Market Funds . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . . .

AMORTIZED COST VALUATION . . . . . . . . . . . . . . . . . . . . . . . .

TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal - General Information . . . . . . . . . . . . . . . . .
Federal - Tax-Exempt Information . . . . . . . . . . . . . . . .
Taxation of Certain Financial Instruments . . . . . . . . . .
Special State Tax Considerations Pertaining to the
California Municipal Money Market Fund . . . . . . . . .

DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . .

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .

OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1

</TABLE>

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<PAGE> 92
ADDITIONAL INVESTMENT INFORMATION

INVESTMENT OBJECTIVES AND POLICIES

The following supplements the investment objectives and policies of
the Funds as set forth in the Prospectus.

MONEY MARKET FUNDS

Money Market Fund seeks to maximize current income to
the extent consistent with the preservation of
capital and maintenance of liquidity by investing
only in high-quality money market instruments.

U.S. Government Money Market Fund has the same
objective as the Money Market Fund but invests
primarily in securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities
and related repurchase agreements.

Municipal Money Market Fund seeks high current income
exempt from regular federal tax to the extent
consistent with preserving capital by investing
mainly in short-term Municipal Instruments.

U.S. Government Select Money Market Fund seeks to
maximize current income to the extent consistent with
the preservation of capital and maintenance of
liquidity by investing exclusively in high quality
money market instruments.

California Municipal Money Market Fund seeks to
provide its shareholders to the extent consistent
with the preservation of capital and prescribed
portfolio standards, a high level of income exempt
from regular federal income tax and California state
personal income tax.

FIXED INCOME FUNDS

U.S. Government Fund seeks high current income from
U.S. government securities. The Fund's
dollar-weighted average maturity is anticipated to
range between one and ten years. It is designed for
investors who seek greater principal stability than
is generally available from higher yielding corporate
bonds.

Fixed Income Fund seeks high current income from a
broad range of bonds and other fixed income

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securities. It is designed for investors who seek
income and greater stability of principal than is
generally available from longer- term, higher yielding
bonds. The Fund's average maturity is anticipated to
range between seven and twelve years. This Fund
generally presents greater risk and reward potential
than the U.S. Government Fund.

International Fixed Income Fund seeks to maximize
total return consistent with reasonable risk while
investing in foreign securities markets. Total
return is comprised of current income and value
fluctuations from investing in bonds and other fixed
income securities of foreign issuers.

TAX-EXEMPT FUNDS

Intermediate Tax-Exempt Fund seeks high current income
exempt from regular federal income tax. The Fund
invests in a broad range of Municipal Instruments
with an expected average maturity of three to ten
years.

Tax-Exempt Fund also seeks high current income exempt
from regular federal income tax by investing in
Municipal Instruments with an expected average
maturity of ten to thirty years.

EQUITY FUNDS

Income Equity Fund seeks to achieve high current
income and, as a secondary objective, longer-term
capital appreciation. The Fund invests in
convertible and other equity securities. Because it
emphasizes high current income, this Fund is likely
to have the least price fluctuation of Northern
Fund's equity funds.

Growth Equity Fund seeks long-term capital
appreciation by investing mainly in the equity
securities of growth companies. It is designed for
investors willing to accept above-average price
volatility in search of long-term reward.

Select Equity Fund is also for the more aggressive
investor, seeking long-term capital appreciation by
investing principally in common stocks of companies
the adviser believes to have superior growth
characteristics. Any income is incidental to this
objective.

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Small Cap Fund seeks long-term capital appreciation;
any income is incidental to this objective. Because
it invests principally in the equity securities of
smaller companies, this Fund is likely to have more
price volatility than the Growth Equity and Select
Equity Funds.

International Growth Equity Fund offers the potential
benefits of international diversification to
investors willing to accept above-average price
volatility while seeking long-term capital
appreciation. While subject to additional risks such
as currency fluctuations and the higher volatility of
foreign securities, this Fund uses diversification,
in an effort to control risk.

International Select Equity Fund seeks long-term
growth by investing principally in common stock of
foreign issuers that the adviser believes are growing
faster than their markets. Because fewer countries
and securities are generally represented in this Fund
than in the International Growth Equity Fund, it is
likely to experience more price volatility.

Technology Fund seeks long-term capital appreciation
by investing principally in equity securities and
securities convertible into common stock of companies
that develop, produce or distribute products and
services related to advances in technology. The Fund
will, under normal market conditions, invest at least
65% of the value of its total assets in securities of
companies principally engaged in technology business
activities. An issuer is considered principally
engaged in technology business activities if such
issuer is listed on the Hambrecht and Quist
Technology Index, the SoundView Technology Index, the
technology grouping of the S&P 500 Index or any other
comparable index.

The SoundView Technology Index includes approximately
100 companies from the design, automation,
communications, mainframe computer, microcomputer,
minicomputer, peripherals, semiconductor, software
and related services industries. The Hambrecht &
Quist Technology Index (the "H&Q Index") is comprised
of publicly traded stocks of approximately 200
technology companies. The H&Q Index includes
companies in the electronics, medical and related
technologies industries and is a market
capitalization weighted

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<PAGE> 95
index. Changes in the indices may occur when
SoundView or H&Q choose to modify their indices or as
mergers, acquisitions and failures dictate. Such
changes may happen with fair regularity owing to the
fast-changing nature of the technology industries.

COMMERCIAL PAPER, BANKERS' ACCEPTANCES, CERTIFICATES OF DEPOSIT,
TIME DEPOSITS AND BANK NOTES. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers' acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties that vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. Bank notes and bankers'
acceptances rank junior to deposit liabilities of the bank and pari passu with
other senior, unsecured obligations of the bank. Bank notes are classified as
"other borrowings" on a bank's balance sheet, while deposit notes and
certificates of deposit are classified as deposits. Bank notes are not insured
by the Federal Deposit Insurance Corporation or any other insurer. Deposit
notes are insured by the Federal Deposit Insurance Corporation only to the
extent of $100,000 per depositor per bank.

A Fund may invest a portion of its net assets in the obligations of
foreign banks and foreign branches of domestic banks. Such obligations include
Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule
Bs, which are obligations issued by Canadian branches of foreign or domestic
banks; Yankee Certificates of Deposit ("Yankee Cds") which are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the United States; and Yankee Bankers' Acceptances ("Yankee
Bas") which are U.S. dollar-denominated bankers' acceptances issued by a U.S.
branch of a foreign bank and held in the United States.

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<PAGE> 96

GUARANTEED INVESTMENT CONTRACTS. A guaranteed investment contract
("GIC") is normally a general obligation of the issuing insurance company and
not a separate account. The purchase price paid for a GIC becomes part of the
general assets of the insurance company, and the contract is paid from the
company's general assets. The Money Market Fund and Fixed Income Fund will
only purchase GICs from insurance companies which, at the time of purchase,
have assets of $1 billion or more and meet quality and credit standards
established by Northern Trust. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance companies, and an
active secondary market in GICs does not currently exist. Therefore, GICs will
normally be considered illiquid investments, and will be acquired subject to
the limitation on illiquid investments.

REPURCHASE AGREEMENTS. Each Fund may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed upon date and price ("repurchase
agreements"). Repurchase agreements are considered to be loans under the
Investment Company Act of 1940 (The "1940 Act"). Although the securities
subject to a repurchase agreement may bear maturities exceeding one year,
settlement for the repurchase agreement will never be more than one year after
a Fund's acquisition of the securities and normally will be within a shorter
period of time. Securities subject to repurchase agreements are held either by
Northern Funds' custodian or subcustodian (if any), or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement
will be required to maintain the value of the securities subject to the
agreement in an amount exceeding the repurchase price (including accrued
interest). Default by the seller would, however, expose a Fund to possible
loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.

REVERSE REPURCHASE AGREEMENTS. A Fund may borrow funds by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price
("reverse repurchase agreements"). Reverse repurchase agreements are
considered to be borrowings under the 1940 Act. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the repurchase price. A Fund will pay interest on amounts
obtained pursuant to a reverse repurchase agreement. While reverse repurchase
agreements are outstanding, a Fund will maintain in a segregated account cash,
U.S. Government securities or other liquid high-grade debt securities of an
amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement.

VARIABLE AND FLOATING RATE INSTRUMENTS. With respect to the variable
and floating rate instruments that may be acquired by the Funds as described in
the Prospectus, Northern Trust will consider

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the earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instruments are subject to demand
features, will monitor their financial status to meet payment on demand. In
determining weighted average portfolio maturity, an instrument may, subject to
applicable SEC regulations, be deemed to have a maturity shorter than its
nominal maturity based on the period remaining until the next interest rate
adjustment or the time a Fund can recover payment of principal as specified in
the instrument. Where necessary to ensure that a variable or floating rate
instrument is of the minimum required credit quality for a Fund, the issuer's
obligation to pay the principal of the instrument will be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.

FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY
TRANSACTIONS. Each Fund may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment (sometimes called delayed
delivery) basis. These transactions involve a commitment by the Fund to
purchase or sell securities at a future date. The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at
the time the transaction is negotiated. When-issued purchases and forward
commitment transactions are normally negotiated directly with the other party.

A Fund will purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, a Fund may
dispose of or negotiate a commitment after entering into it. A Fund also may
sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date.

When a Fund purchases securities on a when-issued, delayed-delivery or
forward commitment basis, the Fund's custodian (or subcustodian) will maintain
in a segregated account cash, U.S. Government securities or other high-grade
debt obligations having a value (determined daily) at least equal to the amount
of the Fund's purchase commitments. In the case of a forward commitment to
sell portfolio securities, the custodian or subcustodian will hold the
portfolio securities themselves in a segregated account while the commitment is
outstanding. These procedures are designed to ensure that the Fund will
maintain sufficient assets at all times to cover its obligations under
when-issued purchases, forward commitments and delayed-delivery transactions.
For purposes of determining a Fund's average dollar-weighted maturity, the
maturity of when-issued, delayed-delivery or forward commitment securities will
be calculated from the commitment date.

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UNITED STATES GOVERNMENT OBLIGATIONS. Examples of the types of U.S.
Government obligations that may be acquired by the Funds include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association
("FNMA"), Government National Mortgage Association ("GNMA"), General Services
Administration, Student Loan Marketing Association ("SLMA"), Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks and Maritime Administration.

SUPRANATIONAL BANK OBLIGATIONS. A Fund may invest in obligations of
supranational banks. Supranational banks are international banking
institutions designed or supported by national governments to promote economic
reconstruction, development or trade among nations (e.g., the International
Bank for Reconstruction and Development). Obligations of supranational banks
may be supported by appropriated but unpaid commitments of their member
countries and there is no assurance that these commitments will be undertaken
or met in the future.

STRIPPED OBLIGATIONS. Within the past several years, 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 "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." The Funds may
purchase securities registered in the STRIPS program. Under the STRIPS
program, the Funds are able to have their 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.

In addition, the Funds, other than the U.S. Government Select Money
Market Fund, may acquire U.S. Government obligations and their unmatured
interest coupons that have been separated ("stripped") by their holder,
typically a custodian bank or investment brokerage firm. Having separated the
interest coupons from the underlying principal of the U.S. Government
obligations, the holder will resell the stripped securities in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury Securities"
("CATS"). The stripped coupons are sold separately from the underlying
principal, which is usually sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does not
receive any rights to periodic interest (cash) payments. The underlying

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U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. Counsel to the underwriters of these certificates or
other evidences of ownership of U.S. Treasury securities have stated that, in
their opinion, purchasers of the stripped securities most likely will be deemed
the beneficial holders of the underlying U.S. Government obligations for
federal tax purposes. Northern Funds is unaware of any binding legislative,
judicial or administrative authority on this issue.

The Prospectus discusses other types of stripped securities that may
be purchased by the Funds, including stripped mortgage-backed securities.

ASSET-BACKED SECURITIES. To the extent described in the Prospectus,
the Funds may purchase asset-backed securities, which are securities backed by
mortgages, installment contracts, credit card receivables or other assets.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made
periodically, thus in effect "passing through" monthly payments made by the
individual borrowers on the assets that underlie the securities, net of any
fees paid to the issuer or guarantor of the securities. The average life of
asset-backed securities varies with the maturities of the underlying
instruments, and the average life of a mortgage-backed instrument, in
particular, is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as a result of mortgage
prepayments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Asset-backed securities acquired by the Funds may include
collateralized mortgage obligations ("CMOs") issued by private companies.

There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities
guaranteed by GNMA include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes"), which are guaranteed as to the timely payment of principal
and interest by GNMA and backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-backed securities issued by FNMA
include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes"), which are solely the obligations of FNMA and are not backed by
or entitled to the full faith and credit of the United States, but are
supported by the right of the issuer to borrow from the Treasury.

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<PAGE> 100

FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the principal
and interest by FNMA. Mortgage-related securities issued by FHLMC include
FHLMC Mortgage Participation Certificates (also known as "Freddie Macs" or
"Pcs"). FHLMC is a corporate instrumentality of the United States, created
pursuant to an Act of Congress, which is owned entirely by Federal Home Loan
Banks. Freddie Macs are not guaranteed and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by FHLMC.
FHLMC guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee
timely payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.

MUNICIPAL INSTRUMENTS. Opinions relating to the validity of Municipal
Instruments (including California Municipal Instruments) and to the exemption
of interest thereon from regular federal income tax are rendered by counsel to
the respective issuing authorities at the time of issuance. Such opinions may
contain various assumptions, qualifications or exceptions that are reasonably
acceptable to Northern Trust. Neither Northern Funds nor Northern Trust will
review the proceedings relating to the issuance of Municipal Instruments or the
bases for such opinions.

An issuer's obligations under its Municipal Instruments are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Instruments may be
materially adversely affected by litigation or other conditions.

From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Instruments. For example, under the Tax Reform Act of
1986 interest on certain private activity bonds must be included in an
investor's federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their federal alternative minimum
taxable income. Northern Funds cannot predict what legislation, if any, may be
proposed in the future in Congress as regards the federal income tax status of
interest on Municipal Instruments or which proposals, if any, might be
enacted. Such proposals, if enacted, might materially and adversely affect
the

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availability of Municipal Instruments for investment by the Intermediate
Tax-Exempt, Tax-Exempt, California Municipal Money Market and Municipal Money
Market Funds and the Funds' liquidity and value. In such an event the Board of
Trustees would reevaluate the Funds' investment objectives and policies and
consider changes in their structure or possible dissolution.

Certain of the Municipal Instruments held by a Fund may be insured as
to the timely payment of principal and interest. The insurance policies will
usually be obtained by the issuer of the Municipal Instrument at the time of
its original issuance. In the event that the issuer defaults on an interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates and other
factors. A Fund may, from time to time, invest more than 25% of its assets in
Municipal Instruments covered by insurance policies.

Interest earned by the Intermediate Tax-Exempt Fund or Tax-Exempt
Fund on private activity bonds (if any) that is treated as a specific tax
preference item under the federal alternative minimum tax will not be deemed to
have been derived from Municipal Instruments for purposes of determining
whether that Fund meets its fundamental policy that at least 80% of its annual
gross income be derived from Municipal Instruments.

As described in the Prospectus, the Tax-Exempt Funds may invest in
municipal leases, which may be considered liquid under guidelines established
by Northern Funds' Board of Trustees. The guidelines will provide for
determination of the liquidity and proper valuation of a municipal lease
obligation based on factors including the following: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of transfer.
Northern Trust, under the supervision of Northern Funds' Board of Trustees,
will also consider the continued marketability of a municipal lease obligation
based upon an analysis of the general credit quality of the municipality
issuing the obligation and the essentiality to the municipality of the property
covered by the lease.

STANDBY COMMITMENTS. The California Municipal Money Market, Municipal
Money Market, Intermediate Tax-Exempt and Tax-Exempt Funds may enter into
standby commitments with respect to Municipal Instruments held by them. Under
a standby commitment, a dealer agrees to purchase at a Fund's option a
specified Municipal Instrument at its amortized cost value to the Fund plus
accrued

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interest, if any. Standby commitments may be exercisable by a Fund at any time
before the maturity of the underlying Municipal Instruments and may be sold,
transferred or assigned only with the instruments involved.

The Funds expect that standby commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Funds may pay for a standby commitment either
separately in cash or by paying a higher price for Municipal Instruments which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding standby commitments held by a Fund will not exceed 1/2
of 1% of the value of the Fund's total assets calculated immediately after each
standby commitment is acquired.

The Funds intend to enter into standby commitments only with dealers,
banks and broker-dealers which, in Northern Trust's opinion, present minimal
credit risks. The Funds will acquire standby commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a standby commitment will not affect the
valuation of the underlying Municipal Instrument . The actual standby
commitment will be valued at zero in determining net asset value. Accordingly,
where a Fund pays directly or indirectly for a standby commitment, its cost
will be reflected as an unrealized loss for the period during which the
commitment is held by the Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.

WARRANTS. The Income Equity, Growth Equity, Select Equity, Small Cap,
International Growth Equity, International Select Equity and Technology Funds
may purchase warrants and similar rights, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. The purchase of warrants involves the risk that a Fund could lose the
purchase value of a warrant if the right to subscribe to additional shares is
not exercised prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. A Fund will not invest more than 5% of its
total assets, taken at market value, in warrants, or more than 2% of its total
assets, taken at market value, in warrants not listed on the New York or
American Stock Exchanges or a major foreign exchange. Warrants acquired by a
Fund in shares or attached to other securities are not subject to this
restriction. The Money Market Funds and the U.S. Government, Fixed Income,
Intermediate Tax-Exempt, Tax-Exempt and International Fixed Income Funds do not
intend to invest in warrants.

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FOREIGN CURRENCY TRANSACTIONS. In order to protect against a possible
loss on investments resulting from a decline or appreciation in the value of a
particular foreign currency against the U.S. dollar or another foreign currency
or for other reasons, the Fixed Income, International Fixed Income, Income
Equity, Growth Equity, Select Equity, Small Cap, International Growth Equity,
International Select Equity and Technology Funds are authorized to enter into
forward currency exchange contracts. These contracts involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate fluctuations
in the values of portfolio securities but rather may allow a Fund to establish
a rate of exchange for a future point in time.

A Fund may enter into forward foreign currency exchange contracts in
several circumstances. For example, when entering into a contract for the
purchase or sale of a security, a Fund may enter into a forward foreign
currency exchange contract for the amount of the purchase or sale price to
protect against variations, between the date the security is purchased or sold
and the date on which payment is made or received, in the value of the foreign
currency relative to the U.S. dollar or other foreign currency.

When Northern Trust anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, a Fund may enter into a forward contract to sell, for
a fixed amount, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency.
Similarly, when the securities held by a Fund create a short position in a
foreign currency, a Fund may enter into a forward contract to buy, for a fixed
amount, an amount of foreign currency approximating the short position. With
respect to any forward foreign currency contract, it will not generally be
possible to match precisely the amount covered by that contract and the value
of the securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is
entered into and the date it matures. While forward contracts may offer
protection from losses resulting from declines or appreciation in the value of
a particular foreign currency, they also limit potential gains which might
result from changes in the value of such currency. A Fund will also incur
costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars. In addition, Northern
Trust may purchase or sell forward foreign currency exchange contracts for the
International Fixed Income Fund, International Growth Equity Fund and
International Select Equity Fund (collectively, the "International Funds") to
seek to increase total return when Northern Trust anticipates that the foreign
currency will appreciate or depreciate in value, but securities denominated in
that currency do not in Northern Trust's view present attractive investment
opportunities and are not held by a Fund.

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A separate account consisting of liquid assets, such as cash, U.S.
Government securities or other liquid high grade debt obligations, equal to the
amount of a Fund's assets that could be required to consummate forward
contracts will be established with the Fund's custodian except to the extent
the contracts are otherwise "covered." For the purpose of determining the
adequacy of the securities in the account, the deposited securities will be
valued at market or fair value. If the market or fair value of such securities
declines, additional cash or securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
Fund. A forward contract to sell a foreign currency is "covered" if a Fund
owns the currency (or securities denominated in the currency) underlying the
contract, or holds a forward contract (or call option) permitting the Fund to
buy the same currency at a price that is (i) no higher than the Fund's price
to sell the currency or (ii) greater than the Fund's price to sell the
currency provided the difference is maintained by the Fund in liquid assets in
a segregated account with its custodian. A forward contract to buy a foreign
currency is "covered" if a Fund holds a forward contract (or put option)
permitting the Fund to sell the same currency at a price that is (i) as high as
or higher than the Fund's price to buy the currency or (ii) lower than the
Fund's price to buy the currency provided the difference is maintained by the
Fund in liquid assets in a segregated account with its custodian.

OPTIONS. Each Non-Money Market Fund may buy put options and buy call
options and write covered call and secured put options. Such options may
relate to particular securities, securities indices, financial instruments,
foreign currencies or (in the case of the International Fixed Income Fund) the
yield differential between two securities ("yield curve options"), and may or
may not be listed on a domestic or foreign securities exchange and may or may
not be issued by the Options Clearing Corporation. Options trading is a highly
specialized activity which entails greater than ordinary investment risk.
Options may be more volatile than the underlying instruments, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying instruments themselves.

A call option for a particular security gives the purchaser of the
option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract.
A put option for a particular security gives the purchaser the right to sell
the security at the stated exercise price prior to the expiration date of the
option, regardless of the market price of the security. Options on indices
and yield curve options provide the holder with the right to make or receive a
cash settlement upon exercise of the option. With respect to options on
indices, the amount of the

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settlement will equal the difference between the closing price of the index at
the time of exercise and the exercise price of the option expressed in dollars,
times a specified multiple. With respect to yield curve options, the amount of
the settlement will equal the difference between the yields of designated
securities.

The Funds will write call options only if they are "covered." In the
case of a call option on a security or currency, the option is "covered" if a
Fund owns the instrument underlying the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by its custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if
a Fund maintains with its custodian a diversified portfolio of securities
comprising the index or liquid assets equal to the contract value. A call
option is also covered if a Fund holds a call on the same instrument or index
as the call written where the exercise price of the call held is (i) equal to
or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in liquid assets in a segregated account with its custodian. The Funds
will write put options only if they are "secured" by liquid assets maintained
in a segregated account by the Funds' custodian in an amount not less than the
exercise price of the option at all times during the option period.

With respect to yield curve options, a call (or put) option is covered
if the International Fixed Income Fund holds another call (or put) option on
the spread between the same two securities and maintains in a segregated
account with its custodian cash or cash equivalents sufficient to cover the
Fund's net liability under the two options. Therefore, the Fund's liability
for such a covered option is generally limited to the difference between the
amount of the Fund's liability under the option written by the Fund less the
value of the option held by the Fund. Yield curve options may also be covered
in such other manner as may be in accordance with the requirements of the
counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter and because they
have been only recently introduced, established trading markets for these
securities have not yet developed.

A Fund's obligation to sell an instrument subject to a covered call
option written by it, or to purchase an instrument subject to a secured put
option written by it, may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying instrument, exercise price and expiration date) as the option

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previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize
a profit on an outstanding option, to prevent an underlying instrument from
being called, to permit the sale of the underlying instrument or to permit the
writing of a new option containing different terms on such underlying
instrument. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. There is no assurance
that a liquid secondary market will exist for any particular option. An option
writer, unable to effect a closing purchase transaction, will not be able to
sell the underlying instrument (in the case of a covered call option) or
liquidate the segregated account (in the case of a secured put option) until
the option expires or the optioned instrument or currency is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the instrument during such
period.

When a Fund purchases an option, the premium paid by it is recorded as
an asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund will realize a gain if the premium received by the
Fund on the closing transaction is more than the premium paid to purchase the
option, or a loss if it is less. If an option written by a Fund expires on the
stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option
written by a Fund is exercised, the proceeds of the sale will be increased by
the net premium originally received and the Fund will realize a gain or loss.

There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In
addition, a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange may be absent for reasons which include the
following: there may be insufficient trading interest in

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certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options or underlying securities or currencies; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

FUTURES CONTRACTS AND RELATED OPTIONS. The Funds (other than the Money
Market Funds) may purchase and sell futures contracts and may purchase and sell
call and put options on futures contracts. Participation in foreign futures and
foreign options transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, customers who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the Commodity Futures Trading
Commission's ("CFTC") regulations and the rules of the National Futures
Association and any domestic exchange, including the right to use reparations
proceedings before the CFTC and arbitration proceedings provided them by the
National Futures Association or any domestic futures exchange. In particular,
the Fund's investments in foreign futures or foreign options transactions may
not be provided the same protections in respect of transactions on United States
futures exchanges. In addition, the price of any foreign futures or foreign
options contract and, therefore, the potential profit and loss thereon may be
affected by any variance in the foreign exchange rate between the time an order
is placed and the time it is liquidated, offset or exercised. For a detailed
description of futures contracts and related options, see Appendix B to this
Additional Statement.

REAL ESTATE INVESTMENT TRUSTS. The Small Cap Fund may invest in
equity real estate investment trusts ("REITs") that constitute

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a part of the Russell 2000 Small Stock Index. REITs pool investors' funds for
investment primarily in commercial real estate properties. Investments in
REITs may subject the Fund to certain risks. REITs may be affected by changes
in the value of the underlying property owned by the trust. REITs are
dependent upon specialized management skill, may not be diversified and are
subject to the risks of financing projects. REITs are also subject to heavy
cash flow dependency, defaults by borrowers, self liquidation and the
possibility of failing to qualify for the beneficial tax treatment available to
REITs under the Internal Revenue Code of 1986, as amended, and to maintain
exemption from the 1940 Act. As a shareholder in a REIT, the Fund would bear,
along with other shareholders, its pro rata portion of the REIT's operating
expenses. These expenses would be in addition to the advisory and other
expenses the Fund bears directly in connection with its own operations.

SECURITIES LENDING. Collateral for loans of portfolio securities made
by a Fund may consist of cash, securities issued or guaranteed by the U.S.
Government or its agencies or (except for the U.S. Government Money Market
Fund, U.S. Government Select Money Market Fund and U.S. Government Fund)
irrevocable bank letters of credit (or any combination thereof). The borrower
of securities will be required to maintain the market value of the collateral
at not less than the market value of the loaned securities, and such value will
be monitored on a daily basis. When a Fund lends its securities, it continues
to receive dividends and interest on the securities loaned and may
simultaneously earn interest on the investment of the cash collateral.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans will be called so that the securities may be
voted by a Fund if a material event affecting the investment is to occur.

INTEREST RATE AND CURRENCY SWAPS. The U.S. Government, Fixed Income,
Intermediate Tax-Exempt, Tax-Exempt, International Fixed Income and Income
Equity Funds may enter into interest rate swaps for hedging purposes and not
for speculation. A Fund will typically use interest rate swaps to preserve a
return on a particular investment or portion of its portfolio or to shorten the
effective duration of its portfolio investments. Interest rate swaps involve
the exchange by a Fund with another party of their respective commitments to
pay or receive interest, such as an exchange of fixed rate payments for
floating rate payments. The International Funds may also enter into currency
swaps, which involve the exchange of the rights of a Fund and another party to
make or receive payments in specific currencies.

A Fund will only enter into interest rate swaps on a net basis, i.e.
the two payment streams are netted out, with a Fund receiving or paying, as the
case may be, only the net amount of the two payments. In contrast, currency
swaps usually involve the

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<PAGE> 109
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Inasmuch as these transactions are entered
into for good faith hedging purposes, the Funds and Northern Trust believe that
such obligations do not constitute senior securities as defined in the
Investment Company Act of 1940 ("the 1940 Act") and, accordingly, will not
treat them as being subject to the Funds' borrowing restrictions.

The net amount of the excess, if any, of the Funds' obligations over
their entitlements with respect to each interest rate swap will be accrued on a
daily basis, and an amount of cash, U.S. Government securities or other liquid
high grade debt securities, having an aggregate net asset value at least equal
to such accrued excess, will be maintained in a segregated account by the
Funds' custodian.

A Fund will not enter into a currency or interest rate swap unless the
unsecured commercial paper, senior debt or the claims-paying ability of the
other party thereto is rated either A or A-1 or better by S&P, Duff or Fitch,
or A or P-1 or better by Moody's. If there is a default by the other party to
such transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid in
comparison with markets for other similar instruments which are traded in the
Interbank market.

CONVERTIBLE SECURITIES. Convertible securities entitle the holder to
receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible securities mature or are redeemed, converted or
exchanged. Prior to conversion, convertible securities have characteristics
similar to ordinary debt securities in that they normally provide a stable
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities rank senior to common stock in
a corporation's capital structure and therefore generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.

In selecting convertible securities for the Fixed Income, Income
Equity, Growth Equity, Select Equity, Small Cap , International Growth Equity,
International Select Equity, International Fixed Income and Technology Funds,
Northern Trust will consider, among other factors, its evaluation of the
creditworthiness of the issuers of the securities; the interest or dividend
income generated by the securities; the potential for capital appreciation of
the securities and the underlying common stocks; the prices of the securities
relative to other comparable

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<PAGE> 110
securities and to the underlying common stocks; whether the securities are
entitled to the benefits of sinking funds or other protective conditions;
diversification of the Fund's portfolio as to issuers; and whether the
securities are rated by a rating agency and, if so, the ratings assigned.

The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.

Capital appreciation for a Fund may result from an improvement in the
credit standing of an issuer whose securities are held in the Fund or from a
general lowering of interest rates, or a combination of both. Conversely, a
reduction in the credit standing of an issuer whose securities are held by a
Fund or a general increase in interest rates may be expected to result in
capital depreciation to the Fund.

In general, investments in non-investment grade convertible securities
are subject to a significant risk of a change in the credit rating or financial
condition of the issuing entity. Investments in convertible securities of
medium or lower quality are also likely to be subject to greater market
fluctuation and to greater risk of loss of income and principal due to default
than investments of higher rated fixed-income securities. Such lower-rated
securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher rated securities, which react more
to fluctuations in the general level of interest rates. A Fund will generally
reduce risk to the investor by diversification, credit analysis and attention
to current developments in trends of both the economy and financial markets.
However, while diversification reduces the effect on a Fund of any single
investment, it does not reduce the overall risk of investing in lower rated
securities.

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RISKS RELATED TO LOWER-RATED SECURITIES. While any investment carries
some risk, certain risks associated with lower-rated securities are different
than those for investment-grade securities. The risk of loss through default
is greater because lower-rated securities are usually unsecured and are often
subordinate to an issuer's other obligations. Additionally, the issuers of
these securities frequently have high debt levels and are thus more sensitive
to difficult economic conditions, individual corporate developments and rising
interest rates. Consequently, the market price of these securities may be
quite volatile and may result in wider fluctuations of a Fund's net asset value
per share.

There remains some uncertainty about the performance level of the
market for lower-rated securities under adverse market and economic
environments. An economic downturn or increase in interest rates could have a
negative impact on both the markets for lower-rated securities (resulting in a
greater number of bond defaults) and the value of lower-rated securities held
in the portfolio of investments.

The economy and interest rates can affect lower-rated securities
differently than other securities. For example, the prices of lower- rated
securities are more sensitive to adverse economic changes or individual
corporate developments than are the prices of higher-rated investments. In
addition, during an economic downturn or period in which interest rates are
rising significantly, highly leveraged issuers may experience financial
difficulties, which, in turn, would adversely affect their ability to service
their principal and interest payment obligations, meet projected business goals
and obtain additional financing.

If an issuer of a security defaults, a Fund may incur additional
expenses to seek recovery. In addition, periods of economic uncertainty would
likely result in increased volatility for the market prices of lower-rated
securities as well as a Fund's net asset value. In general, both the prices
and yields of lower-rated securities will fluctuate.

In certain circumstances it may be difficult to determine a security's
fair value due to a lack of reliable objective information. Such instances
occur where there is not an established secondary market for the security or
the security is lightly traded. As a result, a Fund's valuation of a security
and the price it is actually able to obtain when it sells the security could
differ.

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of lower-rated
convertible securities held by a Fund, especially in a thinly traded market.
Illiquid or restricted securities held by a Fund may involve special
registration responsibilities,

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<PAGE> 112
liabilities and costs, and could involve other liquidity and valuation
difficulties.

Current laws, such as those requiring federally-insured savings and
loan associations to remove investments in lower-rated securities from their
portfolios, as well as other pending proposals, may have a material impact on
the market for lower-rated securities.

The rating assigned by a rating agency evaluates the safety of a
lower-rated security's principal and interest payments, but does not address
market value risk. Because the ratings of the rating agencies may not always
reflect current conditions and events, in addition to using recognized rating
agencies and other sources, Northern Trust performs its own analysis of the
issuers whose lower-rated securities a Fund holds. Because of this, a Fund's
performance may depend more on its investment adviser's credit analysis than is
the case of mutual funds investing in higher-rated securities.

INVESTMENT COMPANIES. Each Fund currently intends to limit its
investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made, not more
than 3% of the outstanding voting stock of any one investment company will be
owned by Northern Funds as a whole and their affiliated persons (as defined in
the 1940 Act). An investment company whose securities are purchased by a Fund
is not obligated to redeem such securities in an amount exceeding 1% of the
investment company's total outstanding securities during any period of less
than 30 days. Therefore, such securities that exceed the amount may be
illiquid.

YIELDS AND RATINGS. The yields on certain obligations, including the
money market instruments in which the Funds invest, are dependent on a variety
of factors, including general economic conditions, conditions in the particular
market for the obligation, financial condition of the issuer, size of the
offering, maturity of the obligation and ratings of the issue. The ratings of
S&P, Moody's, Duff, Fitch and Thomson BankWatch, Inc. represent their
respective opinions as to the quality of the obligations they undertake to
rate. Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices.

CALCULATION OF PORTFOLIO TURNOVER RATE. The portfolio turnover rate
for the Funds is calculated by dividing the lesser of purchases or sales of
portfolio investments for the reporting period by the monthly average value of
the portfolio investments owned during the reporting period. The calculation
excludes all

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securities, including options, whose maturities or expiration dates at the time
of acquisition are one year or less. Portfolio turnover may vary greatly from
year to year as well as within a particular year, and may be affected by cash
requirements for redemption of shares and by requirements which enable the
Funds to receive favorable tax treatment. For the fiscal year ended March 31,
1996, the turnover rates with respect to the U.S. Government, Fixed Income,
Intermediate Tax-Exempt, Tax-Exempt, International Fixed Income, Income Equity,
Growth Equity, Select Equity, Small Cap, International Growth Equity and
International Select Equity Funds were 112.00%, 116.22%, 137.85%, 60.50%,
52.05%, 67.32%, 73.20%, 137.99%, 46.59%, 216.86% and 176.71%, respectively.
The Technology Fund had not commenced operations during the fiscal year ended
March 31, 1996.

MISCELLANEOUS. The Funds will not normally engage in the trading of
securities for short-term profits. However, the Funds are not restricted by
policy with regard to portfolio turnover and will make changes in their
investment portfolio from time to time as business and economic conditions as
well as market prices may dictate. Securities may be purchased on margin only
to obtain such short-term credits as are necessary for the clearance of
purchases and sales of securities. The Funds will not engage in selling
securities short. The Funds may, however, make short sales against the box
although the Funds have no current intention to do so in the coming year.
"Selling short against the box" involves selling a security that a Fund owns
for delivery at a specified date in the future.

SPECIAL RISK FACTORS RELATING TO CALIFORNIA MUNICIPAL INSTRUMENTS

This summary does not purport to be a comprehensive
description of all relevant facts. Although the Trust has no reason to believe
that the information summarized herein is not correct in all material respects,
this information has not been independently verified for accuracy or
thoroughness by the Trust. Rather, the information presented herein was culled
from official statements and prospectuses issued in connection with various
securities offerings of the State of California and local agencies in
California, available as of the date of this Statement of Additional
Information. Further, the estimates and projections presented herein should
not be construed as statements of fact. They are based upon assumptions which
may be affected by numerous factors and there can be no assurance that target
levels will be achieved.

ECONOMIC FACTORS. Fiscal Years Prior to 1994-95. By the close of the
1989-90 Fiscal Year California's revenues had fallen below projections, so that
the State's budget reserve, the Special Fund for Economic Uncertainties (the
"Special Fund"), was fully depleted by June 30, 1990. A recession which had
begun in mid-1990, combined with higher health and welfare costs driven by the

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State's rapid population growth, adversely affected General Fund revenues, and
raised expenditures above initial budget appropriations.

As a result of these factors and others, the State confronted
a period of budget imbalance lasting from the late 1980's through 1992-93.
During this difficult period, expenditures exceeded revenues in four out of six
years, and the State accumulated and sustained a budget deficit in the Special
Fund of nearly $2.8 billion at its peak on June 30, 1993. Thus, beginning with
the 1990-91 Fiscal Year and for each fiscal year thereafter, each budget
required multibillion dollar actions to bring projected revenues and
expenditures into balance. In this context, the Legislature and Governor
agreed on the following principal steps to produce Budget Acts in the years
1991-92 to 1993-94:

1. Significant cuts in health and welfare program
expenditures;

2. Transfers of program responsibilities and funding
from the State to local governments (referred to as "realignment"), coupled
with some reduction in mandates on local government;

3. Transfer of about $3.6 billion in local property tax
revenues from cities, counties, redevelopment agencies and some other districts
to local school districts, thereby reducing State funding for schools under
Proposition 98;

4. Reduction in growth of support for higher education
programs, coupled with increases in student fees;

5. Revenue increases (particularly in the 1991-92 Fiscal
Year budget), most of which were for a short duration;

6. Increased reliance on aid from the federal government
to offset the costs of incarcerating, educating and providing health and
welfare services to illegal immigrants; and

7. Various one-time adjustments and accounting changes.

Despite these budget actions, the recession still produced
large, unanticipated deficits in the Special Fund. By the 1993-94 Fiscal Year,
the accumulated deficit was too large to be prudently retired in one year, so a
two-year program was implemented which used revenue anticipation warrants to
carry a portion of the deficit over the end of the fiscal year. When the
economy failed to recover sufficiently in 1993-94, a second two-year plan had
to be implemented in 1994-95.

Along with other factors such as the disbursement of funds to
local school districts "borrowed" from future fiscal years and hence not shown
in the annual budget, another consequence of

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the accumulated budget deficits was to significantly reduce the State's cash
resources available to pay its ongoing obligations. When the Legislature and
the Governor failed to adopt a budget for the 1992-93 Fiscal Year which would
have allowed the State to carry out its normal annual cash flow borrowing to
replenish its cash reserves, the State Controller issued registered warrants to
pay a variety of obligations representing prior years' or continuing
appropriations, and mandates from court orders. Available funds were used to
make constitutionally-mandated payments, such as debt service on bonds and
warrants. Between July 1 and September 4, 1992 the State Controller issued a
total of approximately $3.8 billion of registered warrants. After that date,
all remaining outstanding registered warrants (about $2.9 billion) were called
for redemption from proceeds of the issuance of 1992 Interim Notes.

In late spring of 1992, the State Controller issued revenue
anticipation warrants maturing in the following fiscal year in order to pay the
State's continuing obligations. The State was forced to rely increasingly on
external debt markets to meet its cash needs. Consequently, a succession of
notes and warrants were issued in the period from June 1992 to July 1994 to pay
previously maturing notes or warrants. These borrowings were used in part to
spread out the repayment of the accumulated budget deficit over the end of a
fiscal year.

A key feature of the 1993-94 Budget Act was a plan to retire
the $2.8 billion budget deficit which had been accumulated by June 30, 1993
(the "Deficit Retirement Plan"). This 18-month plan used existing statutory
authority to borrow $2.8 billion externally. The 1993-94 Budget Act provided
that $1.6 billion of the deficit elimination loan would be repaid by December
23, 1993 from a portion of the proceeds of the $2.0 billion 1993 Revenue
Anticipation Warrants issued on June 23, 1993. Legislation enacted with the
1993-94 Budget Act directed the State Controller to issue $1.2 billion of
registered reimbursement warrants in the 1993-94 Fiscal Year to fund the
balance of the accumulated deficit. Pursuant to this directive, the State
issued $1.2 billion of 1994 Revenue Anticipation Warrants, Series A (the
"Series A Warrants") in February 1994, which matured on December 21, 1994. The
legislation also created a Deficit Retirement Fund within the State Treasury
and the State Controller transferred $1.2 billion from the General Fund to this
Deficit Retirement Fund to retire the Series A Warrants.

The Deficit Retirement Plan was designed to balance the budget
over the 1993-94 and 1994-95 Fiscal Years, and projected a General Fund balance
of $260 million by June 30, 1995. However, fiscal conditions did not improve
as projected and the revenue assumptions of the Deficit Retirement Plan could
not be met. Accordingly, the 1994-95 Budget Act anticipated deferring
retirement of about $1 billion of the carryover budget deficit to the 1995-96
Fiscal Year. This 22-month Deficit Reduction Plan

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relied on existing statutory authority to borrow $4 billion externally,
including approximately $1 billion as carryover budget deficit. In addition,
Chapter 136, Statutes of 1994, created in the Warrant Payment Fund according to
which the State Controller was directed to transfer from the General Fund to
the Warrant Payment Fund in four equal installments the amount necessary to
retire the $4.0 billion of revenue anticipation warrants maturing on April 25,
1996.

1994-95 Fiscal Year. The 1994-95 Budget Act, signed by the
Governor on July 8, 1994, projected General Fund revenues and transfers of
$41.9 billion -- $2.1 billion more than actual revenues received in 1993-94 --
and expenditures of $40.9 billion which represented an increase of $1.6 billion
over the prior year.

As a result of the improving economy, the Department of
Finance's final estimates for the fiscal year showed revenues and transfers of
$42.7 billion and expenditures of $42.0 billion, thus reducing the accumulated
budget deficit to about $600 million and reflecting the Administration's
forecast of an improving economy.

The principal features of the 1994-95 Budget Act were as follows:

1. Receipt of additional federal aid of about $760
million for costs of refugee assistance and costs of incarceration
and medical care for illegal immigrants. Only about $33 million of
this amount was received, with about another $98 million scheduled to
be received in the 1995-96 Fiscal Year;

2. Reductions of approximately $1.1 billion in health
and welfare costs. A 2.3% reduction in Aid to Family with Dependent
Children payments (equal to about $56 million for the entire fiscal
year) has been temporarily suspended by court order pending appeal;

3. A General Fund increase of approximately $38 million
in support for the University of California and $65 million for
California State University, accompanied by student fee increases for
both the University of California and California State University ;

4. Proposition 98 funding for K-14 schools was
increased by $526 million from 1993-94 Fiscal Year levels,
representing an increase for enrollment growth and inflation.
Consistent with previous budget agreements, Proposition 98 funding
provided approximately $4,217 per student for K-12 schools, equal to
the level in the prior three years; and

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5. Additional miscellaneous cuts ($500 million), fund
transfers ($255 million), and adjustment to prior years' legislation
concerning property tax shifts for local governments ($300 million).

The 1994-95 Budget Act contained no tax increases. Under
legislation enacted for the 1993-94 Budget Act, the renters' tax credit was
suspended for two years (1993 and 1994). The Legislature enacted a further
one-year suspension of the renters' tax credit, for 1995, saving about $390
million in the 1995-96 Fiscal Year.

The State's cash flow management plan for the 1994-95 Fiscal
Year included the issuance of $4.0 billion of Revenue Anticipation Warrants,
Series C and D, to mature on April 25, 1996, as part of a two-year plan to
retire the accumulated State budget deficit. To assure repayment of these
warrants, the Legislature enacted a backup mechanism which could result in
automatic expenditure cuts if projected revenues did not meet certain targets
(the "Budget Adjustment Law").

The third and last step in the Budget Adjustment Law process
occurred on October 16, 1995, when the State Controller issued a report (the
"October Trigger Report") reviewing the estimated cash condition of the General
Fund for the 1995-96 Fiscal Year. The State Controller estimated that the
General Fund would have at least $1.4 billion of internal cash resources on
June 30, 1996. Put another way, external borrowing would not be needed on June
30, 1996. As a result of this finding, certain provisions of the Budget
Adjustment Law, which could have ultimately led to automatic, across-the-board
cuts in the General Fund budget, will not have to be implemented. Likewise, an
earlier report issued on November 15, 1994, avoided implementation of any
automatic budget cuts in the 1994-95 fiscal year.

1995-96 Fiscal Year. With strengthening revenues and reduced
caseload growth based on an improving economy, the State entered the 1995-96
Fiscal Year budget negotiations with the smallest nominal "budget gap" to be
closed in many years. Nonetheless, serious policy differences between the
Governor and Legislature prevented timely enactment of the budget. The 1995-96
Budget Act was signed by the Governor on August 3, 1995, 34 days after the
start of the fiscal year. The Budget Act projected General Fund revenues and
transfers of $44.1 billion, a 3.5 percent increase from the prior year.
Expenditures were budgeted at $43.4 billion, a 4 percent increase. The
Department of Finance projected that after repaying the last of the carryover
budget deficit, there would be a positive balance of $28 million in the budget
reserve on June 30, 1996. The Budget Act also projected Special Fund revenues

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of $12.7 billion and appropriated Special Fund expenditures of $13.0 billion.

The following are the principal features of the 1995-96 Budget Act:

1. Proposition 98 funding for schools and community
colleges was originally budgeted to increase by about $1.0 billion
(General Fund) and $1.2 billion total above revised 1994-95 levels.
Because of higher than projected revenues in 1994-95, an additional
$543 million ($91 per K-12 ADA) was appropriated to the 1994-95
Proposition 98 entitlement. A large part of this is a block grant of
about $54 per pupil for any onetime purpose. For the first time in
several years, a full 2.7 percent cost of living allowance was
funded. The budget compromise anticipates a settlement of the CTA v.
Gould litigation (discussed below). The Governor's 1996-97 Budget
indicates that, with revenues even higher than projected, Proposition
98 apportionments will exceed the amounts originally budgeted,
reaching a level of $4,500 per ADA;

2. Cuts in health and welfare costs totaling about $0.9
billion. Some of these cuts (totaling about $500 million) require
federal legislative or administrative approval, which was still
pending as of January 1996.

3. A 3.5 percent increase in funding for the University
of California ($90 million General Fund) and the California State
University system ($24 million General Fund), with no increases in
student fees;

4. The Budget assumed receipt of $473 million in new
federal aid for costs of illegal immigrants, above commitments
already made by the federal government. In the Governor's 1996-97
Budget, the Administration revised this figure downward to $278
million; and

5. General Fund support for the Department of
Corrections is increased by about eight percent over the prior year,
reflecting estimates of increased prison population, but funding is
less than proposed in the 1995 Governor's Budget.

The Governor's Budget for the 1996-97 Fiscal Year, released
on January 10, 1996, updated the current year projections, so that revenues and
transfers are estimated to be $45.0 billion, and expenditures to be $44.2
billion. The Special Fund was projected to have a positive balance of about
$50 million at June 30, 1996, and on that date available internal borrowable
resources (available cash, after payment of all obligations due) will be about
$2.2 billion. The Administration projected it would issue up to $2.0 billion
of revenue anticipation notes to mature by June 30,

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1996 to assist in cash flow management for the final two months of the year.

1996-97 Fiscal Year. On January 10, 1996, the Governor
released his proposed budget for the next fiscal year (the "1996-97 Budget").
Based on projected revenues and transfers of about $45.6 billion, the Governor
requested total General Fund appropriations of about $45.2 billion which would
create a $400 million budget reserve in the Special Fund at June 30, 1997. The
Governor renewed a proposal for a 15 percent phased cut in individual and
corporate tax rates over three years (the budget proposal assumes this will be
enacted, reducing revenues in 1996-97 by about $600 million). There was also a
proposal to restructure trial court funding in a way which would result in a
$300 million decrease in General Fund revenues. The Governor requested
legislation to make permanent a moratorium on cost of living increases for
welfare payments, and suspension of a renters tax credit, which otherwise would
go back into effect in the 1996-97 Fiscal Year. He further proposed additional
costs in certain health and welfare programs, and assumed that costs previously
approved by the Legislature will receive federal approval. The Governor's
Budget proposed increases in funding for K-12 schools under Proposition 98, for
State higher education systems (with a second year of no student fee
increases), and for corrections. The Governor's Budget projects external cash
flow borrowing of up to $3.2 billion, to mature by June 30, 1997.

The Orange County Bankruptcy. On December 6, 1994, Orange
County, California and its Investment Pool (the "Pool") filed for bankruptcy
under Chapter 9 of the United States Bankruptcy Code. Approximately 187
California public entities, substantially all of which are public agencies
within the County, invested funds in the Pool. Many of the agencies have
various bonds, notes or other forms of indebtedness outstanding, in some
instances the proceeds of which were invested in the Pool. Various investment
advisors were employed by the County to restructure the Pool. Such
restructuring led to the sale of substantially all of the Pool's portfolio,
resulting in losses estimated to be approximately $1.7 billion or approximately
22% of amounts deposited by the Pool investors, including the County. It is
anticipated that such losses may result in delays or failures of the County as
well as investors in the Pool to make scheduled debt service payments.
Further, the County expects substantial budget deficits to occur in Fiscal Year
1995 with possibly similar effects upon operations of investors in the Pool.

Investor access to monies in the Pool subsequent to the filing
was pursuant to Court order only and severely limited. On May 2, 1995, the
Bankruptcy Court approved a comprehensive settlement agreement (the "CSA")
between the County and Pool investors which, among other things, (i)
established a formula for distribution of all available cash and securities
from the Pool to the Pool investors, including the County, (ii) established
formulas

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for distribution among certain settling Pool investors of several tranches of
new County obligations to be payable from, and in some instances secured by,
certain designated sources of potential recoveries on Pool related claims, and
(iii) designated certain outstanding short term note obligations of the County
to be senior to or on a parity with certain of the new County obligations. By
order dated May 22, 1995, following distribution of all available cash and
securities from the Pool to the Pool investors, including the County, the
Bankruptcy Court dismissed the bankruptcy filing of the Pool based upon the
Court's finding that the Pool was not eligible for relief under Chapter 9 of
the Bankruptcy Code because it is not a municipality and it has not been
specifically authorized to file under Chapter 9 as required by the Bankruptcy
Code.

On or about June 12, 1996 a plan of adjustment previously
confirmed by the bankruptcy court became effective for the County. Pursuant to
the plan, publicly held debt is to be paid in full, with municipal investors in
the Pool retaining an interest in litigation claims against third parties. The
plan was funded in substantial part by the sale of $900 million in new County
securities, securitizing substantially all unencumbered assets previously held
by the County.

CONSTITUTIONAL, LEGISLATIVE AND OTHER FACTORS. Certain
California constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in the adverse
effects described below.

Revenue Distribution. Certain California Municipal
Instruments may be obligations of issuers which rely in whole or in part on
California State revenues for payment of these obligations. Property tax
revenues and a portion of the State's general fund surplus are distributed to
counties, cities and their various taxing entities and the State assumes
certain obligations theretofore paid out of local funds. Whether and to what
extent a portion of the State's general fund will be distributed in the future
to counties, cities and their various entities is unclear.

Senate Bill 671. In 1988, California enacted legislation
providing for a water's-edge combined reporting method if an election fee was
paid and other conditions met. On October 6, 1993, the Governor signed
Senate Bill 671 (Alquist) which modifies the unitary tax law by deleting the
requirements that a taxpayer electing to determine its income on a water's-edge
basis pay a fee and file a domestic disclosure spreadsheet and instead
requiring an annual information return. Significantly, the Franchise Tax Board
can no longer disregard a taxpayer's election. The Franchise Tax Board is
reported to have estimated state revenue losses from the Legislation as growing
from $27 million in 1993-94 to $616 million in 1999-2000, but others, including
Assembly Speaker Willie Brown, disagreed with that estimate and asserted

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that more revenue will be generated for California, rather than less, because
of an anticipated increase in economic activity and additional revenue
generated by the incentives in the Legislation.

Proposition 13. Certain California Municipal Instruments may
be obligations of issuers who rely in whole or in part on ad valorem real
property taxes as a source of revenue. On June 6, 1978, California voters
approved an amendment to the California Constitution known as Proposition 13,
which added Article XIIIA to the California Constitution. The effect of
Article XIIIA was to limit ad valorem taxes on real property and to restrict
the ability of taxing entities to increase real property tax revenues. On
November 7, 1978, California voters approved Proposition 8, and on June 3,
1986, the California voters approved Proposition 46, both of which amended
Article XIIIA.

Section 1 of Article XIIIA limits the maximum ad valorem tax
on real property to 1% of full cash value (as defined in Section 2), to be
collected by the counties and apportioned according to law; provided that the
1% limitation does not apply to ad valorem taxes or special assessments to pay
the interest and redemption charges on (i) any indebtedness approved by the
voters prior to July 1, 1978, or (ii) any bonded indebtedness for the
acquisition or improvement of real property approved on or after July 1, 1978,
by two-thirds of the votes cast by the voters voting on the proposition.
Section 2 of Article XIIIA defines "full cash value" to mean "the County
Assessor's valuation of real property as shown on the 1975/76 tax bill under
`full cash value' or, thereafter, the appraised value of real property when
purchased, newly constructed, or a change in ownership has occurred after the
1975 assessment." The full cash value may be adjusted annually to reflect
inflation at a rate not to exceed 2% per year, or reduction in the consumer
price index or comparable local data, or reduced in the event of declining
property value caused by damage, destruction or other factors. The California
State Board of Equalization has adopted regulations, binding on county
assessors, interpreting the meaning of "change in ownership" and "new
construction" for purposes of determining full cash value of property under
Article XIIIA.

Legislation enacted by the California Legislature to implement
Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that
notwithstanding any other law, local agencies may not levy any ad valorem
property tax except to pay debt service on indebtedness approved by the voters
prior to July 1, 1978, and that each county will levy the maximum tax permitted
by Article XIIIA of $4.00 per $100 assessed valuation (based on the former
practice of using 25%, instead of 100%, of full cash value as the assessed
value for tax purposes). The legislation further provided that, for the
1978/79 fiscal year only, the tax levied by each county was to be apportioned
among all taxing agencies within the county in proportion to their average
share of taxes levied in certain

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previous years. The apportionment of property taxes for fiscal years after
1978/79 has been revised pursuant to Statutes of 1979, Chapter 282, which
provides relief funds from State moneys beginning in fiscal year 1979/80 and is
designed to provide a permanent system for sharing State taxes and budget funds
with local agencies. Under Chapter 282, cities and counties receive more of
the remaining property tax revenues collected under Proposition 13 instead of
direct State aid. School districts receive a correspondingly reduced amount of
property taxes, but receive compensation directly from the State and are given
additional relief. Chapter 282 does not affect the derivation of the base levy
($4.00 per $100 assessed valuation) and the bonded debt tax rate.

Proposition 9. On November 6, 1979, an initiative known as
"Proposition 9" or the "Gann Initiative" was approved by the California
voters, which added Article XIIIB to the California Constitution. Under
Article XIIIB, State and local governmental entities have an annual
"appropriations limit" and are not allowed to spend certain moneys called
"appropriations subject to limitation" in an amount higher than the
"appropriations limit." Article XIIIB does not affect the appropriation of
moneys which are excluded from the definition of "appropriations subject to
limitation," including debt service on indebtedness existing or authorized as
of January 1, 1979, or bonded indebtedness subsequently approved by the voters.
In general terms, the "appropriations limit" is required to be based on certain
1978/79 expenditures, and is to be adjusted annually to reflect changes in
consumer prices, population and certain services provided by these entities.
Article XIIIB also provides that if these entities' revenues in any year exceed
the amounts permitted to be spent, the excess is to be returned by revising tax
rates or fee schedules over the subsequent two years.

Article XIIIB, like Article XIIIA, may require further
interpretation by both the Legislature and the courts to determine its
applicability to specific situations involving the State and local taxing
authorities. Depending upon the interpretation, Article XIIIB may limit
significantly a governmental entity's ability to budget sufficient funds to
meet debt service on bonds and other obligations.

Proposition 98. On November 8, 1988, voters of the State
approved Proposition 98, a combined initiative constitutional amendment and
statute called the "Classroom Instructional Improvement and Accountability
Act." Proposition 98 changed State funding of public education below the
university level and the operation of the State Appropriations Limit, primarily
by guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount

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appropriated to K-14 schools in the prior year, adjusted for changes in the
cost of living (measured as in Article XIIIB by reference to State per capita
personal income) and enrollment ("Test 2"), or (c) a third test, which would
replace Test 2 in any year when the percentage growth in per capita General
Fund revenues from the prior year plus one half of one percent is less than the
percentage growth in State per capita personal income ("Test 3"). Under Test
3, schools would receive the amount appropriated in the prior year adjusted for
changes in enrollment and per capita General Fund revenues, plus an additional
small adjustment factor. If Test 3 is used in any year, the difference between
Test 3 and Test 2 would become a "credit" to schools which would be the basis
of payments in future years when per capital General Fund revenue growth
exceeds per capita personal income growth. Legislation adopted prior to the
end of the 1988-89 Fiscal Year, implementing Proposition 98, determined the
K-14 schools' funding guarantee under Test 1 to be 40.3 percent of the General
Fund tax revenues, based on 1986-87 appropriations. However, that percent has
been adjusted to approximately 35 percent to account for a subsequent
redirection of local property taxes, since such redirection directly affects
the share of General Fund revenues to schools.

Proposition 98 permits the Legislature by two-thirds vote of
both houses, with the Governor's concurrence, to suspend the K-14 schools'
minimum funding formula for a one-year period. Proposition 98 also contains
provisions transferring certain State tax revenues in excess of the Article
XIIIB limit to K-14 schools.

During the recent recession, General Fund revenues for several
years were less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from
Proposition 98 sources stayed almost constant at approximately $4,220 from
Fiscal Year 1991-92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, California Teachers' Association
v. Gould, which challenged the validity of these off-budget loans. As part of
the negotiations leading to the 1995-96 Budget Act, an oral agreement was
reached to settle this case. It is expected that a formal settlement
reflecting these conditions will be entered into in the near future.

The oral agreement provides that both the State and K-14
schools share in the repayment of prior years' emergency loans to schools. Of
the total $1.76 billion in loans, the State will repay $935 million, while
schools will repay $825 million. The State

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share of the repayment will be reflected as expenditures above the current
Proposition 98 base circulation. The schools' share of the repayment will
count as appropriations that count toward satisfying the Proposition 98
guarantee, or from "below" the current base. Repayments are spread over the
eight-year period of 1994-95 through 2001-02 to mitigate any adverse fiscal
impact. Once a court settlement is reached, and the Director of Finance
certifies that such a settlement has occurred, approximately $377 million in
appropriations from the 1995-96 Fiscal Year to schools will be disbursed in
August 1996.

Proposition 111. On June 30, 1989, the California Legislature
enacted Senate Constitutional Amendment 1, a proposed modification of the
California Constitution to alter the spending limit and the education funding
provisions of Proposition 98. Senate Constitutional Amendment 1, on the June
5, 1990 ballot as Proposition 111, was approved by the voters and took effect
on July 1, 1990. Among a number of important provisions, Proposition 111
recalculates spending limits for the State and for local governments, allows
greater annual increases in the limits, allows the averaging of two years' tax
revenues before requiring action regarding excess tax revenues, reduces the
amount of the funding guarantee in recession years for school districts and
community college districts (but with a floor of 40.9 percent of State general
fund tax revenues), removes the provision of Proposition 98 which included
excess moneys transferred to school districts and community college districts
in the base calculation for the next year, limits the amount of State tax
revenue over the limit which would be transferred to school districts and
community college districts, and exempts increased gasoline taxes and truck
weight fees from the State appropriations limit. Additionally, Proposition 111
exempts from the State appropriations limit funding for capital outlays.

Proposition 62. On November 4, 1986, California voters
approved an initiative statute known as Proposition 62. This initiative
provides the following: (i) requires that any tax for general governmental
purposes imposed by local governments be approved by resolution or ordinance
adopted by a two-thirds vote of the governmental entity's legislative body and
by a majority vote of the electorate of the governmental entity, (ii) requires
that any special tax (defined as taxes levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by Article
XIIIA, (v) prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governments, (vi) requires that any tax imposed
by a local government on or after August 1, 1985 be ratified by a majority vote
of the

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electorate within two years of the adoption of the initiative or be terminated
by November 15, 1988, (vii) requires that, in the event a local government
fails to comply with the provisions of this measure, a reduction in the amount
of property tax revenue allocated to such local government occurs in an amount
equal to the revenues received by such entity attributable to the tax levied in
violation of the initiative, and (viii) permits these provisions to be amended
exclusively by the voters of the State of California.

In September 1988, the California Court of Appeal in City of
Westminster v. County of Orange, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511
(Cal. Ct. App. 1988), held that Proposition 62 is unconstitutional to the
extent that it requires a general tax by a general law city, enacted on or
after August 1, 1985 and prior to the effective date of Proposition 62, to be
subject to approval by a majority of voters. The Court held that the
California Constitution prohibits the imposition of a requirement that local
tax measures be submitted to the electorate by either referendum or initiative.
It is not possible to predict the impact of this decision on charter cities, on
special taxes or on new taxes imposed after the effective date of Proposition
62.

Proposition 87. On November 8, 1988, California voters
approved Proposition 87. Proposition 87 amended Article XVI, Section 16, of
the California Constitution by authorizing the California Legislature to
prohibit redevelopment agencies from receiving any of the property tax revenue
raised by increased property tax rates levied to repay bonded indebtedness of
local governments which is approved by voters on or after January 1, 1989. It
is impossible to predict whether the California Legislature will enact such a
prohibition nor is it possible to predict the impact of Proposition 87 on
redevelopment agencies and their ability to make payments on outstanding debt
obligations.

Health Care Legislation. Certain California Municipal
Instruments may be obligations which are payable solely from the revenues of
health care institutions. Certain provisions under California law may
adversely affect these revenues and, consequently, payment on those Municipal
Instruments.

The federally sponsored Medicaid program for health care
services to eligible welfare beneficiaries in California is known as the
Medi-Cal program. Historically, the Medi-Cal program has provided for a
cost-based system of reimbursement for inpatient care furnished to Medi-Cal
beneficiaries by any hospital wanting to participate in the Medi-Cal program,
provided such hospital met applicable requirements for participation.
California law now provides that the State of California shall selectively
contract with hospitals to provide acute inpatient services to Medi-Cal
patients. Medi-Cal contracts currently apply only to acute inpatient services.
Generally, such selective contracting is made on a flat per diem payment basis
for all services to Medi-Cal

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beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.

Under this approach, in most geographical areas of California,
only those hospitals which enter into a Medi-Cal contract with the State of
California will be paid for non-emergency acute inpatient services rendered to
Medi-Cal beneficiaries. The State may also terminate these contracts without
notice under certain circumstances and is obligated to make contractual
payments only to the extent the California legislature appropriates adequate
funding therefor.

California enacted legislation in 1982 that authorizes private
health plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known
as "preferred provider organizations" ("PPOs"), which offer financial
incentives for subscribers who use only the hospitals which contract with the
plan. Under an exclusive provider plan, which includes most health maintenance
organizations ("HMOs"), private payors limit coverage to those services
provided by selected hospitals. Discounts offered to HMOs and PPOs may result
in payment to the contracting hospital of less than actual cost and the volume
of patients directed to a hospital under an HMO or PPO contract may vary
significantly from projections. Often, HMO or PPO contracts are enforceable
for a stated term, regardless of provider losses or of bankruptcy of the
respective HMO or PPO. It is expected that failure to execute and maintain
such PPO and HMO contracts would reduce a hospital's patient base or gross
revenues. Conversely, participation may maintain or increase the patient base,
but may result in reduced payment and lower net income to the contracting
hospitals.

These California Municipal Instruments may also be insured by
the State of California pursuant to an insurance program implemented by the
Office of Statewide Health Planning and Development for health facility
construction loans. If a default occurs on insured California Municipal
Instruments, the State Treasurer will issue debentures payable out of a reserve
fund established under the insurance program or will pay principal and interest
on an unaccelerated basis from unappropriated State funds. At the request of
the Office of Statewide Health Planning and Development, Arthur D. Little, Inc.
prepared a study in December 1983, to evaluate the adequacy of the reserve fund
established under the insurance program and based on certain formulations and
assumptions found the reserve fund substantially underfunded. In September of
1986, Arthur D. Little, Inc. prepared an update of the study and concluded that
an additional 10% reserve be established for "multi-level" facilities. For the
balance of the reserve fund, the update recommended maintaining the current
reserve calculation

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method. In March of 1990, Arthur D. Little, Inc. prepared a further review of
the study and recommended that separate reserves continue to be established for
"multi-level" facilities at a reserve level consistent with those that would be
required by an insurance company.

Mortgages and Deeds. Certain California Municipal Instruments
may be obligations which are secured in whole or in part by a mortgage or deed
of trust on real property. California has five principal statutory provisions
which limit the remedies of a creditor secured by a mortgage or deed of trust.
Two provisions limit the creditor's right to obtain a deficiency judgment, one
limitation being based on the method of foreclosure and the other on the type
of debt secured. Under the former, a deficiency judgment is barred when the
foreclosure is accomplished by means of a nonjudicial trustee's sale. Under
the latter, a deficiency judgment is barred when the foreclosed mortgage or
deed of trust secures certain purchase money obligations. Another California
statute, commonly known as the "one form of action" rule, requires creditors
secured by real property to exhaust their real property security by foreclosure
before bringing a personal action against the debtor. The fourth statutory
provision limits any deficiency judgment obtained by a creditor secured by real
property following a judicial sale of such property to the excess of the
outstanding debt over the fair value of the property at the time of the sale,
thus preventing the creditor from obtaining a large deficiency judgment against
the debtor as the result of low bids at a judicial sale. The fifth statutory
provision gives the debtor the right to redeem the real property from any
judicial foreclosure sale as to which a deficiency judgment may be ordered
against the debtor.

Upon the default of a mortgage or deed of trust with respect
to California real property, the creditor's nonjudicial foreclosure rights
under the power of sale contained in the mortgage or deed of trust are subject
to the constraints imposed by California law upon transfers of title to real
property by private power of sale. During the three-month period beginning
with the filing of a formal notice of default, the debtor is entitled to
reinstate the mortgage by making any overdue payments. Under standard loan
servicing procedures, the filing of the formal notice of default does not occur
unless at least three full monthly payments have become due and remain unpaid.
The power of sale is exercised by posting and publishing a notice of sale for
at least 20 days after expiration of the three-month reinstatement period._ The
debtor may reinstate the mortgage, in the manner described above, up to five
business days prior to the scheduled sale date. Therefore, the effective
minimum period for foreclosing on a mortgage could be in excess of seven months
after the initial default. Such time delays in collections could disrupt the
flow of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to

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a substantial number of mortgages or deeds of trust securing an issuer's
obligations.

In addition, a court could find that there is sufficient
involvement of the issuer in the nonjudicial sale of property securing a
mortgage for such private sale to constitute "state action," and could hold
that the private-right-of-sale proceedings violate the due process requirements
of the federal or state constitutions, consequently preventing an issuer from
using the nonjudicial foreclosure remedy described above.

Certain California Municipal Instruments may be obligations
which finance the acquisition of single family home mortgages for low and
moderate income mortgagors. These obligations may be payable solely from
revenues derived from the home mortgages, and are subject to California's
statutory limitations described above applicable to obligations secured by real
property. Under California antideficiency legislation, there is no personal
recourse against a mortgagor of a single family residence purchased with the
loan secured by the mortgage, regardless of whether the creditor chooses
judicial or nonjudicial foreclosure.

Under California law, mortgage loans secured by single-family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on
such mortgage loans may be imposed only with respect to voluntary prepayments
made during the first five years during the term of the mortgage loan, and
then only if the borrower prepays an amount in excess of 20% of the original
principal amount of the mortgage loan in a 12-month period; a prepayment charge
cannot in any event exceed six months' advance interest on the amount prepaid
during the 12-month period in excess of 20% of the original principal amount of
the loan. This limitation could affect the flow of revenues available to an
issuer for debt service on the outstanding debt obligations which financed such
home mortgages.

OTHER INVESTMENT INFORMATION. Northern Trust believes that it is
likely that sufficient California Municipal Instruments and certain specified
federal obligations should be available to satisfy the investment objective,
policies and limitations of the Fund and to enable the Fund to invest at least
50% of its assets in California Municipal Instruments and such federal
obligations at the close of each of its fiscal quarters. If the Northern
Funds' Board of Trustees, after consultation with Northern Trust, should for
any reason determine that it is impracticable to invest at least 50% of the
Fund's assets in these securities at the close of each quarter of the Fund's
taxable year, the Board would re-evaluate the Fund's investment objective and
policies and consider changes in its structure and name or possible
dissolution.

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INVESTMENT RESTRICTIONS

The Funds are subject to the fundamental investment restrictions
enumerated below which may be changed with respect to a particular Fund only by
a vote of the holders of a majority of such Fund's outstanding shares.

No Fund may:

(1) Make loans, except (a) through the purchase of debt
obligations in accordance with the Fund's investment objective and
policies, (b) through repurchase agreements with banks, brokers,
dealers and other financial institutions, and (c) loans of securities.

(2) Mortgage, pledge or hypothecate any assets (other
than pursuant to reverse repurchase agreements) except to secure
permitted borrowings.

(3) Purchase or sell real estate or real estate limited
partnerships, but this restriction shall not prevent a Fund from
investing directly or indirectly in portfolio instruments secured by
real estate or interests therein or acquiring securities of real
estate investment trusts or other issuers that deal in real estate.

(4) Purchase or sell commodities or commodity contracts
or oil or gas or other mineral exploration or development programs or
leases, except that each Fund (other than the Money Market Funds) may,
to the extent appropriate to its investment policies, purchase
securities of companies engaging in whole or in part in such
activities, and may enter into futures contracts and related options
and forward currency exchange contracts in accordance with its
investment objective and policies.

(5) Invest in companies for the purpose of exercising
control.

(6) Act as underwriter of securities, except as a Fund
may be deemed to be an underwriter under the Securities Act of 1933
(the "1933 Act") in connection with the purchase and sale of portfolio
instruments in accordance with its investment objective and portfolio
management policies.

(7) Write puts, calls or combinations thereof, except for
transactions in options on securities, financial instruments,
currencies and indices of securities; futures contracts; options on
futures contracts; forward currency exchange contracts; short sales
against the box; interest rate and currency swaps; and pair-off
transactions.

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<PAGE> 130
(8) Purchase the securities of any issuer if such
purchase would cause more than 10% of the voting securities of such
issuer to be held by the Fund, except that up to 25% of the value of
its total assets may be invested without regard to this 10%
limitation; provided that this restriction does not apply to the
International Fixed Income Fund.

In addition, as summarized in the Prospectus, no Fund may:

(9) Purchase securities (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements collateralized by such obligations) if,
except for the Technology Fund, such purchase would cause 25% or more
in the aggregate of the market value of the total assets of the Fund
to be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that with
respect to each Money Market Fund there is no limitation, and each
Money Market Fund reserves freedom of action, when otherwise
consistent with its investment policies, to concentrate its
investments in obligations (other than commercial paper) issued or
guaranteed by U.S. banks (including foreign branches of U.S. banks)
and U.S. branches of foreign banks and repurchase agreements and
securities loans collateralized by such bank obligations. For the
purposes of this restriction, state and municipal governments and
their agencies and authorities are not deemed to be industries; as to
utility companies, the gas, electric, water and telephone businesses
are considered separate industries; personal credit finance companies
and business credit finance companies are deemed to be separate
industries; and wholly-owned finance companies are considered to be in
the industries of their parents if their activities are primarily
related to financing the activities of their parents. The Technology
Fund may not, except during temporary defensive periods, purchase the
securities of any issuer, if, as a result of such purchase, less than
25% of the assets of the Technology Fund would be invested in the
securities of issuers principally engaged in technology business
activities.

(10) Borrow money (other than pursuant to reverse
repurchase agreements), except (a) as a temporary measure, and then
only in amounts not exceeding 5% of the value of a Fund's total assets
or (b) from banks, provided that immediately after any such borrowing
all borrowings of the Fund do not exceed one-third of the Fund's total
assets. The exceptions in (a) and (b) to this restriction are not for
investment leverage purposes but are solely for extraordinary or
emergency purposes or to facilitate management of a Fund by enabling
Northern Funds to meet redemption requests when the liquidation of
portfolio instruments is deemed to be disadvantageous or not possible.
If due to market

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<PAGE> 131
fluctuations or other reasons the total assets of a Fund fall below
300% of its borrowings, Northern Funds will reduce the borrowings of
such Fund in accordance with the 1940 Act. In addition, as a matter
of fundamental policy, the Funds may not enter into reverse repurchase
agreements exceeding in the aggregate one-third of their respective
total assets.

(11) Purchase the securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of such Fund's total assets would be invested in such
issuer, except that: (a) up to 50% of the value of the California
Municipal Money Market Fund's total assets (so long as no more than
25% of the value of its total assets are invested in the securities of
any one issuer) and up to 25% of the value of the total assets of each
of the other Funds may be invested in any securities without regard to
this 5% limitation; and (b) with respect to each Fund, such 5%
limitation shall not apply to repurchase agreements collateralized by
obligations of the U.S. Government, its agencies or instrumentalities.
(This restriction does not apply to the International Fixed Income
Fund.)

In addition, as a matter of fundamental policy, the Funds will not
issue senior securities except as stated in the Prospectus or this Additional
Statement.

As a non-fundamental investment restriction, the International Fixed
Income Fund may not, at the end of any tax quarter, hold more than 10% of the
outstanding voting securities of any one issuer, except that up to 50% of the
total value of the assets of the Fund may be invested in any securities without
regard to this 10% limitation so long as no more than 25% of the total value of
its assets is invested in the securities of any one issuer (except the U.S.
Government).

Except as otherwise provided in Investment Restriction (9), for the
purpose of such restriction in determining industry classification with respect
to the Funds other than the International Funds and the Technology Fund,
Northern Funds intends to use the industry classification titles in the
Standard Industrial Classification Manual. With respect to the International
Funds, Northern Funds intends to use the Morgan Stanley Capital International
industry classification titles. With respect to the Technology Fund, Northern
Funds intends to consider an issuer to be principally engaged in technology
business activities if such issuer is listed on the H&Q Index, the SoundView
Technology Index, the technology grouping of the S&P 500 Index or any other
comparable index. The freedom of action reserved in Investment Restriction (9)
above with respect to U.S. branches of foreign banks is subject to the
requirement that they are subject to the same regulation as domestic branches
of U.S.

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<PAGE> 132
banks, and such freedom with respect to foreign branches of U.S. banks is
subject to the requirement that the domestic parent be unconditionally liable
in the event that a foreign branch fails to pay on its instruments for any
reason. Securities held in escrow or separate accounts in connection with the
Funds' investment practices described in this Additional Statement and in the
Prospectus are not deemed to be mortgaged, pledged or hypothecated for purposes
of the foregoing Investment Restrictions.

A security is considered to be issued by the entity, or entities,
whose assets and revenues back the security. A guarantee of a security is not
deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by a Fund, does
not exceed 10% of the value of the Fund's total assets.

As stated in the Prospectus under "Additional Investment Information,
Risks and Considerations -- Investment Restrictions," the Money Market, U.S.
Government Money Market, U.S. Government Select Money Market, Municipal Money
Market and California Municipal Money Market Funds intend, as a non-fundamental
policy, to diversify their investments in accordance with current SEC
regulations, which are more restrictive than the Funds' fundamental investment
restrictions stated above. As further stated in the Prospectus, securities
subject to unconditional demand features acquired by the Money Market Funds
must satisfy special SEC diversification requirements. In particular, a
security that has an unconditional demand feature (as defined by SEC
regulations) which is issued by a person that, directly or indirectly, does not
control, and is not controlled by or under common control with, the issuer of
the security (an "Unconditional Demand Feature") is subject to the following
diversification requirements: Immediately after the acquisition of the
security, a Money Market Fund may not have invested more than 10% of its total
assets in securities issued by or subject to Unconditional Demand Features from
the same person, except that a Fund may invest up to 25% of its total assets in
securities subject to Unconditional Demand Features of persons that are rated
in the highest rating category as determined by two NRSROs (or one NRSRO if the
security is rated by only one NRSRO) or, if unrated, are of comparable quality.
In addition, as mentioned in the Prospectus, the Municipal Money Market and
California Municipal Money Market Funds will limit their investments in certain
conduit securities that are not rated in the highest rating category as
determined by two NRSROs (or one NRSRO if the security is rated by only one
NRSRO) or, if unrated, are not of comparable quality, to 5% of their total
assets, with investments in any one such issuer being limited to no more than
1% of a Fund's total assets or $1 million, whichever is greater, measured at
the time of purchase. Conduit securities subject to this limitation are
Municipal Instruments that are not subject to an Unconditional Demand Feature
and involve an arrangement whereunder a person, other than a governmental
issuer, provides for

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<PAGE> 133

or secures repayment of the security and are not: (i) fully and
unconditionally guaranteed by a municipal issuer; or (ii) payable from the
general revenues of the municipal issuer or other municipal issuers; or (iii)
related to a project owned and operated by a municipal issuer; or (iv) related
to a facility leased to and under the control of an industrial or commercial
enterprise that is part of a public project which, as a whole, is owned and
under the control of a municipal issuer.

In addition to the foregoing, each Money Market Fund is subject to
additional diversification requirements imposed by SEC regulations on the
acquisition of securities subject to other types of demand features and puts
whereunder a Fund has the right to sell the securities to third parties.

Any restriction which involves a maximum percentage will not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings by, the Fund.

Although the foregoing Investment Restrictions would permit the Money
Market Funds to acquire options, enter into forward currency contracts and
engage in short sales and interest rate and currency swaps, it is not currently
permitted to engage in these transactions under SEC regulations. In addition,
the U.S. Government Select Money Market Fund does not intend to engage in
repurchase transactions or purchase any bank or corporate obligation during the
current fiscal year.

In order to permit the sale of the Funds' shares in certain states,
Northern Funds may make commitments with respect to the Funds more restrictive
than the investment policies listed above and in the Prospectus. Should
Northern Funds determine that any commitment made to permit the sale of a
Fund's shares in any state is no longer in the best interests of the Fund, it
will revoke the commitment by terminating sales of a Fund's shares in the state
involved.

ADDITIONAL TRUST INFORMATION

TRUSTEES AND OFFICERS

Information pertaining to the Trustees and officers of Northern Funds
is set forth below.

Mr. Silas S. Cathcart,*,** Chairman of the Board and
President, Age 70, 222 Wisconsin Avenue, Lake Forest, Illinois 60045. Chairman
of Kidder Peabody Inc. from May 1987 until his retirement in December 1989.
Director/Trustee of General Electric Co., Baxter International, Inc. (worldwide
development,

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<PAGE> 134

distribution and manufacture of health care products, systems and services),
The Quaker Oats Co., Montgomery Ward, American Academics, Inc. Retired
Director and Trustee of Illinois Tool Works, Inc., and Bradley Trust ,
respectively.

Mr. James W. Cozad, Trustee, Age 69, 205 N. Michigan Avenue,
Suite 4310, Chicago, Illinois 60601. Vice Chairman of Amoco Corporation from
September 1983 to December 1989 and Chairman and CEO of Whitman Corporation
(holding company for Pepsi-Cola General Bottlers, Inc., Midas International
Corporation (automotive services) and Hussmann Corporation (refrigeration
systems and equipment) from January 1990 until his retirement in May 1992.
Director of Whitman Corporation, Eli Lilly and Company (life science products),
Inland Steel Company, Inland Steel Industries, Inc. and Sears, Roebuck &
Company. Retired Director of GATX Corporation (transportation, distribution
and warehousing).

Ms. Susan Crown,** Trustee, Age 38, 222 North LaSalle Street,
Suite 2000, Chicago, Illinois 60601. Vice President of Henry Crown and Company
(family-owned and operated company including diversified manufacturing
companies and real estate development) since 1984. Director and President of
Arie and Ida Crown Memorial (grant-making foundation), Director of Baxter
International, Inc. (worldwide development, distribution and manufacture of
health care products, systems and services) and Illinois Tool Works, Inc.

Mr. Wesley M. Dixon, Jr.,* Trustee, Age 68, 400 Skokie Blvd.,
Suite 675, Northbrook, Illinois 60062. Director of Earl Kinship Capital
Corporation since 1985. Vice Chairman and Director of G.D. Searle & Co.
(manufacture and sale of food products and pharmaceuticals) from 1977 to 1983
and President of G.D. Searle & Co. prior thereto.

Mr. William J. Dolan, Jr., Trustee, Age 65, 1534 Basswood
Circle, Glenview, Illinois 60025. Partner of Arthur Andersen & Co. S.C.
(accounting firm) from 1966 until his retirement in December 1989. Financial
Consultant, Ernst & Young from 1992 to 1993, Director of Household Bank,
Federal Savings Bank.

Mr. Raymond E. George, Jr.,** Trustee, Age 65, 703 Prospect
Avenue, Winnetka, Illinois 60093. Senior Vice President and Senior Fiduciary
Officer of The Northern Trust Company from 1988 until his retirement in October
1993.

__________________________________

*. Messrs. Cathcart and Dixon are first cousins.

**. Messrs. Cathcart and George and Ms. Crown are considered to be
"interested persons" of Northern Funds as defined in the 1940 Act.

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<PAGE> 135

Miriam M. Allison, Vice President and Treasurer, Age 48, 207
E. Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202. President and
Director of Sunstone Financial Group, Inc. since 1990 and Vice President of
First Wisconsin Trust Company prior thereto.

Mary M. Tenwinkel, Vice President, Age 48, 207 E. Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202. Vice President of Sunstone
Financial Group, Inc. since August of 1993 and First Vice President and head
of Personal Services Group at Firstar Trust Company prior thereto.

Anita M. Zagrodnik, Assistant Treasurer, Age 36, 207 E.
Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202. Assistant Treasurer.
Client Services, Accounting and Tax Manager of Sunstone Financial Group, Inc.
since 1990 and Senior Accountant at Price Waterhouse prior thereto.

Jeffrey A. Dalke, Secretary, Age 45, Philadelphia National
Bank Building, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107.
Secretary. Partner in the law firm of Drinker Biddle & Reath.

Certain of the Trustees and officers and the organizations with which
they are associated have had in the past, and may have in the future,
transactions with Northern Trust, Sunstone and their respective affiliates.
Northern Funds has been advised by such Trustees and officers that all such
transactions have been and are expected to be in the ordinary course of
business and the terms of such transactions, including all loans and loan
commitments by such persons, have been and are expected to be substantially the
same as the prevailing terms for comparable transactions for other customers.
Ms. Allison holds similar positions with one or more investment companies that
are distributed by Sunstone. As a result of the responsibilities assumed by
Northern Trust under its Advisory Agreement, Transfer Agency Agreement and
Custodian Agreement and by Sunstone under its Administration Agreement and
Distribution Agreement, Northern Funds itself requires no employees.

Each Trustee earns an annual fee of $15,000 and an additional fee of
$1,250 for each meeting attended, plus reimbursement of expenses incurred as a
Trustee. The Chairman of the Board earns an annual fee of $20,000 and an
additional fee of $1,250 for each meeting attended, plus reimbursement of
expenses incurred as a Trustee. Northern Funds' officers do not receive fees
from Northern Funds for services in such capacities, although Sunstone, of
which Mmes. Allison and Tenwinkel are also officers, receives fees from
Northern Funds for administrative services. Drinker Biddle & Reath, of which
Mr. Dalke is a partner, receives legal fees as counsel to Northern Funds.

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<PAGE> 136

For the fiscal year ended March 31, 1996, the Trustees received the
following compensation:

<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Aggregate Accrued as Part Total
Compensation of Trust Compensation
Name of Trustee from the Trust Expense from the Trust*
--------------- -------------- ------- ---------------
<S> <C> <C> <C>
Silas S. Cathcart $25,000 None $25,000

James W. Cozad $20,000 None $20,000

Susan Crown $20,000 None $20,000

Wesley M. Dixon, Jr. $18,750 None $18,750

William J. Dolan, Jr. $20,000 None $20,000

Raymond E. George, Jr. $20,000 None $20,000
</TABLE>

* This column presents the same information as the first column because none of
the Trustees served on a board of another mutual fund related to the Trust.

INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN

Northern Trust is a wholly-owned subsidiary of The Northern Trust
Corporation, a Chicago-based multi-bank holding company with subsidiaries in
Illinois, Florida, New York, Arizona, California and Texas. Northern Trust has
for more than 100 years managed the assets of individuals, charitable
organizations, foundations and large corporate investors. One of the nation's
leading providers of trust and investment management services, Northern Trust
first entered the mutual fund business in 1983 by offering money market funds
to institutional clients. As part of its investment advisory services,
Northern Trust offers extensive research services to its clients. As of the
date of this Additional Statement, nearly 300 financial institutions nationwide
purchase Northern Trust's economic advisory services. As of March 31, 1996,
Northern Trust and its affiliates had approximately $20.3 billion in assets,
$12.1 billion in deposits, and administered in various capacities (including as
master trustee, investment manager or custodian) over $641.2 billion in
assets. As of March 31, 1996, Northern Trust's investment management group
had management responsibility for approximately $114.5 billion. Northern
Trust is one of the strongest banking organizations in the United States and
its clients include public and private retirement funds, endowments,
foundations, trusts, corporations and individuals. Northern Funds complements
the banking and personal trust services available through Northern Trust by
allowing Northern Trust's banking and

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<PAGE> 137
trust clients to consolidate the management of their finances and thereby move
one step closer to one-stop financial shopping. Northern Funds utilizes a
state-of-the-art investor services center. Also, trained investment
representatives are available at Northern Trust's offices to assist investors
in allocating their investments. Northern Trust believes it has built its
organization by serving clients with integrity, a commitment to quality, and
personal attention. Its stated mission with respect to all its financial
products and services is to achieve unrivaled client satisfaction. Northern
Trust manages the Funds through a team of professionals, led by portfolio
managers who follow a disciplined process to develop investment strategies.
The purpose of this approach is to promote consistent management. The
portfolio managers draw upon the resources of Northern Trust's research
department with specialists in economic analysis, investment strategy, credit
quality and tax law, and which supplies information on interest rates, GNP
growth, corporate profits and other factors.

Subject to the general supervision of the Board of Trustees, Northern
Trust makes decisions with respect to and places orders for all purchases and
sales of portfolio securities for the Funds, and also provides certain
ancillary services. Northern Trust's Advisory Agreement with Northern Funds
has been approved by the Board of Trustees, including the "non-interested"
Trustees, and the initial shareholder of Northern Funds. The Advisory
Agreement provides that in executing portfolio transactions and in selecting
brokers or dealers (a) with respect to common and preferred stocks, Northern
Trust shall use its best judgment to obtain the best overall terms available,
and (b) with respect to other securities, Northern Trust shall attempt to
obtain best net price and execution. Transactions on U.S. stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers.

For the fiscal years indicated, the amount of commissions paid by each
Fund was as follows:

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Income Equity Fund $39,293 $17,411

Growth Equity Fund $305,583 $237,069

Select Equity Fund $82,834 $30,268

Small Cap Fund $303,800 $29,741

International Growth Equity Fund $2,216,573 $1,091,058
</TABLE>

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<PAGE> 138

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
International Select Equity Fund $1,189,658 $523,082
</TABLE>

No commissions were paid by the Funds to any "affiliated" persons (as
defined in the 1940 Act) of the Funds. Transactions on foreign stock exchanges
involve payment for brokerage commissions which are generally fixed.
Over-the-counter issues, including corporate debt and government securities,
are normally traded on a "net" basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. With respect to over-the-counter transactions, Northern Trust will
normally deal directly with dealers who make a market in the instruments
involved except in those circumstances where more favorable prices and
execution are available elsewhere. The cost of foreign and domestic securities
purchased from underwriters includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.

Northern Funds is required to identify any securities of its "regular
brokers or dealers" or their parents which Northern Funds acquired during its
most recent fiscal year.

During the fiscal year ended March 31, 1996, the Growth Equity Fund
acquired and sold securities of _________________________, its regular
broker-dealers. As of March 31, 1996, the Growth Equity Fund did not own
securities issued by its regular broker-dealers.

During the fiscal year ended March 31, 1996, the Income Equity Fund
acquired and sold securities of _________________________, its regular
broker-dealers. As of March 31, 1996, the Income Equity Fund did not own
securities issued by its regular broker-dealers.

During the fiscal year ended March 31, 1996, the Small Cap Fund
acquired and sold securities of ___________________________, its regular
broker-dealers. As of March 31, 1996, the Small Cap Growth Fund did not own
securities issued by its regular broker-dealers.

During the fiscal year ended March 31, 1996, the Select Equity Fund
acquired and sold securities of _________________________, its regular
broker-dealers. As of March 31, 1996, the Select Equity Fund did not own
securities issued by its regular broker-dealers.

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<PAGE> 139

During the fiscal year ended March 31, 1996, the International Select
Equity Fund acquired and sold securities of _______________ __________, its
regular broker-dealers. As of March 31, 1996, the International Select Equity
Fund did not own securities issued by its regular broker-dealers.

During the fiscal year ended March 31, 1996, the International Growth
Equity Fund acquired and sold securities of _______________ __________, its
regular broker-dealers. As of March 31, 1996, the International Growth Equity
Fund owned securities of ___________ __________ in the amount of $_________.

During the fiscal year ended March 31, 1996, the International Fixed
Income Fund acquired and sold securities of ________________ _________, its
regular broker-dealers. As of March 31, 1996, the International Fixed Income
Fund did not own securities issued by its regular broker-dealers.

During the fiscal year ended March 31, 1996, the U.S. Government Fund
acquired and sold securities of _______________ __________, its regular
broker-dealers. As of March 31, 1996, the U.S. Government Fund did not own
securities issued by its regular broker-dealers.

During the fiscal year ended March 31, 1996, the Fixed Income Fund
acquired and sold securities of _________________________, its regular
broker-dealers. As of March 31, 1996, the Fixed Income Fund did not own
securities issued by its regular broker-dealers.

During the fiscal year ended March 31, 1996, the Tax Exempt Fund did
not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1996, the Intermediate Tax
Exempt Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1996, the California Municipal
Money Market Fund did not acquire or sell securities of its regular
broker-dealers.

During the fiscal year ended March 31, 1996, the Municipal Money
Market Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1996, the U.S. Government
Select Money Market Fund did not acquire or sell securities of its regular
broker-dealers.

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<PAGE> 140

During the fiscal year ended March 31, 1996, the Money Market Fund
acquired and sold securities of _________________________, its regular
broker-dealers. As of March 31, 1996, the Money Market Fund owned securities
of _________________________ in the amount of $__________.

During the fiscal year ended March 31, 1996, the U.S. Government
Money Market Fund acquired and sold securities of _________________________,
its regular broker-dealers. As of March 31, 1996, the U.S. Government Money
Market Fund owned securities of _________________________ in the amount of
$__________ and _________________________ in the amount of $__________.

During the fiscal year ended March 31, 1996, the Technology Fund had
not yet commenced operations.

During the fiscal year ending March 31, 1996, Northern Funds directed
brokerage transactions to brokers because of research services provided. The
amount of such transactions and related commissions were as follows: for the
Income Equity Fund, $20,307,086.10 in research commission transactions and
$29,633.56 in research commissions; for the Growth Equity Fund, $169,902,642.59
in research commission transactions and $232,359.36 in research commissions; for
the Select Equity Fund, $41,570,004.54 in research commission transactions and
$50,423.56 in research commissions; for the Small Cap Fund, $73,462,398.08 in
research commission transactions and $157,626.70 in research commissions; for
the International Growth Equity Fund, $175,280,598.64 in research commission
transactions and $716,645.17 in research commissions; and for the International
Select Equity Fund, $93,051,336.94 in research commission transactions and
$493,910.30 in research commissions.

The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when Northern Trust
believes such practice to be in the Funds' interests.

Northern Trust's investment advisory duties for Northern Funds are
carried out through its Trust Department. On occasions when Northern Trust
deems the purchase or sale of a security to be in the best interests of a Fund
as well as other fiduciary or agency accounts managed by it (including any
other portfolio, investment company or account for which Northern Trust acts as
adviser), the Agreement provides that Northern Trust, to the extent permitted
by applicable laws and regulations, may aggregate the securities to be sold or
purchased for such Fund with those to be sold or purchased for such other
accounts in order to obtain the best overall terms available with respect to
common and preferred stocks and the best

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<PAGE> 141
net price and execution with respect to other securities. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by Northern Trust in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
the Fund and other accounts involved. In some instances, this procedure may
adversely affect the size of the position obtainable for the Fund or the amount
of the securities that are able to be sold for the Fund. To the extent that
the execution and price available from more than one broker or dealer are
believed to be comparable, the Agreement permits Northern Trust, at its
discretion but subject to applicable law, to select the executing broker or
dealer on the basis of Northern Trust's opinion of the reliability and quality
of such broker or dealer.

The Advisory Agreement provides that Northern Trust may render similar
services to others so long as its services under such Agreement are not
impaired thereby. The Advisory Agreement also provides that Northern Funds
will indemnify Northern Trust against certain liabilities (including
liabilities under the federal securities laws relating to untrue statements or
omissions of material fact and actions that are in accordance with the terms of
the Agreement) or, in lieu thereof, contribute to resulting losses.

From time to time, Northern Trust may voluntarily waive a portion or
all of its fees otherwise payable to it with respect to the Funds in order to
increase the net income available for distribution to shareholders.

For the fiscal years or periods indicated, Northern Trust earned
advisory fees, after fee waivers, as follows:

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year or Period Ended
March 31, 1996 March 31, 1995(1)
-------------- --------------
<S> <C> <C>
Money Market Fund $3,642,012 $1,679,646

U.S. Government Money Market Fund $863,091 $428,631

Municipal Money Market Fund $3,667,465 $1,985,324

U.S. Government Select Money Market $844,168 $33,404
Fund

California Municipal Money Market Fund $379,811 $102,198

U.S. Government Fund $974,550 $808,240

Fixed Income Fund $626,406 $473,782
</TABLE>

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<PAGE> 142

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year or Period Ended
March 31, 1996 March 31, 1995(1)
-------------- --------------
<S> <C> <C>
Intermediate Tax-Exempt Fund $1,603,749 $1,586,107

Tax-Exempt Fund $818,528 $903,489

International Fixed Income Fund $101,335 $79,136

Income Equity Fund $353,591 $285,142

Growth Equity Fund $1,386,300 $742,399

Select Equity Fund $150,939 $70,398

Small Cap Fund $991,788 $472,444

International Growth Equity Fund $1,557,622 $910,038

International Select Equity Fund $844,168 $666,020
</TABLE>

1. The Money Market, U.S. Government Money Market and Municipal Money
Market Funds commenced operations on April 11, 1994; the U.S.
Government Select and California Municipal Money Market Funds
commenced operations on December 12, and December 29, 1994,
respectively; and the Select Equity and International Select Equity
Funds commenced operations on April 6 and April 5, 1994, respectively.

For the fiscal years or periods indicated, Northern Trust voluntarily
waived and reimbursed advisory fees for each of the Funds as follows:

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<PAGE> 143

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year or Period Ended
March 31, 1996 March 31, 1995(1)
-------------- --------------
<S> <C> <C>
Money Market Fund $2,296,290 $1,499,610

U.S. Government Money Market Fund $569,924 $421,351

Municipal Money Market Fund $2,325,487 $1,743,115

U.S. Government Select Money Market Fund $370,057 $119,739

California Municipal Money Market Fund $471,687 $192,882

U.S. Government Fund $37,209 $18,482

Fixed Income Fund $39,601 $31,397

Intermediate Tax-Exempt Fund $142,338 $115,115

Tax-Exempt Fund $92,578 $82,456

International Fixed Income Fund $34,758 $31,208

Income Equity Fund $109,869 $85,791

Growth Equity Fund $297,405 $158,096

Select Equity Fund $124,497 $70,398

Small Cap Fund $474,217 $231,924

International Growth Equity Fund $311,526 $184,206

International Select Equity Fund $168,832 $135,054
</TABLE>

Under its Transfer Agency Agreement with Northern Funds, Northern
Trust has undertaken, among other things, to perform the following services:
(1) answer shareholder inquiries and respond to requests for information
regarding Northern Funds; (2) process purchase and redemption transactions; (3)
establish and maintain shareholder accounts and subaccounts; (4) furnish
confirmations in

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accordance with applicable law, and provide periodic account statements to each
shareholder; (5) furnish proxy statements and proxies, annual and semi-annual
financial statements, and dividend, distribution and tax notices to
shareholders; (6) act as income disbursing agent; and (7) maintain appropriate
records relating to its services. Northern Trust may appoint one or more
sub-transfer agents in the performance of its services.

As compensation for the services rendered by Northern Trust under the
Transfer Agency Agreement and the assumption by Northern Trust of related
expenses, Northern Trust is entitled to a fee from Northern Funds, payable
monthly, at an annual rate of .10% of the average daily net asset value of each
of the Funds.

For the fiscal years or periods indicated, the amount of transfer
agency fees incurred by each of the Funds was as follows:

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<PAGE> 145

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year or Period Ended
March 31, 1996 March 31, 1995(1)
-------------- --------------
<S> <C> <C>
Money Market Fund $989,707 $478,656

U.S. Government Money Market Fund $238,819 $122,466

Municipal Money Market Fund $998,815 $567,232

U.S. Government Select Money Market Fund $96,072 $16,702

California Municipal Money Market Fund $141,916 $40,879

U.S. Government Fund $134,900 $107,766

Fixed Income Fund $88,800 $63,170

Intermediate Tax-Exempt Fund $232,809 $226,584

Tax-Exempt Fund $121,479 $129,068

International Fixed Income Fund $15,121 $8,793

Income Equity Fund $46,345 $33,546

Growth Equity Fund $168,369 $87,340

Select Equity Fund $22,952 $8,282

Small Cap Fund $122,166 $55,371

International Growth Equity Fund $155,762 $91,003

International Select Equity Fund $84,415 $66,601
</TABLE>

_______________

Northern Trust maintains custody of the assets of the Funds (other
than the International Funds) pursuant to the terms of its Custodian Agreement
with Northern Funds. Northern Trust maintains custody of the assets of the
International Funds pursuant to the

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terms of its Foreign Custody Agreement with Northern Funds. Under each of
these agreements, Northern Trust (l) holds each Fund's cash and securities, (2)
maintains such cash and securities in separate accounts in the name of the
Fund, (3) makes receipts and disbursements of funds on behalf of the Fund, (4)
receives, delivers and releases securities on behalf of the Fund, (5) collects
and receives all income, principal and other payments in respect of the Fund's
investments held by Northern Trust under the agreement, and (6) maintains the
accounting records of Northern Funds. Northern Trust may employ one or more
subcustodians under the Custody Agreement, provided that Northern Trust shall
have no more responsibility or liability to Northern Funds on account of any
action or omission of any subcustodian so employed than such subcustodian has
to Northern Trust and that the responsibility or liability of the subcustodian
to Northern Trust shall conform to the resolution of the Trustees of Northern
Funds authorizing the appointment of the particular subcustodian. Northern
Trust may also appoint an agent to carry out such of the provisions of the
Custody Agreement as Northern Trust may from time to time direct, provided that
the appointment of such an agent shall not relieve Northern Trust of any of its
responsibilities under the agreements. Under its Foreign Custody Agreement,
Northern Trust has entered into agreements with financial institutions and
depositories located in foreign countries with respect to the custody of the
International Funds' foreign securities.

As compensation for the services rendered to each Fund (other than the
International Funds) under the Custodian Agreement, and the assumption by
Northern Trust of certain related expenses, Northern Trust is entitled to
payment from each of the Funds as follows: (a) a basic custodial fee of (i)
$18,000 annually for each Fund, plus (ii) 1/100th of 1% annually of each Fund's
average daily net assets to the extent they exceed $100 million, plus (b) a
basic accounting fee of (i) $25,000 annually for each Fund, plus (ii) 1/100th
of 1% annually of each Fund's average daily net assets to the extent they
exceed $50 million, plus (c) a fixed dollar fee for each trade in portfolio
securities, plus (d) a fixed dollar fee for each time that Northern Trust as
Custodian receives or transmits funds via wire, plus (e) reimbursement of
expenses incurred by Northern Trust as Custodian for telephone, postage,
courier fees, office supplies and duplicating. The fees referred to in clauses
(c) and (d) are subject to annual upward adjustments based on increases in the
Consumer Price Index for All Urban Consumers, provided that Northern Trust may
permanently or temporarily waive all or any portion of any upward adjustment.

As compensation for the services rendered to the International Funds
under the Foreign Custody Agreement, and the assumption by Northern Trust of
certain related expenses, Northern Trust is entitled to payment from each of
those Funds as follows: (i) $35,000 annually for each Fund, plus (ii) 9/100th
of 1% annually of each Fund's average daily net assets, plus (iii)
reimbursement for

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fees incurred by Northern Trust as foreign Custodian for telephone, postage,
courier fees, office supplies and duplicating. As compensation for basic
accounting services rendered to the International Funds by Northern Trust,
Northern Trust is entitled to receive $25,000 for the first $50 million of each
of those Fund's average daily net assets and 1/100th of 1% of each Fund's
average daily net assets in excess of $50 million.

For the fiscal years or periods indicated, the amount of custody and
fund accounting fees incurred by each of the Funds was as follows:

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<PAGE> 148
<TABLE>
<CAPTION>

Fiscal Year Ended Fiscal Year or Period Ended
March 31, 1996 March 31, 1995(1)
----------------- ---------------------------
<S> <C> <C>
Money Market Fund $254,569 $147,500

U.S. Government Money Market Fund $90,960 $69,155
Municipal Money Market Fund $258,554 $157,767

U.S. Government Select Money Market Fund $57,944 $16,895

California Municipal Money Market Fund $68,080 $20,111
U.S. Government Fund $58,756 $54,735

Fixed Income Fund $54,631 $50,201

Intermediate Tax-Exempt Fund $85,022 $82,728
Tax-Exempt Fund $59,343 $62,415

International Fixed Income Fund $74,119 $69,688

Income Equity Fund $51,559 $49,607

Growth Equity Fund $75,707 $57,187
Select Equity Fund $53,054 $52,479

Small Cap Fund $93,498 $105,362

International Growth Equity Fund $213,761 $147,708
International Select Equity Fund $146,744 $123,823
</TABLE>

_______________

Unless sooner terminated, each of the Advisory Agreement, Transfer
Agency Agreement, Custodian Agreement and Foreign Custody Agreement between
Northern Trust and Northern Funds will continue in effect with respect to a
particular Fund until March 31, 1997, and thereafter for successive 12-month
periods, provided that the continuance is approved at least annually (a) by the
vote of a majority of the Trustees who are not parties to the agreement or

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<PAGE> 149
"interested persons" (as such term is defined in the 1940 Act) of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval and (b) by the Trustees or by the vote of a majority of the
outstanding shares of the Fund (as defined under "Organization" in the
Prospectus). Each agreement is terminable at any time without penalty by
Northern Funds (by specified Trustee or shareholder action) on 60 days' written
notice to Northern Trust and by Northern Trust on 60 days' written notice to
Northern Funds.

Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company
continuously engaged in the issuance of its shares, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers. Northern Trust believes that it may
perform the services contemplated by its agreements with Northern Funds without
violation of such banking laws or regulations, which are applicable to it. It
should be noted, however, that future changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as future judicial or administrative
decisions or interpretations of current and future statutes and regulations,
could prevent Northern Trust from continuing to perform such services for
Northern Funds.

Should future legislative, judicial or administrative action prohibit
or restrict the activities of Northern Trust in connection with the provision
of services on behalf of Northern Funds, Northern Funds might be required to
alter materially or discontinue its arrangements with Northern Trust and change
its method of operations. It is not anticipated, however, that any change in
Northern Funds' method of operations would affect the net asset value per share
of any Fund or result in a financial loss to any shareholder. Moreover, if
current restrictions preventing a bank from legally sponsoring, organizing,
controlling or distributing shares of an open-end investment company were
relaxed, Northern Funds expects that Northern Trust would consider the
possibility of offering to perform some or all of the services now provided by
Sunstone. It is not possible, of course, to predict whether or in what form
such restrictions might be relaxed or the terms upon which Northern Trust might
offer to provide services for consideration by the Trustees.

In the Advisory Agreement, Northern Trust agrees that the name
"Northern" may be used in connection with Northern Funds' business on a
royalty-free basis. Northern Trust has reserved to itself the right to grant
the non-exclusive right to use the name "Northern"

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<PAGE> 150
to any other person. The Advisory Agreement provides that at such time as the
Agreement is no longer in effect, Northern Funds will cease using the name
"Northern."

ADMINISTRATOR AND DISTRIBUTOR

Under its Administration Agreement, Sunstone has agreed, subject to
the direction and control of Northern Funds' Board of Trustees and utilizing
information provided by Northern Funds and its agents, to (1) provide office
space, facilities, equipment and personnel to carry out its services; (2)
compile data for and prepare with respect to the Funds timely Notices to the
Securities and Exchange Commission ("SEC") required pursuant to Rule 24f-2
under the 1940 Act and Semi-Annual Reports on Form N-SAR; (3) prepare for
execution by Northern Funds and file all federal income and excise tax returns
and state income tax returns (and such other required tax filings as may be
agreed to by the parties) other than those required to be made by Northern
Funds' custodian and transfer agent; (4) prepare compliance filings relating to
the registration of the securities of the Funds pursuant to state securities
laws with the advice of Northern Funds' counsel; (5) assist the Fund
accountants with preparing the Annual and Semi-Annual Reports required pursuant
to Section 30(d) under the 1940 Act; (6) assist to the extent requested by
Northern Funds with the preparation of the Registration Statement for the Funds
(on Form N-1A or any replacement therefor) and any amendments thereto, and
proxy materials; (7) prepare and monitor each Fund's expense accruals and
cause all appropriate expenses to be paid from Fund assets on proper
authorization from the Fund; (8) assist in the acquisition of the Funds'
fidelity bond required by the 1940 Act, monitor the amount of the bond and make
the necessary SEC filings related thereto; (9) from time to time as Northern
Funds may reasonably request or as Sunstone deems appropriate, check each
Fund's compliance with the policies and limitations relating to portfolio
investments as set forth in the Prospectus, Additional Statement and
Declaration of Trust and monitor each Fund's status as a regulated investment
company under Subchapter M of the Internal Revenue Code, as amended (but this
function shall not relieve the Fund's investment adviser of its day-to- day
responsibility for such compliance); (10) maintain, and/or coordinate with the
other service providers the maintenance of, the accounts, books and other
documents required pursuant to Rule 31a-1(a) and (b) under the 1940 Act; and
(11) generally assist in each Fund's administrative operations. In addition,
Sunstone has agreed to monitor Northern Funds' arrangements with respect to
services provided by Service Organizations. Under the Administration
Agreement, Sunstone is not liable for any error of judgment or mistake of law
or for any loss suffered by the Funds in connection with the performance of the
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of Sunstone in the performance of its
duties or from its reckless disregard of its duties and obligations under the
Agreement.

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<PAGE> 151
Unless sooner terminated the Administration Agreement will continue in
effect with respect to a particular Fund until March 31, 1997, and thereafter
for successive 12-month periods, provided that the agreement is approved
annually (a) by the vote of a majority of the Trustees who are not parties to
the agreement or "interested persons" (as such term is defined by the 1940 Act)
of any party thereto, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Trustees or by the vote of a majority
of the outstanding shares of such Fund (as defined under "Description of
Shares"). Notwithstanding the foregoing, the Administration Agreement shall
continue automatically for an indefinite period unless the Board of Trustees
shall have provided Sunstone with at least 90 days' written notice of its
determination not to renew the Agreement.

For its administrative services, Sunstone is entitled to an
administration fee, computed daily and payable monthly, at the annual rate of
0.15% of the Funds' average aggregate daily net assets. For the fiscal years
or periods indicated, Sunstone earned, after waivers, administrative fees as
follows:

<TABLE>
<CAPTION>
Fiscal Year or Period
Fiscal Year Ended Ended
March 31, 1996 March 31, 1995(1)
----------------- ---------------------
<S> <C> <C>
Money Market Fund $754,629 $414,361

U.S. Government Money Market Fund $197,052 $105,624
Municipal Money Market Fund $779,183 $509,356

U.S. Government Select Money Market Fund $0 $8,192

California Municipal Money Market Fund $64,242 $19,336
U.S. Government Fund $161,659 $105,568

Fixed Income Fund $106,147 $63,582

Intermediate Tax-Exempt Fund $284,325 $230,585

Tax-Exempt Fund $151,378 $130,624
</TABLE>

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<PAGE> 152
<TABLE>
<CAPTION>

Fiscal Year or Period
Fiscal Year Ended Ended
March 31, 1996 March 31, 1995(1)
----------------- ----------------------
<S> <C> <C>
International Fixed Income Fund $18,998 $10,062

Income Equity Fund $55,453 $33,207

Growth Equity Fund $188,961 $82,540

Select Equity Fund $24,949 $9,581

Small Cap Fund $136,098 $52,182

International Growth Equity Fund $188,090 $86,317

International Select Equity Fund $103,687 $63,788
</TABLE>

_______________

For the fiscal years or periods indicated, Sunstone waived
administrative fees with respect to each Fund as follows:

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<PAGE> 153

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year or Period Ended
March 31, 1996 March 31, 1995(1)
-------------- --------------
<S> <C> <C>
Money Market Fund $729,948 $305,490

U.S. Government Money Market Fund $161,180 $78,076

Municipal Money Market Fund $719,057 $341,501

U.S. Government Select Money Market Fund $143,942 $16,860

California Municipal Money Market Fund $148,632 $41,983

U.S. Government Fund $40,693 $56,080

Fixed Income Fund $27,055 $31,175

Intermediate Tax-Exempt Fund $64,892 $109,298

Tax-Exempt Fund $30,843 $62,980

International Fixed Income Fund $3,684 $3,274

Income Equity Fund $14,066 $17,111

Growth Equity Fund $63,595 $48,472

Select Equity Fund $9,481 $2,842

Small Cap Fund $47,153 $31,190

International Growth Equity Fund $45,554 $51,702

International Select Equity Fund $22,936 $37,502
</TABLE>

Northern Funds has also entered into a Distribution Agreement under
which Sunstone, as agent, sells shares of each Fund on a continuous basis.
Sunstone pays the cost of printing and distributing prospectuses to persons who
are not shareholders of

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<PAGE> 154
Northern Funds (excluding preparation and typesetting expenses) and of certain
other distribution efforts. No compensation is payable by Northern Funds to
Sunstone for such distribution services.

The Administration Agreement and the Distribution Agreement provide
that Sunstone may render similar services to others so long as its services
under the Agreements are not impaired thereby. The Administration and
Distribution Agreements provide that Northern Funds will indemnify Sunstone
against certain liabilities (including liabilities under the federal securities
laws relating to untrue statements or omissions of material fact and actions
that are in accordance with the terms of such Agreements) under certain
circumstances.

SERVICE ORGANIZATIONS

As stated in the Funds' Prospectus, the Funds may enter into
agreements from time to time with Service Organizations providing for support
and/or distribution services to customers of the Service Organizations who are
the beneficial owners of Fund shares. Under the agreements, the Funds may pay
Service Organizations up to .25% (on an annualized basis) of the average daily
net asset value of the shares beneficially owned by their customers. Support
services provided by Service Organizations under their agreements may include:
(a) processing dividend and distribution payments from a Fund; (b) providing
information periodically to customers showing their share positions; (c)
arranging for bank wires; (d) responding to customer inquiries; (e) providing
subaccounting with respect to shares beneficially owned by customers or the
information necessary for subaccounting; (f) forwarding shareholder
communications; (g) assisting in processing share purchase, exchange and
redemption requests from customers; (h) assisting customers in changing
dividend options, account designations and addresses; and (i) other similar
services requested by the Funds. In addition, Service Organizations may
provide assistance (such as the forwarding of sales literature and advertising
to their customers) in connection with the distribution of Fund shares.

The Funds' arrangements with Service Organizations under the
agreements are governed by two Plans (a Service Plan and a Distribution and
Service Plan), which have been adopted by the Board of Trustees and (in the
case of the Distribution and Service Plan) by the initial shareholder of
Northern Funds. Because the Distribution and Service Plan contemplates the
provision of services related to the distribution of Fund shares (in addition
to support services), that Plan has been adopted in accordance with Rule 12b-1
under the 1940 Act. In accordance with the Plans, the Board of Trustees
reviews, at least quarterly, a written report of the amounts expended in
connection with the Funds' arrangements with Service Organizations and the
purposes for which the expenditures were made. In addition, the Funds'
arrangements with Service Organizations must be approved annually by a majority
of

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<PAGE> 155
the Trustees, including a majority of the Trustees who are not "interested
persons" of the Funds as defined in the 1940 Act and have no direct or indirect
financial interest in such arrangements (the "Disinterested Trustees").

The Board of Trustees believes that there is a reasonable likelihood
that their arrangements with Service Organizations will benefit each Fund and
its shareholders. Any material amendment to the arrangements with Service
Organizations under the agreements must be approved by a majority of the Board
of Trustees (including a majority of the Disinterested Trustees), and any
amendment to increase materially the costs under the Distribution and Service
Plan with respect to a Fund must be approved by the holders of a majority of
the outstanding shares of the Fund involved. So long as the Distribution and
Service Plan is in effect, the selection and nomination of the members of the
Board of Trustees who are not "interested persons" (as defined in the 1940 Act)
of the Northern Funds will be committed to the discretion of such disinterested
Trustees.

For the fiscal period ended March 31, 1996, none of the Funds paid
fees with respect to either of the Plans.

COUNSEL AND AUDITORS

Drinker Biddle & Reath, with offices at Suite 1100, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107, serve as counsel to Northern Funds.

Arthur Andersen LLP, independent accountants, 33 West Monroe Street,
Chicago, Illinois 60603-5385 serve as auditors for Northern Funds. The
financial statements dated March 31, 1996, incorporated by reference into this
Additional Statement have been incorporated in reliance on the report of Arthur
Andersen LLP given on the authority of said firm as experts in auditing and
accounting.

IN-KIND PURCHASES

Payment for shares of a Fund may, in the discretion of Northern Trust,
be made in the form of securities that are permissible investments for the
Fund as described in the Prospectus. For further information about this form
of payment, contact the Transfer Agent. In connection with an in-kind
securities payment, a Fund will require, among other things, that the
securities be valued on the day of purchase in accordance with the pricing
methods used by the Fund and that the Fund receive satisfactory assurances that
it will have good and marketable title to the securities received by it; that
the securities be in proper form for transfer to the Fund; and that adequate
information be provided concerning the basis and other tax matters relating to
the securities. In addition, so long as shares in a Fund are offered

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<PAGE> 156

or sold in Texas, any securities that are accepted as payment for the shares of
the Fund will be limited to securities that are issued in transactions that
involve a bona fide reorganization or statutory merger, or will be limited to
other acquisitions of portfolio securities (except for municipal debt
securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of the
Portfolio; (b) are acquired for investment and not for resale; (c) are liquid
securities that are not restricted as to transfer either by law or liquidity of
market; and (d) have a value that is readily ascertainable (and not established
only by evaluation procedures) as evidenced by a listing on the American Stock
Exchange, New York Stock Exchange or Nasdaq or as evidenced by their status as
U.S. Government Securities, bank certificates of deposit, banker's acceptances,
corporate and other debt securities that are actively traded, money market
securities and other like securities with a readily ascertainable value.

AUTOMATIC INVESTING PLAN

The Automatic Investing Plan permits an investor to use "Dollar Cost
Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in shares at predetermined
intervals. This may help investors reduce their average cost per share because
the agreed upon fixed investment amount allows more shares to be purchased
during periods of lower share prices and fewer shares during periods of higher
share prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware,
however, that shares bought using Dollar Cost Averaging are purchased without
regard to their price on the day of investment or to market trends. Dollar
Cost Averaging does not assure a profit and does not protect against losses in
a declining market. In addition, while investors may find Dollar Cost
Averaging to be beneficial, it will not prevent a loss if an investor
ultimately redeems his shares at a price which is lower than their purchase
price. An investor may want to consider his financial ability to continue
purchases through periods of low price levels.

REDEMPTIONS AND EXCHANGES

Exchange requests received on a Business Day prior to the time shares
of the Funds involved in the request are priced will be processed on the date
of receipt. "Processing" a request means that shares in the Fund from which
the shareholder is withdrawing an investment will be redeemed at the net asset
value per share next determined on the date of receipt. Shares of the new Fund
into which the shareholder is investing will also normally be purchased at the
net asset value per share next determined coincident to or after the time of
redemption. Exchange requests received on a Business Day after the time shares
of the Funds

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<PAGE> 157
involved in the request are priced will be processed on the next Business Day
in the manner described above.

Northern Funds reserves the right to make payment for redemptions in
readily marketable securities. If this occurred, a shareholder would bear any
brokerage or other transaction costs incurred in converting the securities so
received to cash. Northern Funds also reserves the right to require a
shareholder to redeem involuntarily shares in a Fund if the balance held of
record by the shareholder drops below $750 and the shareholder does not
increase such balance to $1,000 or more upon 30 days' notice. Northern Funds
will not require a shareholder to redeem shares of a Fund if the balance held
of record by the shareholder is less than $750 solely because of a decline in
the net asset value of the Fund's shares or because the shareholder has made an
initial investment in a lower amount in accordance with the Automatic
Investment Plan. Northern Funds may also redeem shares involuntarily if the
redemption is appropriate to carry out Northern Funds' responsibilities under
the 1940 Act (see, e.g., "Amortized Cost Valuation").

Northern Funds may redeem shares involuntarily to reimburse a Fund for
any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Funds' Prospectuses from time to
time.

PERFORMANCE INFORMATION

MONEY MARKET FUNDS

From time to time Northern Funds may advertise quotations of "yields"
and "effective yields" with respect to each Money Market Fund, and
"tax-equivalent yields" with respect to shares of the Municipal Money Market
Fund and the California Municipal Money Market Fund, computed in accordance
with a standardized method based upon the seven-day period ended on the date of
calculation. In arriving at quotations as to "yield," Northern Funds first
determines the net change during the period in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period (such net change being inclusive of the value of any additional shares
issued in connection with distributions of net investment income as well as net
investment income accrued on both the original share and any such additional
shares, but exclusive of realized gains and losses from the sale of securities
and unrealized appreciation and depreciation), then divides such net change by
the value of the account at the beginning of the period to obtain the base
period return, and then multiplies the base period return by 365/7. Based on
the foregoing calculations, for the period ended March 31, 1996, the 7-day

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yields for the Money Market Funds, after fee waivers, were as follows: Money
Market Fund, 4.90%; U.S. Government Money Market Fund, 4.78%; Municipal Money
Market Fund, 3.05%; U.S. Government Select Money Market Fund, 4.91%; and
California Municipal Money Market Fund, 3.08%. For the period ended March 31,
1996, the 7-day yields for the Money Market Funds, absent fee waivers, were as
follows: Money Market Fund, 4.73%; U.S. Government Money Market Fund, 4.50%;
Municipal Money Market Fund, 2.86%; U.S. Government Select Money Market Fund,
4.71%; and California Municipal Money Market Fund, 2.98%.

The "effective yield" with respect to the shares of a Money Market
Fund is computed by adding 1 to the base period return (calculated as above),
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. Based on the foregoing calculations, for the period ended March
31, 1996, the 7-day effective yields for the Money Market Funds, after fee
waivers, were as follows: Money Market Fund, 5.02%; U.S. Government Money
Market Fund, 4.90%; Municipal Money Market Fund, 3.09%; U.S. Government
Select Money Market Fund, 5.03%; and California Municipal Money Market Fund,
3.13%.

"Tax-equivalent yield" is computed by dividing the tax-exempt portion
of the yield by 1 minus a stated income tax rate and then adding the product to
the taxable portion of the yield, if any. There may be more than one
tax-equivalent yield if more than one stated income tax rate is used. For the
period ended March 31, 1996, and using a federal income tax rate of 31%, the
7-day tax-equivalent yields, after fee waivers, were 4.42% and 4.46% for the
Municipal Money Market and California Municipal Money Market Funds,
respectively.

NON-MONEY MARKET FUNDS

A Non-Money Market Fund calculates its "average annual total return"
by determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:

ERV 1/n
T = [(-------)-1]
P

Where: T = average annual total return;

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or
10 year (or other) periods at the end of the
applicable period (or a fractional portion thereof);

P = hypothetical initial payment of $1,000; and

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<PAGE> 159
n = period covered by the computation, expressed in
years.

Based on the foregoing calculations, the average annual total returns
for the Non-Money Market Funds for the fiscal year ended March 31, 1996 and for
the period from the respective dates they commenced operations to March 31,
1996, were as follows: U.S. Government Fund, 7.65% and 5.54%; Fixed Income
Fund, 11.18% and 7.60%; Intermediate Tax-Exempt Fund, 6.81% and 5.58%;
Tax-Exempt Fund, 7.80% and 6.78%; International Fixed Income Fund, 5.84% and
9.23%; Income Equity Fund, 20.41% and 10.92%; Growth Equity Fund, 25.13% and
15.63%; Select Equity Fund, 25.70% and 16.71%; Small Cap Fund, 24.09% and
11.69%; International Growth Equity Fund, 8.61% and 2.82%; and International
Select Equity Fund, 10.20% and 3.96%. The Technology Fund had not commenced
operations during the fiscal year ended March 31, 1996. During these periods,
Northern Trust and Sunstone waived a portion of their fees.

A Non-Money Market Fund calculates its "aggregate total return" by
determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:

ERV
Aggregate Total Return = [(-----) - 1]
P

The calculations are made assuming that (a) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, and (b) all recurring fees charged to
all shareholder accounts are included. The ending redeemable value (variable
"ERV" in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the end
of the measuring period. Based on the foregoing calculations, the aggregate
total returns for the Non- Money Market Funds for the fiscal year ended March
31, 1996 and for the period from the respective dates they commenced operations
to March 31, 1996, were as follows: U.S. Government Fund, 7.65% and 11.41%;
Fixed Income Fund, 11.18% and 15.81%; Intermediate Tax-Exempt Fund, 6.81% and
11.48%; Tax-Exempt Fund, 7.80% and 14.04%; International Fixed Income Fund,
5.84% and 19.41%; Income Equity Fund, 20.41% and 23.07%; Growth Equity Fund,
25.13% and 33.93%; Select Equity Fund, 25.70% and 35.98%; Small Cap Fund,
24.09% and 24.79%; International Growth Equity Fund, 8.61% and 5.73%; and
International Select Equity Fund, 10.20% and 8.04%. The Technology Fund had
not commenced operations during the fiscal year ended March 31, 1996. During
these periods, Northern Trust and Sunstone waived a portion of their fees.

A Non-Money Market Fund calculates its 30-day (or one month) standard
yield in accordance with the method prescribed by the SEC for mutual funds:

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a - b 6
Yield = 2[(cd + 1) - 1]

Where: a = dividends and interest earned during the period;

b = expenses accrued for the period (net of
reimbursements);

c = average daily number of shares outstanding during
the period entitled to receive dividends; and

d = net asset value per share on the last day of
the period.

Based on the foregoing calculations, for the 30-day period ended March
31, 1996, the yields for the U.S Government, Fixed Income, Intermediate
Tax-Exempt, Tax-Exempt and International Fixed Income Funds, after fee waivers,
were 5.11%, 5.56%, 3.67%, 4.39% and 5.49%, respectively. Also for the 30-day
period ended March 31, 1996, the yields for the U.S Government, Fixed Income,
Intermediate Tax-Exempt, Tax- Exempt and International Fixed Income Funds,
absent fee waivers, were 4.91%, 5.31%, 3.50%, 4.19% and 4.59%, respectively.

A Non-Money Market Fund's "tax-equivalent" yield is computed by: (a)
dividing the portion of the Fund's yield (calculated as above) that is exempt
from federal income tax by one minus a stated federal income tax rate; and (b)
adding the quotient to that portion, if any, of the Fund's yield that is not
exempt from federal income tax. For the period ended March 31, 1996, and
using a federal income tax rate of 31%, the 30-day tax-equivalent yields, after
fee waivers, were 5.32% and 6.36% for the Intermediate Tax-Exempt and
Tax-Exempt Funds, respectively.

GENERAL INFORMATION

The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of a Fund, economic conditions, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements or communications to shareholders may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views of Northern Trust as to current
market, economic, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to a Fund. The Funds may also include in advertisements charts,
graphs or drawings which illustrate the potential risks and

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rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, treasury bills and shares of a Fund. In addition,
advertisements or shareholder communications may include a discussion of
certain attributes or benefits to be derived by an investment in a Fund. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.

Any fees imposed by Northern Trust or other Service Organizations on
their customers in connection with investments in the Funds are not reflected
in Northern Funds' calculations of performance for the Funds.

Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates,
portfolio expenses and other factors. Performance is one basis investors may
use to analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.

AMORTIZED COST VALUATION

As stated in the Prospectus, each Money Market Fund seeks to maintain
a net asset value of $1.00 per share and, in this connection, values its
instruments on the basis of amortized cost pursuant to Rule 2a-7 under the 1940
Act. This method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Fund would receive if the Fund sold the
instrument. During such periods the yield to investors in the Fund may differ
somewhat from that obtained in a similar entity which uses available
indications as to market value to value its portfolio instruments. For
example, if the use of amortized cost resulted in a lower (higher) aggregate
Fund value on a particular day, a prospective investor in the Fund would be
able to obtain a somewhat higher (lower) yield and ownership interest than
would result from investment in such similar entity and existing investors
would receive less (more) investment income and ownership interest. However,
Northern Funds expects that the procedures and limitations

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referred to in the following paragraphs of this section will tend to minimize
the differences referred to above.

Under Rule 2a-7, Northern Funds' Board of Trustees, in supervising the
Funds' operations and delegating special responsibilities involving portfolio
management to Northern Trust, has established procedures that are intended,
taking into account current market conditions and the Funds' investment
objectives, to stabilize the net asset value of each Money Market Fund, as
computed for the purposes of purchases and redemptions, at $1.00 per share.
The Trustees' procedures include periodic monitoring of the difference (the
"Market Value Difference") between the amortized cost value per share and the
net asset value per share based upon available indications of market value.
Available indications of market value consist of actual market quotations or
appropriate substitutes which reflect current market conditions and include (a)
quotations or estimates of market value for individual portfolio instruments
and/or (b) values for individual portfolio instruments derived from market
quotations relating to varying maturities of a class of money market
instruments. In the event the Market Value Difference exceeds 1/2 of 1%, the
Trustees' procedures provide that the Trustees will take such steps as they
consider appropriate (e.g., selling portfolio instruments to shorten average
portfolio maturity or to realize capital gains or losses, reducing or
suspending shareholder income accruals, redeeming shares in kind, or utilizing
a net asset value per share based upon available indications of market value
which under such circumstances would vary from $1.00) to eliminate or reduce to
the extent reasonably practicable any material dilution or other unfair results
to investors or existing shareholders which might arise from Market Value
Differences. In particular, if losses were sustained by a Fund, the number of
outstanding shares might be reduced in order to maintain a net asset value per
share of $1.00. Such reduction would be effected by having each shareholder
proportionately contribute to the Fund's capital the necessary shares to
restore such net asset value per share. Each shareholder will be deemed to
have agreed to such contribution in these circumstances by investing in the
Fund.

Rule 2a-7 requires that each Money Market Fund limit its investments
to instruments which Northern Trust determines to present minimal credit risks
and which are "Eligible Securities" as defined by the SEC and described in the
Prospectus. The Rule also requires that each Money Market Fund maintain a
dollar-weighted average portfolio maturity (not more than 90 days) appropriate
to its policy of maintaining a stable net asset value per share and precludes
the purchase of any instrument deemed under the Rule to have a remaining
maturity of more than 397 days. Should the disposition of a portfolio security
result in a dollar-weighted average portfolio maturity of more than 90 days,
the Rule requires a Money Market Fund to invest its available cash in such a
manner

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as to reduce such maturity to the prescribed limit as soon as reasonably
practicable.

TAXES

The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Funds or their shareholders, and the discussions here and
in the Prospectus are not intended as a substitute for careful tax planning.
Potential investors should consult their tax advisers with specific reference
to their own tax situations.

The discussions of federal and state tax consequences in the
Prospectus and this Additional Statement are based on the Code and the laws and
regulations issued thereunder as in effect on the date of this Additional
Statement. Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.

FEDERAL - GENERAL INFORMATION

Each Fund intends to qualify as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1 of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Fund is
generally exempt from federal income tax on its net investment income and
realized capital gains which it distributes to shareholders, provided that it
distributes an amount equal to at least the sum of 90% of its tax-exempt income
and 90% of its investment company taxable income (net investment income and the
excess of net short- term capital gain over net long-term capital loss), if
any, for the year (the "Distribution Requirement") and satisfies certain other
requirements of the Code that are described below.

In addition to satisfaction of the Distribution Requirement, each Fund
must derive with respect to a taxable year at least 90% of its gross income
from dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or from other income derived with respect to its business of
investing in such stock, securities, or currencies (the "Income Requirement")
and derive less than 30% of its gross income from the sale or other disposition
of securities and certain other investments held for less than three months
(the "Short-Short Test"). Interest (including original issue discount and
accrued market discount) received by a Fund at maturity or on disposition of a
security held for less than three months will not be treated as other income
which is attributable to realized market appreciation, but will be

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treated as gross income from the sale or other disposition of securities for
this purpose.

In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Fund's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which a Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a Fund does not hold more than 10% of
the outstanding voting securities of such issuer) and no more than 25% of the
value of each Fund's total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which such Fund controls and
which are engaged in the same or similar trades or businesses.

Each Fund intends to distribute to shareholders any excess of net
long-term capital gain over net short-term capital loss ("net capital gain")
for each taxable year. Such gain is distributed as a capital gain dividend and
is taxable to shareholders as long-term capital gain, regardless of the length
of time the shareholder has held the shares, whether such gain was recognized
by the Fund prior to the date on which a shareholder acquired shares of the
Fund and whether the distribution was paid in cash or reinvested in shares. In
addition, investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent of any capital gain dividends that have
been paid with respect to such shares.

In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends received deduction to the
extent of the gross amount of "qualifying dividends" from domestic corporations
received by the Fund for the year. A dividend usually will be treated as a
"qualifying dividend" if it has been received from a domestic corporation. A
portion of the dividends paid by the Income Equity Fund, Growth Equity Fund,
Select Equity Fund and Small Cap Fund may constitute "qualifying dividends."
The other Funds, however, are not expected to pay qualifying dividends.

Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains are currently taxable at a maximum nominal rate of 28%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum nominal rate of 35% (an effective marginal rate of 39% applies in the
case of corporations with taxable incomes between $100,000 and $335,000, and an
effective marginal rate of 38%

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applies in the case of corporations with taxable incomes between $15 million
and $18,333,333).

If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, all distributions (whether or not derived from exempt-interest
income) would be taxable as ordinary income to the extent of such Fund's
current and accumulated earnings and profits and would be eligible for the
dividends received deduction in the case of corporate shareholders.

The Code imposes a non-deductible 4% excise tax on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Fund intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and capital gain net income each calendar year to avoid liability for
this excise tax.

Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, each Fund
may be subject to the tax laws of such states or localities.

FEDERAL - TAX-EXEMPT INFORMATION

As described in the Prospectus, the Municipal Money Market, California
Municipal Money Market, Intermediate Tax-Exempt and Tax-Exempt Funds are
designed to provide investors with tax-exempt interest income. The Funds are
not intended to constitute a balanced investment program and are not designed
for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of the Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts because such plans and accounts are generally tax-exempt
and, therefore, would not gain any additional benefit from the Funds' dividends
being tax-exempt. In addition, the Funds may not be an appropriate investment
for persons or entities that are "substantial users" of facilities financed by
private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person which
regularly uses a part of such facilities in its trade or business and whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds are more than 5% of the total revenues derived by all users of such
facilities, which occupies more than 5% of the

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usable area of such facilities or for which such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related persons"
include certain related natural persons, affiliated corporations, a partnership
and its partners and an S corporation and its shareholders.

In order for the Municipal Money Market, California Municipal Money
Market, Intermediate Tax-Exempt or Tax-Exempt Funds to pay federal
exempt-interest dividends with respect to any taxable year, at the close of
each taxable quarter at least 50% of the aggregate value of the Fund must
consist of tax-exempt obligations. An exempt-interest dividend is any dividend
or part thereof (other than a capital gain dividend) paid by a Fund and
designated as an exempt-interest dividend in a written notice mailed to
shareholders not later than 60 days after the close of the Fund's taxable year.
However, the aggregate amount of dividends so designated by a Fund cannot
exceed the excess of the amount of interest exempt from tax under Section 103
of the Code received by the Fund during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. The
percentage of total dividends paid by a Fund with respect to any taxable year
which qualifies as federal exempt-interest dividends will be the same for all
shareholders receiving dividends from the Fund with respect to such year.

Interest on indebtedness incurred by a shareholder to purchase or
carry Fund shares generally is not deductible for federal income tax purposes.
If a shareholder holds Fund shares for six months or less, any loss on the sale
or exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends earned with respect to the shares. The Treasury
Department, however, is authorized to issue regulations reducing the six-month
holding requirement to a period of not less than the greater of 31 days or the
period between regular distributions for investment companies that regularly
distribute at least 90% of its net tax-exempt interest. No such regulations
had been issued as of the date of this Additional Statement.

Shareholders will be advised annually as to the federal income tax
consequences of distributions made by the Funds.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the Distribution Requirement, on the
income or gain qualifying under the Income Requirement and on their ability to
comply with the Short-Short Test described above.

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Generally, futures contracts, options on futures contracts and certain
foreign currency contracts held by a Fund (collectively, the "Instruments") at
the close of its taxable year are treated for federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sales is treated as short-term capital gain or loss and
60% of such gain or loss is treated as long-term capital gain or loss without
regard to the period the Fund holds the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by the Fund in a
subsequent sale or other disposition of those Instruments is adjusted to
reflect any capital gain or loss taken into account by the Fund in a prior year
as a result of the constructive sale of the Instruments. Losses with respect
to Instruments that are regarded as parts of a "mixed straddle" because their
values fluctuate inversely to the values of specific securities held by the
Fund are subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules,
which are also applicable, the holding period of the securities forming part of
the straddle will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With respect to
certain Instruments, deductions for interest and carrying charges may not be
allowed. Notwithstanding the rules described above, with respect to
Instruments that are part of a "mixed straddle" and are properly identified as
such, a Fund may make an election which will exempt (in whole or in part) those
identified Instruments from the rules of Section 1256 of the Code including
"the 40-60 rule" and the mark-to-market on gains and losses being treated for
federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales and loss deferral rules and the requirement to capitalize interest and
carrying charges. Under Temporary Regulations, a Fund would be allowed (in
lieu of the foregoing) to elect either (a) to offset gains or losses from
portions which are part of a mixed straddle by separately identifying each
mixed straddle to which such treatment applies, or (b) to establish a mixed
straddle account for which gains and losses would be recognized and offset on a
periodic basis during the taxable year. Under either election, "the 40-60
rule" will apply to the net gain or loss attributable to the Instruments, but
in the case of a mixed straddle account election, not more than 50% of any net
gain may be treated as long-term and no more than 40% of any net loss may be
treated as short-term. Options on futures contracts generally receive federal
tax treatment similar to that described above.

With respect to futures contracts and other financial instruments
subject to the mark-to-market rules, the Internal

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Revenue Service has ruled in private letter rulings that a gain realized from
such a futures contact or financial instrument will be treated as being derived
from a security held for three months or more (regardless of the actual period
for which the contract or instrument is held) if the gain arises as a result of
a constructive sale under the mark-to-market rules, and will be treated as
being derived from a security held for less than three months only if the
contract or instrument is terminated (or transferred) during the taxable year
(other than by reason of mark-to-market) and less than three months have
elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the Short-Short Test is met for a
taxable year, increases and decreases in the value of the Fund's futures
contacts and other investments that qualify as part of a "designated hedge," as
defined in the Code, may be netted.

A foreign currency contract must meet the following conditions in
order to be subject to the marking-to-market rules described above: (1) the
contract must require delivery of a foreign currency of a type in which
regulated futures contracts are traded or upon which the settlement value of
the contract depends; (2) the contract must be entered into at arm's length at
a price determined by reference to the price in the interbank market; and (3)
the contract must be traded in the interbank market. The Treasury Department
has broad authority to issue regulations under the provisions respecting
foreign currency contracts. As of the date of this Additional Statement, the
Treasury Department has not issued any such regulations. Other foreign
currency contracts entered into by a Fund may result in the creation of one or
more straddles for federal income tax purposes, in which case certain loss
deferral, short sales, and wash sales rules and the requirement to capitalize
interest and carrying charges may apply.

Some of the non-U.S. dollar denominated investments that certain Funds
may make, such as foreign debt securities and foreign currency contracts, may
be subject to the provisions of Subpart J of the Code, which govern the federal
income tax treatment of certain transactions denominated in terms of a currency
other than the U.S. dollar or determined by reference to the value of one or
more currencies other than the U.S dollar. The types of transactions covered
by these provisions include the following: (1) the acquisition of, or becoming
the obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (2) the accruing of certain
trade receivables and payables; and (3) the entering into or acquisition of any
forward contract, futures contract, option and similar financial instrument.
The disposition of a currency other than the U.S. dollar by a U.S. taxpayer
also is treated as a transaction subject to the special currency rules.
However, regulated futures contracts and nonequity options are generally not
subject to the special currency rules if they are or would be treated as sold
for their fair market value at year-end under the

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marking-to-market rules, unless an election is made to have such currency rules
apply. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. In accordance with Treasury regulations, certain
transactions that are part of a "Section 988 hedging transaction" (as defined
in the Code and Treasury regulations) may be integrated and treated as a single
transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the marking-to-market or
loss deferral rules under the Code. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Fund which are not subject
to the special currency rules (such as foreign equity investments other than
certain preferred stocks) is treated as capital gain or loss and is not
segregated from the gain or loss on the underlying transaction.

Certain of the Funds may be subject to U.S. federal income tax on a
portion of any "excess distribution" from or a gain from the disposition of
shares of a passive foreign investment company.

SPECIAL STATE TAX CONSIDERATIONS PERTAINING TO THE CALIFORNIA MUNICIPAL MONEY
MARKET FUND

Assuming the California Municipal Money Market Fund qualifies as a
regulated investment company, it will be relieved of liability for California
state franchise and corporate income tax to the extent its earnings are
distributed to its shareholders. The Fund may be taxed on its undistributed
taxable income. If for any year the Fund does not qualify as a regulated
investment company, all of the Fund's taxable income (including interest
income on California Municipal Instruments for franchise tax purposes only) may
be subject to California state franchise or income tax at regular corporate
rates.

If, at the close of each quarter of its taxable year, at least 50% of
the value of the total assets of a regulated investment company, or series
thereof, consists of (i) obligations the interest on which is exempt from
taxation under the California Constitution or any California statute
("California Municipal Instruments") and (ii) obligations of the United States
the interest on which is exempt from state income taxation under the United
States Constitution or the laws of the United States ("Federal Obligations"),
then a regulated investment company, or series thereof, will be qualified to
pay dividends exempt from California state personal income tax to its
non-corporate shareholders (hereinafter referred to as "California
exempt-interest dividends"). "Series" of a regulated investment company

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is defined as a segregated portfolio of assets, the beneficial interest in
which is owned by the holders of an exclusive class or series of stock of the
company. The California Municipal Money Market Fund intends to qualify under
the above requirements so that it can pay California exempt-interest dividends.
If the Fund fails to so qualify, no part of its dividends to shareholders will
be exempt from the California state personal income tax. The Fund may reject
purchase orders for shares if it appears desirable to avoid failing to so
qualify.

Within 60 days after the close of its taxable year, the California
Municipal Money Market Fund will notify each shareholder of the portion of the
dividends paid by the Fund to the shareholder with respect to such taxable year
which is exempt from California state personal income tax. The total amount of
California exempt-interest dividends paid by the Fund with respect to any
taxable year cannot exceed the excess of the amount of interest received by the
Fund for such year on California Municipal Instruments and Federal Obligations
over any amounts that, if the Fund were treated as an individual, would be
considered expenses related to tax-exempt income or amortizable bond premium
and would thus not be deductible under federal income or California state
personal income tax law. The percentage of total dividends paid by the Fund
with respect to any taxable year which qualifies as California exempt-interest
dividends will be the same for all shareholders receiving dividends from the
Fund with respect to such year.

In cases where shareholders are "substantial users" or "related
persons" with respect to California Municipal Instruments held by the
California Municipal Money Market Fund, such shareholders should consult their
tax advisers to determine whether California exempt-interest dividends paid by
the Fund with respect to such obligations retain California state personal
income tax exclusion. In this connection, rules similar to those regarding the
possible unavailability of federal exempt-interest dividend treatment to
"substantial users" are applicable for California state tax purposes. See
"Federal - Tax-Exempt Information" above.

To the extent any dividends paid to shareholders are derived from the
excess of net long-term capital gains over net short-term capital losses, such
dividends will not constitute California exempt-interest dividends and will
generally be taxed as long-term capital gains under rules similar to those
regarding the treatment of capital gain dividends for federal income tax
purposes. See "Federal - General Information" above. Moreover, interest on
indebtedness incurred by a shareholder to purchase or carry California
Municipal Money Market Fund shares is not deductible for California state
personal income tax purposes if the Fund distributes California exempt-interest
dividends during the taxable year.

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California may tax income derived from repurchase agreements involving
federal obligations because such income represents a premium paid at the time
the government obligations are repurchased rather than interest paid by the
issuer of the obligations.

The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the California
Municipal Money Market Fund and its shareholders. No attempt is made to
present a detailed explanation of the California state personal income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful planning. Further, it should be noted that the
portion of the Fund's dividends constituting California exempt-interest
dividends is excludable from income for California state personal income tax
purposes only. Any dividends paid to shareholders subject to California state
franchise tax or California state corporate income tax may therefore be taxed
as ordinary dividends to such purchasers notwithstanding that all or a portion
of such dividends is exempt from California state personal income tax.
Accordingly, potential investors in the Fund, including, in particular,
corporate investors which may be subject to either California franchise tax or
California corporate income tax, should consult their tax advisers with respect
to the application of such taxes to the receipt of Fund dividends and as to
their own California state tax situation, in general.

DESCRIPTION OF SHARES

The Trust Agreement permits Northern Funds' Board of Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of one
or more separate series representing interests in different investment
portfolios. Northern Funds may hereafter create series in addition to Northern
Funds' existing series, which represent interests in seventeen portfolios, each
of which is discussed in this Additional Statement. Under the terms of the
Trust Agreement, each share of each Fund has a par value of $.0001, represents
a proportionate interest in the particular Fund with each other share of its
class and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. Upon any liquidation of
a Fund, shareholders of each class of a Fund are entitled to share pro rata in
the net assets belonging to that class available for distribution. Shares do
not have any preemptive or conversion rights. The right of redemption is
described under "Redeeming and Exchanging Shares" in the Prospectus. Pursuant
to the terms of the 1940 Act, the right of a shareholder to redeem shares and
the date of payment by a Fund may be suspended for more than seven days (a) for
any period during which the New York Stock Exchange is closed, other than the
customary weekends or holidays, or trading in the markets the Fund normally
utilizes is closed or is restricted as determined by the SEC, (b) during any
emergency, as determined by

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the SEC, as a result of which it is not reasonably practicable for the Fund to
dispose of instruments owned by it or fairly to determine the value of its net
assets, or (c) for such other period as the SEC may by order permit for the
protection of the shareholders of the Fund. Northern Funds may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions. In addition, Northern Funds reserves the
right to adopt, by action of the Trustees, a policy pursuant to which it may,
without shareholder approval, redeem upon not less than 30 days' notice all of
a Fund's shares if such shares have an aggregate value below a designated
amount and if the Trustees determine that it is not practical, efficient or
advisable to continue the operation of such Fund and that any applicable
requirements of the 1940 Act have been met. Shares when issued as described in
the Prospectus are validly issued, fully paid and nonassessable, except as
stated below.

The proceeds received by each Fund for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and
proceeds thereof, subject only to the rights of creditors, will be specifically
allocated to and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to that Fund and with a share of the
general liabilities of Northern Funds. Expenses with respect to the portfolios
of Northern Funds are normally allocated in proportion to the net asset value
of the respective portfolios except where allocations of direct expenses can
otherwise be fairly made.

Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as Northern Funds shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each investment portfolio affected by such matter. Rule 18f-2
further provides that an investment portfolio shall be deemed to be affected by
a matter unless the interests of each investment portfolio in the matter are
substantially identical or the matter does not affect any interest of the
investment portfolio. Under the Rule, the approval of an investment advisory
agreement, a distribution plan subject to Rule 12b-1 under the 1940 Act or any
change in a fundamental investment policy would be effectively acted upon with
respect to an investment portfolio only if approved by a majority of the
outstanding shares of such investment portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of Northern Funds voting together
in the aggregate without regard to a particular investment portfolio.

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The term "majority of the outstanding shares" of either Northern Funds
or a particular Fund or investment portfolio means, with respect to the
approval of an investment advisory agreement, a distribution plan or a change
in a fundamental investment policy, the vote of the lesser of (i) 67% or more
of the shares of Northern Funds or such Fund or portfolio present at a meeting,
if the holders of more than 50% of the outstanding shares of Northern Funds or
such Fund or portfolio are present or represented by proxy, or (ii) more than
50% of the outstanding shares of Northern Funds or such Fund or portfolio.

As of June 30, 1996, Northern and its affiliates held of record
substantially all of the outstanding shares of the Non-Money Market Funds as
agent, custodian, trustee or investment adviser on behalf of their customers.
At such date, The Northern Trust Company, 50 S. LaSalle Street, Chicago,
Illinois 60657, and its affiliate banks held as beneficial owner five percent
or more of the outstanding shares of the Non-Money Market Funds because they
possessed sole voting or investment power with respect to such shares.

As of June 30, 1996, the name and share ownership of the entities of
individuals which held of record or beneficially more than 5% of the
outstanding shares of the Money Market Fund were as follows: Northern Trust
Bank FL M&I Sweep Account, 6.79%. As of June 30, 1996, the name and share
ownership of the entities or individuals which held of record or beneficially
more than 5% of the outstanding shares of the U.S. Government Money Market
Fund were as follows: Sunstone Financial Group, Inc. for Van Wagoner Funds,
32.14%; KPMG Peat Marwick, 18.08%; Mid- West Automation Systems, 16.57%; and
Sunstone Financial Group, Inc. for Wasatch Funds, 5.19%. As of June 30, 1996,
the name and share ownership of the entities or individuals which held of
record or beneficially more than 5% of the outstanding shares of the Municipal
Money Market Fund were as follows: Northern Trust Bank FL M&I Sweep Account,
11.44%; Harve A. Ferrill TRST Harve A. Ferrill TR, 6.15%; and Richard M.
Hamlin, 7.36%. As of June 30, 1996, the name and share ownership of the
entities or individuals which held of record or beneficially more than 5% of
the outstanding shares of the U.S. Government Select Money Market Fund were as
follows: Edith B. Jacobs TRST Edith B. Jacobs TRUST DTD 4/8/76, 5.18% and
Peapod LP, 30.29%. As of June 30, 1996, the name and share ownership of the
entities or individuals which held of record or beneficially more than 5% of
the outstanding shares of the California Municipal Money Market Fund were as
follows: Rosalind K. Robbins TRST Rosalind K. Robbins 1987 Inter VIVDS TR
12/27/87, 6.19%; Brian S. Bean and Kathleen T. Bean JT TEN, 5.72%; Ray S.
Edwards, Jr., 18.34%; and Michael Foley and Pamela Foley TRST Foley Family
Trust, 12.04%. As of June 30, 1996, the name and share ownership of the
entities or individuals which held of record or beneficially more than 5% of
the outstanding shares of the International Select Equity Fund were as follows:
James L. Knight 1969 TRST SUB ACCT TRUST CASH

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PROCESSING UNIT-MIAMI, 5.63%. As of June 30, 1996, the name and share
ownership of the entities or individuals which held of record or beneficially
more than 5% of the outstanding shares of the Technology Fund were as follows:
Paul T. Delaney, 5.52%. The address of all of the above persons is c/o The
Northern Trust Bank, 50 S. LaSalle Street, Chicago, Illinois 60657.

As a general matter, Northern Funds does not hold annual or other
meetings of shareholders. This is because the Trust Agreement provides for
shareholder voting only for the election or removal of one or more Trustees, if
a meeting is called for that purpose, and for certain other designated matters.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of considering the election or reelection of such Trustee or of a
successor to such Trustee, and until the election and qualification of his
successor, if any, elected at such meeting, or until such Trustee sooner dies,
resigns, retires or is removed by the shareholders or two-thirds of the
Trustees.

Under Massachusetts law, there is a possibility that shareholders of a
business trust could, under certain circumstances, be held personally liable as
partners for the obligations of the trust. The Trust Agreement contains an
express disclaimer of shareholder (as well as Trustee and officer) liability
for acts or obligations of Northern Funds and requires that notice of such
disclaimer be given in each contract, undertaking or instrument entered into or
executed by Northern Funds or the Trustees. The Trust Agreement provides for
indemnification out of Trust property of any shareholder charged or held
personally liable for the obligations or liabilities of Northern Funds solely
by reason of being or having been a shareholder of Northern Funds and not
because of such shareholder's acts or omissions or for some other reason. The
Trust Agreement also provides that Northern Funds shall, upon proper and timely
request, assume the defense of any charge made against any shareholder as such
for any obligation or liability of Northern Funds and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which Northern Funds
itself would be unable to meet its obligations.

The Trust Agreement provides that each Trustee of Northern Funds will
be liable for his own wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee ("disabling conduct"), and for nothing else, and will not be liable for
errors of judgment or mistakes of fact or law. The Trust Agreement provides
further that Northern Funds will indemnify Trustees and officers of Northern
Funds against liabilities and expenses incurred in connection with litigation
and other proceedings in which they may be involved (or with which they may be
threatened) by reason of their positions with Northern Funds, except that no
Trustee or officer will be

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indemnified against any liability to Northern Funds or its shareholders to
which he would otherwise be subject by reason of disabling conduct.

The Trust Agreement provides that each shareholder, by virtue of
becoming such, will be held to have expressly assented and agreed to the terms
of the Trust Agreement and to have become a party thereto.

FINANCIAL STATEMENTS

The audited financial statements and related report of the Trust's
independent auditors, contained in the annual report to shareholders for the
fiscal year ended March 31, 1996 (the "Annual Report"), are hereby
incorporated herein by reference. No other part of the Annual Report is
incorporated by reference herein. Copies of the Annual Report may be obtained
by writing to the Transfer Agent by writing to the Northern Funds Center, P.O.
Box 75986, Chicago, Illinois 60690-9069 or by calling 1-800-595-9111.

OTHER INFORMATION

The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by Northern Funds' Prospectus.
Certain portions of the Registration Statement have been omitted from the
Prospectus and this Additional Statement pursuant to the rules and regulations
of the SEC. The Registration Statement, including the exhibits filed
therewith, may be examined at the office of the SEC in Washington, D.C.

Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other documents referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.

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APPENDIX A

COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:

"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."

"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.

"B" - Issue has only a speculative capacity for timely
payment.

"C" - Issue has a doubtful capacity for payment.

"D" - Issue is in payment default.

Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:

"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.

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"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.

"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

"Not Prime" - Issuer does not fall within any of the Prime
rating categories.

The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used
by Duff & Phelps for commercial paper:

"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.

"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.

"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.

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"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.

"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.

Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:

"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.

"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."

"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
categories.

"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.

"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.

"D" - Securities are in actual or imminent payment default.

Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by
a commercial bank.

Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-

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dealers. The following summarizes the ratings used by Thomson BankWatch:

"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.

"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."

"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.

"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard &
Poor's for corporate and municipal debt:

"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.

"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.

"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.

"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.

"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation

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and "C" the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The
"BB" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB- " rating.

"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.

"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.

"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.

"C" - This rating is typically applied to debt subordinated
to senior debt which is assigned an actual or implied "CCC-" debt rating. The
"C" rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.

"CI" - This rating is reserved for income bonds on which no interest is being
paid.

"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-) - The ratings from "AA" through
"CCC" may be modified by the addition of a plus or minus

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sign to show relative standing within the major rating categories.

"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities, or currencies; certain swaps and options;
and interest only and principal only mortgage securities. The absence of an
"r" symbol should not be taken as an indication that an obligation will exhibit
no volatility or variability in total return.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
"Aaa" securities.

"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa"

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represents a poor standing; "Ca" represents obligations which are speculative
in a high degree; and "C" represents the lowest rated class of bonds). "Caa,"
"Ca" and "C" bonds may be in default.

Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.

(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may
be revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.

The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.

"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.

"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.

To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the

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addition of a plus (+) or minus (-) sign to show relative standing within these
major categories.

The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:

"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."

"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.

To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "BBB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within these major
rating categories.

MUNICIPAL NOTE RATINGS

A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:

"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest.

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Those issues determined to possess overwhelming safety characteristics are
given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.

"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.

Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:

"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.

"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.

"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established.

"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.

"SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.

Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.

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APPENDIX B

As stated in the Prospectus, the Funds (other than the Money
Market Funds) may enter into certain futures transactions. Such transactions
are described in this Appendix.

I. Interest Rate Futures Contracts

Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash
market, bonds are purchased and sold with payment for the full purchase price
of the bond being made in cash, generally within five business days after the
trade. In the futures market, only a contract is made to purchase or sell a
bond in the future for a set price on a certain date. Historically, the prices
for bonds established in the futures markets have tended to move generally in
the aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.

A Fund presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures
market, the protection is more likely to be achieved, perhaps at a lower cost
and without changing the rate of interest being earned by the Fund, by using
futures contracts.

Description of Interest Rate Futures Contracts. An interest
rate futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase
would create an obligation by a Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.

B-1
<PAGE> 186
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery of securities. Closing out a futures contract sale is effected by the
Fund entering into a futures contract purchase for the same aggregate amount of
the specific type of financial instrument and the same delivery date. If the
price of the sale exceeds the price of the offsetting purchase, the Fund is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Fund pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.

Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges -- principally, the Chicago
Board of Trade, the Chicago Mercantile Exchange and the New York Futures
Exchange. Each exchange guarantees performance under contract provisions
through a clearing corporation, a nonprofit organization managed by the
exchange membership.

A public market now exists in futures contracts covering
various financial instruments including long-term U.S. Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month U.S. Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.

II. Index Futures Contracts

General. A stock or bond index assigns relative values to the
stocks or bonds included in the index, which fluctuates with changes in the
market values of the stocks or bonds included. Some stock index futures
contracts are based on broad market indexes, such as Standard & Poor's 500 or
the New York Stock Exchange Composite Index. In contrast, certain exchanges
offer futures contracts on narrower market indexes, such as the Standard &
Poor's 100 or indexes based on an industry or market indexes, such as Standard
& Poor's 100 or indexes based on an industry or market segment, such as oil and
gas stocks. Futures contracts are traded on organized exchanges regulated by
the commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract. With regard to each Fund, to the extent consistent
with its investment objective, the Adviser anticipates engaging in
transactions, from time to time, in foreign stock index futures such as the
ALL-ORDS (Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100 (United
Kingdom).

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<PAGE> 187
A Fund may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise
result from a market decline. A Fund may do so either to hedge the value of
its portfolio as a whole, or to protect against declines, occurring prior to
sales of securities, in the value of the securities to be sold. Conversely, a
Fund will purchase index futures contracts in anticipation of purchases of
securities. A long futures position may be terminated without a corresponding
purchase of securities.

In addition, a Fund may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Fund expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
A Fund may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of the portfolio will decline prior to the
time of sale.

III. Futures Contracts on Foreign Currencies

A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a Fund
to hedge against exposure to fluctuations in exchange rates between the U.S.
dollar and other currencies arising from multinational transactions.

IV. Margin Payments

Unlike purchase or sales of portfolio securities, no price is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker or in a
segregated account with the Custodian an amount of cash or cash equivalents,
known as initial margin, based on the value of the contract. The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund
has purchased a futures contract and the

B-3
<PAGE> 188
price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the future contract has declined in response to a decrease in
the underlying instruments, the position would be less valuable and the Fund
would be required to make a variation margin payment to the broker. At any
time prior to expiration of the futures contract, Northern Trust may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.

V. Risks of Transactions in Futures Contracts

There are several risks in connection with the use of futures
by a Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of the hedge. The price of the
future may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had
not hedged at all. If the price of the instruments being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
futures. If the price of the futures moves more than the price of the hedged
instruments, the Fund involved will experience either a loss or gain on the
futures which will not be completely offset by movements in the price of the
instruments which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of instruments being hedged and
movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater dollar amount than the dollar amount of instruments
being hedged if the volatility over a particular time period of the prices of
such instruments has been greater than the volatility over such time period of
the futures, or if otherwise deemed to be appropriate by Northern Trust.
Conversely, a Fund may buy or sell fewer futures contracts if the volatility
over a particular time period of the prices of the instruments being hedged is
less than the volatility over such time period of the futures contract being
used, or if otherwise deemed to be appropriate by Northern Trust. It is also
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of instruments held
in the Fund may decline. If this occurred, the Fund would

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<PAGE> 189
lose money on the futures and also experience a decline in value in its
portfolio securities.

When futures are purchased to hedge against a possible
increase in the price of securities or a currency before a Fund is able to
invest its cash (or cash equivalents) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest
its cash at that time because of concern as to possible further market decline
or for other reasons, the Fund will realize a loss on the futures contract that
is not offset by a reduction in the price of the instruments that were to be
purchased.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and because of the imperfect
correlation between the movements in the cash market and movements in the price
of futures, a correct forecast of general market trends or interest rate
movements by the adviser may still not result in a successful hedging
transaction over a short time frame.

Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although
the Funds intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not
be possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, as

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<PAGE> 190
described above, there is no guarantee that the price of the securities will in
fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.

Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount
of fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered into
at a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.

Successful use of futures by a Fund is also subject to
Northern Trust's ability to predict correctly movements in the direction of the
market. For example, if a particular Fund has hedged against the possibility
of a decline in the market adversely affecting securities held by it and
securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.

VI. Options on Futures Contracts

A Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss. A Fund will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial

B-6
<PAGE> 191
margin deposits. In anticipation of a decline in interest rates, a Fund may
purchase call options on futures contracts as a substitute for the purchase of
futures contracts to hedge against a possible increase in the price of
securities which the Fund intends to purchase. Similarly, if the value of the
securities held by a Fund is expected to decline as a result of an increase in
interest rates, the Fund might purchase put options or sell call options on
futures contracts rather than sell futures contracts.

Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not correspond to changes
in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar
to those risks relating to the sale of futures contracts.

VII. Other Matters

Accounting for futures contracts will be in accordance with
generally accepted accounting principles.

B-7
<PAGE> 192

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements:

(1) Included in Part A: Financial Highlights with
respect to the Money Market, U.S. Government Money
Market, Municipal Money Market, U.S. Government
Select Money Market, California Municipal Money
Market, U.S. Government, Fixed Income, Intermediate
Tax-Exempt, Tax-Exempt, International Fixed Income,
Income Equity, Growth Equity, Select Equity, Small
Cap Growth, International Growth Equity and
International Select Equity Funds for the fiscal year
ended March 31, 1996.

(2) Incorporated by reference into Part B: The
Registrant's March 31, 1996 Annual Report to
Shareholders has been filed with the Commission and
the financial statements included therein are
incorporated herein by reference.

(b) Exhibits:

The following exhibits are incorporated herein by reference:

1(f) - Amendment No. 5 to Agreement and Declaration of
Trust dated May 26, 1995 filed as Exhibit 1(f) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on
June 12, 1996 ("PEA No. 9").

1(g) - Form of Amendment No. 6 to Agreement and
Declaration of Trust filed as Exhibit 1(g) to
PEA No. 9.

3 - Not Applicable.

4 - Not Applicable.

5(b) - Addendum No. 2 to Investment Advisory Agreement
dated March 29, 1996 filed as Exhibit 5(b) to
PEA No. 9.

5(c) - Form of Addendum No. 3 to Investment Advisory
Agreement filed as Exhibit 5(c) to PEA No. 9.

6(b) - Amended and Restated Schedule A to the Distribution
Agreement dated March 29, 1996 filed as Exhibit
6(b) to PEA No. 9.

6(c) - Form of Amended and Restated Schedule A to the
Distribution Agreement filed as Exhibit 6(c) to
PEA No. 9.

7 - Not Applicable.

8(e) - Addendum No. 2 to the Transfer Agency Agreement
dated March 29, 1996 filed as Exhibit 8(e) to
PEA No. 9.

8(f) - Addendum No. 2 to the Custodian Agreement dated
March 29, 1996 filed as Exhibit 8(f) to PEA No. 9.

<PAGE> 193

8(h) - Form of Addendum No. 3 to the Transfer Agency
Agreement filed as Exhibit 8(h) to PEA No. 9.

8(i) - Form of Addendum No. 3 to the Custodian Agreement
filed as Exhibit 8(i) to PEA No. 9.

9(b) - Service Plan and Related Agreement filed as Exhibit
9(b) to PEA No. 9.

9(d) - Amended and Restated Schedule A to the
Administration Agreement dated March 29, 1996
filed as Exhibit 9(d) to PEA No. 9.

9(e) - Form of Amended and Restated Schedule A to the
Administration Agreement filed as Exhibit 9(e)
to PEA No. 9.

* 10 - Opinion and Consent of Counsel.

12 - Not Applicable.

14 - Not Applicable.

15 - Distribution and Service Plan and Related Agreement
filed as Exhibit 15 to PEA No. 9.

18 - Not Applicable.

24(a) - Annual Report for the Registrant (Nos.
33-73404/811-8236) dated March 31, 1996 with
respect to the Money Market, U.S. Government Money
Market, Municipal Money Market, U.S. Government
Select Money Market, California Municipal Money
Market, U.S. Government, Fixed Income, Intermediate
Tax- Exempt, Tax-Exempt, International Fixed
Income, Income Equity, Growth Equity, Select
Equity, Small Cap Growth, International Growth
Equity and International Select Equity Funds is
incorporated herein by reference to the
Registrant's filing including such Annual Report
and filed on May 30, 1996 (Accession No.
0000948221-96-000123.

24(b) - Annual Report for the Registrant (Nos.
33-73404/811-8236) dated March 31, 1996 with
respect to the Money Market, U.S. Government Money
Market and Municipal Money Market Funds is
incorporated herein by reference to the
Registrant's filing including such Annual Report
and filed on May 30, 1996 (Accession No.
0000948221-96-000119.

The following exhibits are filed herewith:

1(a) - Agreement and Declaration of Trust dated
October 12, 1993.

1(b) - Amendment No. 1 to Agreement and Declaration of
Trust.

1(c) - Amendment No. 2 to Agreement and Declaration of
Trust.

__________________________________

* Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.

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<PAGE> 194

1(d) - Amendment No. 3 to Agreement and Declaration of
Trust.

1(e) - Amendment No. 4 to Agreement and Declaration of
Trust.

1(h) - Form of Amendment No. 7 to Agreement and
Declaration of Trust.

2 - By-Laws.

2(a) - Amendment to the By-Laws dated August 4, 1994.

5 - Investment Advisory and Ancillary Services
Agreement between Registrant and The Northern Trust
Bank dated April 1, 1994 ("Investment Advisory
Agreement").

5(a) - Addendum No. 1 to the Investment Advisory
Agreement dated November 29, 1994.

6 - Distribution Agreement between Registrant and
Sunstone Financial Group, Inc. dated April 1, 1994
("Distribution Agreement").

6(a) - Amended and Restated Schedule A to the Distribution
Agreement dated November 28, 1994.

8(a) - Custodian Agreement between Registrant and The
Northern Trust Bank dated April 1, 1994
("Custodian Agreement").

8(b) - Transfer Agency Agreement between Registrant and
The Northern Trust Bank dated April 1, 1994
("Transfer Agency Agreement").

8(c) - Addendum No. 1 to the Transfer Agency Agreement
dated November 29, 1994.

8(d) - Addendum No. 1 to the Custodian Agreement dated
November 29, 1994.

8(g) - Foreign Custody Agreement between the Registrant
and The Northern Trust Bank dated April 1, 1994.

9(a) - Administration Agreement between Registrant and
Sunstone Financial Group, Inc. dated April 1, 1994
("Administration Agreement").

9(c) - Amended and Restated Schedule A to the
Administration Agreement dated November 28, 1994.

11(a) - Consent of Drinker Biddle & Reath.

11(b) - Consent of Arthur Andersen LLP

13(a) - Purchase Agreement between Registrant and The
Northern Trust Bank dated March 31, 1994.

13(b) - Purchase Agreement between Registrant and Miriam M.
Allison dated March 14, 1994.

16 - Schedule of Computation of Performance Quotations
for the Money Market, U.S. Government Money Market,
Municipal Money Market, U.S. Government, Fixed
Income, Intermediate

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<PAGE> 195

Tax-Exempt, Tax-Exempt, International Fixed Income,
Income Equity, Growth Equity, Select Equity, Small
Cap Growth, International Growth Equity and
International Select Equity Funds.

16(a) - Schedule of Computation of Performance Quotations
for the California Municipal Money Market and U.S.
Government Select Money Market Funds.

17 - Financial Data Schedules with respect to the Money
Market Fund, U.S. Government Money Market Fund,
Municipal Money Market Fund, U.S. Government Select
Money Market Fund, California Municipal Money
Market Fund, U.S. Government Fund, Fixed Income
Fund, Intermediate Tax-Exempt Fund, Tax- Exempt
Fund, International Fixed Income Fund, Income
Equity Fund, Growth Equity Fund, Select Equity
Fund, Small Cap Fund, International Growth Equity
Fund, International Select Equity Fund and
Technology Fund.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is controlled by its Board of Trustees.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS APRIL 30, 1996
-------------- --------------
<S> <C>
Money Market Fund . . . . . . . . . . . . . . . 5270
U.S. Government Money Market Fund . . . . . . . 903
Municipal Money Market Fund . . . . . . . . . . 2817
U.S. Government Select Money Market Fund . . . . 396
California Municipal Money Market Fund . . . . . 597
U.S. Government Fund . . . . . . . . . . . . . . 1535
Fixed Income Fund . . . . . . . . . . . . . . . 1435
Intermediate Tax-Exempt Fund . . . . . . . . . . 1507
Tax-Exempt Fund . . . . . . . . . . . . . . . . 993
International Fixed Income Fund . . . . . . . . 831
Income Equity Fund . . . . . . . . . . . . . . . 1279
Growth Equity Fund . . . . . . . . . . . . . . . 3085
Select Equity Fund . . . . . . . . . . . . . . . 1379
Small Cap Growth Fund . . . . . . . . . . . . . 3556
International Growth Equity Fund . . . . . . . . 3760
International Select Equity Fund . . . . . . . . 2046
Technology Fund . . . . . . . . . . . . . . . . 195
</TABLE>

ITEM 27. INDEMNIFICATION

Section 7 of the Investment Advisory and Ancillary Services
Agreement between the Registrant and The Northern Trust Bank ("Northern")
provides for indemnification of Northern or, in lieu thereof, contribution by
Registrant, in connection with certain claims and liabilities to which
Northern, in its capacity as Registrant's Adviser, may be subject. A copy of
the Investment Advisory and Ancillary Services Agreement is filed herewith as
Exhibit 5.

Section 5 of the Administration Agreement and Section 2.8 of
the Distribution Agreement between the Registrant and Sunstone Financial Group,

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<PAGE> 196

Inc. ("Sunstone") provide for indemnification of Sunstone in connection with
certain claims and liabilities to which Sunstone, in its capacity as
Registrant's Administrator or Distributor, may be subject. Copies of the
Administration Agreement and the Distribution Agreement are filed herewith as
Exhibits 9(a) and 6, respectively.

In addition, Section 6.3 of Registrant's Agreement and
Declaration of Trust, a copy of which is filed herewith as Exhibit 1,
provides for indemnification of shareholders as follows:

6.3 Indemnification of Shareholders. No Shareholder shall be
subject to any personal liability whatsoever to any person in
connection with property of the Trust or the acts, obligations
or affairs of the Trust or any Series thereof. The Trust
shall indemnify and hold each Shareholder harmless from and
against all claims and liabilities, to which such Shareholder
may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder or former
Shareholder (or his or her heirs, executors, administrators or
other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) out of
the property of the Trust for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of assets of
the one or more Series whose Shares were held by said
Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section shall
not impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust or any Series thereof to
indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.

Section 6.4 of Registrant's Agreement and Declaration of
Trust, a copy of which is filed herewith as Exhibit 1, provides for
indemnification of Trustees and officers, as follows:

6.4 Indemnification of Trustees, Officers, etc. The Trust
shall indemnify each of its Trustees and officers and persons
who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person") against all liabilities,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense
or disposition of any action, suit or other proceeding,

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<PAGE> 197
whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee,
except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of such Covered Person's office (such wilful
misfeasance, bad faith, gross negligence or reckless disregard being
referred to herein as "Disabling Conduct"). Expenses, including
accountants' and counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by
the Trust in advance of the final disposition of any such action, suit
or proceeding upon receipt of (a) an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses is not
authorized under this Article VI and either (b) such Covered Person
provides security for such undertaking, (c) the Trust is insured
against losses arising by reason of such payment, or (d) a majority of
a quorum of disinterested, non-party Trustees, or independent legal
counsel in a written opinion, determines, based on a review of readily
available facts, that there is reason to believe that such Covered
Person ultimately will be found entitled to indemnification.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a Trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

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<PAGE> 198
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The Northern Trust Bank, Registrant's investment adviser, is a
full service commercial bank and also provides a full range of trust and
fiduciary services. Set forth below is a list of all of the directors, senior
officers and those officers primarily responsible for Registrant's affairs of
The Northern Trust Bank and, with respect to each such person, the name and
business address of the company (if any) with which such person has been
connected at any time since June 1, 1991, as well as the capacity in which such
person was connected.

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<PAGE> 199
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C>
Dolores E. Cross Northern Trust Corporation Director
Director

Chicago State University President
95th Street at King Drive
Chicago, IL 60643

Shorebank Corporation Former Director
7054 South Jeffrey Blvd.
Chicago, IL 60649

Student Loan Marketing Association Director
1025 Thomas Jefferson, N.W.
Washington, DC 20007

John R. Goodwin None
Vice President

Robert S. Hamada The University of Chicago Edward Eagle Brown
Director Graduate School of Business Distinguished Service
1101 East 58th Street Professor of Finance
Chicago, IL 60637 and Dean

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

A.M. Castle & Co. Director
3400 North Wolf Road
Franklin Park, IL 60131

Manville Corporation Former Director
P.O. Box 5108
Denver, CO 80217-5108

Chicago Board of Trade Director
141 West Jackson Boulevard
Chicago, IL 60604

Riverwood International Former Director
Corporation
3350 Cumberland Circle
Atlanta, GA 30339

Barry G. Hastings Northern Trust Corporation President and Chief
President, Chief 50 South LaSalle Street Operating Officer
Operating Officer Chicago, IL 60675 and Director
and Director and Former
Vice Chairman and Senior
Executive Vice
President
Northern Futures Corporation Former Director
50 South LaSalle Street
Chicago, IL 60675
</TABLE>

-8-
<PAGE> 200
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C>
The Northern Trust International Former Director
Banking Corporation
One World Trade Center
New York, NY 10048

Northern Trust Securities, Inc. Director
50 South LaSalle Street
Chicago, IL 60675

Nortrust of Arizona Holding Chairman of the Board
Corporation and Director
2398 East Camelback Rd.
Phoenix, AZ 85016

Northern Trust of California Director
Corporation
355 South Grand Avenue
Los Angeles, CA 90017

Northern Trust of Florida Vice Chairman of the
Corporation Board and Director
700 Brickell Avenue
Miami, FL 33131

Northern Trust Bank of Texas N.A. Chairman of the Board
2020 Ross Avenue and Director
Dallas, TX 75201

Nortrust Realty Management, Inc. Director
50 South LaSalle Street
Chicago, IL 60675

Robert A. Helman Mayer, Brown & Platt Partner
Director 190 South LaSalle Street
Chicago, IL 60603

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

LaSalle Street Fund, Former Director
Incorporated
11 South LaSalle Street
Chicago, IL 60603

The Shorebank Corporation Former Director
7054 South Jeffrey Boulevard
Chicago, IL 60649

Environmental Systems Company Former Director
333 Executive Court
Little Rock, AR 72205

The Horsham Corporation Director
24 Hazelton Avenue
Toronto, Ontario, Canada
M5R 2E2
</TABLE>

-9-
<PAGE> 201
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C>
Brambles USA, Inc. Director
400 North Michigan Avenue
Chicago, IL 60611

Chicago Stock Exchange Governor
One Financial Plaza
440 South LaSalle Street
Chicago, IL 60605

Alberta Natural Gas Director
Company Ltd.
2900, 240 Fourth Avenue, NW
Calgary, Alberta, Canada
T2P4L7

Arthur L. Kelly KEL Enterprises L.P. Managing Partner
Director 135 South LaSalle Street
Chicago, IL 60603

Bayerische Motoren Werke (BMW) A.G. Director
BMW Haus
Petuelring 130
Postfach 40 02 40
D-8000
Munich 40 Germany

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

Nalco Chemical Company Director
One Nalco Center
Naperville, IL 60563-1198

Snap-on Incorporated Director
2801 80th Street
Kenosha, WI 53140

Tejas Gas Corporation Director
1301 McKinney Street
Houston, TX 77010

Twin Disc, Incorporated Former Director
1328 Racine Street
Racine, WI 53403

Deere & Company Director
John Deere Road
Moline, IL 61265

Ardis Krainik Lyric Opera General Director
Director 20 North Wacker Drive
Chicago, IL 60606

</TABLE>

-10-
<PAGE> 202
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C>
Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

Robert D. Krebs Santa Fe Pacific Corporation Former Chairman,
Director 1700 East Gulf Road President and
Schaumburg, IL 60173-5860 Chief Executive
Officer and Director

Burlington Northern President and Chief
Santa Fe Corporation Executive Officer
777 Main Street and Director
Fort Worth, TX 76102

Burlington Northern Inc. Director
777 Main Street
Fort Worth, TX 76102

Burlington Northern Director
Railroad Company
777 Main Street
Fort Worth, TX 76102

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

Santa Fe Pacific Gold Director
Corporation
6200 Uptown Boulevard
Albuquerque, NM 87110

Santa Fe Pacific Gold Director
Corporation
P.O. Box 27019
Albuquerque, NM 87125

Phelps Dodge Corporation Director
2600 North Central Avenue
Phoenix, AZ 85004-3014

Catellus Development Former Director
Corporation
201 Mission Street
San Francisco, CA 94105

Santa Fe Energy Resources Inc. Director
1616 South Voss Road
Houston, TX 77057

Santa Fe Pacific Pipelines, Inc. Director
888 South Figueroa Street
Los Angeles, CA 90017

The Atchison Topeka and Former Director
Santa Fe Railway Company
1700 E. Golf Road
Schaumburg, IL 60173-5860

</TABLE>

-11-
<PAGE> 203
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C>
Frederick A. Krehbiel Molex Incorporated Chairman, Chief
Director 2222 Wellington Court Executive Officer
Lisle, IL 60532-1682 and Former Vice
Chairman

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

Nalco Chemical Company Director
One Nalco Center
Naperville, IL 60563-1198

Tellabs, Inc. Director
4951 Indiana Avenue
Lisle, IL 60532

A.M. Castle & Co. Former Director
3400 North Wolf Road
Franklin Park, IL 60131

Roger W. Kushla The Northern Trust Bank Director
Senior Vice President of New York
80 Broad Street
19th Floor
New York, NY 10004

Robert A. LaFleur None
Senior Vice President

Thomas L. Mallman None
Senior Vice President

James J. Mitchell, III Northern Trust Securities, Inc. Former Director
Executive Vice President 50 South LaSalle Street
Chicago, IL 60675

Northern Trust Bank of Former Director
Texas N.A.
2020 Ross Avenue
Dallas, TX 75201

The Northern Trust Bank Director
of New York
80 Broad Street
19th Floor
New York, NY 10004

William G. Mitchell Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

The Interlake Corporation Director
7701 Harger Road
Oak Brook, IL 60521-1488

Peoples Energy Corporation Director
122 South Michigan Avenue
Chicago, IL 60603

</TABLE>

-12-
<PAGE> 204
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C> <C>
The Sherwin-Williams Company Director
101 Prospect Avenue, N.W.
Cleveland, OH 44115-1075

Edward J. Mooney Nalco Chemical Company Chairman, Chief
Director One Nalco Center Executive Officer,
Naperville, IL 60563-1198 President and
Director

William A. Osborn Northern Trust Corporation Director
Chairman and Chief Securities, Inc.
Executive Officer, 50 South LaSalle Street
Former President Chicago, IL 60675
and Chief
Operating Officer,
Former Senior Executive
Vice President

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

Nortrust of Arizona Former Director
Holding Corporation
2398 East Camelback Road
Phoenix, AZ 85016

Nortrust Realty Management, Inc. Director
50 South LaSalle Street
Chicago, IL 60675

Northern Trust of Director and Former
California Corporation Chairman of the Board
355 South Grand Avenue
Los Angeles, CA 90017

Northern Trust Bank of Former Chairman
California N.A. of the Board
355 South Grand Avenue
Los Angeles, CA 90017

Northern Futures Corporation Director
50 South LaSalle Street
Chicago, IL 60675

The Northern Trust Former Director
International Banking Corp.
One World Trade Center
New York, NY 10048

Sheila A. Penrose RCB International Inc Director
Executive Vice President 29 Federal Street
Stamford, CT 06901

Perry R. Pero Northern Trust Corporation Director
Senior Executive Vice 50 South LaSalle Street
President, Chief Financial Chicago, IL 60675
Officer and Cashier

Northern Futures Corporation Director

</TABLE>

-13-
<PAGE> 205
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C>
50 South LaSalle Street
Chicago, IL 60675

Northern Investment Corporation Former Chairman,
50 South LaSalle Street President and
Chicago IL 60675 Director and
Former Treasurer

Tanglewood Bancshares, Inc. Treasurer
600 Bering Drive
Houston, TX 77057

RCB International Inc. Director
29 Federal Street
Stamford, CT 06901

Northern Trust Securities, Inc. Director
50 South LaSalle Street
Chicago, IL 60675

Nortrust Realty Management, Inc. Director
50 South LaSalle Street
Chicago, IL 60675

Peter L. Rossiter Schiff, Hardin & Waite Former Partner
Executive Vice President 7200 Sears Tower
General Counsel and Chicago, IL 60606
Secretary
Tanglewood Bancshares Inc. Vice President and
600 Bering Drive Director
Houston, TX 77057

Consolidated Communications, Inc. Director
Illinois Consolidated Telephone
Company
121 South 17th Street
Mattoon, IL 61938

Northern Trust Corporation Executive Vice
50 South LaSalle Street President, Secretary,
Chicago, IL 60675 and General Counsel

Harold B. Smith Illinois Tool Works Inc. Chairman of the
Director 3600 West Lake Avenue Executive Committee
Glenview, IL 60025-5811 and a Director

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

W. W. Grainger, Inc. Director
5500 West Howard Street
Skokie, IL 60077

Northwestern Mutual Life Trustee
Insurance Co.
720 East Wisconsin Avenue
Milwaukee, WI 53202

William D. Smithburg The Quaker Oats Company Chairman, President

</TABLE>

-14-
<PAGE> 206
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ------------------ ---------------
<S> <C> <C>
Director 321 North Clark Street and Chief Executive
Chicago, IL 60610 Officer and Director

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

Abbott Laboratories Director
One Abbott Park Road
Abbott Park, IL 60064-3500

Corning Incorporated Director
Corning, NY 14831

Prime Capital Corporation Director
P.O. Box 8460
Rolling Meadows, IL 60008

James M. Snyder None
Senior Vice President

Bide L. Thomas Commonwealth Edison Company Former President and a
One First National Plaza Former Director
Chicago, IL 60603

Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675

R. R. Donnelley & Sons Company Director
77 West Wacker Drive
Chicago, IL 60601

MYR Group Inc. Director
*(formerly L.E. Myers Company)
2550 West Gulf Road
Rolling Meadows, IL 60008

* Name change

</TABLE>

ITEM 29. PRINCIPAL UNDERWRITER

(a) Sunstone Financial Group, Inc. currently serves as
administrator and distributor of the shares of The Haven Capital Management
Trust, First Omaha Funds, Inc and Van Wagoner Funds, Inc.

(b) To the best of Registrant's knowledge, the directors
and executive officers of Sunstone Financial Group, Inc., distributor for
Registrant, are as follows:

<TABLE>
<S> <C> <C>
Miriam M. Allison President and Vice President
207 E. Buffalo Street Director and Treasurer
Suite 400
Milwaukee, WI 53202

Daniel S. Allison Secretary and None
207 E. Buffalo Street Director
Suite 400
</TABLE>

-15-
<PAGE> 207
<TABLE>
<CAPTION>
NAME AND POSITIONS AND
PRINCIPAL OFFICES WITH POSITIONS AND
BUSINESS SUNSTONE FINANCIAL OFFICES WITH
ADDRESS GROUP, INC. REGISTRANT
- --------- ------------------ --------------
<S> <C> <C>
Milwaukee, WI 53202

Mary M. Tenwinkel Senior Vice Vice President
207 E. Buffalo Street President
Suite 400
Milwaukee, WI 53202

Theresa A. Ladwig Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202

Randy M. Pavlick Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202

Anita M. Zagrodnik Vice President Assistant
207 E. Buffalo Street Treasurer
Suite 400
Milwaukee, WI 53202

Fayez Akhras Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The Agreement and Declaration of Trust, By-laws and minute
books of the Registrant are in the physical possession of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107. Records relating to Sunstone Financial
Group, Inc.'s functions as distributor and administrator for the Registrant are
located at 207 E. Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202. All
other accounts, books and other documents required to be maintained under
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are in the physical possession of The Northern Trust Bank, 50 S.
LaSalle Street, Chicago, Illinois 60675.

ITEM 31. MANAGEMENT SERVICES

(a) Not Applicable.

ITEM 32. UNDERTAKINGS

(a) Registrant hereby undertakes to file a Post-Effective
Amendment, using financial statements which need not be certified within four
to six months from the effective date of Registrant's Post-Effective Amendment
No. 4 for the Technology Fund.

(b) Registrant undertakes to provide its Annual Report to
Shareholders upon request without charge to any recipient of a Prospectus for

-16-
<PAGE> 208
the U.S. Government Fund, Fixed Income Fund, Intermediate Tax-Exempt Fund,
Tax-Exempt Fund, International Fixed Income Fund, Income Equity Fund, Growth
Equity Fund, Select Equity Fund, Small Cap Fund, International Growth Equity
Fund, International Select Equity Fund and Technology Fund.

-17-
<PAGE> 209
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this registration statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 11 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee and State of Wisconsin on the 29th day of July, 1996.

NORTHERN FUNDS

By: /s/ Miriam M. Allison
----------------------
Miriam M. Allison
Treasurer

Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 11 to Registrants' Registration Statement
has been signed below by the following persons in the capacities and on the
date indicated.

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/*/ Silas S. Cathcart* Trustee and July 29, 1996
- ------------------------------- President (Chief
Silas S. Cathcart Executive Officer)

/s/ Miriam M. Allison Treasurer July 29 , 1996
- ------------------------------- (Chief Financial
Miriam M. Allison and Accounting
Officer)

/*/ James W. Cozad* Trustee July 29, 1996
- -------------------------------
James W. Cozad

/*/ Susan Crown* Trustee July 29, 1996
- -------------------------------
Susan Crown

/*/ Wesley M. Dixon, Jr.* Trustee July 29, 1996
- -------------------------------
Wesley M. Dixon, Jr.

/*/ William J. Dolan, Jr.* Trustee July 29, 1996
- -------------------------------
William J. Dolan, Jr.

/*/ Raymond E. George, Jr.* Trustee July 29, 1996
- -------------------------------
Raymond E. George, Jr.

*By:/s/ Miriam M. Allison July 29, 1996
--------------------------
Miriam M. Allison,
Attorney-in-fact

</TABLE>

-18-
<PAGE> 210

NORTHERN FUNDS

(A Massachusetts Business Trust)

CERTIFICATE OF SECRETARY

The foregoing resolution was duly adopted by the Board of
Trustees of Northern Funds (the "Trust") at the First Organizational Meeting of
the Board of Trustees held on October 13, 1993, and remains in effect on the
date hereof:

RESOLVED, that the Trustees and officers of the Trust who may
be required to execute any amendments to the Trust's Registration
Statement on Form N-1A are authorized to execute a power of attorney
appointing Jeffrey A. Dalke and Miriam M. Allison and either of them,
their true and lawful attorney, to execute in their name, place, and
stead, in their capacity as Trustee or officer, or both, of the Trust,
the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and each of
said attorneys shall have the power to act thereunder and shall have
full power of substitution and resubstitution; and said attorney shall
have full power and authority to do and perform in the name and on
behalf of each of said Trustees and officers, or any or all of them,
in any and all capacities, every act whatsoever requisite or necessary
to be done in the premises, as fully and to all intents and purposes
as each of said Trustee or officers, or any or all of them, might or
could do in person, said acts of each of the said attorneys being
hereby ratified and approved.

IN WITNESS WHEREOF, I have hereunto set my hand this 29th day
of July, 1996.

NORTHERN FUNDS

/s/Jeffrey A. Dalke
---------------------
Jeffrey A. Dalke
Secretary

<PAGE> 211

NORTHERN FUNDS

POWER OF ATTORNEY

Know All Men by These Presents, that the undersigned, Miriam
M. Allison, hereby constitutes and appoints Jeffrey A. Dalke her true and
lawful attorney, to execute in her name, place, and stead, in her capacity as
officer of the Trust, the Registration Statement and any amendments thereto and
all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorney shall
have full power of substitution and resubstitution; and said attorney shall
have full power and authority to do and perform in her name and on her behalf,
in any and all capacities, every act whatsoever requisite or necessary to be
done, as fully and to all intents and purposes as she might or could do in
person, said acts of said attorney being hereby ratified and approved.

DATED: March 7, 1994

/s/ Miriam M. Allison
- ---------------------------
Miriam M. Allison

<PAGE> 212
NORTHERN FUNDS

POWER OF ATTORNEY

Know All Men by These Presents, that the undersigned, Silas S.
Cathcart, hereby constitutes and appoints Jeffrey A. Dalke and Miriam M.
Allison and either of them, his true and lawful attorney, to execute in his
name, place, and stead, in his capacity as Trustee or officer, or both, of the
Trust, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and each of said attorneys
shall have full power of substitution and resubstitution; and each of said
attorneys shall have full power and authority to do and perform in his name and
on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, said acts of each of the said attorneys being hereby
ratified and approved.

DATED: October 13, 1993

/s/ Silas S. Cathcart
- ---------------------------
Silas S. Cathcart

<PAGE> 213
NORTHERN FUNDS

POWER OF ATTORNEY

Know All Men by These Presents, that the undersigned, James W.
Cozad, hereby constitutes and appoints Jeffrey A. Dalke and Miriam M. Allison
and either of them, his true and lawful attorney, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of the Trust,
the Registration Statement and any amendments thereto and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission; and each of said attorneys shall have full
power of substitution and resubstitution; and each of said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in
any and all capacities, every act whatsoever requisite or necessary to be done,
as fully and to all intents and purposes as he might or could do in person,
said acts of each of the said attorneys being hereby ratified and approved.

DATED: October 13, 1993

/s/ James W. Cozad
- ---------------------------
James W. Cozad

<PAGE> 214
NORTHERN FUNDS

POWER OF ATTORNEY

Know All Men by These Presents, that the undersigned, Susan
Crown, hereby constitutes and appoints Jeffrey A. Dalke and Miriam M. Allison
and either of them, her true and lawful attorney, to execute in her name,
place, and stead, in her capacity as Trustee or officer, or both, of the Trust,
the Registration Statement and any amendments thereto and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission; and each of said attorneys shall have full
power of substitution and resubstitution; and each of said attorneys shall have
full power and authority to do and perform in her name and on her behalf, in
any and all capacities, every act whatsoever requisite or necessary to be done,
as fully and to all intents and purposes as she might or could do in person,
said acts of each of the said attorneys being hereby ratified and approved.

DATED: October 13, 1993

/s/ Susan Crown
- ---------------------------
Susan Crown

<PAGE> 215
NORTHERN FUNDS

POWER OF ATTORNEY

Know All Men by These Presents, that the undersigned, Wesley
M. Dixon, Jr., hereby constitutes and appoints Jeffrey A. Dalke and Miriam M.
Allison and either of them, his true and lawful attorney, to execute in his
name, place, and stead, in his capacity as Trustee or officer, or both, of the
Trust, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and each of said attorneys
shall have full power of substitution and resubstitution; and each of said
attorneys shall have full power and authority to do and perform in his name and
on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, said acts of each of the said attorneys being hereby
ratified and approved.

DATED: February 24, 1994

/s/ Wesley M. Dixon, Jr.
- ---------------------------
Wesley M. Dixon, Jr.

<PAGE> 216
NORTHERN FUNDS

POWER OF ATTORNEY

Know All Men by These Presents, that the undersigned, William
J. Dolan, Jr., hereby constitutes and appoints Jeffrey A. Dalke and Miriam M.
Allison and either of them, his true and lawful attorney, to execute in his
name, place, and stead, in his capacity as Trustee or officer, or both, of the
Trust, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and each of said attorneys
shall have full power of substitution and resubstitution; and each of said
attorneys shall have full power and authority to do and perform in his name and
on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, said acts of each of the said attorneys being hereby
ratified and approved.

DATED: February 28, 1994

/s/ William J. Dolan, Jr.
- ---------------------------
William J. Dolan, Jr.

<PAGE> 217
NORTHERN FUNDS

POWER OF ATTORNEY

Know All Men by These Presents, that the undersigned, Raymond
E. George, Jr., hereby constitutes and appoints Jeffrey A. Dalke and Miriam M.
Allison and either of them, his true and lawful attorney, to execute in his
name, place, and stead, in his capacity as Trustee or officer, or both, of the
Trust, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and each of said attorneys
shall have full power of substitution and resubstitution; and each of said
attorneys shall have full power and authority to do and perform in his name and
on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, said acts of each of the said attorneys being hereby
ratified and approved.

DATED: February 23, 1994

/s/ Raymond E. George, Jr.
- ---------------------------
Raymond E. George, Jr.

<PAGE> 218

NORTHERN FUNDS

EXHIBIT INDEX

EXHIBITS

1(a) - Agreement and Declaration of Trust dated October 12,
1993.

1(b) - Amendment No. 1 to Agreement and Declaration of
Trust.

1(c) - Amendment No. 2 to Agreement and Declaration of
Trust.

1(d) - Amendment No. 3 to Agreement and Declaration of
Trust.

1(e) - Amendment No. 4 to Agreement and Declaration of
Trust.

1(h) - Form of Amendment No. 7 to Agreement and Declaration
of Trust.

2 - By-Laws.

2(a) - Amendment to the By-Laws dated August 4, 1994.

5 - Investment Advisory and Ancillary Services Agreement
between Registrant and The Northern Trust Bank dated
April 11, 1994 ("Investment Advisory Agreement").

5(a) - Addendum No. 1 to the Investment Advisory Agreement
dated November 29, 1994.

6 - Distribution Agreement between Registrant and
Sunstone Financial Group, Inc. dated April 1, 1994
("Distribution Agreement").

6(a) - Amended and Restated Schedule A to the Distribution
Agreement dated November 28, 1994.

8(a) - Custodian Agreement between Registrant and The
Northern Trust Bank dated April 1, 1994
("Custodian Agreement").

<PAGE> 219
NORTHERN FUNDS

EXHIBIT INDEX

EXHIBITS

8(b) - Transfer Agency Agreement between Registrant and The
Northern Trust Bank dated April 1, 1994 ("Transfer
Agency Agreement").

8(c) - Addendum No. 1 to the Transfer Agency Agreement dated
November 29, 1994.

8(d) - Addendum No. 1 to the Custodian Agreement dated
November 29, 1994.

8(g) - Foreign Custody Agreement between the Registrant and
The Northern Trust Bank dated April 1, 1994.

9(a) - Administration Agreement between Registrant and
Sunstone Financial Group, Inc. dated April 1, 1994
("Administration Agreement").

9(c) - Amended and Restated Schedule A to the Administration
Agreement dated November 28, 1994.

11(a) - Consent of Drinker Biddle & Reath.

11(b) - Consent of Arthur Andersen LLP

13(a) - Purchase Agreement between Registrant and The
Northern Trust Bank dated March 31, 1994.

13(b) - Purchase Agreement between Registrant and Miriam M.
Allison dated March 14, 1994.

16 - Schedule of Computation of Performance Quotations for
the Money Market, U.S. Government Money Market,
Municipal Money Market, U.S. Government, Fixed
Income, Intermediate Tax-Exempt, Tax-Exempt,
International Fixed Income, Income Equity, Growth
Equity, Select Equity, Small Cap Growth,
International Growth Equity and International Select
Equity Funds.

16(a) - Schedule of Computation of Performance Quotations for
the California Municipal Money Market and U.S.
Government Select Money Market Funds.

17 - Financial Data Schedules.

<PAGE> 1

EXHIBIT 1(a)

NORTHERN FUNDS

AGREEMENT AND DECLARATION OF TRUST

AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts this 12th day of October, 1993, by the Trustee or Trustees
hereunder, and by the holders from time to time of Shares to be issued
hereunder as hereinafter provided.

WITNESSETH

WHEREAS this Trust has been formed to carry on the business of
an investment company and to exercise all other powers that are ordinarily
exercised by or permissible for Massachusetts business trusts; and

WHEREAS the Initial Trustee has agreed to manage all property
coming into her hands as trustee of a Massachusetts business trust in
accordance with the provisions hereinafter set forth.

NOW, THEREFORE, the Initial Trustee hereby declares that she
will hold all cash, securities and other assets which she may from time to time
acquire in any manner as Trustee hereunder IN TRUST to manage and dispose of
the same upon the following terms and conditions for the benefit of the holders
from time to time of Shares in this Trust as hereinafter set forth.

ARTICLE I

NAME AND DEFINITIONS

Section 1.1 Name. This Trust shall be known as "Northern Funds" and
the Trustee or Trustees hereunder shall conduct the business of the Trust under
that name or any other name as she or they may from time to time determine.

Section 1.2 Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided:

(a) The "Trust" refers to the Massachusetts
business trust established by this Agreement and Declaration of Trust, as
amended from time to time;
<PAGE> 2
(b) "Trustees" refers to the Initial Trustee
named herein and the Trustees of the Trust elected in accordance with Article
III;

(c) "Shares" means the equal proportionate
transferable units of interest into which the beneficial interest in the Trust
shall be divided from time to time, including Shares of any and all Series or
of any Class within a Series (as the context may require) which may be
established by the Trustees, and includes fractions of Shares as well as whole
Shares. "Outstanding Shares" means those Shares shown from time to time on the
books of the Trust or its agent for such purpose as then issued and
outstanding, but shall not include Shares which have been redeemed or
repurchased by the Trust and which are at the time held in the treasury of the
Trust;

(d) "Series" individually or collectively means
the separately managed component(s) of the Trust established and designated
under or in accordance with the provisions of Article IV;

(e) "Class" means any division of Shares within a
Series, which Class is or has been established in accordance with the
provisions of Article IV;

(f) "Shareholder" means a record owner of Shares;

(g) The "1940 Act" refers to the Investment
Company Act of 1940 and the rules and regulations of the Commission thereunder,
all as amended from time to time;

(h) The terms "Commission" and "Principal
Underwriter" shall have the meanings given them in the 1940 Act;

(i) "Declaration of Trust" shall mean this
Agreement and Declaration of Trust as amended or restated from time to time;

(j) "By-Laws" shall mean the By-Laws of the
Trust as amended from time to time; and

(k) Except as such term may be otherwise defined
by the Trustees in conjunction with the establishment of any Series or Class of
Shares, the term "vote of a majority of the Shares outstanding and entitled to
vote" shall have the same meaning as is assigned to the term "vote of a
majority of the outstanding voting securities" in the 1940 Act.

ARTICLE II

PURPOSE OF TRUST

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The Trust is a Massachusetts business trust of the type
described in Chapter 182, Section 1 of the General Laws of The Commonwealth of
Massachusetts formed for the purpose of acting as an investment company under
the 1940 Act. In addition to the powers provided for herein, the Trust may
exercise all other powers that are ordinarily exercised by or permissible for
Massachusetts business trusts.

ARTICLE III

THE TRUSTEES

Section 3.1 Number, Designation, Election, Term, etc.

(a) Initial Trustee. Upon her execution of this
Declaration of Trust or some other writing in which she accepts such
Trusteeship and agrees to the provisions hereof, Pamela J. Wilson shall become
the Initial Trustee hereunder.

(b) Number. The Trustees serving as such,
whether named above or hereafter becoming a Trustee, may increase or decrease
(to a number not less than one) the number of Trustees to a number other than
the number theretofore determined. No decrease in the number of Trustees shall
have the effect of removing any Trustee from office prior to the expiration of
her or his term, but the number of Trustees may be decreased in conjunction
with the removal of a Trustee pursuant to subsection (e) of this Section 3.1.

(c) Term. Each Trustee, whether named above or
hereafter becoming a Trustee, shall serve as a Trustee until the next meeting
of Shareholders if any called for the purpose of considering the election or
re-election of such Trustee or of a successor to such Trustee, and until the
election and qualification of her or his successor if any elected at such
meeting, or until such Trustee sooner dies, resigns, retires or is removed.

(d) Resignation and Retirement. Any Trustee may
resign her or his trust or retire as a Trustee, by written instrument signed by
such Trustee and delivered to the other Trustees or to any officer of the
Trust, and such resignation or retirement shall take effect upon such delivery
or upon such later date as is specified in such instrument. Upon the
resignation or removal of a Trustee, or his or her otherwise ceasing to be a
Trustee, such Trustee shall execute and deliver such documents, if any, as the
remaining Trustees shall require for the purpose of memorializing the
conveyance to the Trust or the remaining Trustees of any property of the Trust
held in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and

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deliver on his behalf such documents, if any, as the remaining Trustees shall
require as provided in the preceding sentence.

(e) Removal. Any Trustee may be removed with or
without cause at any time either by written instrument, signed by at least
two-thirds of the number of Trustees prior to such removal, specifying the date
upon which such removal shall become effective, or by the holders of two-thirds
of the Outstanding Shares of the Trust (for the purposes of determining the
circumstances and procedures under which such removal by the Shareholders may
take place, the provisions of Section 16(c) of the 1940 Act (or any successor
provisions) shall be applicable to the same extent as if the Trust were subject
to the provisions of such Section).

(f) Vacancies. Any vacancy or anticipated
vacancy resulting from any reason, including without limitation the death,
resignation, retirement, removal or incapacity of any of the Trustees, or
resulting from an increase in the number of Trustees by the other Trustees may
(but so long as there is at least one remaining Trustee need not) be filled
either by a majority of the remaining Trustees through the appointment in
writing of such other person as such remaining Trustees in their discretion
shall determine or by the election by the Shareholders, at a meeting called for
the purpose, of a person to fill such vacancy, and such appointment or election
shall be effective upon the written acceptance of the person named therein to
serve as a Trustee and agreement by such person to be bound by the provisions
of this Declaration of Trust, except that any such appointment or election in
anticipation of a vacancy to occur by reason of retirement, resignation, or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation,
or increase in number of Trustees. As soon as any Trustee so appointed or
elected shall have accepted such appointment or election and shall have agreed
in writing to be bound by this Declaration of Trust and the appointment or
election is effective, the Trust estate shall vest in the new Trustee, together
with the continuing Trustees, without any further act or conveyance.

(g) Mandatory Election by Shareholders.
Notwithstanding the foregoing provisions of this Section 3.1, the Trustees
shall call a meeting of the Shareholders for the election of one or more
Trustees at such time or times as may be required in order to comply with the
provisions of the 1940 Act (including Section 16(a) thereof).

(h) Effect of Death, Resignation, etc. The
death, resignation, retirement, removal, or incapacity of the Trustees, or any
one of them, shall not operate to annul or terminate the Trust or to revoke or
terminate any existing agency

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<PAGE> 5
or contract created or entered into pursuant to the terms of this Declaration
of Trust.

(i) No Accounting. Except to the extent required
by the 1940 Act or, if determined to be necessary or appropriate by the other
Trustees, under circumstances which would justify his removal for cause, no
person ceasing to be a Trustee as a result of his death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall be
required to make an accounting to the Shareholders or remaining Trustees upon
such cessation.

Section 3.2 Powers of Trustees. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with this
Declaration of Trust providing for the conduct of the business and affairs of
the Trust and may amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; they may as they consider appropriate
elect and remove officers and appoint and terminate agents and consultants and
hire and terminate employees, any one or more of the foregoing of whom may be a
Trustee, and may provide for the compensation of all of the foregoing; they may
appoint from their own number, and terminate, any one or more committees
consisting of one or more Trustees, including without implied limitation an
executive committee, which may, when the Trustees are not in session and
subject to the 1940 Act, exercise some or all of the power and authority of the
Trustees as the Trustees may determine; in accordance with Section 3.3 they may
employ one or more advisers, administrators, depositories and custodians and
may authorize any depository or custodian to employ subcustodians or agents and
to deposit all or any part of such assets in a system or systems for the
central handling of securities and debt instruments or the recording of
ownership of securities in book-entry form, retain transfer, dividend,
accounting or shareholder servicing agents or any of the foregoing, provide for
the distribution of Shares by the Trust through one or more distributors,
Principal Underwriters or otherwise, set record dates or times for the
determination of Shareholders or various of them with respect to various
matters; they may compensate or provide for the compensation of the Trustees,
officers, advisers, administrators, custodians, other agents, consultants and
employees of the Trust or the Trustees on such terms as they deem appropriate;
and in general they may delegate to any officer of the Trust, to any committee
of the Trustees and to any employee, adviser, administrator, distributor,
depository, custodian, transfer and dividend disbursing agent, or any other
agent or consultant of the Trust such authority, powers, functions and duties
as they consider desirable or appropriate for the conduct of the business and

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affairs of the Trust, including without implied limitation the power and
authority to act in the name of the Trust and of the Trustees, to sign
documents and to act as attorney-in-fact for the Trustees.

The Trustees shall have exclusive and absolute control over
the property of the Trust and over the business of the Trust to the same extent
as if the Trustees were the sole owners of the property of the Trust and
business in their own right, but with such powers of delegation as may be
permitted by this Declaration of Trust. The Trustees shall have power to
conduct the business of the Trust and carry on its operations in any and all of
its branches and maintain offices both within and without the Commonwealth of
Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such other
things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the presumption
shall be in favor of a grant of power to the Trustees.

The enumeration of any specific power herein shall not be
construed as limiting the aforesaid powers. Such powers of the Trustees may be
exercised without order of or resort to any court.

Without limiting the foregoing and to the extent not
inconsistent with the 1940 Act or other applicable law, the Trustees shall have
power and authority:

(a) Investments. To operate as and carry on the
business of an investment company, and exercise all the powers necessary and
appropriate to the conduct of such operations; to invest and reinvest cash and
other property, and to hold cash or other property uninvested without in any
event being bound or limited by any present or future law or custom in regard
to investments by trustees; to acquire (by purchase, subscription or
otherwise), to hold, to trade in and deal in, to acquire any rights or options
to purchase or sell, to sell or otherwise dispose of, to lend and to pledge any
securities; to invest substantially all of its assets in the securities of
another investment company; to enter into repurchase agreements, reverse
repurchase agreements, firm commitment agreements and forward foreign currency
exchange contracts; to purchase and sell options on securities, securities
indices, currency and other financial assets, futures contracts and options on
futures contracts of all

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descriptions and to engage in all types of hedging and risk-management
transactions;

(b) Disposition of Assets. To sell, exchange,
lend, pledge, mortgage, hypothecate, write options on and lease any or all of
the assets of the Trust;

(c) Ownership Powers. To vote or give assent, or
exercise any rights of ownership, with respect to stock or other securities,
debt instruments or property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem proper, granting
to such person or persons such power and discretion with relation to
securities, debt instruments or property as the Trustees shall deem proper;

(d) Subscription. To exercise powers and rights
of subscription or otherwise which in any manner arise out of ownership of
securities or debt instruments;

(e) Form of Holding. To hold any security, debt
instrument or property in a form not indicating any trust, whether in bearer,
unregistered or other negotiable form, or in the name of the Trustees or of the
Trust or in the name of a custodian, subcustodian or other depository or a
nominee or nominees or otherwise;

(f) Reorganization, etc. To consent to or
participate in any plan for the reorganization, consolidation or merger of any
corporation or issuer, any security or debt instrument of which is or was held
in the Trust; to consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or subscriptions with
respect to any security or debt instrument held in the Trust;

(g) Voting Trusts, etc. To join with other
holders of any securities or debt instruments in acting through a committee,
depository, voting trustee or otherwise, and in that connection to deposit any
security or debt instrument with, or transfer any security or debt instrument
to, any such committee, depository or trustee, and to delegate to them such
power and authority with relation to any security or debt instrument (whether
or not so deposited or transferred) as the Trustees shall deem proper and to
agree to pay, and to pay, such portion of the expenses and compensation of such
committee, depository or trustee as the Trustees shall deem proper;

(h) Compromise. To compromise, arbitrate or
otherwise adjust claims in favor of or against the Trust or any matter in
controversy, including but not limited to claims for taxes;

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(i) Partnerships, etc. To enter into joint
ventures, general or limited partnerships and any other combinations or
associations;

(j) Borrowing and Security. To borrow funds and
to mortgage and pledge the assets of the Trust or any part thereof to secure
obligations arising in connection with such borrowing;

(k) Guarantees, etc. To endorse or guarantee the
payment of any notes or other obligations of any person; to make contracts of
guaranty or suretyship, or otherwise assume liability for payment thereof; and
to mortgage and pledge the Trust property or any part thereof to secure any of
or all such obligations;

(l) Insurance. To purchase and pay for entirely
out of Trust property such insurance as they may deem necessary or appropriate
for the conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, consultants, investment
advisers, managers, administrators, distributors, Principal Underwriters, or
independent contractors, or any thereof (or any person connected therewith), of
the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person in any such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability; and

(m) Pensions, etc. To pay pensions for faithful
service, as deemed appropriate by the Trustees, and to adopt, establish and
carry out pension, profit-sharing, share bonus, share purchase, savings, thrift
and other retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust.

(n) Indemnification. To the extent permitted by
law, indemnify any person with whom the Trust or any Series has dealings.

(o) Litigation. To engage in and to prosecute,
defend, compromise, abandon, or adjust by arbitration, or otherwise, any
actions, suits, proceedings, disputes, claims and demands relating to the
Trust, and out of the assets of the Trust or any Series thereof to pay or to
satisfy any debts, claims or

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expenses incurred in connection therewith, including those of litigation, and
such power shall include without limitation the power of the Trustees or any
appropriate committee thereof, in the exercise of their or its good faith
business judgment, to dismiss any action, suit, proceeding, dispute, claim or
demand, derivative or otherwise, brought by any person, including a Shareholder
in its own name or the name of the Trust, whether or not the Trust or any of
the Trustees may be named individually therein or the subject matter arises by
reason of business for or on behalf of the Trust.

Except as otherwise provided by the 1940 Act or other
applicable law, this Declaration of Trust or the By-Laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum, consisting of at least a majority of the
Trustees then in office, being present), within or without Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office.

Section 3.3 Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other type of organizations, or
individuals, ("Contracting Party") to provide for the performance and
assumption of some or all of the following services, duties and
responsibilities to, for or of the Trust and/or the Trustees, and to provide
for the performance and assumption of such other services, duties and
responsibilities in addition to those set forth below as the Trustees may
determine to be appropriate:

(a) Advisory. Subject to the general supervision
of the Trustees and in conformity with the stated policy of the Trustees with
respect to the investments of the Trust or of the assets belonging to any
Series of Shares of the Trust (as that phrase is defined in subsection (a) of
Section 4.2), to manage such investments and assets, make investment decisions
with respect thereto, and to place purchase and sale orders for portfolio
transactions relating to such investments and assets;

(b) Administration. Subject to the general
supervision of the Trustees and in conformity with any policies of the Trustees
with respect to the operations of the Trust or

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any Series, to supervise all or any part of the operations of the Trust, and to
provide all or any part of the administrative and clerical personnel, office
space and office equipment and services appropriate for the efficient
administration and operations of the Trust or any Series;

(c) Distribution. To distribute, be Principal
Underwriter of, and/or to act as agent of the Trust in the sale of Shares of
one or more Series or Classes and the acceptance or rejection of orders for the
purchase of Shares of one or more Series or Classes;

(d) Custodian and Depository. To act as
depository for and to maintain custody of the property of the Trust or any
Series and accounting records in connection therewith;

(e) Transfer and Dividend Disbursing Agency. To
maintain records of the ownership of outstanding Shares of one or more Series
or Classes, the issuance and redemption and the transfer thereof, and to
disburse any dividends declared by the Trustees and in accordance with the
policies of the Trustees and/or the instructions of any particular Shareholder
to reinvest any such dividends;

(f) Service and Distribution Plans. The Trustees
may, on such terms and conditions as they may in their discretion determine,
adopt one or more plans pursuant to which compensation may be paid directly or
indirectly by the Trust for shareholder servicing, administration and/or
distribution services with respect to one or more Series or Classes thereof,
including without limitation plans subject to Rule 12b-1 under the 1940 Act,
and the Trustees may enter into agreements pursuant to such Plans; and

(g) Accounting. To handle all or any part of the
accounting responsibilities, whether with respect to the Trust's properties,
Shareholders or otherwise.

The same person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine.

The fact that:

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(i) any of the Shareholders, Trustees or officers
of the Trust is a shareholder, director, officer, partner, trustee,
employee, manager, adviser, Principal Underwriter or distributor or
agent of or for any Contracting Party, or of or for any parent or
affiliate of any Contracting Party or that the Contracting Party or
any parent or affiliate thereof is a Shareholder or has an interest in
the Trust, or that

(ii) any Contracting Party may have a contract
providing for the rendering of any similar services to one or more
other corporations, trusts, associations, partnerships, limited
partnerships or other organizations, or has other business or
interests,

shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust
and/or the Trustees or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or its Shareholders.

Section 3.4 Payment of Trust Expenses and Compensation of Trustees.
The Trustees are authorized to pay or to cause to be paid out of the principal
or income of the Trust, or partly out of principal and partly out of income,
and to charge or allocate the same to, between or among such one or more of the
Series or Classes thereof that may be established and designated pursuant to
Article IV, as the Trustees deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser, administrator, distributor, Principal
Underwriter, auditor, counsel, depository, custodian, transfer agent, dividend
disbursing agent, accounting agent, shareholder servicing agents, and such
other agents, consultants, and independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur. Without
limiting the generality of any other provision hereof, the Trustees shall be
entitled to reasonable compensation from the Trust for their services as
Trustees and may fix the amount of such compensation.

Section 3.5 Ownership of Assets of the Trust. Legal title to all the
property of the Trust shall be vested in the Trustees as joint tenants except
that the Trustees shall have power to cause legal title to any property of the
Trust to be held by or in the name of one or more of the Trustees, or in the
name of the Trust or any Series of the Trust, or in the name of any other
person as nominee, on such terms as the Trustees may determine, provided that
the interest of the Trustee therein is deemed

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appropriately protected. The right, title and interest of the Trustees in the
property of the Trust and the property of each Series of the Trust shall vest
automatically in each person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee
he shall automatically cease to have any right, title or interest in any of the
property of the Trust, and the right, title and interest of such Trustee in the
property of the Trust shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.

ARTICLE IV

Section 4.1 Description of Shares. The beneficial interest in the
Trust shall be divided into transferable Shares of beneficial interest with a
par value of $.0001 per Share. The number of such Shares authorized hereunder
is unlimited. The Trustees shall have the exclusive authority, without the
requirement of Shareholder approval, from time to time to establish one or more
Series of Shares and one or more Classes thereof (including without limitation
the Series and Classes thereof specifically established and designated in
Section 4.2), as they deem necessary or desirable. Except as otherwise
provided herein, or as provided in an instrument of the Trustees properly
establishing and designating a Series or Class, all Shares of a particular
Series shall be identical.

The Trustees may issue Shares of any Series or Classes for
such consideration, whether cash or other property, and on such terms as they
may determine (or for no consideration if pursuant to a Share dividend or
split-up), all without action or approval of the Shareholders. All Shares when
so issued on the terms determined by the Trustees shall be fully paid and
non-assessable. The Trustees may classify or reclassify any unissued Shares or
any Shares previously issued and reacquired of any Series or Class into one or
more Series or Classes that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series or Classes), reissue for such consideration and on such terms as they
may determine, or cancel, at their discretion from time to time, any Shares of
any Series or Class reacquired by the Trust.

The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares of the Trust or a particular Series or Class thereof entitled to be
treated as such, to the extent provided or referred to in this Declaration of
Trust, including Section 5.3, or in the By-Laws.

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The establishment and designation of any Series or Class of
Shares in addition to the Series and Classes established and designated in
Section 4.2 shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation and
the relative rights and preferences of such Series or Class, or as otherwise
provided in such instrument. At any time that there are no Shares outstanding
of any particular Series or Class previously established and designated the
Trustees may by an instrument executed by a majority of their number abolish or
amend that Series or Class and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
to this Declaration of Trust.

Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested may acquire, own, hold and
dispose of Shares of any Series or Class of the Trust to the same extent as if
such person were not a Trustee, officer or other agent of the Trust; and the
Trust may issue and sell or cause to be issued and sold and may purchase Shares
of any Series or Class from any such person or any such organization subject
only to the general limitations, restrictions or other provisions applicable to
the sale or purchase of Shares of such Series or Class generally.

Section 4.2 Establishment and Designation of Series. Without limiting
the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Series or Class, the Trustees hereby establish and
designate one Series of Shares which shall consist of a single Class: the
"Growth Equity Shares - Initial Series." The Growth Equity Shares - Initial
Series and any Shares of any further Series or Class that may from time to time
be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Series or Class at the time of
establishing and designating the same) have the following relative rights and
preferences:

(a) Assets Belonging to Series. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to that
Series for all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such

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proceeds, in whatever form the same may be, together with any General Items
allocated to that Series as provided in the following sentence, are herein
referred to as "assets belonging to" that Series. In the event that there are
any assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series
(collectively "General Items"), the Trustees shall allocate such General Items
to and among any one or more of the Series established and designated from time
to time in such manner and on such basis as they, in their sole discretion,
deem fair and equitable; and any General Items so allocated to a particular
Series shall belong to that Series. Each such allocation by the Trustees shall
be conclusive and binding upon the Shareholders of all Series for all purposes.
No holder of Shares of any Series shall have any claim on or right to any
assets allocated or belonging to any other Series.

(b) Liabilities Belonging to Series. The assets
belonging to each particular Series shall be charged with the liabilities of
the Trust in respect of that Series and all expenses, costs, charges and
reserves attributable to that Series, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged by the
Trustees to and among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees in their
sole discretion deem fair and equitable. The liabilities, expenses, costs,
charges and reserves allocated and so charged to a Series are herein referred
to as "liabilities belonging to" that Series. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes. The assets of a
particular Series or Class of the Trust shall, under no circumstances, be
charged with liabilities attributable to any other Series or Class thereof of
the Trust. All persons extending credit to, or contracting with or having any
claim against a particular Series or Class of the Trust shall look only to the
assets of that particular Series or Class for payment of such credit, contract
or claim.

Except as provided in the next sentence or otherwise required
or permitted by applicable law or any rule or order of the Commission, each
Class of a Series shall bear a pro rata portion of the "liabilities belonging
to" such Series. To the extent permitted by rule or order of the Commission
the Trustees may allocate all or a portion of any expenses, costs, charges and
reserves to a particular Class or Classes as the Trustees may from time to time
determine is appropriate.

The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each

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such determination and allocation shall be conclusive and binding upon the
Shareholders.

(c) Dividends. Dividends and distributions on
Shares of a particular Series or Class thereof may be paid with such frequency
as the Trustees may determine, which may be daily or otherwise pursuant to a
standing resolution or resolutions adopted only once or with such frequency as
the Trustees may determine, to the holders of Shares of that Series or Class
thereof, from such of the income and capital gains, accrued or realized, from
the assets belonging to that Series, as the Trustees may determine, after
providing for any actual and accrued liabilities belonging to that Series or
Class. All dividends and distributions on Shares of a particular Class shall
be distributed pro rata to the holders of that Class in proportion to the
number of Shares of that Class held by such holders at the date and time of
record established for the payment of such dividends or distributions, except
that in connection with any dividend or distribution program or procedure the
Trustees may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not
been received by the time or times established by the Trustees under such
program or procedure. Such dividends and distributions may be made in cash or
Shares or a combination thereof as determined by the Trustees or pursuant to
any program that the Trustees may have in effect at the time for the election
by a Shareholder of the mode of the making of such dividend or distribution to
that Shareholder. Any such dividend or distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with subsection
(h) of Section 4.2.

The Trust intends to qualify each of its Series as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute thereto, and regulations
promulgated thereunder. Inasmuch as the computation of net income and gains
for Federal income tax purposes may vary from the computation thereof on the
books of the Trust, the Trustees shall have the power, in their sole
discretion, to distribute in any fiscal year as dividends, including dividends
designated in whole or in part as capital gains distributions, amounts
sufficient, in the opinion of the Trustees, to enable each Series of the Trust
to qualify as a regulated investment company and to avoid liability of the
Trust and each Series for Federal income tax in respect of that year. However,
nothing in the foregoing shall limit the authority of the Trustees to make
distributions greater than or less than the amount necessary to qualify as a
regulated investment company and to avoid liability of the Trust and each
Series for such tax.

(d) Liquidation. In event of the liquidation or
dissolution of the Trust, the Shareholders of each Class of a

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Series that has been established and designated shall be entitled to receive,
as a Class, when and as declared by the Trustees, the excess of the assets
belonging to that Series that are allocated to such Class over the liabilities
belonging to that Series that are allocated to such Class. The assets so
distributable to the Shareholders of any particular Class of a Series shall be
distributed among such Shareholders in proportion to the number of Shares of
that Class held by them and recorded on the books of the Trust.

(e) Voting. On each matter submitted to a vote
of Shareholders, all Shares of all Series and Classes shall vote as a single
class; provided, however, that (1) as to any matter with respect to which a
separate vote of any Series or Class is required by the 1940 Act or is required
by attributes applicable to any Series or Class or is required by any Rule
12b-1 plan, such requirements as to a separate vote by that Series or Class
shall apply; (2) to the extent that a matter referred to in clause (1) above
affects more than one Class or Series and the interests of each such Class or
Series in the matter are identical, then, subject to clause (3) below, the
Shares of all such affected Classes or Series shall vote as a single class; (3)
as to any matter which does not affect the interests of a particular Series or
Class, only the holders of Shares of the one or more affected Series or Classes
shall be entitled to vote; and (4) the provisions of the following sentence
shall apply. On any matter that pertains to any particular Class of a
particular Series or to any Class expenses with respect to any Series which may
be submitted to a vote of Shareholders, only Shares of the affected Class or
that Series, as the case may be, shall be entitled to vote except that: (x) to
the extent said matter affects Shares of another Class or Series, such other
Shares shall also be entitled to vote, and in such cases Shares of the affected
Class, as the case may be, of such Series shall be voted in the aggregate
together with such other Shares; and (y) to the extent that said matter does
not affect Shares of a particular Class of such Series, said Shares shall not
be entitled to vote (except where otherwise required by law or permitted by the
Trustees acting in their sole discretion) even though the matter is submitted
to a vote of the Shareholder of any other Class or Series.

(f) Redemption by Shareholder. Each holder of
Shares of a particular Series or Class thereof shall have the right at such
times as may be permitted by the Trust, but no less frequently than once each
week, to require the Trust to redeem all or any part of his Shares at a
redemption price equal to the net asset value per Share of that Series or Class
thereof next determined in accordance with subsection (h) of this Section 4.2
after the Shares are properly tendered for redemption, less such redemption fee
or other charge, if any, as may be fixed by the Trustees. Except as otherwise
provided in this Declaration of

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<PAGE> 17
Trust, payment of the redemption price shall be in cash; provided, however,
that to the extent permitted by applicable law, the Trustees may authorize the
Trust to make payment wholly or partly in securities or other assets belonging
to the applicable Series at the value of such securities or assets used in such
determination of net asset value.

Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the holders of Shares of
any Series or Class to require the Trust to redeem Shares of that Series or
Class during any period or at any time when and to the extent permissible under
the 1940 Act.

(g) Redemption by Trust. Each Share of each
Series or Class thereof that has been established and designated is subject to
redemption by the Trust at the redemption price which would be applicable if
such Share was then being redeemed by the Shareholder pursuant to subsection
(f) of this Section 4.2 at any time if the Trustees determine in their sole
discretion that failure to so redeem may have materially adverse consequences
to the holders of the Shares, or any Series or Class thereof, of the Trust, and
upon such redemption the holders of the Shares so redeemed shall have no
further right with respect thereto other than to receive payment of such
redemption price. In addition, the Trustees, in their sole discretion, may
cause the Trust to redeem all of the Shares of one or more Series or Classes
thereof held by (a) any Shareholder if the value of such Shares held by such
Shareholder is less than the minimum amount established from time to time by
the Trustees, (b) all Shareholders if the value of such Shares held by all
Shareholders is less than the minimum amount established from time to time by
the Trustees or (c) any Shareholder to reimburse the Trust for any loss it has
sustained by reason of the failure of such Shareholder to make full payment for
Shares purchased by such Shareholder or to collect any charge relating to a
transaction effected for the benefit of such Shareholder as provided in the
prospectus relating to such Shares.

(h) Net Asset Value. The net asset value per
Share of any Series or Class thereof shall be the quotient obtained by dividing
the value of the net assets of that Series or Class (being the value of the
assets belonging to that Series or Class less the liabilities belonging to that
Series or Class) by the total number of Shares of that Series or Class
outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.

The Trustees may determine to maintain the net asset value per
Share of any Series at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of

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income attributable to that Series or Class thereof as dividends payable in
additional Shares of that Series or Class thereof at the designated constant
dollar amount and for the handling of any losses attributable to that Series or
Class thereof. Such procedures may provide that in the event of any loss each
Shareholder of a Series or Class thereof shall be deemed to have contributed to
the capital of the Trust attributable to that Series or Class thereof his pro
rata portion of the total number of Shares required to be cancelled in order to
permit the net asset value per Share of that Series or Class thereof to be
maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have agreed, by his
investment in the Trust, to make the contribution referred to in the preceding
sentence in the event of any such loss.

(i) Transfer. All Shares of each particular
Series shall be transferable, but transfers of Shares of a particular Series
will be recorded on the Share transfer records of the Trust applicable to that
Series only at such times as Shareholders shall have the right to require the
Trust to redeem Shares of that Series and at such other times as may be
permitted by the Trustees.

(j) Equality. All Shares of each Class of a
particular Series shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities belonging to that Class),
and each Share of any Class of a particular Series shall be equal to each other
Share of that Class; but the provisions of this sentence shall not restrict any
distinctions permissible under this Section 4.2. The Trustees may from time to
time divide or combine the Shares of any particular Series into a greater or
lesser number of Shares of that Series without thereby changing the
proportionate beneficial interest in the assets belonging to that Series or in
any way affecting the rights of Shares of any other Series.

(k) Fractions. Any fractional Share of any
Series or Class thereof, if any such fractional Share is outstanding, shall
carry proportionately all the rights and obligations of a whole Share of that
Series or Class, including with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust.

(l) Conversion Rights. The Trustees shall have
the authority to provide from time to time that the holders of Shares of any
Class shall have the right to convert or exchange said Shares for or into
Shares of one or more other Classes in accordance with such requirements and
procedures as may be established from time to time by the Trustees.

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(m) Miscellaneous. Except as otherwise provided
in this Section 4.2, the Trustees shall have the power to determine the
designations, preferences, privileges, payment obligations, limitations and
rights, including voting rights and dividend rights of each Series and Class of
Shares. No person other than the Trustees, who is not a Shareholder of a
particular Series or Class shall be entitled to bring any derivative action,
suit or other proceeding on behalf of such Series or Class.

Section 4.3 Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Series
that has been established and designated. No certificates certifying the
ownership of Shares need be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of facsimile
signatures, the transfer of Shares and similar matters. The record books of
the Trust as kept by the Trust or any transfer or similar agent, as the case
may be, shall be conclusive as to who are the Shareholders and as to the number
of Shares of each Series held from time to time by each such Shareholder.

Section 4.4 Investments in the Trust. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
Principal Underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.

Section 4.5 No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.

Section 4.6 Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the Trust nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not
entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of

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Shares constitute the Shareholders partners. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally any Shareholder, nor except as specifically provided herein
to call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.

ARTICLE V

SHAREHOLDERS' POWERS AND MEETINGS

Section 5.1 Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 3.1; (ii) with
respect to any contract entered into pursuant to Section 3.3 to the extent
required by the 1940 Act; (iii) with respect to termination of the Trust or a
Series or Class thereof as provided in Section 7.2; (iv) with respect to
incorporation of the Trust to the extent and as provided in Section 7.2; (v) to
the same extent as the stockholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or a Series thereof or the Shareholders of either; (vi) with respect to any
plan adopted pursuant to Rule 12b-1 (or any successor rule) under the 1940 Act,
and related matters, to the extent required under the 1940 Act; and (vii) with
respect to such additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-laws or any registration of the Trust as an
investment company under the 1940 Act with the Commission (or any successor
agency) or as the Trustees may consider necessary or desirable. Each whole
Share shall be entitled to one vote as to any matter on which it is entitled to
vote and each fractional Share shall be entitled to a proportionate fractional
vote. There shall be no cumulative voting in the election of Trustees. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration of Trust or the By-laws to be
taken by Shareholders. The By-laws may include further provisions for
Shareholders' votes and meetings and related matters.

Section 5.2 Meetings. Meetings of the Shareholders (including
meetings involving only the holders of Shares of one or more but less than all
Series or Classes) may be called by the Trustees from time to time to be held
at such place within or without the Commonwealth of Massachusetts, and on such
date, as may be designated in the call thereof for the purpose of taking action
upon any matter permitting or requiring the vote or authority of the
Shareholders as provided in Section 5.1. Written notice of any such meeting
shall be given or caused to be

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given by the Trustees by mailing such notice at least seven days before such
meeting, postage prepaid, stating the time, place and purpose of the meeting,
to each Shareholder entitled to vote at such meeting at the Shareholder's
address as it appears on the records of the Trust. If the Trustees shall fail
to call or give notice of any meeting of Shareholders (including a meeting
involving only the holders of Shares of one or more but less than all Series)
for a period of 75 days after written request by Shareholders holding at least
a majority of the Shares then outstanding of any Series or Class entitled to
vote upon any matter requiring action by the Shareholders as provided herein
that a meeting be called to consider such matter, then Shareholders holding at
least a majority of the Shares then outstanding of such Series or Class may
call and give notice of such meeting, and thereupon the meeting shall be held
in the manner provided for herein in case of call thereof by the Trustees. No
annual or regular meetings of Shareholders are required.

Section 5.3 Record Dates for Meetings (and other Purposes). For the
purpose of determining the Shareholders who are entitled to vote or act at any
meeting or any adjournment thereof, or who are entitled to participate in any
dividend or distribution, or for the purpose of any other action, the Trustees
may from time to time close the transfer books for such period, not exceeding
30 days (except at or in connection with the termination of the Trust), as the
Trustees may determine; or without closing the transfer books the Trustees may
fix a date and time not more than 120 days prior to the date of any meeting of
Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or (subject to any provisions permissible under subsection (c) of
Section 4.2 with respect to dividends or distributions on Shares that have not
been ordered and/or paid for by the time or times established by the Trustees
under the applicable dividend or distribution program or procedure then in
effect) to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.

Section 5.4 Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a
reasonable time after the date set

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for the original meeting, without the necessity of further notice. A majority
of the Shares voted, at a meeting of which a quorum is present, shall decide
any questions and a plurality shall elect a Trustee, except when a different
vote is required or permitted by any provision of the 1940 Act or other
applicable law or by this Declaration of Trust or the By-Laws.

Section 5.5 Action by Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by the 1940 Act
or by any express provision of this Declaration of Trust or the By-Laws)
consent to the action in writing and such written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.

Section 5.6 Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.

Section 5.7 Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.

ARTICLE VI

LIMITATION OF LIABILITY; INDEMNIFICATION

Section 6.1 Trustees, Shareholders, etc. Not Personally Liable;
Notice. All persons extending credit to, contracting with or having any claim
against the Trust or Series thereof shall look only to the assets of the Trust
or such Series for payment under such credit, contract or claim; and neither
the Shareholders nor the Trustees, nor any of the Trust's officers, employees
or agents, whether past, present or future, shall be personally liable
therefor. Every note, bond, contract, instrument, certificate or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only by or for the Trust or
the Trustees and not personally. Nothing in this Declaration of Trust shall
protect any Trustee or officer against any liability to the Trust or the
Shareholders to which such Trustee or officer would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee or of such
officer.

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Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers or officer shall
give notice that this Declaration of Trust is on file with the Secretary of The
Commonwealth of Massachusetts and shall recite to the effect that the same was
executed or made by or on behalf of the Trust or by them as Trustees or Trustee
or as officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust or the
applicable Series, but the omission thereof shall not operate to bind any
Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.

Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his
own wilful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or
law. Subject to the foregoing, (a) the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee, consultant, adviser, administrator, distributor or Principal
Underwriter, custodian or transfer, dividend disbursing, Shareholder servicing
or accounting agent of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee; (b) the Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust and their duties as Trustees, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice; and (c) in discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of
the Trust and upon written reports made to the Trustees by any officer
appointed by them, any independent public accountant, and (with respect to the
subject matter of the contract involved) any officer, partner or responsible
employee of a Contracting Party appointed by the Trustees pursuant to Section
3.3. The Trustees as such shall not be required to give any bond or surety or
any other security for the performance of their duties.

Section 6.3 Indemnification of Shareholders. No Shareholder shall be
subject to any personal liability whatsoever to any person in connection with
property of the Trust or the acts, obligations or affairs of the Trust or any
Series thereof. The Trust shall indemnify and hold each Shareholder harmless
from and against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a Shareholder, and shall
reimburse such Shareholder or former Shareholder (or his or her heirs,
executors, administrators or

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other legal representatives or in the case of a corporation or other entity,
its corporate or other general successor) out of the property of the Trust for
all legal and other expenses reasonably incurred by him in connection with any
such claim or liability. The indemnification and reimbursement required by the
preceding sentence shall be made only out of assets of the one or more Series
whose Shares were held by said Shareholder at the time the act or event
occurred which gave rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section shall not impair any
other right to which such Shareholder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust or any Series thereof
to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.

Section 6.4 Indemnification of Trustees, Officers, etc. The Trust
shall indemnify each of its Trustees and officers and persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person") against all liabilities,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including reasonable
accountants' and counsel fees, incurred by any Covered Person in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been threatened,
while in office or thereafter, by reason of being or having been such a Trustee
or officer, director or trustee, except that no Covered Person shall be
indemnified against any liability to the Trust or its Shareholders to which
such Covered Person would otherwise be subject by reason of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (such wilful misfeasance, bad faith,
gross negligence or reckless disregard being referred to herein as "Disabling
Conduct"). Expenses, including accountants' and counsel fees so incurred by
any such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid from time to
time by the Trust in advance of the final disposition of any such action, suit
or proceeding upon receipt of (a) an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article VI and either (b) such Covered Person provides security for such
undertaking, (c) the Trust is insured against losses arising by reason of such
payment, or (d) a majority of a quorum of disinterested, non-party Trustees, or
independent legal counsel in a written

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opinion, determines, based on a review of readily available facts, that there
is reason to believe that such Covered Person ultimately will be found entitled
to indemnification.

Section 6.5 Indemnification Determinations. Indemnification of the
Covered Person pursuant to Section 6.4 shall be made if (a) the court or body
before whom the proceeding is brought determines, in a final decision on the
merits, that such Covered Person was not liable by reason of Disabling Conduct
or (b) in the absence of such a determination, a majority of a quorum of
disinterested, non-party Trustees or independent legal counsel in a written
opinion make a reasonable determination, based upon a review of the facts, that
such Covered Person was not liable by reason of Disabling Conduct.

Section 6.6 Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, and a "disinterested, non-party Trustee" is a Trustee who
is neither an interested person of the Trust (as defined in the 1940 Act) nor a
party to the proceeding in question. Nothing contained in this article shall
affect any rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such person.

Section 6.7 Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.

ARTICLE VII

MISCELLANEOUS

Section 7.1 Duration and Termination of Trust.
(a) Unless terminated as provided herein, the Trust shall continue without
limitation of time. The Trust or any Series or Class thereof may be terminated
at any time either by (i) a majority of the Trustees then in office upon notice
to holders of Shares of the Trust or such Series or Class, (ii) a favorable
vote of a majority of the Shares outstanding and entitled to vote at any
meeting of Shareholders of the Trust or the appropriate Class or Shares thereof
or (iii) an instrument or instruments in writing without a meeting, consented
to by the holders of a

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majority of the outstanding Shares of the Trust or the appropriate Series or
Class thereof.

(b) Upon termination, after paying or otherwise
providing for all charges, taxes, expenses and liabilities, whether due or
accrued or anticipated as may be determined by the Trustees, and upon receipt
of such releases, indemnities or refunding agreements as they deem necessary
for their protection the Trust shall in accordance with such procedures as the
Trustees consider appropriate reduce the remaining assets of the Trust Series
or Class to distributable form in cash, securities or other property, or any
combination thereof, and distribute the proceeds to the Shareholders of the
Trust or the appropriate Series or Class, in conformity with the provisions of
subsection (d) of Section 4.2.

(c) After termination of the Trust, Series or
Class and distribution to the Shareholders as herein provided, a majority of
the Trustees shall execute and lodge among the records of the Trust and file
with the Office of the Secretary of the Commonwealth of Massachusetts an
instrument in writing setting forth the fact of such termination, and the
Trustees shall thereupon be discharged from all further liabilities and duties
with respect to the Trust or the terminated Series or Class, and the rights and
interests of all Shareholders of the Trust or the terminated Series or Class
shall thereupon cease.

Section 7.2 Reorganization. Without the vote of the Shares of any
Series then outstanding (unless otherwise required by applicable law), the
Trust with the approval of a majority of the Trustees then in office may:

(a) Sell and convey the assets belonging to any
Series of Shares to one or more trust, partnership, association or corporation
that is organized under the laws of any state of the United States for
consideration which may include (i) the assumption of all outstanding
obligations, taxes and other liabilities, accrued or contingent, belonging to
such Series and (ii) securities issued by such purchasers. Following such sale
and conveyance, and after making provision for the payment of any liabilities
belonging to such Series that are not assumed by the purchaser of the assets
belonging to such Series, the Trust may, at the Trustees' option, (i) redeem
all outstanding Shares of such Series at net asset value as determined by the
Trustees in accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by the Trustees or (ii)
combine the assets belonging to such Series following such sale and conversion
with the assets belonging to any one or more other Series pursuant to and in
accordance with subsection (d) of this Section 7.2.

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(b) Sell and convert the assets belonging to any
Series into money and, after making provision for the payment of all
obligations, taxes and other liabilities, accrued or contingent, belonging to
such Series, the Trust may, at the Trustees' option, (i) redeem all outstanding
Shares of such Series at net asset value as determined by the Trustees in
accordance with the provisions of applicable law, less such redemption fee or
other charge, if any, as may be fixed by the Trustees; or (ii) combine the
assets belonging to such Series following such sale and conversion with the
assets belonging to any one or more other Series pursuant to and in accordance
with subsection (d) of this Section;

(c) Combine the assets belonging to any Series
with the assets belonging to any one or more other Series if the Trustees
determine that such combination will not have a material adverse effect on the
Shareholders of any Series participating in such combination. In connection
with any such combination of assets the Shares of any Class of any Series then
outstanding may, if so determined by the Trustees, be converted into Shares of
any other Series participating in such combination, or may be redeemed, at the
option of the Trustees, at net asset value as determined by the Trustees in
accordance with the provisions of applicable law, less such redemption fee or
other charge, or conversion cost, if any, as may be fixed by the Trustees upon
such conditions as the Trustees deem, in their sole discretion, to be
appropriate and consistent with applicable law and this Declaration of Trust;

(d) Notwithstanding any other provision of this
Declaration of Trust to the contrary, the redemption price, if any, payable in
accordance with clauses (a), (b) or (c) of this section may be paid in cash or
by distribution of the securities or other consideration received by the Trust
for the assets belonging to such Series upon such conditions as the Trustees
deem, in their sole discretion, to be appropriate and consistent with
applicable law;

(e) Otherwise terminate and wind up the affairs
of any Series in accordance with this Declaration of Trust and applicable law.
In connection with such termination of a Series and the winding up of the
affairs of such Series, all of the powers of the Trustees under this
Declaration of Trust shall continue until the affairs of such Series shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust relating to such Series, to collect assets belonging to such Series, to
sell, convey, assign, exchange, transfer or otherwise dispose of all or any
part of the remaining assets belonging to such Series to one or more persons at
public or private sale for consideration that may consist in whole or in part
of cash, securities or other property of any kind, to discharge or pay the
liabilities belonging to such Series, and to

-27-
<PAGE> 28
do all other acts appropriate to liquidate the business of such Series,
provided that the holders of Shares of any Series shall not be entitled in any
liquidation to receive any distribution upon the assets belonging to any other
Series.

Upon the termination and winding up of the affairs of all
Series, the Trust shall be terminated.

(f) Merge or consolidate the Trust or any Series
thereof with any trust, partnership, association or corporation upon such terms
and conditions and for such consideration as the Trustees shall determine to be
appropriate, and any such merger or consolidation shall be deemed for all
purposes to have been accomplished under and pursuant to Massachusetts law.

(g) Cause to be organized or assist in organizing
a corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
property of the Trust or the property of the Trust allocated or belonging to
such Series or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the property of
the Trust or the property of the Trust allocated or belonging to such Series to
any such corporation, trust, association or organization in exchange for the
shares or securities thereof or otherwise, and to lend money to, subscribe for
the shares or securities of, and enter into any contracts with any such
corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or such Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided under the
law then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and sell, conveying or transferring all or a portion of the
property of the Trust to such organization or entities.

Section 7.3 Amendments. (a) This Declaration may be amended by a
vote of a majority of Trustees, without approval of the Shareholders, except
that no amendment can be made by the Trustees to impair any voting or other
rights of shareholders prescribed by federal or state law. Nothing contained
in this Declaration shall permit the amendment of this Declaration of Trust to
impair the exemption from personal liability of the Shareholders, Trustees,
officers, employees and agents of the Trust or to permit assessment upon
Shareholders.

-28-
<PAGE> 29
(b) A certificate signed by a majority of the
Trustees (or an officer of the Trust pursuant to a resolution adopted by a
majority of the Trustees then in office) setting forth an amendment and
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration of Trust, as amended, and executed by a
majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.

Section 7.4 Filing of Copies; References; Headings. The original or
a copy of this instrument and of each amendment hereto shall be kept at the
office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each amendment hereto shall be filed by the Trust with
the Secretary of The Commonwealth of Massachusetts, as well as any other places
where such filing may from time to time be required or deemed appropriate by
the Trustees, but the failure to make any such filing shall not impair the
effectiveness of this instrument or any such amendment. A restated Declaration
of Trust, integrating into a single instrument all of the provisions of the
Declaration of Trust which are then in effect and operative, may be executed
from time to time by a majority of the Trustees and filed with the Secretary of
The Commonwealth of Massachusetts. A restated Declaration of Trust shall, upon
execution, be conclusive evidence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration of Trust and the
various amendments thereto. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such amendments
have been made, as to the identities of the Trustees and officers, and as to
any matters in connection with the Trust hereunder; and, with the same effect
as if it were the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such amendments. In this
instrument and in any such amendment, references to this instrument, and all
expressions like "herein," "hereof" and "hereunder" shall be deemed to refer to
this instrument as a whole as the same may be amended or affected by any such
amendments. The masculine gender shall include the feminine and neuter
genders, and vice versa. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.

Section 7.5 Applicable Law. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth.

-29-
<PAGE> 30
Section 7.6. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration of Trust are severable, and if the Trustees
shall determine, with the advice of legal counsel, that any of such provisions
is in conflict with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code of 1986, as amended, or with other applicable laws
and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration of Trust; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.

(b) If any provision of this Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration of Trust in any jurisdiction.

IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
in the City of Boston, Massachusetts for herself and her assigns, as of the day
and year first above written.

/s/ PAMELA J. WILSON
-------------------------
Pamela J. Wilson

THE COMMONWEALTH OF MASSACHUSETTS

Suffolk, ss.

Then personally appeared the above-named Pamela J. Wilson, who
acknowledged the foregoing Agreement and Declaration of Trust of Northern Funds
and her execution thereof to be her free act and deed, before me, this 12th day
of October, 1993.

/s/ CONCETTA M. BOULGER
-------------------------
Notary Public

August 16, 1996
-------------------------
My commission expires

-30-
<PAGE> 31
ACCEPTANCE OF TRUST

As contemplated in Section 3.1 of the Agreement and
Declaration of Trust of Northern Funds, the undersigned accepts her designation
as a Trustee of said Trust and agrees to be bound by the provisions of said
Agreement and Declaration of Trust.

IN WITNESS WHEREOF the undersigned has set her hand and seal
on the date set opposite her signature.

/s/ PAMELA J. WILSON
--------------------------
October 12, 1993 Pamela J. Wilson

-31-
<PAGE> 32
ACKNOWLEDGMENT OF RECEIPT OF
CORPUS OF TRUST

I, Pamela J. Wilson, do hereby acknowledge receipt of a check
in the amount of $10.00 to be held by me IN TRUST as Trustee of NORTHERN FUNDS,
a Massachusetts business trust.

Executed, this 12th day of October, 1993, in the City of
Boston, Commonwealth of Massachusetts.

/s/ PAMELA J. WILSON
--------------------------
Pamela J. Wilson

Witnessed:

/s/ Signature Illegible
- ------------------------

-32-
<PAGE> 33
CERTIFICATE

The undersigned Trustee of NORTHERN FUNDS (the "Trust") hereby
certifies that:

1. The principal place of business of the Trust in
Massachusetts is:

2. The principal place of business of the Trust outside
of Massachusetts is:

3. The resident agent for service of process upon the
Trust in Massachusetts is:

4. The address of the Initial Trustee of the Trust is:

IN WITNESS WHEREOF, I have signed this Certificate this 12th day of
October, 1993.

/s/ PAMELA J. WILSON
----------------------
Trustee

<PAGE> 1
EXHIBIT 1(b)

CERTIFICATE

The undersigned, Pamela Wilson, of Boston, Massachusetts, does
hereby certify that she is the Initial Trustee of Northern Funds, a trust with
transferable shares organized and existing under the laws of the Commonwealth
of Massachusetts (the "Trust") and pursuant to an Agreement and Declaration of
Trust dated October 12, 1993, and that on October 13, 1993, Susan Crown, whose
office is at Henry Crown & Company, Suite 2000, 222 North LaSalle St., Chicago,
IL 60601; Silas S. Cathcart, whose office is at 125 S. Wacker Dr., 30th Floor,
Chicago, IL 60606; James W. Cozad, whose office is at 205 N. Michigan Ave.,
Suite 4310, Chicago, IL 60601; and Wesley M. Dixon, Jr., whose office is at 400
Skokie Blvd., Suite 675, Northbrook, IL 60062 were appointed by me as Trustees
of such Trust.

IN WITNESS WHEREOF, I have hereunto set my hand this 13th
day of October, 1993.

/s/ PAMELA J. WILSON
-----------------------------
Pamela J. Wilson

M A S S A C H U S E T T S

SUFFOLK, ss.

On this __ day of October, 1993, before me personally came
Pamela Wilson, to me known, and known to me to be the person described in and
who executed the foregoing Certificate and acknowledged that she had executed
the same as her free act and deed.

/s/ CONCETTA M. BOULGER
------------------------------
Notary Public

My Commission Expires:

August 16, 1996
------------------------------

[NOTARIAL SEAL]

<PAGE> 1

EXHIBIT 1(c)

NORTHERN FUNDS

AMENDMENT NO. 2 TO AGREEMENT AND DECLARATION OF TRUST

WHEREAS, Section 4.1 of the Agreement and Declaration of Trust
dated October 12, 1993 (the "Declaration") of Northern Funds (the "Trust")
provides that the Declaration may be amended to establish and designate new
Series or Classes of Shares by an instrument in writing executed by a majority
of the Trustees of the Trust and setting forth such establishment and
designation and the relative rights and preferences of such Series or Classes;

NOW THEREFORE, the undersigned, being a majority of the
Trustees of the Trust hereby:

(1) amend the Declaration by designating and
establishing thirteen additional Series and Classes of Shares
("Additional Series and Classes") to be known as the Initial
Classes of the "Income Equity Shares," "Small Cap Growth
Shares, " "Select Equity Shares," "International Growth Equity
Shares," "International Select Equity Shares," "International
Fixed Income Shares," "Fixed Income Shares," "U.S. Government
Shares," "Intermediate Tax- Exempt Shares," "Tax-Exempt
Shares," "Money Market Shares," "U.S. Government Money Market
Shares" and "Municipal Money Market Shares," each Additional
Series and Class to have the relative rights and preferences
set forth in Section 4.2(a) through (m) of the Declaration;
and

(2) determine that pursuant to Section 7.3 of the
Declaration the foregoing amendment shall be effective as of
the date set forth below.

WITNESS our hands as of this first day of March, 1994.

/s/ SILAS S. CATHCART /s/ WESLEY M. DIXON, JR.
- --------------------------- --------------------------
Silas S. Cathcart Wesley M. Dixon, Jr.

/s/ JAMES W. COZAD /s/ WILLIAM J. DOLAN, JR.
- --------------------------- --------------------------
James W. Cozad William J. Dolan, Jr.

/s/ SUSAN CROWN /s/ RAYMOND E. GEORGE, JR.
- --------------------------- --------------------------
Susan Crown Raymond E. George, Jr.

<PAGE> 1

EXHIBIT 1(d)

CERTIFICATE

The undersigned, Silas S. Cathcart, James W. Cozod, Susan
Crown and Wesley M. Dixon, Jr., do hereby certify as Trustees of Northern
Funds, a trust with transferable shares organized and existing under the laws
of the Commonwealth of Massachusetts (the "Trust") and pursuant to an Agreement
and Declaration of Trust dated October 12, 1993, that on February 22, 1994,
William J. Dolan, Jr., whose address is 1534 Basswood Circle, Glenview,
Illinois 60025; and Raymond E. George, Jr., whose address is 703 Prospect
Avenue, Winnetka, Illinois 60093 were appointed as Trustees of such Trust.

IN WITNESS WHEREOF, the undersigned have executed this
Certificate as of this 22nd day of February, 1994.

/s/ SILAS S. CATHCART
----------------------------
Silas S. Cathcart

/s/ JAMES W. COZAD
----------------------------
James W. Cozad

/s/ SUSAN CROWN
----------------------------
Susan Crown

/s/ WESLEY M. DIXON, JR.
----------------------------
Wesley M. Dixon, Jr.

<PAGE> 1

EXHIBIT 1(e)

NORTHERN FUNDS

AMENDMENT NO. 4 TO AGREEMENT AND DECLARATION OF TRUST

NOW THEREFORE, the undersigned, being a majority of the
Trustees of the Trust hereby:

(1) amend the Declaration by designating and establishing
two additional Series and Classes of Shares ("Additional Series and
Classes") to be known as the Initial Classes of the "California
Municipal Money Market Fund" and the "U.S. Government Select Money
Market Fund," such Additional Series and Classes to have the relative
rights and preferences set forth in Section 4.2(a) through (m) of the
Declaration; and

(2) determine that pursuant to Section 7.3 of the
Declaration the foregoing amendment shall be effective as of the date
set forth below.

WITNESS our hands as of this 25th day of October, 1994.

/s/ SILAS S. CATHCART /s/ WESLEY M. DIXON, JR.
- --------------------------- ----------------------------
Silas S. Cathcart Wesley M. Dixon, Jr.

/s/ JAMES W. COZAD /s/ WILLIAM J. DOLAN, JR.
- --------------------------- ----------------------------
James W. Cozad William J. Dolan, Jr.

/s/ SUSAN CROWN /s/ RAYMOND E. GEORGE, JR.
- --------------------------- ----------------------------
Susan Crown Raymond E. George, Jr.

<PAGE> 1

EXHIBIT 1(h)
[FORM]

CERTIFICATE

NORTHERN FUNDS

AMENDMENT NO. 7 TO AGREEMENT AND DECLARATION OF TRUST

Pursuant to Section 7.3 of the Agreement and Declaration of
Trust dated October 12, 1993 (the "Declaration") of Northern Funds (the
"Trust"), the undersigned, being a majority of the Trustees of the Trust,
certify that the following amendment to the Declaration was duly adopted by the
Trustees at a meeting held on August 6, 1996:

RESOLVED, that the Agreement and Declaration of Trust
dated October 12, 1993 of Northern Funds, as amended to date,
be, and hereby is, further amended to change the designation
and name of the Initial Class of "Small Cap Growth Shares" to
"Small Cap Shares."

WITNESS our hands as of this 6th day of August, 1996.

- --------------------------- ----------------------------
Silas S. Cathcart Wesley M. Dixon, Jr.

- --------------------------- ----------------------------
James W. Cozad William J. Dolan, Jr.

- --------------------------- ----------------------------
Susan Crown Raymond E. George, Jr.

<PAGE> 1

EXHIBIT 2

BY-LAWS

NORTHERN FUNDS

ARTICLE 1

Agreement and Declaration of Trust

1.1 General. These By-Laws shall be subject to the Agreement and
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of Northern Funds, the Massachusetts business trust established by the
Declaration of Trust (the "Trust").

ARTICLE 2

Meetings of Trustees

2.1 Regular Meetings. Regular meetings of the Trustees may be
held without call or notice at such places and at such times as the Trustees
may from time to time determine, provided that notice of the first regular
meeting following any such determination shall be given to absent Trustees.

2.2 Special Meetings. Special meetings of the Trustees may be
held at any time and at any place designated in the call of the meeting when
called by the President or the Treasurer or by two or more Trustees, notice
thereof being given to each Trustee by the Secretary or an Assistant Secretary
or by the officer or the Trustees calling the meeting.

2.3 Telephone Conference. Except as provided in the Investment
Company Act of 1940, Trustees may participate in any regular or special meeting
of the Trustees by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at a meeting.

2.4 Notice of Meetings. Subject to the provisions of Section 2.1,
notice of the place, day and hour of every regular and special meeting shall be
given to each Trustee by mailing at least three (3) days, or by telegraphing or
telephoning or delivering personally the same at least one day, before the
meeting. It shall not be requisite to the validity of any meeting of the
Trustees that notice thereof shall have been given to any Trustee who is
present thereat, or if absent waives notice thereof in writing filed with the
records of the meeting either
<PAGE> 2
before or after the holding thereof. No notice of any adjourned meeting of the
Trustees need be given.

2.5 Quorum. A majority of the Trustees then in office, but in no
case less than two (2) Trustees, shall be necessary to constitute a quorum for
the transaction of business at every meeting of the Trustees; but if at any
meeting there be less than a quorum present, a majority of those present may
adjourn the meeting from time to time, but not for a period over thirty (30)
days at any one time, without notice other than by announcement at the meeting
until a quorum shall attend. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.

2.6 Action by Consent. Any action required or permitted to be
taken at any meeting of the Trustees or any committee thereof may be taken
without a meeting, if a written consent to such action is signed by a majority
of the Trustees then in office or a majority of the members of such committee,
as the case may be, and such written consent is filed with the minutes of the
proceedings of the Trustees or such committee.

ARTICLE 3

Officers

3.1 Enumeration; Qualification. The officers of the Trust shall
be a President, one or more Vice Presidents, a Treasurer, a Secretary, and such
other officers, if any, as the Trustees from time to time may in their
discretion elect. The Trust may also have such agents as the Trustees from
time to time may in their discretion appoint. Each officer may be but none
need be a Trustee or Shareholder. Any two or more offices may be held by the
same person.

3.2 Election. The President, the Vice Presidents, the Treasurer
and the Secretary shall be elected annually by the Trustees at their first
meeting in each calendar year or at such later meeting in such year as a
majority of the Trustees then in office may determine. Other officers, if any,
may be elected by the Trustees at said meeting or at any other time. Vacancies
in any office may be filled at any time.

3.3 Tenure. The President, the Vice Presidents, the Treasurer,
and the Secretary shall hold office until the first meeting of the Trustees in
the calendar year next succeeding the year of their election and until their
respective successors are chosen and qualified, or in each case until he sooner
dies, resigns, is removed or becomes disqualified. Each other officer

-2-
<PAGE> 3
shall hold office and each agent shall retain authority at the pleasure of the
Trustees.

3.4 Powers. Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.

3.5 President. Unless the Trustees otherwise provide, the
President shall be the chief executive officer of the Trust and shall preside
at all meetings of the Shareholders.

3.6 Vice Presidents. The Vice Presidents shall, in the absence or
disability of the President, and in the order designated by the Trustees,
perform the duties and exercise the powers of the President and, in addition,
shall at all times perform such other duties and exercise such other powers as
may be prescribed by the Trustees or the President, under whose supervision
they shall be.

3.7 Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the Trustees and all meetings of the Shareholders and
record all the proceedings of such meetings in a book to be kept for that
purpose. Subject to Section 2.1 hereof, he shall give, or cause to be given,
notice of all meetings of the Trustees and meetings of the Shareholders, and
shall perform such other duties as may be prescribed by the Trustees or
President, under whose supervision he shall be. He shall keep in safe custody
the seal of the Trust and, when authorized by the Trustees, affix the same to
any instrument requiring it, which seal when so affixed may be attested by his
signature or by the signature of the Treasurer or an Assistant Secretary. The
Assistant Secretary shall, at the request of or in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary, and
shall perform such other duties and have such other powers as may be designated
from time to time by the Trustees or by the President.

3.8 Treasurer. The Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with any
custodian, investment adviser, or transfer, accounting, or Shareholder
servicing or similar agent, be in charge of the valuable papers, books of
account and accounting records of the Trust, and shall have such other duties
and powers as may be designated from time to time by the Trustees or by the
President.

-3-
<PAGE> 4
3.9 Resignations and Removals. Any Trustee or officer may resign
at any time by written instrument signed by him and delivered to the President,
the Secretary or the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. The Trustees may
remove any officer elected by them with or without cause. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee or officer
resigning and no officer removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal.

ARTICLE 4

Committees

4.1 Quorum; Voting. A majority of the members of any Committee of
the Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or evidenced by one or more
writings signed by a majority of the members of such Committee. Members of a
Committee may participate in a meeting of such Committee by means of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.

ARTICLE 5

Offices, Fiscal Year and Seal

5.1 Offices. The Trust shall maintain an office of record in
Boston, Massachusetts, which office may be the office of any resident agent
appointed by the Trust if located in that city. The Trust may maintain one or
more other offices, including its principal office, outside of Massachusetts,
in such cities as the Trustees may determine from time to time. Unless the
Trustees otherwise determine, the principal office of the Trust shall be
located in Milwaukee, Wisconsin.

5.2 Fiscal Year. Except as from time to time otherwise provided
by the Trustees, the initial fiscal year of the Trust shall end on such date as
is determined in advance or in arrears by the Treasurer and subsequent fiscal
years shall end on such date in subsequent years.

5.3 Seal. The seal of the Trust shall consist of a flat-faced die
with the words "Northern Funds, Massachusetts,

-4-
<PAGE> 5
1993" cut or engraved thereon, but, unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.

ARTICLE 6

Records, Reports and Execution of Papers

6.1 Records. Except as may otherwise be required by law or by the
Trustees, the records of the Trust need not be retained at either the principal
office of the Trust or at the Trust's office of record in Boston,
Massachusetts, and may be retained by one or more of any adviser, custodian,
transfer, accounting, shareholder servicing or similar agents, but such records
shall at all times be made available to any officer of the Trust having charge
thereof, to the Trustees, and to any other officer or agent of the Trust
authorized by the Trustees or the President.

6.2 Reports. The Trustees and officers shall render reports at
the time and in the manner required by the Declaration of Trust or any
applicable law. Officers and Committees shall render such additional reports
as they may deem desirable or as may from time to time be required by the
Trustees.

6.3 Execution of Papers. Except as the Trustees may generally or
in particular cases authorize the execution thereof in some other manner, all
deeds, leases, contracts, notes and other obligations made by the Trustees
shall be signed by the President, by any Vice President, by the Treasurer or by
any Assistant Treasurer, need not bear the seal of the Trust, but shall state
the substance of or make reference to the provisions of Section [6.1] of the
Declaration of Trust.

ARTICLE 7

Issuance of Certificates for Shares

7.1 Certificates. In lieu of issuing certificates for Shares of
one or more Series, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the Trust for the
record holders of such Shares, who shall in either case be deemed, for all
purposes hereunder, to be the holders of such Shares and shall be held to have
expressly assented and agreed to the terms hereof.

The Trustees may at any time authorize the issuance of certificates
representing Shares of one or more Series. In that event, each Shareholder
upon request shall be entitled to a certificate stating the number of Shares of
the applicable Series

-5-
<PAGE> 6
owned by him, in such form as shall be prescribed from time to time by the
Trustees. Such certificate shall be signed by the President or a Vice
President and by the Treasurer or Assistant Treasurer. Such signatures may be
facsimiles if the certificate is signed by a transfer agent, or by a registrar,
other than a Trustee, officer or employee of the Trust. In case any officer
who has signed or whose facsimile signature has been placed on such certificate
shall cease to be such officer before such certificate is issued, it may be
issued by the Trust with the same effect as if he were such officer at the time
of its issue.

7.2 Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a certificate, a duplicate certificate may be
issued in place thereof, upon such terms and with such indemnity and/or surety
as the Trustees shall prescribe.

7.3 Issuance of New Certificate to Pledgee. A pledgee of Shares
transferred as collateral security shall be entitled to a new certificate if
the instrument of transfer substantially describes the debt or duty that is
intended to be secured thereby. Such new certificate shall express on its face
that it is held as collateral security, and the name of the pledgor shall be
stated thereon, who alone shall have the rights (including without limitation
dividend and distribution rights and voting rights) of the Shareholder.

7.4 Discontinuance of Issuance of Certificates. The Trustees may
at any time discontinue the issuance of certificates for Shares of one or more
Series, and may, by written notice to each Shareholder, require the surrender
of certificates representing the Shares of the applicable Series to the Trust
for cancellation. Such surrender and cancellation shall not affect the
ownership of the Shares of such Series.

ARTICLE 8

Amendments to the By-Laws

8.1 General. These By-Laws may be amended or repealed, in whole
or in part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.

-6-

<PAGE> 1
EXHIBIT 2(a)

Amendment No. 1 to the By-Laws
of Northern Funds

RESOLVED, that Section 2.6 of the By-Laws of Northern Funds be, and
hereby is, amended and restated as set forth below:

2.6 Action by Consent. Any action required or permitted to be taken
at any meeting of the Trustees or any committee thereof, except for the
approval of an Advisory Agreement or Rule 12b-1 Plan, may be taken without a
meeting, if a written consent to such action is signed by a majority of the
Trustees then in office or a majority of the members of such committee, as the
case may be, and such written consent is filed with the minutes of the
proceedings of the Trustees or such committee.

-7-

<PAGE> 1

EXHIBIT 5

NORTHERN FUNDS

INVESTMENT ADVISORY AND ANCILLARY SERVICES AGREEMENT

AGREEMENT made this 1st day of April, 1994 between NORTHERN
FUNDS, a Massachusetts business trust (the "Trust"), and THE NORTHERN TRUST
COMPANY, an Illinois state bank (the "Adviser").

WITNESSETH:

WHEREAS, the Trust is an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and

WHEREAS, the Trust is authorized to issue shares of beneficial
interest ("Shares") in separate series with each such series representing the
interests in a separate portfolio of securities and other assets; and

WHEREAS, the Trust presently intends to offer shares of
beneficial interest in fourteen portfolios, known as the Growth Equity Fund,
Income Equity Fund, Small Cap Growth Fund, Select Equity Fund, International
Growth Equity Fund, International Select Equity Fund, International Fixed
Income Fund, Fixed Income Fund, U.S. Government Fund, Intermediate Tax-Exempt
Fund, Tax-Exempt Fund, Money Market Fund, U.S. Government Money Market Fund and
Municipal Money Market Fund (such Funds [the "Current Funds"] together with all
other funds subsequently established by the Trust and made subject to this
Agreement being herein collectively referred to as the "Funds"); and

WHEREAS, the Trust desires to retain the Adviser to render
investment advisory and ancillary services to the Trust and each of its Current
Funds as indicated below and the Adviser is willing to so render such services;

NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter set forth, the parties hereto agree as follows:

1. Appointment of Adviser.

(a) The Trust hereby appoints the Adviser to act
as investment adviser to the Trust and each
of its Current Funds for the periods and on
the terms herein set forth. The Adviser
accepts such appointment and agrees to render
the services herein set forth, for the
compensation herein provided.
<PAGE> 2
(b) In the event that the Trust establishes one
or more portfolios other than the Current
Funds with respect to which it desires to
retain the Adviser to act as investment
adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is
willing to render such services under this
Agreement it shall notify the Trust in
writing whereupon such portfolio shall become
a Fund hereunder and shall be subject to the
provisions of this Agreement to the same
extent as the Current Funds except to the
extent that said provisions (including those
relating to the compensation payable by the
Trust to the Adviser) are modified with
respect to such Fund in writing by the Trust
and the Adviser at the time.

2. Delivery of Documents. The Trust has delivered (or
will deliver as soon as is possible) to the Adviser copies of each of the
following documents:

(a) Agreement and Declaration of Trust dated as
of October 12, 1993 (such Agreement and
Declaration of Trust, as presently in effect,
is herein called the "Trust Agreement"),
copies of which are also on file with the
Secretary of The Commonwealth of
Massachusetts;

(b) By-Laws of the Trust (such By-Laws, as
presently in effect, are herein called the
"By-Laws");

(d) Distribution Agreement between the Trust and
its Distributor;

(e) Custodian Agreement between the Trust and its
Custodian;

(f) Transfer Agency Agreement between the Trust
and its Transfer Agent;

(g) Prospectus and Statement of Additional
Information for each of the Current Funds
(each such Prospectus and Statement of
Additional Information, as presently in
effect and as amended, supplemented and/or
superseded from time to time, are herein

-2-
<PAGE> 3
called "Prospectus" and "Statement of
Additional Information," respectively);

(h) The Trust's Registration Statement on Form
N-1A (No. 33-73404) under the Securities Act
of 1933 (the "1933 Act") and the Trust's
Registration Statement on such form (No.
811-8236) under the 1940 Act filed as a
single document with the Securities and
Exchange Commission (the "Commission") (such
Registration Statement, as presently in
effect and as amended from time to time, is
herein called the "Registration Statement").

The Trust agrees to promptly furnish the Adviser from time to
time with copies of all amendments of or supplements to or otherwise current
versions of any of the foregoing documents not heretofore furnished.

3. Duties of Adviser.

(a) Subject to the general supervision of the
Trustees of the Trust, the Adviser shall
manage the investment operations of each of
the Funds and the composition of each Fund's
assets, including the purchase, retention and
disposition thereof. In this regard, the
Adviser:

(i) shall provide supervision of the
Funds' assets, furnish a
continuous investment program for
such Funds, determine from time
to time what investments or
securities will be purchased,
retained or sold by the Funds,
and what portion of the assets
will be invested or held
uninvested as cash;

(ii) shall place orders pursuant to
its determinations either
directly with the issuer or with
any broker and/or dealer or other
person who deals in the
securities in which the Fund in
question is trading. With
respect to common and preferred
stocks, in executing portfolio
transactions and selecting
brokers or dealers, the Adviser
shall use its best judgment to
obtain the best overall terms
available. In assessing the best
overall terms available for any

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<PAGE> 4
transaction, the Adviser shall
consider all factors it deems
relevant, including the breadth
of the market in the security,
the price of the security, the
financial condition and execution
capability of the broker or
dealer, and the reasonableness of
the commission, if any, both for
the specific transaction and on a
continuing basis. In evaluating
the best overall terms available
and in selecting the broker or
dealer to execute a particular
transaction, the Adviser may also
consider the brokerage and
research services (as those terms
are defined in Section 28(e) of
the Securities Exchange Act of
1934) provided to any Fund and/or
other account over which the
Adviser and/or an affiliate of
the Adviser exercises investment
discretion. With respect to
securities other than common and
preferred stocks, in placing
orders with brokers, dealers or
other persons the Adviser shall
attempt to obtain the best net
price and execution of its
orders, provided that to the
extent the execution and price
available from more than one
broker, dealer or other such
person are believed to be
comparable, the Adviser may, at
its discretion but subject to
applicable law, select the
executing broker, dealer or such
other person on the basis of the
Adviser's opinion of the
reliability and quality of such
broker, dealer or such other
person;

(iii) may, on occasions when it deems
the purchase or sale of a
security to be in the best
interests of a Fund as well as
other fiduciary or agency
accounts managed by the Adviser,
aggregate, to the extent
permitted by applicable laws and
regulations, the securities to be
sold or purchased in order to
obtain the best overall terms
available execution with respect
to common and preferred stocks
and the best net price and
execution with respect to other
securities. In such

-4-
<PAGE> 5
event, allocation of the
securities so purchased or
sold, as well as the
expenses incurred in the
transaction, will be made by the
Adviser in the manner it
considers to be most equitable
and consistent with its fiduciary
obligations to such Fund and to
such other accounts.

(b) In addition, the Adviser shall provide the
following ancillary services under this
Agreement:

(i) review the preparation of reports
and proxy statements to the
Trust's shareholders, the
periodic updating of the Trust's
Prospectus, Statement of
Additional Information and
Registration Statement, and the
preparation of other reports and
documents required to be filed by
the Trust with the Securities and
Exchange Commission;

(ii) in connection with its management
of the Funds, monitor anticipated
purchases and redemptions by
shareholders and new investors;

(iii) provide information and
assistance as requested by the
Administrator of the Trust in
connection with the registration
of the Trust's shares in
accordance with state and foreign
securities requirements;

(iv) provide assistance as requested
by the Trust or its Administrator
concerning the regulatory
requirements applicable to
investors that invest in the
Trust;

(v) develop and monitor investor
programs for shareholders of the
Trust, and assist in the
coordination of such programs
with programs offered separately
by the Adviser to its clients;

(vi) provide assistance in connection
with the operations of the Trust
generally; and

-5-
<PAGE> 6
(vii) provide other similar services as
reasonably requested from time to
time by the Board of Trustees of
the Trust.

(i) shall use the care, skill,
prudence and diligence under the
circumstances then prevailing
that a prudent person acting in a
like capacity and familiar with
such matters would use in the
conduct of an enterprise of a
like character and with like
aims; and

(ii) shall act in conformity with the
Trust Agreement, By-Laws,
Registration Statement,
Prospectus and Statement of
Additional Information, and
instructions and directions of
the Trustees of the Trust, and
will use its best efforts to
comply with and conform to the
requirements of the 1940 Act and
all other applicable federal and
state laws, regulations and
rulings.

(d) The Adviser shall:

(i) comply with all applicable Rules
and Regulations of the Securities
and Exchange Commission and will
in addition conduct its
activities under this Agreement
in accordance with other
applicable law; and

(ii) maintain a policy and practice of
conducting its investment
advisory services hereunder
independently of its commercial
banking operations and those of
any affiliated bank of the
Adviser. When the Adviser makes
investment recommendations for a
Fund, its investment advisory
personnel will not inquire or
take into consideration whether
the issuer of securities proposed
for purchase or sale for the
Fund's account are customers of
its commercial banking department
or the commercial banking
department of any affiliated bank
of the Adviser.

-6-
<PAGE> 7
(e) The Adviser shall not, unless permitted by
the Securities and Exchange Commission:

(i) permit the Funds to execute
transactions with the Adviser's
Bond Department; or

(ii) permit the Funds to purchase
certificates of deposit of the
Adviser or its affiliate banks,
commercial paper issued by the
Adviser's parent holding company
or other securities issued or
guaranteed by the Adviser, its
parent holding company or their
subsidiaries or affiliates.

(f) The Adviser shall render to the Trustees of
the Trust such periodic and special reports
as the Trustees may reasonably request.

(g) The services of the Adviser hereunder are not
deemed exclusive and the Adviser shall be
free to render similar services to others
(including other investment companies) so
long as its services under this Agreement are
not impaired thereby.

4. Expenses. During the term of this Agreement, the
Adviser shall pay all costs incurred by it in connection with the performance
of its duties under paragraph 3 hereof, other than the cost (including taxes,
brokerage commissions and other transactions costs, if any) of securities
purchased or sold for each of the Funds.

5. Compensation.

(a) For the services provided and the expenses
assumed by the Adviser pursuant to this
Agreement, the Trust shall pay to the Adviser
as full compensation therefor a fee at an
annual rate of .60 of 1% of the average daily
net assets of each of the Money Market,
Municipal Money Market and U.S. Government
Money Market Funds; .75 of 1% of the average
daily net assets of each of the Fixed Income,
U.S. Government, Intermediate Tax-Exempt and
Tax-Exempt Funds; .90 of 1% of the average
daily net assets of the International Fixed
Income Fund; 1.00 of 1% of the average daily
net assets of each of the Growth Equity and
Income Equity Funds; and 1.20 of 1% of the
average daily net assets of each of the Small

-7-
<PAGE> 8
Cap Growth, Select Equity, International
Growth Equity and International Select Equity
Funds.

(b) The fee will be computed based on net assets
on each day and will be paid to the Adviser
monthly.

6. Books and Records. The Adviser agrees to maintain,
and preserve for the periods prescribed by Rule 31a-2 of the Commission under
the 1940 Act, such records as are required to be maintained by Rule 31a-1 of
the Commission under the 1940 Act (other than clause (b)(4) and paragraphs (c),
(d) and (e) thereof). The Adviser further agrees that all records which it
maintains for the Trust are the property of the Trust and it shall surrender
promptly to the Trust any of such records upon the Trust's request.

7. Indemnification.

(a) The Trust hereby agrees to indemnify and hold
harmless the Adviser, its directors,
officers, and employees and each person, if
any, who controls the Adviser (collectively,
the "Indemnified Parties") against any and
all losses, claims, damages or liabilities,
joint or several, to which they or any of
them may become subject under the 1933 Act,
the Securities Exchange Act of 1934, the 1940
Act or other federal or state statutory law
or regulation, at common law or otherwise,
insofar as such losses, claims, damages or
liabilities (or actions in respect thereof)
arise out of or are based upon:

(i) any untrue statement or alleged
untrue statement of a material
fact or any omission or alleged
omission to state a material fact
required to be stated or
necessary to make the statements
made not misleading in the
Registration Statement, the
Prospectus, the Statement of
Additional Information, or any
application or other document
filed in connection with the
qualification of the Trust or
Shares of the Trust under the
Blue Sky or securities laws of
any jurisdiction ("Application"),
except insofar as such losses,
claims, damages or liabilities
(or actions in respect thereof)
arise out of or are

-8-
<PAGE> 9
based upon any such untrue
statement or omission or alleged
untrue statement or omission
either pertaining to a breach of
the Adviser's duties in connection
with this Agreement or made in
reliance upon and in conformity
with information furnished by,
through or on behalf of the
Adviser for use in connection
with the Registration Statement,
any Application, the Prospectus
or the Statement of Additional
Information; or

(ii) subject to clause (i) above, the
Adviser acting in accordance with
the terms hereof;

and the Trust will reimburse each Indemnified
Party for any legal or other expense incurred
by such Indemnified Party in connection with
investigating or defending any such loss,
claim, damages, liability or action.

(b) If the indemnification provided for in
paragraph 7(a) is due in accordance with the
terms of such paragraph but is for any reason
held by a court to be unavailable from the
Trust, then the Trust shall contribute to the
aggregate amount paid or payable by the Trust
and the Indemnified Parties as a result of
such losses, claims, damages or liabilities
(or actions in respect thereof) in such
proportion as is appropriate to reflect (i)
the relative benefits received by the Trust
and such Indemnified Parties in connection
with the operation of the Trust, (ii) the
relative fault of the Trust and such
Indemnified Parties, and (iii) any other
relevant equitable considerations. The Trust
and the Adviser agree that it would not be
just and equitable if contribution pursuant
to this subparagraph (b) were determined by
pro rata allocation or other method of
allocation which does not take account the
equitable considerations referred to above in
this subparagraph (b). The amount paid or
payable as a result of the losses, claims,
damages or liabilities (or actions in respect
thereof) referred to above in this
subparagraph (b) shall be deemed to include
any legal or other expense incurred by the

-9-
<PAGE> 10
Trust and the Indemnified Parties in
connection with investigating or defending
any such loss, claim, damage, liability or
action. No person guilty of fraudulent
misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who
was not guilty of such fraudulent
misrepresentation.

(c) It is understood, however, that nothing in
this paragraph 7 shall protect any
Indemnified Party against, or entitle any
Indemnified Party to indemnification against,
or contribution with respect to, any
liability to the Trust or its Shareholders to
which such Indemnified Party is subject, by
reason of its willful misfeasance, bad faith
or gross negligence in the performance of its
duties, or by reason of a reckless disregard
to its obligations and duties, under this
Agreement or otherwise, to an extent or in a
manner inconsistent with Section 17 of the
1940 Act.

8. Duration and Termination. Insofar as the holders of
Shares representing the interests in the Current Funds are affected by this
Agreement, it shall continue, unless sooner terminated as provided herein,
until March 31, 1996, and, insofar as the holders of Shares representing the
interests in each of the other Funds are affected by this Agreement, it (as
supplemented by the terms specified in any notice and agreement pursuant to
paragraph 1(b) hereof) shall continue (assuming approval by the initial
holder(s) of Shares of such Fund) until March 31 of the year following the year
in which the Fund becomes a Fund hereunder, and with respect to each Fund
thereafter shall continue automatically for periods of one year so long as each
such latter continuance is approved at least annually (a) by the vote of a
majority of the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined by the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust or by vote of a majority of the outstanding Shares
(as defined with respect to voting securities in the 1940 Act) representing the
interests in such Fund; provided, however, that this Agreement may be
terminated by the Trust as to any Fund at any time, without the payment of any
penalty, by vote of a majority of the Trustees of the Trust or by vote of a
majority of the outstanding Shares (as so defined) representing the interests
in the Fund affected thereby on 60 days' written notice to the Adviser, or by
the Adviser at any time, without the payment of any penalty, on 60 days'
written notice to the Trust. This

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<PAGE> 11
Agreement shall automatically and immediately terminate in the event of its
assignment (as defined by the 1940 Act).

9. Name of the Trust. The Adviser agrees that the name
"Northern" may be used in the name of the Trust and that such name, any related
logos and any service marks containing the words "Northern" may be used in
connection with the Trust's business only for so long as this Agreement
(including any continuance or amendment hereof) remains in effect and that such
use shall be royalty free. At such time as this Agreement shall no longer be
in effect, the Trust will cease such use. The Trust acknowledges that it has
no rights to the name "Northern," such logos or service marks other than those
granted in this paragraph and that the Adviser reserves to itself the right to
grant the nonexclusive right to use the name "Northern," such logos or service
marks to any other person, including, but not limited to, another investment
company.

10. Status of Adviser as Independent Contractor. The
Adviser shall for all purposes herein be deemed to be an independent contractor
and shall, unless otherwise expressly provided herein or authorized by the
Trustees of the Trust from time to time, have no authority to act for or
represent the Trust in any way or otherwise be deemed an agent of the Trust.

11. Amendment of Agreement. This Agreement may be
amended by mutual consent but, except as otherwise permitted by the 1940 Act
and interpretations thereof by the Commission and its staff, the consent of the
Trust must be approved (a) by vote of a majority of those Trustees of the Trust
who are not parties to this Agreement or interested persons (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such amendment, and (b) by vote of a majority of the outstanding
Shares (as defined with respect to voting securities by the 1940 Act)
representing the interests in each Fund affected by such amendment.

12. Shareholder Liability. This Agreement is executed by
or on behalf of the Trust with respect to each of the Funds and the obligations
hereunder are not binding upon any of the Trustees, officers or Shareholders of
the Trust individually but are binding only upon the Trust and its assets and
property. All obligations of the Trust under this Agreement shall apply only
on a Fund-by-Fund basis, and the assets of one Fund shall not be liable for the
obligations of another Fund.

13. Miscellaneous. The Trust's Trust Agreement is on
file with the Secretary of The Commonwealth of Massachusetts. The captions in
this Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement shall be held or
made

-11-
<PAGE> 12
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be construed in
accordance with applicable federal law and (except as to paragraph 12 hereof
which shall be construed in accordance with the laws of The Commonwealth of
Massachusetts) the laws of the State of Illinois and shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors (subject to the last sentence of paragraph 8) and, to the extent
provided in paragraph 7 hereof, each Indemnified Party. Anything herein to the
contrary notwithstanding, this Agreement shall not be construed to require, or
to impose any duty upon, either of the parties to do anything in violation of
any applicable laws or regulations. Any provision in this Agreement requiring
compliance with any statute or regulation shall mean such statute or regulation
as amended and in effect from time to time.

14. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed as of the day and year first above written.

ATTEST: NORTHERN FUNDS

/s/ JEFFREY A. DALKE By: /s/ MIRIAM M. ALLISON
- ---------------------------- ---------------------------

As its:
---------------

ATTEST: THE NORTHERN TRUST COMPANY

/s/ SIGNATURE ILLEGIBLE By: /s/ TERRY MCCAFFREY
- ----------------------------- ---------------------------

As its:
---------------

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<PAGE> 1

EXHIBIT 5(a)

NORTHERN FUNDS

ADDENDUM NO. 1 TO THE INVESTMENT ADVISORY AGREEMENT

This Addendum, dated as of the 29th day of November, 1994, is
entered into between NORTHERN FUNDS (the "Trust"), a Massachusetts business
trust, and THE NORTHERN TRUST COMPANY (the "Investment Adviser"), an Illinois
state bank.

WHEREAS, the Trust and the Investment Adviser have entered
into an Investment Advisory Agreement dated as of April 1, 1994 (the "Advisory
Agreement"), pursuant to which the Trust appointed the Investment Adviser to
act as investment adviser to the Trust for the Growth Equity Fund, Income
Equity Fund, Small Cap Growth Fund, Select Equity Fund, International Growth
Equity Fund, International Select Equity Fund, International Fixed Income Fund,
Fixed Income Fund, U.S. Government Fund, Intermediate Tax-Exempt Fund,
Tax-Exempt Fund, Money Market Fund, U.S. Government Money Market Fund and
Municipal Money Market Fund;

WHEREAS, Section 1(b) of the Advisory Agreement provides that
in the event the Trust establishes one or more additional investment portfolios
with respect to which it desires to retain the Investment Adviser to act as
investment adviser under the Advisory Agreement, the Trust shall so notify the
Investment Adviser in writing and if the Investment Adviser is willing to
render such services it shall notify the Trust in writing, and the compensation
to be paid to the Investment Adviser shall be that which is agreed to in
writing by the Trust and the Investment Adviser; and

WHEREAS, pursuant to Section 1(b) of the Advisory Agreement,
the Trust has notified the Investment Adviser that it is establishing the
California Municipal Money Market Fund and the U.S. Government Select Money
Market Fund (the "Funds"), and that it desires to retain the Investment Adviser
to act as the investment adviser therefor, and the Investment Adviser has
notified the Trust that it is willing to serve as investment adviser for the
Funds;

NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:

1. Appointment. The Trust hereby appoints the
Investment Adviser to act as investment adviser to
the Trust for the Funds in accordance with the terms
set forth in the Advisory Agreement. The Investment
Adviser hereby accepts such appointment
<PAGE> 2
and agrees to render the services set forth in the
Advisory Agreement for the compensation herein
provided.

2. Compensation. For the services provided and the
expenses assumed pursuant to the Advisory Agreement
regarding the Funds, the Trust will pay the
Investment Adviser, and the Investment Adviser will
accept as full compensation therefor from the Trust,
a fee at an annual rate of .60 of 1% of each Fund's
average net assets.

3. Capitalized Terms. From and after the date hereof,
the term "Current Funds" as used in the Advisory
Agreement shall be deemed to include the California
Municipal Money Market Fund and the U.S. Government
Select Money Market Fund. Capitalized terms used
herein and not otherwise defined shall have the
meanings ascribed to them in the Advisory Agreement.

4. Miscellaneous. The initial term of the Advisory
Agreement with respect to the Funds shall continue,
unless sooner terminated in accordance with the
Advisory Agreement, until March 31, 1996. Except to
the extent supplemented hereby, the Advisory
Agreement shall remain unchanged and in full force
and effect, and is hereby ratified and confirmed in
all respects as supplemented hereby.

IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.

NORTHERN FUNDS

Attest: /s/ Mary Tenwinkle By: /s/ Miriam M. Allison
-------------------- -----------------------------

As its: Vice President
----------------

THE NORTHERN TRUST COMPANY

Attest: /s/ Catherine Smith By: /s/ Lloyd A. Wennlund
-------------------- -----------------------------

As its: Vice President
----------------

<PAGE> 1
EXHIBIT 6

DISTRIBUTION AGREEMENT

THIS AGREEMENT is made as of this 1st day of April, 1994, by and
between Northern Funds, a Massachusetts business trust ("Northern Funds") and
Sunstone Financial Group, Inc., a Wisconsin corporation (the "Distributor").

WITNESSETH:

WHEREAS, Northern Funds is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company and is authorized to issue shares of beneficial interest ("Shares") in
separate series with each such series representing the interests in a separate
portfolio of securities and other assets;

WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and

WHEREAS, the Fund and Distributor desire to enter into an agreement
pursuant to which Distributor shall be the distributor of the Shares of
Northern Funds representing the investment portfolios listed on Schedule A
hereto and any additional investment portfolios Northern Funds and Distributor
may agree upon and include on Schedule A as such Schedule may be amended from
time to time (such investment portfolios and any additional investment
portfolios are individually referred to as a "Fund" and collectively the
"Funds").

NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally
bound, do hereby agree as follows:

1. Appointment of the Distributor.

Northern Funds hereby appoints the Distributor as agent for the
distribution of the Shares, on the terms and for the period set forth in this
Agreement. Distributor hereby accepts such appointment as agent for the
distribution of the Shares on the terms and for the period set forth in this
Agreement.

2. Services as Distributor.

2.1 (a) Distributor will act as agent for the distribution of
Shares in accordance with the instructions of Northern Funds' Board of Trustees
and the registration statement and prospectuses then in effect with respect to
the Funds under the Securities Act of 1933, as amended (the "1933 Act"), and
will transmit promptly any orders received for the purchase or redemption of
Shares either directly to the transfer agent for the Funds or to any qualified
broker/dealer for transmittal to said agent.

(b) Distributor shall use appropriate efforts to solicit
orders for the sale of Shares. Distributor, at its own expense, shall finance
appropriate activities which it deems reasonable which are primarily intended
to result in the sale of Shares, including, but not limited to, advertising,
the printing and mailing of prospectuses to other than current shareholders,
and the printing and mailing of sales literature. In addition, Distributor
will provide at least one person, during normal business hours, to respond to
telephone questions with respect to the Funds. Distributor may enter into
servicing and/or selling agreements with qualified broker/dealers and other
persons with respect to the offering of Shares to the public, and if it so
chooses Distributor will act only
<PAGE> 2
on its own behalf as principal. The Distributor shall not be obligated to sell
any certain number of Shares of any Fund.

(c) All Shares of the Funds offered for sale by
Distributor shall be offered for sale to the public at a price per unit (the
"offering price") equal to their net asset value (determined in the manner set
forth in Northern Funds' then current prospectuses). The offering price, if
not an exact multiple of one cent, shall be adjusted to the nearest cent.

2.2 Distributor shall act as distributor of the Shares in
compliance with all applicable laws, rules and regulations, including, without
limitation, all rules and regulations made or adopted pursuant to the 1940 Act,
by the Securities and Exchange Commission (the "Commission") or any securities
association registered under the 1934 Act. Northern Funds represents that it
is registered as an open-end management investment company under the 1940 Act
and that it shall comply with all applicable laws, rules and regulations
including the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.

2.3 Whenever in their judgment such action is warranted by market,
economic or political conditions, or by circumstances of any kind, Northern
Funds' officers may decline to accept any orders for, or make any sales of, any
Shares until such time as they deem it advisable to accept such orders and to
make such sales and Northern Funds shall advise Distributor promptly of such
determination.

2.4 Northern Funds shall take all necessary action to register and
maintain the registration of the Shares under the 1933 Act for sale as herein
contemplated and shall pay all costs and expenses in connection with the
registration of Shares under the 1933 Act, and be responsible for all expenses
in connection with maintaining facilities for the issue and transfer of Shares
and for supplying information, prices and other data to be furnished by
Northern Funds hereunder.

2.5 Northern Funds shall execute any and all documents and furnish
any and all information and otherwise take all actions which may be reasonably
necessary in the discretion of Northern Funds' officers in connection with the
qualification of the Shares for sale in such states as Distributor and Northern
Funds may approve, and Northern Funds shall pay all expenses which may be
incurred in connection with such qualification. Distributor shall pay all
expenses connected with its own qualification as a broker under State or
Federal laws and, except as otherwise specifically provided in this Agreement,
all other expenses incurred by Distributor in connection with the sale by
Distributor of Shares as contemplated in this Agreement.

2.6 Northern Funds shall furnish Distributor from time to time,
for use in connection with the sale of Shares, such information with respect to
Northern Funds and the Shares as Distributor may reasonably request, and
Northern Funds warrants that the statements contained in any such information
shall be true and correct. Northern Funds also shall furnish Distributor upon
request with: (a) annual audited reports of Northern Funds' books and accounts
with respect to each of the Funds, made by independent public accountants
regularly retained by Northern Funds, (b) semi-annual reports with respect to
each of the Funds prepared by Northern Funds, and (c) from time to time such
additional information regarding Northern Funds' financial condition as
Distributor may reasonably request.

2.7 Northern Funds represents to Distributor that all registration
statements and prospectuses filed by Northern Funds with the Commission under
the 1933 Act with respect to the Shares have been prepared in conformity with
the requirements of the 1933 Act, the 1940 Act, and the rules and regulations
of the Commission thereunder. As used in this Agreement the terms
"registration statement" and "prospectus" shall mean any registration statement
and prospectus

-2-
<PAGE> 3
(together with the related statement of additional information) at any time
filed with the Commission with respect to any of the Shares and any amendments
and supplements thereto which at any time shall have been filed with said
Commission. Northern Funds represents and warrants to Distributor that any
registration statement and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated therein in
conformity with the 1933 Act, the 1940 Act and the rules and regulations of the
Commission; that all statements of fact contained in the registration statement
and prospectus will be true and correct in all material respects when such
registration statement becomes effective; and that neither the registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of Shares. Northern Funds agrees to file from
time to time such amendments, supplements, reports and other documents as may
be necessary in order to comply with the 1933 Act and the 1940 Act and in order
that there may be no untrue statement of a material fact in a registration
statement or prospectus, or necessary in order that there may be no omission to
state a material fact in the registration statement or prospectus which
omission would make the statements therein misleading. If Northern Funds shall
not propose an amendment or amendments and/or supplement or supplements within
fifteen days after receipt by Northern Funds of a written request from
Distributor to do so, Distributor may, at its option, terminate this Agreement.
Northern Funds shall not file any amendment to the registration statement or
supplement to any prospectus without giving Distributor reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit Northern Funds' right to file at any time such
amendments to any registration statement and/or supplements to any prospectus,
of whatever character, as Northern Funds may deem advisable, such right being
in all respects absolute and unconditional.

2.8 (a) Northern Funds authorizes Distributor to use any
prospectus, in the form furnished to Distributor from time to time, in
connection with the sale of Shares. Northern Funds shall indemnify, defend and
hold the Distributor, and each of its present or former directors, officers,
employees, representatives and any person who controls or previously controlled
the Distributor within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all losses, claims, demands, liabilities,
damages and expenses (including the costs of investigating or defending any
alleged losses, claims, demands, liabilities, damages or expenses and any
counsel fees incurred in connection therewith) which Distributor, each of its
present and former directors, officers, employees or representatives or any
such controlling person, may incur under the 1933 Act, the 1934 Act, any other
statute (including Blue Sky laws) or any rule or regulation thereunder, or
under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in the
registration statement or any prospectus, as from time to time amended or
supplemented, or an annual or interim report to shareholders, or arising out of
or based upon any omission, or alleged omission, to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that Northern Funds' obligation to indemnify
Distributor and any of the foregoing indemnities, shall not be deemed to cover
any losses, claims, demands, liabilities, damages or expenses arising out of
any untrue statement or alleged untrue statement or omission or alleged
omission made in the registration statement, prospectus, or annual or interim
report in reliance upon and in conformity with information furnished to
Northern Funds or its counsel by Distributor for the purpose of, and used in,
the preparation thereof; and provided further that Northern Funds' agreement to
indemnify Distributor and any of the foregoing indemnities shall not be deemed
to cover any liability to Northern Funds or its shareholders to which
Distributor would otherwise be subject by reason of its willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement.
Northern Funds' agreement to indemnify the Distributor, and each of its present
or former

-3-
<PAGE> 4
directors, officers, employees, representatives or any controlling person, as
the case may be, with respect to any action, is expressly conditioned upon
Northern Funds being notified of such action brought against Distributor, or
each of its present or former directors, officers, employees, representatives
or any such controlling person, within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon the Distributor, or such person, such notification to be
given by letter or by telegram addressed to Northern Funds' Chairman, but the
failure so to notify Northern Funds of any such action shall not relieve
Northern Funds from any liability which Northern Funds may have to the person
against whom such action is brought by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission, otherwise than on account
of Northern Funds' indemnity agreement contained in this paragraph 2.8(a).

(b) Northern Funds shall be entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such loss, claim, demand, liability, damage or
expense, but if Northern Funds elects to assume the defense, such defense shall
be conducted by counsel chosen by Northern Funds and approved by the
Distributor, which approval shall not be unreasonably withheld. In the event
Northern Funds elects to assume the defense of any such suit and retain such
counsel, the indemnified defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by them. If Northern
Funds does not elect to assume the defense of any such suit, or in case the
Distributor does not, in the exercise of reasonable judgment, approve of
counsel chosen by Northern Funds, Northern Funds will reimburse the indemnified
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor and them. Northern Funds'
indemnification agreement contained in this paragraph 2.8 and Northern Funds'
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
the Distributor, and each of its present or former directors, officers,
employees, representatives or any controlling person, and shall survive the
delivery of any Shares and the termination of this Agreement. This Agreement
of indemnity will inure exclusively to the Distributor's benefit, to the
benefit of each of its present or former directors, officers, employees or
representatives or to the benefit of any controlling persons and their
successors. Northern Funds agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against Northern Funds or any of
its officers or directors in connection with the issue and sale of any of the
Shares.

2.9 Distributor shall indemnify, defend and hold Northern Funds,
and each of its present or former directors, officers, employees,
representatives, and any person who controls or previously controlled Northern
Funds within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all losses, claims, demands, liabilities, damages and
expenses (including the costs of investigating or defending any alleged losses,
claims, demands, liabilities, damages or expenses, and any counsel fees
incurred in connection therewith) which Northern Funds, and each of its present
or former directors, officers, employees, representatives, or any such
controlling person, may incur under the 1933 Act, the 1934 Act, any other
statute (including Blue Sky laws) or any rule or regulation thereunder, or
under common law or otherwise, arising out of or based upon any untrue, or
alleged untrue, statement of a material fact contained in Northern Funds'
registration statement or any prospectus, as from time to time amended or
supplemented, or annual or interim report to shareholders or the omission, or
alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statement not misleading, but only if such
statement or omission was made in reliance upon, and in conformity with,
information furnished to Northern Funds or its counsel by the Distributor for
the purpose of, and used in, the preparation thereof. Distributor's agreement
to indemnify Northern Funds and any of the foregoing indemnities shall not be
deemed to cover any liability to Distributor to which Northern Funds would
otherwise be

-4-
<PAGE> 5
subject by reason of its willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of its reckless disregard of its
obligations and duties, under this Agreement. The Distributor's Agreement to
indemnify Northern Funds, its present or former directors, officers, employees,
representatives, and any such controlling person, as aforesaid, is expressly
conditioned upon the Distributor's being notified of any action brought against
Northern Funds, its present or former directors, officers, employees,
representatives, or any such controlling person, such notification to be given
by letter or telegram addressed to Distributor's President, within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon Northern Funds or such person,
but the failure so to notify Distributor of any such action shall not relieve
Distributor from any liability which Distributor may have to the person against
whom such action is brought by reason of any such untrue, or alleged untrue,
statement or omission, otherwise than on account of Distributor's indemnity
agreement contained in this paragraph 2.9(a). In case any action shall be
brought against Northern Funds, and each of its present or former directors,
officers, employees, representatives, or controlling persons, in respect of
which indemnity may be sought against the Distributor, the Distributor shall
have the rights and duties given to Northern Funds, and Northern Funds and each
person so indemnified shall have the rights and duties given to the Distributor
by the provisions of paragraph 2.8(b).

2.10 No Shares shall be offered by either Distributor or Northern
Funds under any of the provisions of this Agreement and no orders for the
purchase or sale of such Shares hereunder shall be accepted by Northern Funds
if and so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act, or if and so long as current prospectuses as
required by Section 10 of the 1933 Act, as amended, are not on file with the
Commission; provided, however, that nothing contained in this paragraph 2.10
shall in any way restrict or have an application to or bearing upon Northern
Funds' obligation to repurchase Shares from any shareholder in accordance with
the provisions of the prospectus or Declaration of Trust.

2.11 Northern Funds agrees to advise Distributor promptly in
writing:

(a) of any request by the Commission for amendments to
the registration statement or prospectuses then in
effect;

(b) in the event of the issuance by the Commission of any
stop order suspending the effectiveness of the
registration statement or prospectuses then in effect
or the initiation of any proceeding for that purpose;

(c) of the happening of any event which makes untrue any
statement of a material fact made in the registration
statement or prospectuses then in effect or which
requires the making of a change in such registration
statement or prospectuses in order to make the
statements therein not misleading; and

(d) of all actions of the Commission with respect to any
amendments to any registration statement or
prospectus which may from time to time be filed with
the Commission.

3. Term.

3.1 (a) This Agreement shall become effective with respect to
each Fund listed on Schedule A hereof as of the date hereof and, with respect
to each Fund not in existence on that date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed. Unless sooner
terminated as provided herein, this Agreement shall continue in effect with
respect to each

-5-
<PAGE> 6
Fund until March 31, 1996. Thereafter, if not terminated, this Agreement shall
continue automatically in effect as to each Fund for successive annual periods,
provided such continuance is specifically approved at least annually by (i)
Northern Funds' Board of Trustees or (ii) the vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of a Fund, and provided that
in either event the continuance is also approved by a majority of Northern
Funds' Trustees who are not "interested persons" (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval.

(b) This Agreement may be terminated without penalty with
respect to a particular Fund (1) through a failure to renew this Agreement at
the end of a term, (2) upon mutual consent of the parties, or (3) on not less
than sixty (60) days' written notice, by Northern Funds' Trustees, by vote of a
majority (as defined with respect to voting securities in the 1940 Act) of the
outstanding voting securities of the Fund, or by Distributor. The terms of
this Agreement shall not be waived, altered, modified, amended or supplemented
in any manner whatsoever except by a written instrument signed by the
Distributor and Northern Funds. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).

4. Miscellaneous.

4.1 The services of the Distributor rendered to the Funds are not
deemed to be exclusive. The Distributor may render such services and any other
services to others, including other investment companies. Northern Funds
recognizes that from time to time directors, officers, and employees of the
Distributor may serve as directors, trustees, officers and employees of other
corporations or trusts (including other investment companies), that such other
entities may include the name of the Distributor as part of their name and that
the Distributor or its affiliates may enter into distribution, administration,
fund accounting or other agreements with such other corporations or trusts.

4.2 Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of Northern Funds all
records and other information relative to the Funds and prior, present or
potential shareholders of the Funds (and clients of said shareholders), and not
to use such records and information for any purpose other than performance of
Distributor's responsibilities and duties hereunder, except after prior
notification to and approval in writing by Northern Funds, which approval shall
not be unreasonably withheld and may not be withheld where Distributor may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by Northern Funds.

4.3 This Agreement shall be governed by Wisconsin law (except as
to paragraph 4.5 hereof which shall be construed in accordance with the laws of
the State of Massachusetts). To the extent that the applicable laws of the
State of Wisconsin, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act, the latter shall control, and nothing
herein shall be construed in a manner inconsistent with the 1940 Act or any
rule or order of the Commission thereunder. Any provision of this Agreement
which may be determined by competent authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

4.4 Any notice required or to be permitted to be given by either
party to the other shall be in writing and shall be deemed to have been given
when hand delivered or sent by registered or certified mail, postage prepaid,
return receipt requested, as follows: Notice to the Distributor shall be sent
to

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<PAGE> 7
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee,
Wisconsin, 53202, Attention: Miriam M. Allison, and notice to Northern Funds
shall be sent to Silas Cathcart, President, c/o Sheila Penrose, 50 South
LaSalle Street, Chicago, Illinois, 60675, with a copy to Jeffrey Dalke,
Secretary, c/o Drinker Biddle & Reath, 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania, 19107.

4.5 This Agreement is executed by or on behalf of Northern Funds
with respect to each of the Funds and the obligations hereunder are not binding
upon any of the Trustees, officers or shareholders of Northern Funds
individually but are binding only upon the Funds to which such obligations
pertain and the assets and property of such Funds. Northern Funds' Declaration
of Trust is on file with the Secretary of State of Massachusetts.

4.6 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original agreement but such counterparts
shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by a duly authorized officer as of the day and year
first above written.

NORTHERN FUNDS
("Northern Funds")

By: /s/ Silas S. Cathcart
---------------------------------

SUNSTONE FINANCIAL GROUP, INC.
("Distributor")

By: /s/ Miriam M. Allison
---------------------------------
Miriam M. Allison
President

-7-
<PAGE> 8
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
NORTHERN FUNDS
AND
SUNSTONE FINANCIAL GROUP, INC.

APRIL 1, 1994

<TABLE>
<S> <C>
Northern Growth Equity Fund Northern Fixed Income Fund
Northern Income Equity Fund Northern U.S. Government Fund
Northern Small Cap Growth Fund Northern Intermediate Tax-Exempt Fund
Northern Select Equity Fund Northern Tax-Exempt Fund
Northern International Growth Equity Fund Northern Money Market Fund
Northern International Select Equity Fund Northern U.S. Government Money Market Fund
Northern International Fixed Income Fund Northern Municipal Money Market Fund
</TABLE>

<PAGE> 1
EXHIBIT 6(a)

AMENDED AND RESTATED
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
NORTHERN FUNDS
AND
SUNSTONE FINANCIAL GROUP, INC.
DATED APRIL 1, 1994

Intending to be legally bound, the undersigned hereby amend and restate
Schedule A to the aforesaid Agreement to include the following investment
portfolios:

<TABLE>
<S> <C>
Growth Equity Fund Fixed Income Fund
Income Equity Fund U.S. Government Fund
Small Cap Growth Fund Intermediate Tax-Exempt Fund
Select Equity Fund Tax-Exempt Fund
International Growth Equity Fund Money Market Fund
International Select Equity Fund U.S. Government Money Market Fund
International Fixed Income Fund Municipal Money Market Fund
California Municipal Money Market Fund U.S. Government Select Money Market Fund
</TABLE>

NORTHERN FUNDS

By: /s/ Silas S. Cathcart
------------------------

Title: President
---------------------

Date: 11/28/94
----------------------

SUNSTONE FINANCIAL GROUP, INC.

By: /s/ Miriam M. Allison
------------------------

Title: President
---------------------

Date: 11/28/94
----------------------

<PAGE> 1
EXHIBIT 8(a)

NORTHERN FUNDS

CUSTODIAN AGREEMENT

Agreement dated this 1st day of April, 1994 between Northern
Funds, a Massachusetts business trust (the "Trust"), and The Northern Trust
Company, an Illinois state bank ("Northern").

1. Appointment of Custodian. The Trust hereby appoints
Northern custodian of all securities (including repurchase agreements) and cash
now owned or hereafter acquired by the Trust for the funds listed below, and
Northern hereby accepts such appointment, upon the terms and conditions set
forth in this Agreement. The Trust agrees promptly to deliver and pay, or
cause to be delivered and paid, to Northern, as custodian, all securities and
cash now owned or hereafter acquired by the Trust with respect to such funds.
It is understood that (a) the Trust is an open-end, management investment
company registered under the Investment Company Act of 1940 ("1940 Act") as a
series company with separate funds, which include the Money Market, U.S.
Government Money Market, Municipal Money Market, U.S. Government, Fixed Income,
Intermediate Tax-Exempt, Tax-Exempt, Income Equity, Growth Equity, Select
Equity and Small Cap Growth Funds, but with the ability to create additional
funds (the initial funds, other than any international fund, and each such
additional fund being referred to herein as a "Fund" and all such funds, other
than any international fund, being collectively referred to herein as the
"Funds"), and (b) pursuant to section 18(f)(2) of the 1940 Act each series of
the Trust's Shares (as defined in Trust's Agreement and Declaration of Trust
(the "Trust Agreement")), representing the interest in a Fund, is preferred
over all other series in respect of the assets specifically allocated to such
Fund.

2. Custody of Cash; Separate Accounts.

(a) Accounts. Northern will hold all cash of
each Fund, in a separate account or accounts
in the name of such Fund, subject only to
draft or order by Northern in accordance with
the terms of this Agreement. If and when
authorized by proper instructions of the
Trustees or Officers of the Trust in
accordance with a vote of the majority of the
Trustees of the Trust, Northern may open and
maintain an additional account or accounts in
such other banks or trust companies as may be
designated by such instructions, provided
that such account or accounts shall be in the
name of Northern in its capacity as custodian
and subject only to its draft or order in
accordance with the terms of this Agreement.
<PAGE> 2
(b) Segregated Accounts. Northern shall upon
receipt of Proper Instructions establish and
maintain a segregated account or accounts on
its records for and on behalf of each Fund of
the Trust, into which account or accounts may
be transferred cash and/or securities,
including securities in the Book-Entry System
(i) for the purposes of compliance by the
Trust with the procedures required by a
securities or option exchange, providing such
procedures comply with the Investment Company
Act of 1940 and Release No. 10666 or any
subsequent release or releases of the
Securities and Exchange Commission ("SEC")
relating to the maintenance of segregated
accounts by registered investment companies,
and (ii) for other proper corporate purposes,
but only, in the case of clause (ii), upon
receipt of Proper Instructions.

The Trust has furnished Northern with copies,
properly certified or authenticated, of the
following: before any Fund engages in any
transactions regulated by the Commodity
Futures Trading Commission ("CFTC"), a copy
of either (i) a filed notice of eligibility
to claim the exclusion from the definition of
"commodity pool operator" contained in
Section 2(a)(1)(A) of the Commodity Exchange
Act ("CEA") that is provided in Rule 4.5
under the CEA, together with all supplements
as are required by the CFTC, or (ii) a letter
which has been granted the Trust by the CFTC
which states that the Trust will not be
treated as a "pool" as defined in Section
4.10(d) of the CFTC's General Regulations, or
(iii) a letter which has been granted the
Trust by the CFTC which states that the CFTC
will not take any enforcement action if the
Trust does not register as a "commodity pool
operator." The Trust will furnish Northern
from time to time with copies, properly
certified or authenticated, of all amendments
of or supplements to the foregoing, if any.

Northern may enter into separate procedural,
safekeeping or other agreements with various
futures commission merchants ("FCMs") and
banks that are unaffiliated with the Trust
(each a "Safekeeping Arrangement"), pursuant
to which the banks will act as the Trust's
custodian with respect to the Trust's margin

-2-
<PAGE> 3
deposits in transactions involving futures
contracts and options on futures contracts.
Such margin deposits will be held in
segregated accounts (each an "FCM Account")
subject to the disposition by the FCM
involved in accordance with the customer
contract between FCM and the Trust ("FCM
Contract"), SEC rules governing such
segregated accounts, CFTC rules and the rules
of the applicable commodities exchange.
Transfers of initial and variation margin and
premiums shall be made from the Trust's
custodial accounts under the Custodian
Agreement upon Proper Instructions.

(c) Proceeds of Sale of Shares of Trust. Upon
receipt of funds for the purchase of Shares
of any Fund, Northern shall promptly deposit
the purchase price in the account or accounts
maintained pursuant to Section 2(a) hereof.

(d) Collections. Unless otherwise directed by
proper instructions from the Trustees or
Officers of the Trust, Northern shall
collect, receive and deposit in the account
or accounts maintained pursuant to Section
2(a) hereof all income, principal and other
payments in respect of the securities held by
it under this Agreement and, subject to the
other provisions of this Agreement, do all
other things necessary or proper in
connection with the collection of such
income, principal and other payments.
Without limiting the generality of the
foregoing, Northern shall:

(i) present for payment by the date of
payment all coupons and other income
items requiring presentation;

(ii) present for payment all securities
which may mature or be called,
redeemed, retired or otherwise
become payable by the date such
securities become payable;

(iii) endorse and deposit for collection,
on behalf of the Trust, checks,
drafts or other negotiable
instruments no later than the next
business day as received;

-3-
<PAGE> 4
(iv) execute ownership and other
certificates and affidavits for all
Federal and State tax purposes in
connection with the collection of
income; and

(v) notify the Trust as soon as
reasonably practicable whenever
income, principal or other payments
due on securities are not collected
in due course.

In any case in which Northern does not receive any such due
and unpaid income, principal or other payment within a reasonable time after it
has made proper demands for the same, it shall so notify the Trust in writing,
including copies of all demand letters, any written responses thereto, and
memoranda of telephonic demands and oral responses to written and telephonic
demands, and await proper instructions from the Trustees or Officers of the
Trust. Northern shall not be obliged to take legal action for collection
unless and until reasonably indemnified to its satisfaction.

3. Custody of Securities.

(a) Receipt of Securities. Northern will hold in
a separate account, and physically segregated
at all times from those of any other persons,
firms, corporations or other Funds, pursuant
to the provisions hereof, all securities
received by it for or for the account of a
Fund, subject to Sections 3(d), 8(a) and 8(b)
hereof. All such securities shall be held or
disposed of by Northern for the Trust
pursuant to the terms of this Agreement.
Northern shall have no power or authority to
assign, hypothecate, pledge or otherwise
dispose of any such securities, except
pursuant to proper instructions and only for
the account of the Trust as set forth in
Section 5 hereof. Any securities delivered
to Northern other than in bearer form shall
be properly endorsed and in form for transfer
or shall be in the name of Northern, the
Trust or a nominee of Northern or the Trust,
subject to Sections 3(d), 8(a) and 8(b)
hereof.

(b) Registered Name; Nominees. Northern shall
register securities of the Trust held by it
under this Agreement, other than those in
bearer form, in the name of the Trust or
Northern or a nominee of the Trust or
Northern. Securities of the Trust held by an

-4-
<PAGE> 5
agent appointed pursuant to Section 8(a)
hereof or a sub-custodian appointed pursuant
to Section 8(b) hereof may be registered in
the name of such agent or sub-custodian or a
nominee of such agent or sub-custodian.

(c) Record Keeping and Inventory. Northern shall
maintain records of all receipts, deliveries
and locations of securities held by it under
this Agreement, together with a current
inventory thereof. Without limiting the
generality of the foregoing, Northern shall
comply with such proper instructions from the
Trustees or Officers of the Trust as may be
issued from time to time in this regard.
With respect to securities held by any agent
appointed pursuant to Section 8(a) hereof or
any sub-custodian appointed pursuant to
Section 8(b) hereof, Northern may rely upon
certificates of the agent or sub-custodian as
to its holdings, it being understood that
such reliance in no way relieves Northern of
its responsibilities under this Agreement.
Northern will promptly report to the Trust
the results of such inspections, indicating
any shortages or discrepancies uncovered
thereby, and will take appropriate action to
remedy any such shortages or discrepancies.

(d) Use of Securities Depositories. Northern,
each agent appointed pursuant to Section 8(a)
hereof and each sub-custodian appointed
pursuant to Section 8(b) hereof may deposit
all or any part of the securities held by it
hereunder and eligible therefor in the book
entry systems ("Depository Systems") covered
by Rule 17f-4(b) under the 1940 Act;
provided, however, that (i) Northern, each
such agent and each such sub-custodian shall
comply in all respects with clauses (d)(1)
through (d)(4) of Rule 17f-4 under the 1940
Act, (ii) all books and records maintained by
Northern and each such agent and
sub-custodian which relate to the Trust's
participation in such Depository Systems will
at all times during regular business hours be
open to inspection by the Trust's duly
authorized officers, employees, agents and
auditors, and the Trust will be furnished
with all the information in respect of the
services rendered to it as it may require,
(iii) in connection with the use of such

-5-
<PAGE> 6
Depository Systems, Northern will cooperate
with the Trust in enforcing such rights as
may exist against such Depository Systems
with respect to transactions or securities of
the Trust, (iv) payment for securities
purchased for the account of any Fund shall
be made only upon (A) receipt of advice from
the Depository System that such securities
have been transferred to the account (the
"Account") contemplated by clause (d)(2) of
Rule 17f-4 under the 1940 Act and (B) the
making of an entry on the records of Northern
or such agent or sub-custodian, as the case
may be, to reflect such payment and transfer
for the Account of such Fund, and (v)
transfer of securities sold for the Account
of any Fund shall be made only upon (C)
receipt of advice from the Depository System
that payment for such securities has been
transferred to the Account, and (D) the
making of an entry on the records of Northern
or such agent or sub-custodian, as the case
may be, to reflect such transfer and payment
for the Account of such Fund. Northern, each
agent appointed pursuant to Section 8(a)
hereof and each sub-custodian appointed
pursuant to Section 8(b) hereof may deposit
all or any part of the securities held by it
hereunder and eligible therefor in a clearing
agency covered by Rule 17f-4(b) under the
1940 Act; provided, however, that no such
deposit may be made prior to the express
written approval by the Trust of such
clearing agency which approval may be subject
to such conditions as the Trust may from time
to time determine.

(e) Distributions, Rights, Etc. Northern shall
receive and collect all distributions, rights
and other items of like nature in respect of
securities held by it under this Agreement
and deal with the same in accordance with
this Agreement and its other obligations to
the Trust.

(f) Proxies, Notices, Voting, Etc. Northern
shall arrange for the receipt by it of all
forms of proxies and all notices of meetings,
calls, maturities, tender offers, exchange
offers and expirations of rights and any
other notices, consents, or announcements
affecting or relating to securities held by

-6-
<PAGE> 7
Northern, its agents appointed pursuant to
Section 8(a) hereof and all sub-custodians
appointed pursuant to Section 8(b) hereof,
and upon issuance of proper instructions,
Northern shall execute and deliver or cause
its nominee to execute and deliver such
proxies or other authorizations as may be
necessary or appropriate.

(g) Nondiscretionary Details. In general,
Northern shall attend to all nondiscretionary
details in connection with the sale,
exchange, substitution, purchase, transfer or
other dealing with securities or property of
the Trust except as otherwise from time to
time directed by proper instructions from the
Trustees or Officers of the Trust.

4. Disbursements of Cash. Upon the issuance of proper
instructions, Northern shall make payments or disbursements of cash of each
Fund held by it or subject to its draft or order under this Agreement, insofar
as such cash is available, only for the following purposes:

(a) Purchases Generally. To pay for and receive
securities purchased for the Account of such
Fund, payment to be made only (i) upon
receipt of the securities by Northern (or any
bank, banking firm, responsible commercial
agent or trust company doing business in the
United States and/or any foreign country and
appointed by Northern pursuant to Section
8(a) hereof as Northern's agent for this
purpose or appointed as sub-custodian
pursuant to Section 8(b) hereof), registered
as provided in Section 3(b) hereof or in form
for transfer satisfactory to Northern, (ii)
in the case of a purchase effected through a
Depository System, in accordance with the
conditions set forth in Section 3(d) hereof,
or (iii) in the case of repurchase
agreements, against delivery of the
securities which are the subject of such
repurchase agreement in certificate form or
receipt of advice from a Depository System
that such securities have been transferred to
the Account [except that in the case of a
repurchase agreement Northern may transfer
funds to the Account of the other party to
the repurchase agreement (i.e, the seller of
the securities) prior to the receipt of
written evidence that the securities subject

-7-
<PAGE> 8
to such repurchase agreement have been
transferred by book-entry into the Account,
provided that Northern shall be responsible
to the Trust in the event that such
securities are not so transferred by
book-entry], the making of an entry on the
records of Northern reflecting such transfer,
and receipt of written evidence of the
agreement by such person to repurchase such
securities from such Fund. All securities
accepted by Northern either shall be
accompanied by payment of, or a "due bill"
for, any dividends, interest or other
distributions of the issuer, due the
purchaser or Northern shall take such action
as may be necessary to obtain the same. In
any and every case of a purchase of
securities for the Account of such Fund where
payment is made by Northern in advance of
receipt of the securities purchased,
Northern shall be absolutely liable to the
Trust for such securities to the same extent
as if the securities had been received by
Northern.

(b) Dividends and Distributions. To release or
otherwise apply cash for the payment of
dividends or other distributions to
Shareholders of such Fund which are payable
in cash.

(c) Disbursements and Liabilities. To make or
cause to be made disbursements for the
payment on behalf of the Trust with respect
to such Fund of interest, taxes, investment
advisory, agency, professional, custodial and
administration fees and all other operating
expenses, including registration and
qualification costs and other expenses of
issuing and selling Shares of such Fund or
changing its capital structure, whether or
not such expenses shall be in whole or in
part capitalized or treated as deferred
expenses.

(d) Redemptions of Trust Shares. Subject to the
Trust Agreement, the Trust's then current
Prospectus and applicable resolutions of the
Trust's Trustees, to make funds available for
payment to Shareholders who have duly
requested redemption of their Shares by the
Trust pursuant to such Prospectus.

-8-
<PAGE> 9
(e) Other Purposes. To make or cause to be made
disbursements for any other purpose which is
declared in such instructions to be a proper
trust purpose; provided, however, that before
making any such disbursement Northern shall
have received a copy of a resolution of the
Trustees certified by the Secretary of the
Trust specifying the amount of such
disbursement, setting forth the purpose for
which such disbursement is to be made,
declaring such purpose to be a proper trust
purpose and naming the person(s) to whom the
disbursement is to be made.

5. Release and Delivery of Securities. Northern shall
have sole power to release or deliver any securities of a Fund held by it
pursuant to this Agreement. Upon issuance of proper instructions, Northern
will transfer, exchange, or deliver securities held by it hereunder only for
the following purposes:

(a) Sales. Upon receipt of payment therefor, to
deliver securities which have been sold for
the Account of such Fund.

(b) Securities Loans. Upon receipt of the
collateral required by the Trust's then
current Prospectus, to deliver securities
which have been lent for the Account of such
Fund.

(c) Redemption or Maturity. To deliver
securities owned for the Account of such Fund
to the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided, that in
any such case, the cash or other
consideration payable in respect thereof is
to be delivered to Northern.

(d) Changes of Name and Denomination. To deliver
securities owned for the Account of such Fund
to the issuer thereof or its agent for
transfer into the name of the Trust or
Northern or a nominee of either or a
permitted sub-custodian or agent or a nominee
of such sub-custodian or agent, or for
exchange for a different number of bonds,
certificates, or other evidence representing
the same aggregate face amount or number of
units bearing the same interest rate,
maturity dates and call/put provisions, if

-9-
<PAGE> 10
any; provided, that in any such case, the
new securities are to be delivered to
Northern.

(e) Street Delivery. To deliver securities owned
for the Account of such Fund to the broker or
dealer selling the same for examination in
accordance with the then current "street
delivery" custom.

(f) Securities as Collateral. To deliver
securities owned for the Account of such Fund
for the purpose of pledge or hypothecation to
secure any loan (including a reverse
repurchase agreement) incurred by the Trust;
provided that securities shall be released
only upon payment to Northern of the monies
borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made, subject to proper
prior authorization, further securities may
be delivered for that purpose. Upon issuance
of proper instructions, Northern shall pay
such loan upon redelivery to it of the
securities pledged or hypothecated therefor
and upon surrender of the note or notes, if
any, evidencing the loan.

(g) Exchanges, Deposits, Tenders, Etc. To
exchange securities or interim receipts or
temporary securities held by it or by any
agent appointed pursuant to Section 8(a)
hereof or any sub- custodian appointed
pursuant to Section 8(b) hereof for the
Account of such Fund for other securities
alone or for other securities and cash, and
to expend cash, insofar as cash is available,
in connection with any merger, consolidation,
reorganization, recapitalization, conversion
or in connection with the exercise of
subscription or purchase rights, or
otherwise; to deposit any such securities and
cash in accordance with the terms of any
reorganization or protective plan or
otherwise, and to deliver securities and
Related Documents to the designated
depository or other receiving agent in
response to tender offers or similar offers
to purchase received in writing.

(h) Other Purposes. To release or deliver any
securities held by it for the Account of such
Fund for any other purpose which such

-10-
<PAGE> 11
instructions declare to be a proper trust
purpose; provided, however, that before
making any such release or delivery Northern
shall have received a copy of the resolution
of the Trustees certified by the Secretary of
the Trust specifying the securities to be
delivered, setting forth the purpose for
which such release or delivery is to be made,
declaring such purpose to be a proper trust
purpose and naming the person(s) to whom such
release or delivery is to be made.

6. Records; Accounts and Reporting.

(a) Records. Northern shall create, maintain and
retain all records relating to its activities
and obligations under this Agreement in such
manner as will enable the Trust and Northern
to meet their respective obligations under:
(i) the 1940 Act, particularly Sections 30
and 31 thereof, and the rules and regulations
thereunder, including the preparation and
filing of all required periodic and other
reports, (ii) applicable Federal and State
tax laws, and (iii) any other law or
administrative rule or procedure which may be
applicable to the Trust or Northern. All
records maintained by Northern in connection
with the performance of its duties under this
Agreement will remain the property of the
Trust, shall be returned to the Trust
promptly upon request and, in the event of
termination of this Agreement, will be
delivered in accordance with Section 14
hereof.

(b) Accounts and Reporting. Northern shall keep
the books of account for the Trust and each
of its Funds, including all books necessary
to permit prompt determinations of the
Federal and State tax status and origin of
the Trust, each such Fund and the dividends
and other distributions declared and/or paid
thereby as and to the extent provided in or
contemplated by the Trust's Current
Prospectus as in effect from time to time
(such determination being collectively
referred to herein as "Tax Determinations").
Northern shall render statements or copies
thereof and shall make Tax Determinations
from time to time as contemplated by proper

-11-
<PAGE> 12
instructions from the Trustees or Officers
of the Trust.

(c) Access to Records. Without limiting Section
3(d) hereof, subject to security requirements
of Northern applicable to its own employees
having access to similar records within
Northern and such regulations as to the
conduct of such matters as may be reasonably
imposed by Northern after prior consultation
with an officer of the Trust or its
Administrator, the books and records of
Northern pertaining to its actions under this
Agreement shall be open to inspection and
audit at reasonable times by those persons or
classes of persons designated in proper
instructions from the Trustees or Officers of
the Trust.

(d) Cooperation with the Trust and its Auditors.
Northern shall cooperate with the Trust and
the Trust's independent public accountants in
connection with: (i) the preparation of
reports to Shareholders of the Trust, to the
SEC (including all required periodic and
other reports), to State securities
commissioners, and to others, (ii) annual and
other audits of the books and records of the
Trust (including, without limitation, such
procedures as may be designated in proper
instructions from the Trustees or Officers of
the Trust), and (iii) other matters of a like
nature.

7. Additional Duties of Northern.

(a) Valuations; Net Income Computation. Unless
otherwise directed by proper instructions
from the Trustees or Officers of the Trust,
Northern shall compute and determine on the
days and at the times specified in each
Fund's then Current Prospectus, the net asset
value of a Share of each Fund, such
computation and determination to be made in
accordance with such Fund's then Current
Prospectus, and shall promptly notify the
Administrator of the result of such
computation and determination.

Unless advised otherwise by proper
instructions from the Trustees or Officers of
the Trust, Northern shall also calculate at

-12-
<PAGE> 13
the times specified in each Fund's then
Current Prospectus the net income of each
Fund and shall promptly advise the
Administrator of the results of such
calculation. Such calculation shall be made
in accordance with such Fund's then Current
Prospectus.

8. Appointment of Agents and Sub-Custodians.

(a) Appointment of Agents. Northern, as
custodian, may at any time or times appoint
(and may at any time remove) in accordance
with the 1940 Act any other bank, trust
company or responsible commercial agent as
its agent to carry out such of the provisions
of this Agreement as Northern may from time
to time direct, provided that the appointment
of such agent shall not relieve Northern of
any of its responsibilities under this
Agreement.

(b) Appointment of Sub-Custodian. Northern, as
custodian, may from time to time employ one
or more sub-custodians, but only in
accordance with the terms and conditions set
forth in a resolution of the Trustees of the
Trust authorizing the appointment of each
particular sub-custodian, it being understood
and agreed that: (i) Northern shall have no
more responsibility or liability to the Trust
on account of any actions or omissions of any
sub-custodian so employed that such sub-
custodian has to Northern; and (ii) the
responsibility or liability of the
sub-custodian to Northern shall conform to
the resolution of the Trustees of the Trust
authorizing the appointment of the particular
sub-custodian.

9. Proper Instructions.

(a) Proper Instructions Generally. Proper
instructions shall be deemed to have been
issued upon issuance of written instructions
signed by not less than one officer and one
responsible employee of Northern which in the
case of each such officer and employee
Northern's Board of Directors shall have from
time to time authorized to give the
particular class of instructions in question.

-13-
<PAGE> 14
Different persons may be authorized to give
instructions for different purposes.

(b) Proper Instructions from the Trustees or
Officers of the Trust. Proper instructions
from the Trustees or Officers of the Trust
shall be deemed to have been issued upon
receipt by Northern of written instructions
(including receipt of facsimile) signed by a
majority of the Trustees of the Trust or by
not less than two of the Officers of the
Trust designated from time to time by
resolution of the Trustees. Such
instructions shall be deemed proper
instructions as that term is used in this
Agreement in addition to also being deemed
proper instructions from the Trustees or
Officers of the Trust. A certificate
executed by the Secretary or Assistant
Secretary of the Trust as to the persons
serving as Trustees and/or who are Officers
of the Trust designated as set forth above
may be received and accepted by Northern as
conclusive evidence of those persons who are
such Trustees and/or Officers and may be
considered to be accurate until receipt of
written notice (or oral notice followed by
written confirmation within seven days) to
the contrary. In the case of conflict
between Instructions under Section 9(a) and
under this Section 9(b), those given pursuant
to this Section 9(b) shall prevail upon
receipt by Northern.

10. Delivery of Documents. The Trust has furnished
Northern with copies, properly certified or authenticated, of the following:
before any Fund engages in any transactions regulated by the Commodity Futures
Trading Commission ("CFTC"), a copy of either (i) a filed notice of eligibility
to claim the exclusion from the definition of "commodity pool operator"
contained in Section 2(a)(1)(A) of the Commodity Exchange Act ("CEA") that is
provided in Rule 4.5 under the CEA, together with all supplements as are
required by the CFTC, or (ii) a letter which has been granted the Trust by the
CFTC which states that the Trust will not be treated as a "pool" as defined in
Section 4.10(d) of the CFTC's General Regulations, or (iii) a letter which has
been granted the Trust by the CFTC which states that the CFTC will not take any
enforcement action if the Trust does not register as a "commodity pool
operator."

-14-
<PAGE> 15
The Trust will furnish Northern from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.

11. Compensation; Reimbursement. The Trust shall pay to
Northern for its custodial, accounting and other services hereunder the
compensation and expense reimbursement set forth in Exhibit A hereto.

12. Duration and Termination. Insofar as the holders of
Shares representing the interests in the Trust's initial Funds are affected by
this Agreement, it shall continue, unless sooner terminated as provided herein,
until March 31, 1996, and, insofar as the holders of Shares representing the
interests in each additional Fund are affected by this Agreement, it shall
continue until March 31 of the year following the year in which the Fund
becomes a Fund hereunder, and, for each such Fund, thereafter shall continue
automatically for periods of one year so long as each such latter continuance
is approved at least annually (a) by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or interested persons (as
defined by the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (b) by the Trustees of the
Trust or by a majority of the outstanding Shares (as defined with respect to
voting securities in the 1940 Act) representing the interests in such Fund;
provided, however, that this Agreement may be terminated by the Trust at any
time, without the payment of any penalty, by vote of a majority of the Trustees
of the Trust or by vote of a majority of the outstanding Shares (as so defined)
of the Trust on 60 days' written notice to Northern, or by Northern at any
time, without the payment of any penalty, on 60 days' written notice to the
Trust.

13. Amendment of Agreement. This Agreement may be
amended by mutual consent, but the consent of the Trust must be approved by
vote of a majority of those Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party.

14. Interpretative and Additional Provisions. In
connection with the operation of this Agreement, Northern and the Trust may
agree from time to time, by written instrument signed by both parties, on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement, provided that no such interpretative or additional provisions shall
contravene any applicable Federal or State laws or regulations, or any
provision of the Trust Agreement or the Trust's By-laws, as the same may from
time to time be amended. No interpretative or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.

-15-
<PAGE> 16
15. Successor Custodian.

(a) Appointment of Successor by Trust. If a
successor custodian is appointed by the Trust
and a certified copy of the related
appointing resolutions are delivered to
Northern, Northern shall, upon termination of
this Agreement or substitution of such
successor for Northern, deliver to such
successor custodian at the office of
Northern, duly endorsed and in proper form
for transfer, all securities then held by
Northern hereunder (or by any agent or
sub-custodian of Northern) and all funds or
other property of the Trust deposited with or
held by Northern hereunder (or by any agent
or sub-custodian of Northern).

(b) Delivery Pursuant to Shareholder Resolution.
In the event that this Agreement is to be
terminated but no new custodian can be found
by the Trust, the Trust shall, before
authorizing the delivery of such securities,
funds and other property to anyone other than
a successor custodian, submit to its
Shareholders the question of whether the
Trust shall be liquidated or shall function
without a custodian. Upon approval by the
Shareholders for the Trust to liquidate or
function without a custodian Northern shall,
in like manner at its office, upon receipt of
a certified copy of a resolution of the
Shareholders of the Trust deliver such
securities, funds and other property in
accordance with such resolution.

(c) Selection of Successor by Northern. In the
event that this Agreement is terminated and
no successor custodian has been appointed by
the Trust or certified copy of a resolution
of the Shareholders has been delivered to
Northern on or before the date when such
termination shall become effective, then
Northern shall have the right to deliver to a
bank or trust company of its own selection,
having an aggregate capital, surplus, and
undivided profits, as shown by its last
published report, of not less than $50
million, all securities, funds, property and
instruments of the Trust held by Northern
under this Agreement (or any agent or
sub-custodian of Northern) and all
instruments

-16-
<PAGE> 17
held by Northern (or such agent or
sub-custodian) relative thereto. Thereafter,
such bank or trust company shall be the
successor custodian to Northern under this
Agreement.

16. Communications. Notices and other writings delivered
or mailed postage prepaid to the Trust in care of Northern Funds, c/o Sunstone
Financial Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin
53202, or to The Northern Trust Company at 50 South LaSalle Street, Chicago,
Illinois 60675, Attention: Fund Accounting, Canal Center, or to such other
address as the Trust or Northern may hereafter specify by written notice to the
most recent address specified by the party to whom such notice is addressed,
shall be deemed to have been properly delivered or given hereunder to the
respective addressee.

17. Miscellaneous. The Trust's Agreement and Declaration
of Trust is on file with the Secretary of the Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. Any provision in
this Agreement requiring compliance with any statute or regulation shall mean
such statute or regulation as amended and in effect from time to time. This
Agreement shall be construed in accordance with the laws of the State of
Illinois (except as to Section 17 hereof which shall be construed in accordance
with the laws of The Commonwealth of Massachusetts) and shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors.

18. Shareholder Liability. This Agreement is executed by
or on behalf of the Trust and the obligations hereunder are not binding upon
any of the Trustees, Officers or Shareholders of the Trust individually but are
binding only upon the Trust and its assets and property. All obligations of
the Trust under this

-17-
<PAGE> 18
Agreement shall apply only on a Fund by Fund basis, and the assets of one Fund
shall not be liable for the obligations of another Fund.

19. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

ATTEST: NORTHERN FUNDS

By /s/ JEFFREY A. DALKE By /s/ MIRIAM M. ALLISON
--------------------------- ------------------------

As its As its
----------------------- --------------------

ATTEST: THE NORTHERN TRUST COMPANY

By /s/ SIGNATURE ILLEGIBLE By /s/ TERRY MCCAFFREY
--------------------------- ------------------------

As its As its
----------------------- --------------------

-18-
<PAGE> 19
Exhibit A to Northern Funds
Custodian Agreement

A. Basic Custodial Fee

<TABLE>
<CAPTION>
Each Fund Fee
--------- ---
<S> <C>
First $100 million of average
daily net assets $18,000 (flat fee)

Average Daily Net Assets in
excess of $100 million 1/100th of 1% of
average daily net assets
</TABLE>

The Basic Custodial Fee is an annual fee which will be billed and
payable monthly.

B. Transaction Fee for Fund Trades
<TABLE>
<CAPTION>
Transaction Fee
----------- ---
<S> <C>
Non-book Entry $12.00
Book Entry $10.00
</TABLE>
C. Wire Fees
<TABLE>
<CAPTION>
Type of Wire Fee
------------ ---
<S> <C>
Wire Out $10.00
Wire In $10.00
</TABLE>
D. Basic Accounting Fee
<TABLE>
<CAPTION>
Each Fund Fee
--------- ---
<S> <C>
First $50 million of average
daily net assets $25,000 (flat fee)

Average Daily Net Assets in
excess of $50 million 1/100th of 1% of
average daily net assets
</TABLE>
E. Out-of-Pocket Expenses Reimbursable by the Trust

The Trust will reimburse Northern monthly for the following
out-of-pocket expenses incurred by Northern during such month in the
performance of its duties under the Custodian Agreement: (i) telephone; (ii)
postage; (iii) courier fees of independent courier services; (iv) office
supplies used in maintaining the Trust's records; and (v) duplicating.
<PAGE> 20
F. Adjustment of Certain Fees Based on the Consumer Price Index

Effective March 31, 1996 and effective each March 31 thereafter during
the term of this Agreement the Transaction Fees for Fund Trades and the Wire
Fees shall be adjusted by multiplying each such Fee by a fraction the
denominator of which is the Base Index Number and the numerator of which is the
Corresponding Index Number; provided, however, that (i) in no event shall such
fee be less than stated above in paragraphs B or C, as the case may be, and
(ii) Northern shall have the right to permanently or temporarily waive all or
any portion of the increase in any such Fee resulting from such adjustment.
For purposes of this paragraph F:

(1) "Index" means the Consumer Price Index for All Urban Consumers,
1967 = 100, published by the Bureau of Labor Statistics of the United
States Department of Labor;

(2) "Base Index Number" means the index number designated in the Index
for "All Items" for the United States City Average for the month of
December 1982, which is acknowledged by the parties as being 292.4;

(3) "Corresponding Index Number" with respect to a March 31 adjustment
means the index number designated in the Index for "All Items" for the
United States City Average for the month of December immediately
preceding such March 31; and

(4) If the publication of the Index shall be discontinued so that the
Fee applicable to a year commencing March 31 during the term of the
Custodian Agreement cannot be computed in accordance with the
foregoing provisions, then the Fee for such year shall be determined
on the basis of comparable statistics reflecting changes in the urban
cost of living in the United States, as computed and published by an
agency of the United States or by a responsible financial periodical
of recognized authority with such revisions in the method of
computation provided for in this paragraph 4 as the circumstances may
require in order to provide an inflation adjustment to such Fee.

-2-

<PAGE> 1
EXHIBIT 8(b)

NORTHERN FUNDS

TRANSFER AGENCY AGREEMENT

AGREEMENT made as of this 1st day of April, 1994 by and
between Northern Funds, a Massachusetts business trust (the "Trust"), and The
Northern Trust Company, an Illinois state bank ("Northern").

WITNESSETH

WHEREAS, the Trust is an open-end, management investment
company registered under the Investment Company Act of 1940 (the "1940 Act");
and

WHEREAS, the Trust is empowered to issue shares of beneficial
interest ("Shares") in separate series with each such series representing the
interests in a separate portfolio of securities and other assets; and

WHEREAS, the Trust presently intends to offer fourteen
portfolios, known as the Growth Equity Fund, Income Equity Fund, Small Cap
Growth Fund, Select Equity Fund, International Growth Equity Fund,
International Select Equity Fund, International Fixed Income Fund, Fixed Income
Fund, U.S. Government Fund, Intermediate Tax-Exempt Fund, Tax-Exempt Fund,
Money Market Fund, U.S. Government Money Market Fund and Municipal Money
Market Fund (such portfolios the "Current Funds") together with all other
portfolios subsequently established by the Trust and made subject to this
Agreement being herein collectively referred to as the "Funds"); and

WHEREAS, the Trust desires to retain Northern to render the
transfer agency and other services contemplated hereby with respect to each of
its Current Funds and Northern is willing to render such services;

NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter set forth, the parties hereto agree as follows:

1. Appointment. The Trust hereby appoints Northern to
provide the transfer agency and other services contemplated hereby with respect
to each of its Current Funds for the periods and on the terms herein set forth.
Northern accepts such appointment and agrees to render such transfer agency and
other services for the compensation herein provided. Notwithstanding the
foregoing, the Trust agrees that during the term of this Agreement it will not
establish any Funds other than the Current Funds without the consent of
Northern.
<PAGE> 2
2. Duties of Northern Generally.

a. Northern will act as transfer agent with
respect to the Current Funds, provide information in connection with the
preparation by the Trust of various regulatory reports and prepare reports to
the Trustees and management.

b. Subject to paragraph 4, Northern shall:

(i) answer inquiries (including requests
for Prospectuses and Statements of
Additional Information, and
assistance in the completion of new
account applications) and respond to
all requests for information
regarding the Trust (such as current
price, recent performance, yield,
etc.) and questions relating to
accounts of Shareholders (such as
possible errors in statements,
transactions, etc.);

(ii) process purchase and redemption
transactions, including transactions
generated by any service provided
outside of this Agreement by
Northern, its affiliates or
correspondent banks or other
financial intermediaries whereby
customer account cash balances are
automatically invested in Shares,
and the disbursement of the proceeds
of redemptions, all on a timely
basis and as described in the
Trust's then current Prospectuses
and Statements of Additional
Information (the "Current
Prospectuses") and this Agreement;

(iii) establish and maintain separate
omnibus accounts with respect to
Shareholders investing through
Northern and any of its affiliates
and correspondent banks, act as
transfer agent with respect to each
such account, and perform
subaccounting services with respect
to each such account, all as more
fully described or referred to in
paragraph 3;

(iv) furnish confirmations in accordance
with applicable law, and provide
periodic statements to each
Shareholder showing account balances
and all transactions since the last

-2-
<PAGE> 3
statement, all on a timely basis and
as described in the Current
Prospectuses and this Agreement;

(v) furnish proxy statements and
proxies, annual and semi-annual
financial statements, and dividend,
distribution and tax notices to
Shareholders; and

(vi) make arrangements for such office
space, equipment, telephone
facilities and personnel as may be
necessary or desirable for
performance of its services
hereunder.

c. Northern shall render to the Trust and its
Administrator such periodic and special reports as either of them may
reasonably request.

3. Processing, Transfer Agency and Subaccounting Duties.
With respect to each Current Fund:

a. Northern shall process and record the
issuance of Shares in accordance with Instructions from the Trust or its
Administrator.

b. Northern shall process and record the
redemption of Shares in accordance with Instructions from the Trust or its
Administrator.

c. Northern shall, as income disbursing agent
for the Trust and in accordance with Instructions, if any, from the Trust or
its Administrator and the Current Prospectuses, prepare and mail or credit
income and capital gain dividends or distributions on the Shares to each of the
Shareholders at the time and in the manner contemplated by the Current
Prospectuses.

d. Northern shall maintain individual account
records with respect to each Shareholder and the related omnibus account, if
any, in accordance with Instructions from the Trust or its Administrator.
Northern shall maintain all records relating to its activities and obligations
under this Agreement in such manner as will enable the Trust and Northern to
meet their respective obligations under: (i) the Current Prospectuses; (ii)
the 1940 Act, particularly Sections 30 and 31 thereof, and the rules and
regulations thereunder; (iii) applicable Federal and state tax laws; and (iv)
any other law or administrative rule or procedure which may be applicable to
the Trust or Northern. Northern shall preserve all records and other data
created and maintained pursuant to this Agreement in accordance with
Instructions from the Trust or its Administrator.

-3-
<PAGE> 4
e. Northern shall furnish to the Trust and its
Administrator: (i) information as to the Shares distributed to and redeemed by
the Shareholders in each state or other jurisdiction for "Blue Sky" purposes,
as determined in accordance with Instructions delivered from time to time by
the Trust or its Administrator and (ii) other information and statistical data
as may be requested and at such times as specified in Instructions, if any,
from the Trust or its Administrator.

f. Northern shall be responsible for carrying
out all tax withholding and related remittance obligations applicable to
dividends and distributions on the Shares. Northern shall prepare and file
with the Internal Revenue Service and with the appropriate state agencies, and
mail to the Shareholders, such returns for reporting, and information as to the
Federal income tax consequences of, dividends and distributions paid, credited
or withheld as are required on the part of the Trust, Northern, its affiliates
or correspondent banks by the Current Prospectuses or applicable law or
regulation to be so filed and mailed. Without limiting the generality of the
foregoing, such returns and information shall be prepared in conformity with
such Instructions, if any, from the Trust or its Administrator as may be given
to Northern from time to time.

g. Northern shall promptly inform the Trust and
its Administrator of all written complaints received by Northern from
Shareholders relating to the Trust or the maintenance of their accounts.
Northern shall promptly answer such complaints or other correspondence from the
Shareholders relating to the Trust or the maintenance of their accounts, as
well as similar correspondence directed by the Trust or its Administrator to
Northern's attention, all as the Trust or its Administrator shall request.
Northern shall provide the Trust and its Administrator on a timely basis with
information in this regard in accordance with Instructions from the Trust or
its Administrator.

h. Northern shall receive, examine and tabulate
returned proxies and certify the vote to the Trust, all as and to the extent
requested by the Trust.

4. Affiliates, Correspondent Banks and Other
Intermediaries. It is understood that Shares may be offered to customers of
affiliates or correspondent banks of Northern or to customers of other
financial intermediaries, that such banks and intermediaries may maintain
omnibus accounts at Northern and that, in such event, such affiliates,
correspondent banks or intermediaries may perform for Northern some or all of
the services which Northern has undertaken to perform under this Agreement. It
also is understood that Northern may retain other entities to determine, based
on information provided by Northern, the amounts in the accounts of Northern's
demand deposit account customers that are to be automatically invested in
Shares and to

-4-
<PAGE> 5
maintain certain subaccounting records with respect thereto. Notwithstanding
the fact that such services may actually be performed by such affiliates,
correspondent banks, intermediaries or such other entities:

a. Northern shall remain responsible on a
primary basis to the Trust for the timely and proper performance of such
services in accordance with the terms of this Agreement and for compliance with
all provisions of, and the accuracy of all representations and warranties
contained in, this Agreement which, as to such services, would be applicable to
such affiliates, correspondent banks, intermediaries or such other entities if
they were included within the term "Northern" hereunder.

b. For purposes of administering (including
giving Instructions and notices and making requests and fee payments) and
enforcing this Agreement, the Trust shall be entitled (but not obligated) to
deal solely with Northern.

c. To the extent that a correspondent bank shall
perform for Northern services which Northern has undertaken to perform
hereunder, Northern shall enter into a written agreement with such
correspondent bank or intermediary. Such agreement shall provide, among other
things, for: (i) accurate reporting by means of a certificate of the number of
subaccounts for which a fee is due and (ii) the right on the part of the Trust
to recover any excess payments. Northern shall be entitled to rely on the
accuracy of such certificate, provided that its reliance is reasonable.

5. Expenses. During the term of this Agreement,
Northern will pay all expenses incurred by it in connection with the
performance of its duties under this Agreement.

6. Compensation. For the services provided and the
expenses assumed by Northern pursuant to this Agreement, the Trust will pay to
Northern as full compensation therefor a fee payable monthly at an annual rate
of .10% of each Fund's average daily net asset value.

7. Duration and Termination. Insofar as the holders of
Shares representing the interests in the Current Funds are affected by this
Agreement, it shall continue, unless sooner terminated as provided herein,
until March 31, 1996, and, insofar as the holders of Shares representing the
interests in each of the other Funds are affected by this Agreement, it shall
continue until March 31 of the year following the year in which the Fund
commences investment operations, and as to each Fund thereafter shall continue
automatically for periods of one year so long as each such latter continuance
is approved at least annually (a) by the vote of a majority of the Trustees of
the Trust who are not

-5-
<PAGE> 6
parties to this Agreement or interested persons (as defined by the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Trust; provided, however, that
this Agreement may be terminated by the Trust at any time with respect to any
Fund, without the payment of any penalty, by vote of a majority of the Trustees
of the Trust or by vote of a majority of the outstanding Shares (as so defined)
of such Fund on 60 days' written notice to Northern, or by Northern at any
time, without the payment of any penalty, on 60 days' written notice to the
Trust. This Agreement will automatically and immediately terminate in the
event of its assignment (as defined by the 1940 Act).

8. Amendment of Agreement. This Agreement may be
amended by mutual consent, but the consent of the Trust must be approved by
vote of a majority of those Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party.

9. Interpretative and Additional Provisions. In
connection with the operation of this Agreement, Northern and the Trust may
agree from time to time, by written Instrument signed by both parties, on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement, provided that no such interpretative or additional provisions shall
contravene any applicable Federal or State laws or regulations, or any
provision of the Trust's Agreement and Declaration of Trust or By-laws, as the
same may from time to time be amended. No interpretative or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.

10. Instructions.

a. Northern shall be deemed to have received
Instructions (as that term is used herein) upon receipt of written instructions
(including receipt by facsimile), which may be continuing instructions, signed
by not less than two of the persons the Trustees shall have from time to time
authorized to give the particular class of Instructions in question. Different
persons may be authorized to give Instructions for different purposes, and
Instructions may be general or specific in terms. A certified copy of a
by-law, resolution or action of the Trustees of the Trust may be received and
accepted by Northern as conclusive evidence of the authority of any such
persons to act and may be considered to be in full force and effect until
receipt of written notice (or oral notice followed by written confirmation
within seven days) to the contrary.

b. One or more designated persons may be
authorized to issue oral (such term as used herein including,

-6-
<PAGE> 7
without limitation, telephoned) instructions, specifying the type or types of
instructions that may be so issued, in which case the Trust shall deliver to
Northern resolutions of the Trustees to such effect. Two or more of the
persons designated by the Trustees to give oral instructions shall promptly
confirm such oral instructions in writing to Northern. Such instructions when
given in accordance with the provisions hereof and with such resolutions shall
be deemed Instructions hereunder. In the case of conflict between oral
Instructions given by a person designated in the resolution of the Trustees
referred to in the first sentence of this subparagraph (b) and any written
Instructions, the Instructions most recently received by Northern shall prevail
following such receipt, and in case of conflict between oral Instructions given
by a person designated in such resolution and any written confirmation or
purported confirmation of oral Instructions, such written confirmation or
purported confirmation shall prevail following receipt thereof by Northern;
provided that any transaction initiated by Northern pursuant to such oral
Instructions, may, but need not, be completed by Northern notwithstanding
Northern's receipt of conflicting subsequent Instructions hereunder or written
confirmation or purported confirmation of oral Instructions hereunder
subsequent to Northern's initiation of such transaction.

11. Audit, Inspection and Visitation. In addition to its
other duties hereunder, Northern shall cooperate with the Trust and the Trust's
independent public accountants in connection with (a) the preparation of
reports to the Shareholders, to the Securities and Exchange Commission (the
"Commission") (including all required periodic and other reports), to state
securities commissioners and to others, (b) annual and other audits of the
books and records of the Trust, and (c) other matters of a like nature.
Northern shall make available during regular business hours all records and
other data created and maintained pursuant to this Agreement for reasonable
audit, inspection and copying by the Trust, its Administrator, the Trust's
independent public accountants, or any other person retained by the Trust or
its Administrator, or by agents of the Commission. Upon reasonable notice by
the Trust or its Administrator, Northern shall make available during regular
business hours its facilities and premises employed in connection with its
performance of this Agreement for reasonable visitation by any of the persons
referred to in the preceding sentence.

12. Opinion and Reports of Trust's Independent
Accountants.

a. Northern shall take all reasonable action, as
the Trust may from time to time request, to obtain from year to year favorable
opinions from the Trust's independent accountants in connection with the
preparation of the Trust's Form N-1A and

-7-
<PAGE> 8
Form N-SAR or other reports to the Commission and with respect to any other
requirements of the Commission.

b. Northern shall provide the Trust or its
Administrator, at such times as the Trust or its Administrator may reasonably
require, with reports by independent public accountants on the accounting
system and internal accounting controls relating to the services provided by
Northern under this Agreement. Such reports shall be of sufficient scope and
in sufficient detail, as may reasonably be required by the Trust, its
Administrator or its independent public accountants, to provide reasonable
assurance that any material weaknesses with respect to such accounting system
and such internal accounting controls would be disclosed by such examination,
and, if there are no such weaknesses, shall so state.

13. Systems. Northern represents that it has, and it
agrees to maintain, sufficient systems capability to perform its obligations
under this Agreement and the Current Prospectuses.

14. Security. Northern represents and warrants that the
various procedures and systems which it has implemented with regard to
safeguarding from loss or damage attributable to fire, theft or any other cause
the Trust's records and other data and Northern's records, data, equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as in its judgment are required for the secure performance of its
obligations hereunder.

15. Status of Northern as Independent Contractor.
Northern shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided herein or authorized
by the Trustees of the Trust or its Administrator, respectively, from time to
time, have no authority to act for or represent the Trust or the Administrator
in any way or otherwise be deemed an agent of the Trust or its Administrator.
The services of Northern hereunder are not deemed exclusive and Northern shall
be free to render similar services to others so long as its services under this
Agreement are not impaired thereby.

16. Shareholder Liability. This Agreement is executed by
or on behalf of the Trust and the obligations hereunder are not binding upon
any of the Trustees, Officers or holders of Shares of the Trust individually
but are binding only upon the Trust and its assets and property. All
obligations of the Trust under this Agreement shall apply only on a Fund by
Fund basis, and the assets of one Fund shall not be liable for the obligations
of another Fund.

-8-
<PAGE> 9
17. Notices. Without limiting the other provisions
hereof, notices and other writings delivered or mailed postage prepaid to the
Trust c/o Sunstone Financial Group, Inc., 207 E. Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202 or to The Northern Trust Company, 50 South LaSalle
Street, Chicago, Illinois 60675, Attention: Fund Accounting, Canal Center, or
to such other address as the Trust or Northern may hereafter specify by written
notice to the most recent address specified by the party to whom such notice is
addressed, shall be deemed to have been properly delivered or given hereunder
to the respective addressee.

18. Miscellaneous. The Trust's Agreement and Declaration
of Trust is on file with the Secretary of the Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. Any provision in
this Agreement requiring compliance with any statute or regulation shall mean
such statute or regulation as amended and in effect from time to time. This
Agreement shall be construed in accordance with the laws of the State of
Illinois (except as to paragraph 16 hereof which shall be construed in
accordance with the laws of The Commonwealth of Massachusetts) and, subject to
the other provisions hereof, shall be binding upon and inure to the benefit of
the parties hereto and their respective successors.

19. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have caused this instrument to
be executed as of the day and year first above written.

ATTEST: NORTHERN FUNDS

/s/ JEFFREY A. DALKE By /s/ MIRIAM M. ALLISON
- --------------------------- --------------------------

As its
----------------------

ATTEST: THE NORTHERN TRUST COMPANY

/s/ SIGNATURE ILLEGIBLE By /s/ TERRY MCCAFFREY
- ---------------------------- --------------------------

As its
----------------------

-9-

<PAGE> 1
EXHIBIT 8(c)

NORTHERN FUNDS

ADDENDUM NO. 1 TO THE TRANSFER AGENCY AGREEMENT

This Addendum, dated as of the 29th day of November, 1994, is entered
into between NORTHERN FUNDS (the "Trust"), a Massachusetts business trust, and
THE NORTHERN TRUST COMPANY, an Illinois state bank (the "Transfer Agent").

WHEREAS, the Trust and the Transfer Agent have entered into a Transfer
Agency Agreement dated as of April 1, 1994 (the "Transfer Agency Agreement"),
pursuant to which the Trust appointed the Transfer Agent to act as transfer
agent to the Trust for its Funds; and

WHEREAS, the Trust is establishing the California Municipal Money
Market Fund and the U.S. Government Select Money Market Fund (the "Funds"), and
the Trust desires to retain the Transfer Agent under the terms of the Transfer
Agency Agreement to render transfer agency and other services with respect to
the Funds and the record and/or beneficial owners thereof, and the Transfer
Agent is willing to render such services.

NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:

1. Appointment. The Trust hereby appoints the Transfer Agent
as transfer agent with respect to the Funds in accordance with
the terms set forth in the Transfer Agency Agreement. The
Transfer Agent hereby accepts such appointment and agrees to
render the services and perform the duties set forth in the
Transfer Agency Agreement for the compensation therein
provided.

2. Capitalized Terms. From and after the date hereof, the term
"Current Funds" as used in the Transfer Agency Agreement shall
be deemed to include the California Municipal Money Market
Fund and the U.S. Government Select Money Market Fund.
Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Transfer Agency
Agreement.

3. Miscellaneous. The initial term of the Transfer Agency
Agreement with respect to the Funds shall continue, unless
sooner terminated in accordance with the Transfer Agency
Agreement, until March 31, 1996. Except to the extent
supplemented hereby, the Transfer Agency Agreement shall
remain unchanged and in full
<PAGE> 2
force and effect, and is hereby ratified and confirmed in all
respects as supplemented hereby.

IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the date and year first above written.

NORTHERN FUNDS

Attest: /s/ MARY TENWINKLE By: /s/ MIRIAM M. ALLISON
--------------------- -----------------------

Title: Vice President
--------------------

Attest: /s/ CATHERINE SMITH THE NORTHERN TRUST COMPANY
---------------------

By: /s/ LLOYD A. WENNLUND
-----------------------

Title: Vice President
--------------------

<PAGE> 1

EXHIBIT 8(d)

NORTHERN FUNDS

ADDENDUM NO. 1 TO THE CUSTODIAN AGREEMENT

This Addendum, dated as of the 29th day of November, 1994, is
entered into between NORTHERN FUNDS (the "Trust"), a Massachusetts business
trust, and THE NORTHERN TRUST COMPANY, an Illinois state bank ("Northern").

WHEREAS, the Trust and Northern have entered into a Custodian
Agreement dated April 1, 1994 (the "Custodian Agreement"), pursuant to which
the Trust appointed Northern to act as custodian to the Trust for its Funds;
and

WHEREAS, the Trust is establishing the California Municipal
Money Market Fund and the U.S. Government Select Money Market Fund (the
"Funds"), and the Trust desires to retain Northern under the terms of the
Custodian Agreement to act as the custodian therefor, and Northern is willing
to so act.

NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:

1. Appointment. The Trust hereby appoints Northern
custodian to the Trust for the Funds in accordance
with the terms set forth in the Custodian Agreement.
Northern hereby accepts such appointment and agrees
to render the services set forth in the Custodian
Agreement for the compensation therein provided.

2. Capitalized Terms. From and after the date hereof,
the term "Funds" as used in the Custodian Agreement
shall be deemed to include the California Municipal
Money Market Fund and the U.S. Government Select
Money Market Fund. Capitalized terms used herein and
not otherwise defined shall have the meanings
ascribed to them in the Custodian Agreement.

3. Miscellaneous. The initial term of the Custodian
Agreement with respect to the Funds shall continue,
unless sooner terminated in accordance with the
Custodian Agreement, until March 31, 1996. Except to
the extent supplemented hereby,
<PAGE> 2
the Custodian Agreement shall remain unchanged and in
full force and effect, and is hereby ratified and
confirmed in all respects as supplemented hereby.

IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.

NORTHERN FUNDS

Attest: /s/ MARY TENWINKLE By: /s/ MIRIAM M. ALLISON
------------------- -----------------------
As its: Vice President
--------------

THE NORTHERN TRUST COMPANY

Attest: /s/ CATHERINE SMITH By: /s/ LLOYD A. WENNLUND
-------------------- -----------------------
As its: Vice President
--------------

<PAGE> 1
EXHIBIT 8(g)
NORTHERN FUNDS

FOREIGN CUSTODY AGREEMENT

Agreement dated this 1st day of April 1994 between Northern
Funds, a Massachusetts business trust (the "Trust"), and The Northern Trust
Company, an Illinois state bank ("Northern").

1. Appointment of Custodian. The Trust hereby appoints
Northern custodian of all securities (including repurchase agreements), cash,
cash equivalents and other instruments (collectively, "Property") now owned or
hereafter acquired by the Trust on behalf of its International Growth Equity
Fund, International Select Equity Fund, and International Fixed Income Fund,
and any other investment portfolios of the Trust which may invest in the
securities of foreign issuers and which are specifically authorized by
resolution of the Trust's Board of Trustees to be added to this Agreement
(collectively, the "Funds"), and Northern hereby accepts such appointment, upon
the terms and conditions set forth in this Agreement. The Trust agrees
promptly to deliver and pay, or cause to be delivered and paid, to Northern, as
custodian for the Funds, or to an agent appointed pursuant to Section 8(a)
hereof or a sub-custodian appointed pursuant to Section 8(b) or 8(c) hereof,
all securities and cash now owned or hereafter acquired by the Trust on behalf
of the Funds.

2. Custody of Cash; Separate Accounts.

(a) Accounts. Northern will hold all cash and
cash equivalents of each Fund, in a separate
account or accounts in the name of such Fund,
subject only to draft or order by Northern in
accordance with the terms of this Agreement.
If and when authorized by proper instructions
of the Trustees or Officers of the Trust in
accordance with a vote of the majority of the
Trustees of the Trust, Northern may open and
maintain an additional account or accounts in
such other banks or trust companies as may be
designated by such instructions, provided
that such account or accounts shall be in the
name of Northern in its capacity as custodian
and subject only to its draft or order in
accordance with the terms of this Agreement.

It is understood that the Property in such
account or accounts may be held in such
countries or other jurisdictions as shall be
specified from time to time in "proper
instructions" (as defined in Section 9
hereof).
<PAGE> 2
(b) Proceeds of Sale of Shares of Trust. Upon
receipt of funds for the purchase of shares
of any Fund, Northern shall promptly deposit
the purchase price in the account or accounts
maintained pursuant to Section 2(a) hereof.

(c) Collections. Unless otherwise directed by
proper instructions from the Trustees or
Officers of the Trust, Northern shall
collect, receive and deposit in the account
or accounts maintained pursuant to Section
2(a) hereof all income, principal and other
payments in respect of the Property held by
it under this Agreement and, subject to the
other provisions of this Agreement, do all
other things necessary or proper in
connection with the collection of such
income, principal and other payments.
Without limiting the generality of the
foregoing, Northern shall:

(i) present for payment by the date
of payment all coupons and other
income items requiring
presentation;

(ii) present for payment all
securities which may mature or be
called, redeemed, retired or
otherwise become payable by the
date such securities become
payable;

(iii) endorse and deposit for
collection, on behalf of the
Trust, checks, drafts or other
negotiable instruments no later
than the next business day as
received;

(iv) execute ownership and other
certificates and affidavits for
all Federal and State tax
purposes in connection with the
collection of income; and

(v) notify the Trust as soon as
reasonably practicable whenever
income, principal or other
payments due on securities are
not collected in due course.

-2-
<PAGE> 3
demand letters, any written responses thereto, and memoranda of telephonic
demands and oral responses to written and telephonic demands, and await proper
instructions from the Trustees or Officers of the Trust. Northern shall not be
obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction.

3. Custody of Securities.

(a) Receipt of Securities. Northern will hold in
a separate account, and physically segregated
at all times from those of any other persons,
firms, corporations or other Funds, pursuant
to the provisions hereof, all securities
received by it for or for the account of a
Fund, subject to Sections 3(d), 8(a), 8(b)
and 8(c) hereof, which shall include
securities the Fund desires to be held in
places within the United States ("domestic
securities") and "foreign securities," as
defined in paragraph (c)(1) of Rule 17f-5
("Rule 17f-5") under the Investment Company
Act of 1940, as amended (hereinafter
collectively called "Securities"). All
Securities shall be held or disposed of by
Northern for the Trust pursuant to the terms
of this Agreement. Northern shall have no
power or authority to assign, hypothecate,
pledge or otherwise dispose of any such
Securities, except pursuant to proper
instructions and only for the account of the
Trust as set forth in Section 5 hereof. Any
Securities delivered to Northern other than
in bearer form shall be properly endorsed and
in form for transfer or shall be in the name
of Northern, the Trust or a nominee of
Northern or the Trust, subject to Sections
3(d), 8(a), 8(b) and (c) hereof.

(b) Registered Name; Nominees. Northern shall
register Securities of the Trust held by it
under this Agreement, other than those in
bearer from, in the name of the Trust or
Northern or a nominee of the Trust or
Northern. Securities held by an agent
appointed pursuant to Section 8(a) hereof or
a sub-custodian appointed pursuant to Section
8(b) or 8(c) hereof may be registered in the
name of such agent or sub-custodian or a
nominee of such agent or sub-custodian.

-3-
<PAGE> 4
(c) Record Keeping and Inventory. Northern shall
maintain records of all receipts, deliveries
and locations of Securities held by it under
this Agreement, together with a current
inventory thereof. Without limiting the
generality of the foregoing, Northern shall
comply with such proper instructions from the
Trustees or Officers of the Trust as may be
issued from time to time in this regard.
With respect to Securities held by any agent
appointed pursuant to Section 8(a) hereof or
any sub-custodian appointed pursuant to
Section 8(b) or 8(c) hereof, Northern may
rely upon certificates of the agent or
sub-custodian as to its holdings, it being
understood that such reliance in no way
relieves Northern of its responsibilities
under this Agreement. Northern will promptly
report to the Trust the results of such
inspections, indicating any shortages or
discrepancies uncovered thereby, and will
take appropriate action to remedy any such
shortages or discrepancies.

(d) Use of Securities Depositories. Northern,
each agent appointed pursuant to Section 8(a)
hereof and each sub-custodian appointed
pursuant to Section 8(b) or 8(c) hereof may
deposit all or any part of the Securities
held by it hereunder and eligible therefor in
the depository systems covered by Rule
17f-4(b) under the 1940 Act; provided that
Northern, each such agent and each such
sub-custodian shall comply in all respects
with clauses (d)(1) through (d)(4) of Rule
17f-4 under the 1940 Act and, with respect to
foreign securities depositories, Rule 17f-5
under the 1940 Act; and provided further,
that no such deposit may be made prior to the
approval by the Trust of such depository
system, which approval may be subject to such
conditions as the Trust may from time to time
determine; and provided further that with
respect to domestic depository systems, (1)
all books and records maintained by Northern
and each such agent and sub-custodian which
relate to the Trust's participation in such
depository systems will at all times during
regular business hours be open to inspection
by the Trust's duly authorized officers,
employees, agents and auditors, and the Trust
will be furnished with all the information in

-4-
<PAGE> 5
respect of the services rendered to it as it
may require, (2) in connection with the use
of such depository systems, Northern will
cooperate with the Trust in enforcing such
rights as may exist against such depository
systems with respect to transactions or
Securities of a Fund, (3) payment for
Securities purchased for the account of any
Fund shall be made only upon (i) receipt of
advice from the depository system that such
Securities have been transferred to the
account (the "Account") contemplated by
clause (d)(2) of Rule 17f-4 under the 1940
Act and (ii) the making of an entry on the
records of Northern or such agent or
sub-custodian, as the case may be, to reflect
such payment and transfer for the Account of
such Fund, and (4) transfer of Securities
sold for the Account of any Fund shall be
made only upon (i) receipt of advice from the
depository system that payment for such
Securities has been transferred to the
Account, and (ii) the making of an entry on
the records of Northern or such agent or
sub-custodian, as the case may be, to reflect
such transfer and payment for the Account of
such Fund. Except as may otherwise be agreed
upon in writing by Northern and the Trust,
Securities of a Fund shall be maintained in
foreign securities depositories only through
arrangements implemented by the foreign
banking institutions serving as
sub-custodians pursuant to Section 8(c)
hereof.

(e) Use of Sub-Custodians. With respect to
Property which is maintained by Northern in
the custody of a sub-custodian pursuant to
Section 8(b) or 8(c): (1) Northern will
identify on its books as belonging to the
particular Fund any Property held by such
sub-custodian; (2) any Property held by a
sub-custodian of Northern will be subject
only to the instructions of Northern or its
agents, and any Securities held in an
eligible foreign securities depository (as
defined in Section 8(c)) for the account of a
sub-custodian will be subject only to the
instructions of such sub-custodian; (3) any
agreement Northern shall enter into with a
foreign sub-custodian shall require that (i)
the Property is not subject to any right,
charge, security interest, lien or claim of

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<PAGE> 6
any kind in favor of such sub-custodian or
its creditors except for a claim of payment
for its safe custody or administration and
(ii) beneficial ownership of such Property is
freely transferable without the payment of
money or value other than for safe custody or
administration; provided, however, that the
foregoing shall not apply to the extent that
any of the above- mentioned rights, charges,
etc. result from any compensation or other
expenses arising with respect to the
safekeeping of Property pursuant to such
agreement; (4) Northern will supply to the
Trust at least monthly a statement in respect
to any Property held by each sub-custodian,
including an identification of the entity
having possession of such Property, and
Northern will send to the Trust an advice or
notification of any transfers of Property
indicating, as to Property acquired for a
Fund, the identity of the entity having
physical possession of such Property. In the
absence of the filing in writing with
Northern by the Trust of exceptions or
objections to any such statement within sixty
(60) days of the Trust's receipt of such
statement, or within sixty (60) days after
the date that a material defect is reasonably
discoverable, the Trust shall be deemed to
have approved such statement; and in such
case or upon written approval of the Trust of
any such statement Northern shall, to the
extent permitted by law and provided Northern
has used reasonable care with respect to its
obligations under this Agreement, be
released, relieved and discharged with
respect to all matters and things set forth
in such statement as though such statement
has been settled by the decree of a court of
competent jurisdiction in an action in which
the Trust and all persons having any equity
interest in the Trust were parties; and (5)
Northern hereby warrants to the Trust that in
its opinion, after due inquiry, the
established procedures to be followed by each
of its branches, each branch of a "qualified
U.S. bank" and each eligible "foreign
custodian" (as defined in Section 8(c))
holding Property of the Trust pursuant to
this Agreement afford protection for such
Property at least equal to that afforded by
Northern's established procedures with

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<PAGE> 7
respect to similar Property held by Northern
(and its securities depositories) in Chicago,
Illinois.

(f) Distributions, Rights, Etc. Northern shall
receive and collect all distributions, rights
and other items of like nature in respect of
Property held by it or by an agent appointed
pursuant to Section 8(a) or a sub-custodian
appointed pursuant to Section 8(b) or 8(c) of
this Agreement and deal with the same in
accordance with this Agreement and its other
obligations to the Trust.

(g) Proxies, Notices, Voting, Etc. Northern
shall arrange for the receipt by it of all
forms of proxies and all notices of meetings,
calls, maturities, tender offers, exchange
offers and expirations of rights and any
other notices, consents, or announcements
affecting or relating to Property held by
Northern, its agents appointed pursuant to
Section 8(a) hereof and all sub- custodians
appointed pursuant to Section 8(b) and 8(c)
hereof, and upon issuance of proper
instructions, Northern shall execute and
deliver or cause its nominee to execute and
deliver such proxies or other authorizations
as may be necessary or appropriate.

(h) Nondiscretionary Details. In general,
Northern shall attend to all nondiscretionary
details in connection with the sale,
exchange, substitution, purchase, transfer or
other dealing with Property of the Trust
except as otherwise from time to time
directed by proper instructions from the
Trustees or Officers of the Trust.

(a) Purchases Generally. To pay for and receive
Property purchased for the account of such
Fund, payment to be made only (1) in
accordance with the customary or established
securities trading or securities processing
practices and procedures in the jurisdiction

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<PAGE> 8
or market in which the transaction occurs,
(2) in the case of a purchase effected
through a depository system, in accordance
with the conditions set forth in Section 3(d)
hereof, or (3) in the case of repurchase
agreements, against delivery of the
Securities which are the subject of such
repurchase agreement in certificate form or
receipt of advice from a depository system
that such Securities have been transferred to
the Fund's Account (except that in the case
of a repurchase agreement Northern may
transfer funds to the Account of the other
party to the repurchase agreement (i.e., the
seller of the Securities) prior to the
receipt of written evidence that the
Securities subject to such repurchase
agreement have been transferred by book-entry
into the Fund's Account, provided that
Northern shall be responsible to the Trust in
the event that such Securities are not so
transferred by book-entry), the making of an
entry on the records of Northern reflecting
such transfer, and receipt of written
evidence of the agreement by such person to
repurchase such Securities from such Fund.
All Securities accepted by Northern either
shall be accompanied by payment of, or a "due
bill" for, any dividends, interest or other
distributions of the issuer, due the
purchaser or Northern shall take such action
as may be necessary to obtain the same.

(b) Dividends and Distributions. To release or
otherwise apply cash for the payment of
dividends or other distributions to
shareholders of such Fund which are payable
in cash.

(c) Disbursements and Liabilities. To make or
cause to be made disbursements for the
payment on behalf of the Trust with respect
to such Fund of interest, taxes, investment
advisory, agency, professional, custodial and
administration fees and all other operating
expenses, including registration and
qualification costs and other expenses of
issuing and selling shares of such Fund or
changing its capital structure, whether or
not such expenses shall be in whole or in
part capitalized or treated as deferred
expenses.

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<PAGE> 9
(d) Redemptions of Trust Shares. Subject to the
Trust Agreement, the Trust's then current
Prospectus and applicable resolutions of the
Trust's Trustees, to make funds available for
payment to shareholders who have duly
requested redemption of their shares by the
Trust pursuant to such Prospectus.

(e) Conversions. To convert monies received with
respect to Securities of foreign issue into
United States dollars or any other currency
necessary to effect any transaction involving
the Securities whenever it is practicable to
do so through customary banking channels,
using any method or agency available,
including, but not limited to, the facilities
of Northern, its subsidiaries, affiliates or
sub-custodians.

(f) Other Purposes. To make or cause to be made
disbursements for any other purpose which is
declared in such instructions to be a proper
trust purpose; provided, however, that before
making any such disbursement Northern shall
have received a copy of a resolution of the
Trustees certified by the Secretary of the
Trust specifying the amount of such
disbursement, setting forth the purpose for
which such disbursement is to be made,
declaring such purpose to be a proper trust
purpose and naming the person(s) to whom the
disbursement is to be made.

5. Release and Delivery of Securities. Northern shall
have sole power to release or deliver any Securities of a Fund held by it
pursuant to this Agreement. Upon issuance of proper instructions, Northern
will transfer, exchange, or deliver Securities held by it hereunder only for
the following purposes:

(a) Sales. To deliver Securities which have been
sold for the account of such Fund in
accordance with the customary or established
securities trading or securities processing
practices and procedures in the jurisdiction
or market in which the transaction occurs,
including, without limitation, delivering
Securities to the purchaser thereof or to a
dealer therefor (or an agent for such
purchaser or dealer) against a receipt with
the expectation of receiving later payment
for such Securities from such purchaser or
dealer.

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<PAGE> 10
(b) Securities Loans. Upon receipt of the
collateral required by the Trust's then
current Prospectus, to deliver Securities
which have been lent for the account of such
Fund.

(c) Redemption or Maturity. To deliver
Securities owned for the account of such Fund
to the issuer thereof or its agent when such
Securities are called, redeemed, retired or
otherwise become payable; provided, that in
any such case, the cash or other
consideration payable in respect thereof is
to be delivered to Northern.

(d) Changes of Name and Denomination. To deliver
Securities owned for the account of such Fund
to the issuer thereof or its agent for
transfer into the name of the Trust or
Northern or a nominee of either or a
permitted sub-custodian or agent or a nominee
of such sub-custodian or agent, or for
exchange for a different number of bonds,
certificates, or other evidence representing
the same aggregate face amount or number of
units bearing the same interest rate,
maturity dates and call/put provisions, if
any; provided, that in any such case, the new
Securities are to be delivered to Northern.

(e) Street Delivery. To deliver Securities owned
for the account of such Fund to the broker or
dealer selling the same for examination in
accordance with the then current "street
delivery" custom.

(f) Securities as Collateral. To deliver
Securities owned for the account of such Fund
for the purpose of pledge or hypothecation to
secure any loan (including a reverse
repurchase agreement) incurred by the Trust;
provided that Securities shall be released
only upon payment to Northern of the monies
borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made, subject to proper
prior authorization, further Securities may
be delivered for that purpose. Upon issuance
of proper instructions, Northern shall pay
such loan upon redelivery to it of the
Securities pledged or hypothecated therefor

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<PAGE> 11
and upon surrender of the note or notes, if
any, evidencing the loan.

(g) Exchanges, Deposits, Tenders, Etc. To
exchange Securities or interim receipts or
temporary Securities held by it or by any
agent appointed pursuant to Section 8(a)
hereof or any sub-custodian appointed
pursuant to Section 8(b) or 8(c) hereof for
the account of such Fund for other Securities
alone or for other Securities and cash, and
to expend cash, insofar as cash is available,
in connection with any merger, consolidation,
reorganization, recapitalization, conversion
or in connection with the exercise of
subscription or purchase rights, or
otherwise; to deposit any such Securities and
cash in accordance with the terms of any
reorganization or protective plan or
otherwise, and to deliver Securities and
related documents to the designated
depository or other receiving agent in
response to tender offers or similar offers
to purchase received in writing.

(h) Other Purposes. To release or deliver any
Securities held by it for the account of such
Fund for any other purpose which such
instructions declare to be a proper trust
purpose; provided, however, that before
making any such release or delivery Northern
shall have received a copy of the resolution
of the Trustees certified by the Secretary of
the Trust specifying the Securities to be
delivered, setting forth the purpose for
which such release or delivery is to be made,
declaring such purpose to be a proper trust
purpose and naming the person(s) to whom such
release or delivery is to be made.

6. Records; Accounts and Reporting.

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<PAGE> 12
tax laws, and (iii) any other law or
administrative rule or procedure which may be
applicable to the Trust or Northern. All
records maintained by Northern in connection
with the performance of its duties under this
Agreement will remain the property of the
Trust, shall be returned to the Trust
promptly upon request and, in the event of
termination of this Agreement, will be
delivered in accordance with Section 16
hereof.

(b) Accounts and Reporting. Northern shall keep
the books of account for the Trust and each
of its Funds, including all books necessary
to permit prompt determinations of the
Federal and State tax status and origin of
the Trust, each such Fund and the dividends
and other distributions declared and/or paid
thereby as and to the extent provided in or
contemplated by the Trust's current
Prospectus as in effect from time to time
(such determination being collectively
referred to herein as "Tax Determinations").
Northern shall render statements or copies
thereof and shall make Tax Determinations
from time to time as contemplated by proper
instructions from the Trustees or Officers of
the Trust.

(c) Access to Records. Without limiting Section
3(d) hereof, subject to security requirements
of Northern applicable to its own employees
having access to similar records within
Northern and such regulations as to the
conduct of such matters as may be reasonably
imposed by Northern after prior consultation
with an officer of the Trust or its
administrator, the books and records of
Northern pertaining to its actions under this
Agreement shall be open to inspection and
audit at reasonable times by those persons or
classes of persons designated in proper
instructions from the Trustees or Officers of
the Trust.

(d) Cooperation with the Trust and its Auditors.
Northern shall cooperate with the Trust and
the Trust's independent public accountants in
connection with: (1) the preparation of
reports to shareholders of the Trust, to the
Securities and Exchange Commission (including

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<PAGE> 13
all required periodic and other reports), to
State securities commissioners, and to
others, (2) annual and other audits of the
books and records of the Trust (including,
without limitation, such procedures as may be
designated in proper instructions from the
Trustees or Officers of the Trust), and (3)
other matters of a like nature. Northern
shall, subject to restrictions under
applicable law, obtain from any sub-custodian
appointed pursuant to Section 8(c) hereof an
undertaking to permit independent public
accountants of the Trust such reasonable
access to the records of such sub-custodian
as may be required in connection with their
examination of the books and records
pertaining to the affairs of the Trust or to
supply a verifiable confirmation of the
contents of such records.

7. Additional Duties of Northern.

(a) Valuations; Net Income Computation. Unless
otherwise directed by proper instructions
from the Trustees or Officers of the Trust,
Northern shall compute and determine on the
days and at the times specified in the
Trust's then current Prospectus, the net
asset value of a share of each Fund, such
computation and determination to be made in
accordance with the Trust's then current
Prospectus, and shall promptly notify the
Administrator of the Trust of the result of
such computation and determination.

Unless advised otherwise by proper
instructions from the Trustees or Officers of
the Trust, Northern shall also calculate at
the times specified in the Trust's then
current Prospectus the net income of each
Fund and shall promptly advise the
Administrator of the Trust of the results of
such calculation. Such calculation shall be
made in accordance with the Trust's then
current Prospectus.

8. Appointment of Agents and Sub-Custodians.

(a) Appointment of Agents. Northern, as
custodian, may at any time or times appoint
(and may at any time remove) in accordance
with the 1940 Act any other bank, trust

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<PAGE> 14
company or responsible commercial agent as
its agent to carry out such of the provisions
of this Agreement as Northern may from time
to time direct, provided that the appointment
of such agent shall not relieve Northern of
any of its responsibilities under this
Agreement.

(b) Appointment of Sub-Custodians Generally.
Northern, as custodian, may from time to time
employ one or more sub-custodians, but only
in accordance with the terms and conditions
set forth in a resolution of the Trustees of
the Trust authorizing the appointment of each
particular sub-custodian, it being understood
and agreed that: (1) Northern shall have no
more responsibility or liability to the Trust
on account of any actions or omissions of any
sub-custodian so employed than such
sub-custodian has to Northern; (2) the
responsibility or liability of the
sub-custodian to Northern shall conform to
any resolution of the Trustees of the Trust
authorizing the appointment of the particular
sub-custodian or to the terms of any
agreement entered into between Northern and
such sub-custodian to which such resolution
relates; provided, that Northern shall not be
responsible for the solvency of any sub-
custodian appointed by it with reasonable
care; and (3) in no event shall Northern be
responsible for any act, omission, default or
for the solvency of any eligible foreign
securities depository approved by the Board
of Trustees pursuant to Section 3(d) hereof.
Any determination of whether Northern or a
sub-custodian has exercised reasonable care
under the terms of any such agreement or
otherwise shall be made in light of
prevailing standards applicable to
professional custodians in the jurisdiction
in which such custodial services are
performed.

Northern shall be liable for the acts or
omissions of a foreign banking institution to
the same extent as set forth above with
respect to sub-custodians generally and,
regardless of whether assets are maintained
in the custody of a foreign banking
institution, a foreign securities depository
or a branch of Northern or another U.S. bank,

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<PAGE> 15
Northern shall not be liable for any loss,
damage, cost, expense, liability or claim
resulting from nationalization,
expropriation, currency restrictions, or acts
of war or terrorism or any loss where the
sub-custodian has otherwise exercised
reasonable care.

Northern may only deposit Securities in an
account with a sub-custodian which includes
exclusively the assets held by Northern for
its customers, and Northern will cause such
account to be designated by such
sub-custodian as a special custody account
for the exclusive benefit of customers of
Northern.

(c) Appointment of Foreign Sub-Custodians.
Northern may hold the Funds' foreign
securities and cash and cash equivalents in
such amounts as Northern may determine to be
reasonably necessary to effect a Fund's
foreign securities transactions in accounts
established by Northern with one of its
branches, a branch of a qualified U.S. bank,
an eligible foreign custodian or an eligible
foreign securities depository; provided,
however, that the Board of Trustees of the
Trust has approved the use of such eligible
foreign custodian (and Northern's contract
with such custodian) or eligible foreign
securities depository by resolution, and
proper instructions to such effect have been
provided to Northern. Furthermore, if a
branch of Northern, a branch of a qualified
U.S. bank or an eligible foreign custodian is
selected to act as Northern's sub-custodian
to hold any Property, such entity is
authorized to hold such in its Account with
any eligible foreign securities depository in
which it participates so long as such foreign
securities depository has been approved by
the Board of Trustees of the Trust. For
purposes of this Agreement (1) "qualified
U.S. bank" shall mean a qualified U.S. bank
as defined in Rule 17f-5 under the 1940 Act
("Rule 17f-5"); (2) "eligible foreign
custodian" shall mean an eligible foreign
custodian as defined in Rule 17f-5; and (3)
"eligible foreign securities depository"
shall mean a securities depository or
clearing agency, incorporated or organized

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<PAGE> 16
under the laws of a country other than the
United States, which operates (i) the central
system for handling of securities or
equivalent book-entries in that country or
(ii) a transnational system for the central
handling of securities or equivalent
book-entries, or is otherwise authorized by
the Securities and Exchange Commission to
hold the portfolio securities of registered
investment companies.

For purposes of this Section 8(c), the term "sub-custodian"
will refer to (i) any branch of Northern, (ii) any branch of a qualified U.S.
bank or any eligible foreign custodian with which Northern has entered into an
agreement of the type contemplated hereunder or (iii) any eligible foreign
securities depository.

If, after the initial approval of the sub-custodians by the
Board of Trustees of the Trust in connection with this Agreement, Northern
wishes to appoint other sub-custodians to hold Property of the Funds, it will
so notify the Trust and will provide it with information reasonably necessary
to determine any such new sub-custodian's eligibility under Rule 17f-5,
including a copy of the proposed agreement with such sub-custodian. The Trust
shall within 30 days after receipt of such notice give a written approval or
disapproval of the proposed action.

If Northern intends to remove any sub-custodian previously
approved, it shall so notify the Trust and shall move the Property deposited
with such sub-custodian to another sub-custodian previously approved or to a
new sub-custodian, provided that the appointment of any new sub-custodian will
be subject to the requirements set forth in the preceding paragraph. Northern
shall take steps as may be required to remove any sub-custodian which has
ceased to meet the requirements of Rule 17f-5.

Northern shall provide to the Trust on at least an annual
basis, a report confirming that its arrangements hereunder with respect to
foreign sub-custodians remain in compliance with the rules of the Securities
and Exchange Commission governing such arrangements.

9. Proper Instructions.

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<PAGE> 17
time to time authorized to give the
particular class of instructions in question.
Different persons may be authorized to give
instructions for different purposes.

(b) Proper Instructions from the Trustees or
Officers of the Trust. Proper instructions
from the Trustees or Officers of the Trust
shall be deemed to have been issued upon
receipt by Northern of written instructions
(including receipt of facsimile) signed by a
majority of the Trustees of the Trust or by
not less than two of the Officers or Trustees
of the Trust designated from time to time by
resolution of the Trustees. Such
instructions shall be deemed proper
instructions as that term is used in this
Agreement in addition to also being deemed
proper instructions from the Trustees or
Officers of the Trust. A certificate
executed by the Secretary or Assistant
Secretary of the Trust as to the persons
serving as Trustees and/or who are Officers
of the Trust designated as set forth above
may be received and accepted by Northern as
conclusive evidence of those persons who are
such Trustees and/or Officers and may be
considered to be accurate until receipt of
written notice (or oral notice followed by
written confirmation within seven days) to
the contrary. In the case of conflict
between instructions under Section 9(a) and
under this Section 9(b), those given pursuant
to this Section 9(b) shall prevail upon
receipt by Northern.

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<PAGE> 18
The Trust will furnish Northern from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.

11. Segregated Accounts.

(a) Northern shall upon receipt of proper
instructions establish and maintain a segregated
account or accounts on its records for and on behalf
of each Fund of the Trust, into which account or
accounts may be transferred cash and/or Securities,
including securities in a depository system (i) for
the purposes of compliance by the Trust with the
procedures required by a securities or option
exchange, providing such procedures comply with the
1940 Act and Release No. 10666 or any subsequent
release or releases of the Securities and Exchange
Commission ("SEC") relating to the maintenance of
segregated accounts by registered investment
companies, and (ii) for other proper corporate
purposes, but only, in the case of clause (ii), upon
receipt of proper instructions.

(b) Northern may enter into separate
procedural, safekeeping or other agreements with
various futures commission merchants ("FCMs") and
banks that are unaffiliated with the Trust (each a
"Safekeeping Arrangement"), pursuant to which the
banks will act as the Trust's custodian with respect
to the Trust's margin deposits in transactions
involving futures contracts and options on futures
contracts. Such margin deposits will be held in
segregated accounts (each an "FCM Account") subject
to the disposition by the FCM involved in accordance
with the customer contract between FCM and the Trust
("FCM Contract"), SEC rules governing such segregated
accounts, CFTC rules and the rules of the applicable
commodities exchange. Transfers of initial and
variation margin and premiums shall be made from the
Trust's custodial accounts under the Custodian
Agreement upon proper instructions.

12. Compensation; Reimbursement. The Trust shall pay to
Northern, as custodian, the compensation and expense reimbursement set forth in
Exhibit A hereto.

13. Duration and Termination. This Agreement shall
continue, unless sooner terminated as provided herein, until March 31, 1996,
and for each Fund thereafter shall continue automatically for periods of one
year so long as each such latter

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<PAGE> 19
continuance is approved at least annually (a) by the vote of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons (as defined by the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust or by a majority of the outstanding Shares (as defined
with respect to voting securities in the 1940 Act) representing the interests
in such Fund; provided, however, that this Agreement may be terminated by the
Trust at any time, without the payment of any penalty, by vote of a majority of
the Trustees of the Trust or by vote of a majority of the outstanding Shares
(as so defined) of the Trust on 60 days' written notice to Northern, or by
Northern at any time, without the payment of any penalty, on 60 days' written
notice to the Trust.

14. Amendment of Agreement. This Agreement may be
amended by mutual consent, but the consent of the Trust must be approved by
vote of a majority of those Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party.

15. Interpretative and Additional Provisions. In
connection with the operation of this Agreement, Northern and the Trust may
agree from time to time, by written instrument signed by both parties, on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement, provided that no such interpretative or additional provisions shall
contravene any applicable Federal or State laws or regulations, or any
provision of the Trust Agreement or the Trust's By-laws, as the same may from
time to time be amended. No interpretative or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.

16. Successor Custodian.

(a) Appointment of Successor by Trust. If a
successor custodian is appointed by the Trust
and a certified copy of the related
appointing resolutions is delivered to
Northern, Northern shall, upon termination of
this Agreement or substitution of such
successor for Northern, deliver to such
successor custodian, duly endorsed and in
proper form for transfer, all Securities then
held by Northern hereunder (or by any agent
or sub-custodian of Northern) and all funds
or other Property of the Trust deposited with
or held by Northern hereunder (or by any
agent or sub-custodian of Northern).

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<PAGE> 20
(b) Delivery Pursuant to Shareholder Resolution.
In the event that this Agreement is to be
terminated but no new custodian can be found
by the Trust, the Trust shall, before
authorizing the delivery of the Securities,
funds and other Property to anyone other than
a successor custodian, submit to its
Shareholders the question of whether the
Trust shall be liquidated or shall function
without a custodian. Upon approval by the
Shareholders for the Trust to liquidate or
function without a custodian Northern shall,
in like manner, upon receipt of a certified
copy of a resolution of the Shareholders of
the Trust deliver such Securities, funds and
other Property in accordance with such
resolution.

(c) Selection of Successor by Northern. In the
event that this Agreement is terminated and
no successor custodian has been appointed by
the Trust or certified copy of a resolution
of the Shareholders has been delivered to
Northern on or before the date when such
termination shall become effective, then
Northern shall have the right to deliver to a
bank or trust company of its own selection,
having an aggregate capital, surplus, and
undivided profits, as shown by its last
published report, of not less than $200
million, all Securities, funds, property and
instruments of the Trust held by Northern
under this Agreement (or any agent or
sub-custodian of Northern) and all
instruments held by Northern (or such agent
or sub-custodian) relative thereto.
Thereafter, such bank or trust company shall
be the successor custodian to Northern under
this Agreement.

17. Communications. Notices and other writings delivered
or mailed postage prepaid to the Trust in care of Northern Funds, 207 E.
Buffalo Street, Suite 400, Milwaukee, Wisconsin, 53202, Attention: Shareholder
Servicing, or to The Northern Trust Company at 50 South LaSalle Street,
Chicago, Illinois 60675, Attention: Fund Accounting, Canal Center, or to such
other address as the Trust or Northern may hereafter specify by written notice
to the most recent address specified by the party to whom such notice is
addressed, shall be deemed to have been properly delivered or given hereunder
to the respective addressee.

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<PAGE> 21
18. Miscellaneous. The Trust's Declaration of Trust as
amended to date is on file with the Secretary of The Commonwealth of
Massachusetts. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. Any
provision in this Agreement requiring compliance with any statute or regulation
shall mean such statute or regulation as amended and in effect from time to
time. This Agreement shall be construed in accordance with the laws of the
State of Illinois (except as to Section 19 hereof which shall be construed in
accordance with the laws of The Commonwealth of Massachusetts) and shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors.

19. Shareholder Liability. This Agreement is executed by
or on behalf of the Trust and the obligations hereunder are not binding upon
any of the Trustees, Officers or Shareholders of the Trust individually but are
binding only upon the Trust and its assets and property. All obligations of
the Trust under this Agreement shall apply only on a Fund by Fund basis, and
the assets of one Fund shall not be liable for the obligations of another Fund.

NORTHERN FUNDS

By /s/ MIRIAM M. ALLISON
--------------------------
As its Vice President
----------------------

THE NORTHERN TRUST COMPANY

By /s/ TERRY McCAFFREY
--------------------------
As its Vice President
----------------------

-21-
<PAGE> 22
EXHIBIT A

A. Basic Fee
Each Fund:

Flat Fee of $35,000

- plus -

9/100th of 1% of the Fund's average daily net assets

The basic fee is an annual fee which will be billed and payable
monthly.

B. Basic Accounting Fee
Each Fund:

A flat fee of $25,000 for the first $50 million of the Fund's average
daily net assets

- plus -

1/100th of 1% of the Fund's average daily net assets in excess of $50
million.

C. Out-of-Pocket Expenses Reimbursable by the Trust

The Trust will reimburse Northern monthly for the following
out-of-pocket expenses incurred by Northern during such month in the
performance of its duties under this Foreign Custody Agreement: (i) telephone;
(ii) postage; (iii) courier fees of independent courier services; (iv) office
supplies used in maintaining the Trust's records; and (v) duplicating.

-22-

<PAGE> 1
EXHIBIT 9(a)

ADMINISTRATION AGREEMENT

THIS AGREEMENT is made as of this 1st day of April, 1994, by and
between Northern Funds, a Massachusetts business trust ("Northern Funds"), and
Sunstone Financial Group, Inc., a Wisconsin corporation (the "Administrator").

WHEREAS, Northern Funds is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company
and is authorized to issue shares of beneficial interest ("Shares") in separate
series with each such series representing the interests in a separate portfolio
of securities and other assets; and

WHEREAS, the Fund and the Administrator desire to enter into an
agreement pursuant to which the Administrator shall provide administration
services to such investment portfolios of Northern Funds as are listed on
Schedule A hereto and any additional investment portfolios Northern Funds and
Administrator may agree upon and include on Schedule A as such Schedule may be
amended from time to time (such investment portfolios and any additional
investment portfolios are individually referred to as a "Fund" and collectively
the "Funds").

1. Appointment

Northern Funds hereby appoints the Administrator as administrator of
the Funds for the period and on the terms set forth in this Agreement. The
Administrator accepts such appointment and agrees to render the services herein
set forth, for the compensation herein provided.

2. Services as Administrator

(a) Subject to the direction and control of Northern Funds' Board
of Trustees and utilizing information provided by Northern Funds and its
agents, the Administrator will: (1) provide office space, facilities,
equipment and personnel to carry out its services hereunder; (2) compile data
for and prepare with respect to the Funds timely Notices to the Securities and
Exchange Commission (the "Commission") required pursuant to Rule 24f-2 under
the Act and Semi-Annual Reports on Form N-SAR; (3) prepare for execution by
Northern Funds and file all federal income and
<PAGE> 2
excise tax returns and state income tax returns (and such other required tax
filings as may be agreed to by the parties) other than those required to be
made by Northern Funds' custodian and transfer agent; (4) prepare compliance
filings relating to the registration of the securities of the Funds pursuant to
state securities laws with the advice of Northern Funds' counsel; (5) assist
the Fund accountants with preparing the Annual and Semi-Annual Reports required
pursuant to Section 30(d) under the Act; (6) assist to the extent requested by
Northern Funds with the preparation of the Registration Statement for the Funds
(on Form N-1A or any replacement therefor) and any amendments thereto, and
proxy materials; (7) prepare and monitor each Fund's expense accruals and cause
all appropriate expenses to be paid from Fund assets on proper authorization
from the Fund; (8) assist in the acquisition of the Funds' fidelity bond
required by the Act, monitor the amount of the bond and make the necessary
Commission filings related thereto; (9) from time to time as Northern Funds may
reasonably request or as the Administrator deems appropriate, check each Fund's
compliance with the policies and limitations relating to portfolio investments
as set forth in the Prospectus, Statement of Additional Information, and
Declaration of Trust and monitor each Fund's status as a regulated investment
company under Subchapter M of the Internal Revenue Code, as amended (but these
functions shall not relieve the Fund's investment adviser of its primary
day-to-day responsibility for assuring such compliance); (10) maintain, and/or
coordinate with the other service providers the maintenance of, the accounts,
books and other documents required pursuant to Rule 31a-1(a) and (b) under the
Act; and (11) generally assist in each Fund's administrative operations. In
addition, the Administrator will monitor Northern Funds' arrangements with
respect to services provided by institutions ("Service Organizations") to their
customers, who are the beneficial owners of Shares of the Funds, pursuant to
agreements between Northern Funds and such Service Organizations including,
among other things, reviewing the qualifications of Service Organizations
wishing to enter into agreements, with Northern Funds assisting in the
execution and delivery of such agreements, reporting to the Board of Trustees
with respect to the amounts paid or payable by Northern Funds from time to time
under the agreements and the nature of the services provided by Service
Organizations, and maintaining appropriate records in connection with its
monitoring duties. The duties of the Administrator shall be confined to those
expressly set forth herein, and no implied duties are assumed by or may be
asserted against the Administrator hereunder.

(b) The Trustees of Northern Funds shall cause the officers and
employees of Northern Funds, the adviser, legal counsel, independent
accountants, custodian and transfer agent and other agents and representatives
of the Funds to cooperate with the Administrator and to provide the
Administrator, upon request, with such information, documents and advice
relating to the Funds

-2-
<PAGE> 3
as is within the possession or knowledge of such persons, in order to enable
the Administrator to perform its duties hereunder. In connection with its
duties hereunder, the Administrator shall be entitled to rely, shall not be
liable or responsible for any losses resulting from its reliance, and shall be
held harmless by the Funds when acting in reliance, upon the instruction,
advice, information or any documents relating to the Funds provided to the
Administrator by any of the aforementioned persons or their representatives.
Fees charged by such persons shall be an expense of the Funds. The
Administrator shall be entitled to rely on any document which it reasonably
believes to be genuine and to have been signed or presented by the proper
party. The Administrator shall not be held to have notice of any change of
authority of any officer, agent or employee of Northern Funds until receipt of
written notice thereof from Northern Funds.

(c) In compliance with the requirements of Rule 31a-3 under the
Act, the Administrator hereby agrees that all records which it maintains for
the Funds are the property of the Funds and further agrees to surrender
promptly to each Fund any of such records upon the Fund's request. The
Administrator further agrees to preserve for the periods prescribed by Rule
31a-2 under the Act the records described in (a) above which are maintained by
the Administrator for the Fund.

3. Fees; Delegation; Expenses

(a) In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Administrator a fee, computed daily and
payable monthly, at the annual rate of 0.15% of the Funds' average aggregate
daily net assets. In addition, the Fund will reimburse the Administrator its
reasonable out-of-pocket expenses for travel, lodging and meals in connection
with travel on behalf of Northern Funds.

(b) For the purpose of determining fees payable to the
Administrator, net asset value shall be computed in accordance with the Funds'
Prospectuses and resolutions of Northern Funds' Board of Trustees. The fee for
the period from the day of the month this Agreement is entered into until the
end of that month shall be pro-rated according to the proportion which such
period bears to the full monthly period. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month shall
be prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. Such fee as is attributable to each Fund shall be a separate charge
to such Fund and shall be the several (and not joint or joint and several)
obligation of each such Fund.

-3-
<PAGE> 4
(c) The Administrator will from time to time employ or associate
itself with such person or persons as the Administrator may believe to be
particularly fitted to assist it in the performance of this Agreement. Such
person or persons may be officers and employees who are employed by both the
Administrator and Northern Funds. The compensation of such person or persons
shall be paid by the Administrator and no obligation shall be incurred on
behalf of the Funds in such respect.

(d) The Administrator will bear all expenses in connection with
the performance of its services under this Agreement except as otherwise
provided herein. Other costs and expenses to be incurred in the operation of
the Funds, including, but not limited to: taxes; interest; brokerage fees and
commissions, if any; salaries, fees and expenses of officers and Trustees;
Commission fees and state Blue Sky fees; advisory and administration fees;
charges of custodians and transfer agents; distribution expenses; insurance
premiums; outside auditing and legal expenses; costs of organization and
maintenance of corporate existence; typesetting, printing and mailing of
prospectuses, statements of additional information, supplements, notices and
proxy materials for regulatory purposes and for distribution to current
shareholders; typesetting, printing, mailing and other costs of shareholder
reports; expenses incidental to holding meetings of shareholders and Trustees;
fund accounting fees including pricing of portfolio securities; and any
extraordinary expenses; will be borne by the Funds.

4. Proprietary and Confidential Information

The Administrator agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of Northern Funds all
records and other information relative to the Funds and prior, present or
potential shareholders of the Funds (and clients of said shareholders), and not
to use such records and information for any purpose other than the performance
of its responsibilities and duties hereunder, except after prior notification
to and approval in writing by Northern Funds, which approval shall not be
unreasonably withheld and may not be withheld where the Administrator may be
exposed to civil or criminal proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by Northern Funds.

5. Limitation of Liability

(a) The Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by Northern Funds in
connection with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or from reckless disregard by it of its
obligations

-4-
<PAGE> 5
and duties under this Agreement. Notwithstanding any other provision of this
Agreement, and so long as the Administrator acts in good faith and without
gross negligence, Northern Funds assumes full responsibility and shall
indemnify and hold harmless the Administrator from and against any and all
actions, suits, claims, demands, losses, expenses and liabilities (whether with
or without basis in fact or law) of any and every nature which the
Administrator may sustain or incur or which may be asserted against the
Administrator by any person arising directly or indirectly out of any action
taken or omitted to be taken by it in performing the services hereunder, or in
reliance upon the instruction, advice, information or documents provided to the
Administrator by any party described in Section 2 (b). (As used in this
Section 5(a), the term "Administrator" shall include past and present
directors, officers, employees and other corporate agents of the Administrator
as well as the corporation itself.) The indemnity and defense provisions set
forth herein shall indefinitely survive the termination of this Agreement.

(b) Any persons, even though also a director, officer, employee,
shareholder or agent of the Administrator, who may be or become an officer,
employee or agent of Northern Funds, shall be deemed, when rendering services
to the Funds or acting on any business of the Funds (other than services or
business in connection with the Administrator's duties hereunder), to be
rendering such services to or acting solely for the Funds and not as a
director, officer, employee, shareholder or agent of, or one under the control
or direction of the Administrator, even though paid by it.

6. Term

(a) This Agreement shall become effective with respect to each Fund
listed on Schedule A hereof as of the date hereof and, with respect to each Fund
not in existence on that date, on the date an amendment to Schedule A to this
Agreement relating to that Fund is executed. Unless sooner terminated as
provided herein, this Agreement shall continue in effect with respect to each
Fund until March 31, 1996. Thereafter, if not terminated, this Agreement shall
continue automatically in effect as to each Fund for successive annual periods,
provided such continuance is specifically approved at least annually (i) by
Northern Funds' Board of Trustees or (ii) by a vote of a majority (as defined in
the Act) of the outstanding voting securities of a Fund, and provided that in
either event the continuance is also approved by a majority of the Northern
Funds' Trustees who are not "interested persons" (as defined in the Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval, and by the Administrator. Notwithstanding
the foregoing, unless the Administrator shall have previously received at least
ninety (90) days' written notice of the specific determination by the Board of
Trustees of

-5-
<PAGE> 6
Northern Funds not to renew this Agreement, this Agreement shall continue
automatically in effect for an indefinite period after the end of a term until
the Administrator shall have received at least ninety (90) days' written notice
of the specific determination by the Board of Trustees of Northern Funds not to
renew this Agreement.

(b) This Agreement may be terminated with respect to any one or
more particular Funds without penalty (1) through a failure to renew the
Agreement at the end of a term as provided in Section 6(a), (2) upon mutual
consent of the parties, (3) by the Administrator upon giving the Fund not less
than ninety (90) days' written notice (which notice may be waived in writing by
Northern Funds), or (4) subject to the terms of the following sentence, either
by Northern Funds' Board of Trustees or by vote of a majority (as defined in
the Act) of the outstanding voting securities of a Fund, upon giving the
Administrator not less than ninety (90) days' written notice (which notice may
be waived in writing by the Administrator). In the event Northern Funds
terminates this Agreement during the initial term of the Agreement for any
reason other than the mutual agreement of the parties or the Administrator's
material breach of this Agreement (and such breach was not remedied by the
Administrator within forty-five (45) days after Administrator's receipt of
written notice of such breach from Northern Funds), Northern Funds agrees to
pay the Administrator within thirty (30) days of such termination an amount
equal to the fees hereunder that would otherwise be due for the remaining
unexpired initial term of the Agreement assuming for purposes of this
calculation that the asset level of the Funds on the date of termination
remains constant for the balance of the contract term. The foregoing is in
recognition of the fact that in order for the Administrator to perform the
services set forth herein, the Administrator has made and will make significant
investments of time and money, including investments in equipment and
personnel.

(c) The terms of this Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever except by a written
instrument signed by the Administrator and the Fund.

7. Non-Exclusivity

The services of the Administrator rendered hereunder are not deemed to
be exclusive. The Administrator may render such services and any other
services to others, including other investment companies. Northern Funds
recognizes that from time to time directors, officers and employees of the
Administrator may serve as directors, trustees, officers and employees of other
corporations or trusts (including other investment companies), that such other
entities may include the name of the Administrator as part of their name and
that the Administrator or

-6-
<PAGE> 7
its affiliates may enter into administration, distribution, fund accounting or
other agreements with such other corporations or trusts.

8. Governing Law; Invalidity

This Agreement shall be governed by Wisconsin law (except as to
paragraph 9 hereof which shall be construed in accordance with the laws of the
State of Massachusetts). To the extent that the applicable laws of the State
of Wisconsin, or any of the provisions herein, conflict with the applicable
provisions of the Act, the latter shall control, and nothing herein shall be
construed in a manner inconsistent with the Act or any rule or order of the
Commission thereunder. Any provision of this Agreement which may be determined
by competent authority to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.

9. Shareholder Liability

This Agreement is executed by or on behalf of Northern Funds with
respect to each of the Funds and the obligations hereunder are not binding upon
any of the Trustees, officers or shareholders of Northern Funds individually
but are binding only upon the Funds to which such obligations pertain and the
assets and property of such Funds. Northern Funds' Declaration of Trust is on
file with the Secretary of State of Massachusetts.

10. Notices

Any notice required or permitted to be given by either party to the
other shall be in writing and shall be deemed to have been given when sent by
registered or certified mail, postage prepaid, return receipt requested, as
follows: Notice to the Administrator shall be sent to Sunstone Financial
Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee, WI, 53202,
Attention Miriam M. Allison, and notice to Northern Funds shall be sent to
Silas Cathcart, President, c/o Shelia Penrose, 50 South LaSalle Street,
Chicago, Illinois 60675, with a copy to Jeffrey Dalke, Secretary, c/o Drinker,
Biddle & Reath, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107.

11. Counterparts

This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original agreement but such counterparts shall
together constitute but one and the same instrument.

-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer as of the day and year first above
written.

NORTHERN FUNDS
("Northern Funds")

By: /s/ SILAS S. CATHCART
-----------------------------

SUNSTONE FINANCIAL GROUP, INC.
("Administrator")

By: /s/ MIRIAM M. ALLISON
-----------------------------
President

-8-

<PAGE> 1
EXHIBIT 9(c)

AMENDED AND RESTATED
SCHEDULE A
TO THE
ADMINISTRATION AGREEMENT
BY AND BETWEEN
NORTHERN FUNDS
AND
SUNSTONE FINANCIAL GROUP, INC.
DATED APRIL 1, 1994

Intending to be legally bound, the undersigned hereby amend and restate
Schedule A to the aforesaid Agreement to include the following investment
portfolios:

NORTHERN FUNDS

By: /s/ Silas S. Cathcart
------------------------

Title: President
---------------------

Date: 11/28/94
----------------------

SUNSTONE FINANCIAL GROUP, INC.

By: /s/ Miriam M. Allison
------------------------

Title: President
---------------------

Date: 11/28/94
----------------------

<PAGE> 1

EXHIBIT 11(a)

CONSENT OF COUNSEL

We hereby consent to the use of our name and to the references
to our Firm under the caption "Additional Trust Information - Counsel and
Auditors" in the Statement of Additional Information included in Post-Effective
Amendment No. 11 to the Registration Statement (1933 Act No. 33-73404; 1940 Act
No. 811-8236) on Form N-1A under the Securities Act of 1933, as amended, of
Northern Funds. This consent does not constitute a consent under section 7 of
the Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.

/s/ Drinker Biddle & Reath
------------------------------
Drinker Biddle & Reath

Philadelphia, Pennsylvania
July 29, 1996

<PAGE> 1

EXHIBIT 11(b)

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated May 8, 1996, and to all references to our firm included in or made a part
of this amendment to the registration statement on Form N-1A of Northern Funds
(a Massachusetts business trust consisting of the Money Market Fund, U.S.
Government Money Market Fund, Municipal Money Market Fund, U.S. Government
Select Money Market Fund, California Municipal Money Market Fund, U.S.
Government Fund, Fixed Income Fund, Intermediate Tax-Exempt Fund, Tax-Exempt
Fund, International Fixed Income Fund, Income Equity Fund, Growth Equity Fund,
Select Equity Fund, Small Cap Fund, International Growth Equity Fund and
International Select Equity Fund).

/s/ Arthur Andersen LLP
- -----------------------
ARTHUR ANDERSEN LLP

Chicago, Illinois
July 19, 1996

<PAGE> 1
EXHIBIT 13(a)
PURCHASE AGREEMENT

Agreement dated as of March 31, 1994 between Northern Funds, a
Massachusetts business trust (the "Trust"), and The Northern Trust Company
("Northern"), acting on behalf of certain accounts (the "Accounts") in its
capacity as trustee, executor, administrator, guardian, or custodian under a
Uniform Gifts to Minors Act, or in a similar fiduciary capacity.

BACKGROUND

1. The Trust is an open-end management investment
company registered under the Investment Company Act of 1940, consisting of
fourteen investment portfolios, including the Intermediate Tax-Exempt Fund,
Tax-Exempt Fund, Fixed Income Fund, U.S. Government Fund, International Fixed
Income Fund, Growth Equity Fund, Income Equity Fund, Small Cap Growth Fund and
International Growth Fund (the "Portfolios").

2. Northern also serves as trustee of the Intermediate
Tax-Exempt Bond Fund, Tax-Exempt Bond Fund, Taxable Bond Fund, 1986 Government
Bond Fund, Government Bond Fund, International Government Bond Fund, Growth
Equity Fund, Income Equity Fund, Small Capitalization Fund and Global Growth
Fund of The Northern Trust Company, common trust funds established for the
benefit of the Accounts (the "Common Funds").

3. Northern believes that it is in the interests of
certain of the Accounts to transfer their investments from the Common Funds to
the Portfolios. In the exercise of its discretion as trustee of the Common
Funds, Northern has decided to distribute in partial liquidation the assets,
including cash, held by the Common Funds (the "Assets") in cash and/or in-kind
to the Accounts; and, in the exercise of its discretion as fiduciary of the
Accounts or pursuant to the direction of another named fiduciary of the
Accounts, Northern has decided to transfer to the Portfolios, on behalf of the
Accounts, such Assets in exchange for shares of the Portfolios. Northern
believes that the foregoing procedure for transferring the Assets from the
Common Funds to the Portfolios will be beneficial to the Accounts and will
minimize brokerage and other costs associated with the transfer of the Assets.

NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
<PAGE> 2
1. In-Kind Distribution of Common Funds'
Assets.

Immediately prior to the transfers described in
Section 2 hereof, the Common Funds shall make a partial in-kind distribution of
their Assets to the Accounts. Each Account shall receive an interest in each
Asset held by each Common Fund in which such Account is a participant in
proportion to such Account's percentage interest in such Common Fund.

2. Purchase of Portfolio Shares.

(a) Effective as of 3:00 p.m. (Central Time) on
April 4, 1994 (the "Transfer Time"), Northern, as fiduciary of the Accounts
participating in the Common Funds, shall purchase and the Trust shall issue to
Northern, as such fiduciary, shares of the corresponding Portfolios, as listed
below, with an aggregate net asset value equal to the aggregate market value of
the Assets transferred to the Portfolios determined in accordance with Sections
3 and 4 hereof.

<TABLE>
<CAPTION>
Corresponding Portfolios
Common Funds of the Trust
------------ ------------
<S> <C>
Intermediate Tax-Exempt Bond Fund Intermediate Tax-Exempt Fund
Tax-Exempt Bond Fund Tax-Exempt Fund
Taxable Bond Fund Fixed Income Fund
1986 Government Bond Fund U.S. Government Fund
Government Bond Fund U.S. Government Fund
International Government Bond Fund International Fixed Income Fund
Growth Equity Fund Growth Equity Fund
Income Equity Fund Income Equity Fund
Small Capitalization Fund Small Cap Growth Fund
Global Growth Fund International Growth Fund
</TABLE>

3. Purchase Price. In consideration of the issuance of
shares of the Portfolios pursuant to this Agreement, Northern shall transfer
those Assets held by Northern as fiduciary of the Accounts that are set forth
in Exhibit A, attached hereto and made a part hereof; provided that the Assets
so transferred shall constitute permissible investments under the Portfolios'
respective investment policies and limitations as set forth in the Trust's
registration statement. No brokerage commissions, fees (except for customary
transfer fees) or other remuneration will be paid by Northern or the Accounts
in connection with the transactions contemplated hereby. The number of shares
of each Portfolio to be issued to Northern on behalf of the Accounts shall be
determined by dividing the aggregate market value (computed as set forth below)
of the Assets being transferred to the Portfolio, determined as of the Transfer
Time, by $10.00.
<PAGE> 3
4. Determination of Market Value. The aggregate market
value of the Assets of a Common Fund shall be any cash plus the sum of the
independent current market price of each security being purchased hereunder.
For purposes of this Agreement, the "current market price" shall be determined
pursuant to paragraph (b) of Rule 17a-7 under the Investment Company Act of
1940 as interpreted and applied by the staff of the Securities and Exchange
Commission.

Securities may be valued on the basis of prices provided by
independent pricing services when such prices are believed by Northern to
reflect the fair market value of such securities.

5. Representations of Northern. Northern hereby
represents and warrants as follows:

(a) Northern is entering into this Agreement as
fiduciary of the Accounts. The execution and delivery of this Agreement by
Northern has been duly authorized by all requisite corporate action and
(assuming the due authorization, execution and delivery hereof by the Trust)
constitutes the valid and binding obligation of Northern, as fiduciary,
enforceable in accordance with its terms.

(b) At the time of the transfer of the Assets to
the Trust, the Accounts will have good title to the Assets, free and clear of
all mortgages, security interests, liens, charges, pledges and encumbrances
whatsoever. Upon transfer of the Assets to the Trust, the Trust will acquire
good title thereto, free and clear of all such mortgages, security interests,
liens, charges, pledges and encumbrances whatsoever.

6. Representations of the Trust. The Trust hereby
represents and warrants as follows:

(a) The Trust is entering into this Agreement on
behalf of the Portfolios. The execution and delivery of this Agreement by the
Trust has been duly authorized by all requisite action and (assuming the due
authorization, execution and delivery hereof by Northern) constitutes the valid
and binding obligation of the Trust, enforceable in accordance with its terms.

(b) The issuance, sale and delivery of shares of
the Portfolios in accordance with the terms of this Agreement have been duly
authorized by all requisite action and such shares, when so issued, sold and
delivered against payment therefor in accordance with the provisions hereof,
will be duly and validly issued, fully paid and nonassessable by the Trust.
<PAGE> 4
7. Names. The Trust's Agreement and Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts. This
Agreement is executed by or on behalf of the Trust and the obligations
hereunder are not binding upon any of the Trustees, Officers or Shareholders of
the Trust individually but are binding only upon the Trust and its assets and
property. All obligations of the Trust under this Agreement shall apply only
on a Fund by Fund basis, and the assets of one Fund shall not be liable for the
obligations of another Fund.

8. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers designated below as
of the day, month and year first above written.

Attest: THE NORTHERN FUNDS

/s/ Jeffrey A. Dalke By: /s/ Miriam M. Allison
- --------------------- -----------------------------

Attest: THE NORTHERN TRUST COMPANY, acting
as Trustee, Executor, Administrator,
Guardian or UGMA Custodian, or in a
Similar Fiduciary Capacity, for the
Accounts Described Above

/s/ Signature Illegible By: /s/ Shelia Penrose
- ----------------------- ------------------------------
<PAGE> 5

Exhibit A
to Agreement between
Northern Funds and
The Northern Trust Company

Dated as of March 31, 1994

A proportionate part of the assets, as determined by The
Northern Trust Company, held in the following Common Funds immediately prior to
the transfers described in Section 2 of the Agreement, as more fully described
in the Inventory and Valuation Report for such Common Funds as of such close of
business, as maintained by The Northern Trust Company:

Intermediate Tax-Exempt Bond Fund
Tax-Exempt Bond Fund
Taxable Bond Fund
1986 Government Bond Fund
Government Bond Fund
International Government Bond Fund
Growth Equity Fund
Income Equity Fund
Small Capitalization Fund
Global Growth Fund

A-1

<PAGE> 1

EXHIBIT 13(b)
PURCHASE AGREEMENT

Northern Funds (the "Trust"), a Massachusetts business trust,
and Miriam M. Allison ("Buyer") hereby agree with each other as follows:

1. The Trust hereby offers Buyer and Buyer hereby
purchases 9,000 Money Market Shares at a price of $1.00 per share; 1,000 U.S.
Government Money Market Shares at a price of $1.00 per share; 1,000 Municipal
Money Market Shares at a price of $1.00 per share; 100 U.S. Government Shares
at a price of $10.00 per share; 100 Fixed Income Shares at a price of $10.00
per share; 100 Intermediate Tax-Exempt Shares at a price of $10.00 per share;
100 Tax-Exempt Shares at a price of $10.00 per share; 100 International Fixed
Income Shares at a price of $10.00 per share; 100 Income Equity Shares at a
price of $10.00 per share; 100 Growth Equity Shares at a price of $10.00 per
share; 7,000 Select Equity Shares at a price of $10.00 per share; 100 Small Cap
Growth Shares at a price of $10.00 per share; 100 International Growth Equity
Shares at a price of $10.00 per share; and 1,000 International Select Equity
Shares at a price of $10.00 per share (such shares in the Trust being
hereinafter collectively known as "Shares") in consideration for the payment of
$100,000. Buyer hereby acknowledges purchase of the Shares and the Trust
hereby acknowledges receipt from Buyer of funds in the amount of $100,000 in
full payment for the Shares.

2. Buyer represents and warrants to the Trust that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.

3. Costs incurred by the Trust in connection with its
organization, registration and the initial public offering of Shares have been
deferred and will be amortized on a straight-line basis over a period of five
years from the date upon which the Trust commences its investment activities.
If any of the original Shares purchased by Buyer hereunder are redeemed by any
holder thereof prior to the end of such period, the redemption proceeds will be
reduced by the pro rata share of the unamortized expenses as of the date of
redemption. The pro rata share by which the proceeds are reduced will be
derived by dividing the number of original Shares of the Fund being redeemed by
the total number of original Shares outstanding at the time of redemption. If,
for any reason, said reduction of redemption proceeds is not in fact made by
the Trust in the event of such a redemption, Buyer agrees to reimburse the
Trust immediately for any unamortized organizational expenses in the proportion
stated above.

4. This Agreement is executed by or on behalf of the
Trust and the obligations hereunder are not binding upon any of the Trustees,
officers or shareholders of the Trust individually but are binding only upon
the Trust and its assets and property. All obligations of the Trust under this
Agreement shall apply only on a Fund by Fund basis, and the assets of one Fund
shall not be liable for the obligations of another Fund.
<PAGE> 2

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of March, 1994.

(SEAL)

NORTHERN FUNDS

By /s/ MIRIAM M. ALLISON
---------------------------
Miriam M. Allison
Treasurer

/s/ MIRIAM M. ALLISON
-----------------------------
Miriam M. Allison

<PAGE> 1
EXHIBIT 16

NORTHERN FUNDS

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS

FOR THE SEVEN-DAY PERIOD ENDED SEPTEMBER 30, 1994

ANNUALIZED YIELD = (BASE PERIOD RETURN/1) X (365/7)

Money Market Fund annualized yield = 4.46%
4.46% = (.00085499098/1) x (365/7)

U.S. Government Money Market Fund annualized yield = 4.34%
4.34% = (.00083277998/1) x (365/7)

Municipal Money Market Fund annualized yield = 3.19%
3.19% = (.00061254366/1) x (365/7)

EFFECTIVE YIELD = (BASE PERIOD RETURN + 1) 365/7 - 1

Money Market Fund effective yield = 4.56%
4.56% = (.00085499098 + 1) 365/7 - 1

U. S. Government Money Market Fund effective yield = 4.44%
4.44% = (.00083277998 + 1) 365/7 - 1

Municipal Money Market Fund effective yield = 3.24%
3.24% = (.00061254366 + 1) 365/7 - 1

FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
TO SEPTEMBER 30, 1994

AGGREGATE TOTAL RETURN = (ENDING REDEEMABLE VALUE/
INITIAL PAYMENT) - 1 OF $10,000

U.S. Government Fund aggregate total return = 0.11%
0.11% = (10,010.80/10,000) - 1

Fixed Income Fund aggregate total return = (0.73)%
(0.73)% = (9,926.95/10,000) - 1

Intermediate Tax-Exempt aggregate total return = 0.93%
0.93% = (10,093.36/10,000) - 1

Tax-Exempt Fund aggregate total return = 0.34%
0.34% = (10,034.11/10,000) - 1
<PAGE> 2
International Fixed Income Fund aggregate total return = 1.52%
1.52% = (10,152.24/10,000) - 1

Income Equity Fund aggregate total return = 1.13%
1.13% = (10,113.47/10,000) - 1

Growth Equity Fund aggregate total return = 4.53%
4.53% = (10,453.27/10,000) - 1

Select Equity Fund aggregate total return = 1.30%
1.30% = (10,129.80/10,000) - 1

Small Cap Growth Fund aggregate total return = (0.32)%
(0.32)% = (9,967.50/10,000) - 1

International Growth Equity Fund aggregate total return = 6.15%
6.15% = (10,614.60/10,000) - 1

International Select Equity Fund aggregate total return = 12.00%
12.00% = (11,200.20/10,000) - 1

FOR THE 30-DAY PERIOD ENDED SEPTEMBER 30, 1994

SEC Yield = 2 [((((Total Income - Total Expenses)
6)
(Average Shares *9/30/94 Offering Price) + 1) - 1 ]

U.S. Government Fund SEC Yield = 5.73%
6)
5.73% = 2[((((599,845 - 81,259) + 1) - 1 ]
(11,242,282 *9.78)

Fixed Income Fund SEC Yield = 6.92%
6)
6.92% = 2[((((414,588 - 47,774) + 1) - 1 ]
(6,695,286 *9.64)

Intermediate Tax-Exempt Fund SEC Yield = 4.23%
6)
4.23% = 2[((((973,780 - 162,941) + 1) - 1 ]
(23,419,998 *9.90)

Tax-Exempt Fund SEC Yield = 5.24%
6)
5.24% = 2[((((665,025 - 93,188) + 1) - 1 ]
(13,501,424 *9.81)

International Fixed Income Fund SEC Yield = 6.86%
6)
6.86% = 2[((((58,043 - 8,014) + 1) - 1 ]
(896,171 *9.90)

-2-

<PAGE> 1
EXHIBIT 16(a)

NORTHERN FUNDS

SCHEDULE OF COMPUTATION OF PERFORMANCE QUOTATIONS

FOR THE SEVEN DAY PERIOD ENDED MARCH 31, 1995

ANNUALIZED YIELD = (BASE PERIOD RETURN/1)X(365/7)

U.S. Government Select Money Market Fund, annualized yield = 5.87%

5.87%=(.00112555867/1)X(365/7)

California Municipal Money Market Fund, annualized yield = 3.86%

3.87%=(.00074085700/1)X(365/7)

365/7-1
EFFECTIVE YIELD=(BASE PERIOD RETURN+1)

U.S. Government Select Money Market Fund, effective yield = 6.04%

365/7-1
6.04%=(.00112555867+1)

California Municipal Money Market Fund, effective yield = 3.94%

365/7-1
3.94%=(.00074085700+1)

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 1,124,049
<INVESTMENTS-AT-VALUE> 1,124,049
<RECEIVABLES> 5,687
<ASSETS-OTHER> 99
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,129,835
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,022
<TOTAL-LIABILITIES> 68,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,061,760
<SHARES-COMMON-STOCK> 1,061,810
<SHARES-COMMON-PRIOR> 894,280
<ACCUMULATED-NII-CURRENT> 53
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,061,813
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,354
<OTHER-INCOME> 0
<EXPENSES-NET> (4,810)
<NET-INVESTMENT-INCOME> 53,544
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,544
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (53,540)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,176,187
<NUMBER-OF-SHARES-REDEEMED> 4,012,194
<SHARES-REINVESTED> 3,537
<NET-CHANGE-IN-ASSETS> 167,534
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,938
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,001
<AVERAGE-NET-ASSETS> 988,408
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 2
<NAME> U.S. GOVERNMENT MONEY MARKET FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 218,281
<INVESTMENTS-AT-VALUE> 218,281
<RECEIVABLES> 171
<ASSETS-OTHER> 40
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 218,493
<PAYABLE-FOR-SECURITIES> 9,939
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,449
<TOTAL-LIABILITIES> 11,388
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 207,090
<SHARES-COMMON-STOCK> 207,105
<SHARES-COMMON-PRIOR> 227,541
<ACCUMULATED-NII-CURRENT> 15
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 207,105
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,852
<OTHER-INCOME> 0
<EXPENSES-NET> (1,152)
<NET-INVESTMENT-INCOME> 12,700
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12,700
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,702)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,141,048
<NUMBER-OF-SHARES-REDEEMED> 1,162,463
<SHARES-REINVESTED> 979
<NET-CHANGE-IN-ASSETS> (20,438)
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,433
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,213
<AVERAGE-NET-ASSETS> 238,285
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 3
<NAME> MUNICIPAL MONEY MARKET FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 1,102,078
<INVESTMENTS-AT-VALUE> 1,102,078
<RECEIVABLES> 12,353
<ASSETS-OTHER> 109
<OTHER-ITEMS-ASSETS> 17
<TOTAL-ASSETS> 1,114,557
<PAYABLE-FOR-SECURITIES> 7,090
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,678
<TOTAL-LIABILITIES> 11,768
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,102,683
<SHARES-COMMON-STOCK> 1,102,719
<SHARES-COMMON-PRIOR> 927,692
<ACCUMULATED-NII-CURRENT> 106
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,102,789
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39,357
<OTHER-INCOME> 0
<EXPENSES-NET> (4,838)
<NET-INVESTMENT-INCOME> 34,519
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 34,519
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,504)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,716,758
<NUMBER-OF-SHARES-REDEEMED> 4,543,236
<SHARES-REINVESTED> 1,505
<NET-CHANGE-IN-ASSETS> 175,042
<ACCUMULATED-NII-PRIOR> 55
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,071
<AVERAGE-NET-ASSETS> 997,315
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 4
<NAME> U.S. GOVERNMENT FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 147,355
<INVESTMENTS-AT-VALUE> 147,072
<RECEIVABLES> 2,130
<ASSETS-OTHER> 53
<OTHER-ITEMS-ASSETS> 7
<TOTAL-ASSETS> 149,262
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 200
<TOTAL-LIABILITIES> 200
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,245
<SHARES-COMMON-STOCK> 14,812
<SHARES-COMMON-PRIOR> 11,835
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 40
<ACCUMULATED-NET-GAINS> 1,140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (283)
<NET-ASSETS> 149,062
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,043
<OTHER-INCOME> 0
<EXPENSES-NET> (1,214)
<NET-INVESTMENT-INCOME> 6,829
<REALIZED-GAINS-CURRENT> 2,958
<APPREC-INCREASE-CURRENT> (420)
<NET-CHANGE-FROM-OPS> 9,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,787)
<DISTRIBUTIONS-OF-GAINS> (104)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,481
<NUMBER-OF-SHARES-REDEEMED> 1,530
<SHARES-REINVESTED> 26
<NET-CHANGE-IN-ASSETS> 32,619
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,820)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,012
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,485
<AVERAGE-NET-ASSETS> 134,721
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.06
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 5
<NAME> FIXED INCOME FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 100,583
<INVESTMENTS-AT-VALUE> 99,883
<RECEIVABLES> 2,047
<ASSETS-OTHER> 41
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 101,971
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 632
<TOTAL-LIABILITIES> 632
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,778
<SHARES-COMMON-STOCK> 10,035
<SHARES-COMMON-PRIOR> 6,743
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 55
<ACCUMULATED-NET-GAINS> 1,316
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (700)
<NET-ASSETS> 101,339
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,930
<OTHER-INCOME> 0
<EXPENSES-NET> (799)
<NET-INVESTMENT-INCOME> 5,131
<REALIZED-GAINS-CURRENT> 3,447
<APPREC-INCREASE-CURRENT> (45)
<NET-CHANGE-FROM-OPS> 8,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,061)
<DISTRIBUTIONS-OF-GAINS> (1,541)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,733
<NUMBER-OF-SHARES-REDEEMED> 1,531
<SHARES-REINVESTED> 90
<NET-CHANGE-IN-ASSETS> 35,410
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (773)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 666
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,009
<AVERAGE-NET-ASSETS> 88,720
<PER-SHARE-NAV-BEGIN> 9.78
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.48
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> (0.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 6
<NAME> INTERMEDIATE TAX-EXEMPT FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 239,316
<INVESTMENTS-AT-VALUE> 241,565
<RECEIVABLES> 8,672
<ASSETS-OTHER> 75
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 250,315
<PAYABLE-FOR-SECURITIES> 4,348
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,828
<TOTAL-LIABILITIES> 6,176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239,558
<SHARES-COMMON-STOCK> 23,890
<SHARES-COMMON-PRIOR> 22,061
<ACCUMULATED-NII-CURRENT> 39
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,249
<NET-ASSETS> 244,139
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,290
<OTHER-INCOME> 0
<EXPENSES-NET> (1,979)
<NET-INVESTMENT-INCOME> 9,311
<REALIZED-GAINS-CURRENT> 5,055
<APPREC-INCREASE-CURRENT> 630
<NET-CHANGE-FROM-OPS> 14,996
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,311
<DISTRIBUTIONS-OF-GAINS> 1,650
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,018
<NUMBER-OF-SHARES-REDEEMED> 3,208
<SHARES-REINVESTED> 19
<NET-CHANGE-IN-ASSETS> 22,888
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,112)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,746
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,504
<AVERAGE-NET-ASSETS> 232,407
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.22
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 7
<NAME> TAX-EXEMPT FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 122,406
<INVESTMENTS-AT-VALUE> 125,475
<RECEIVABLES> 2,073
<ASSETS-OTHER> 53
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 127,604
<PAYABLE-FOR-SECURITIES> 2,358
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133
<TOTAL-LIABILITIES> 2,491
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,455
<SHARES-COMMON-STOCK> 12,083
<SHARES-COMMON-PRIOR> 11,778
<ACCUMULATED-NII-CURRENT> 26
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 563
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,069
<NET-ASSETS> 125,113
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,631
<OTHER-INCOME> 0
<EXPENSES-NET> (1,033)
<NET-INVESTMENT-INCOME> 5,598
<REALIZED-GAINS-CURRENT> 1,827
<APPREC-INCREASE-CURRENT> 1,556
<NET-CHANGE-FROM-OPS> 8,981
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,598)
<DISTRIBUTIONS-OF-GAINS> (241)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,065
<NUMBER-OF-SHARES-REDEEMED> 1,770
<SHARES-REINVESTED> 10
<NET-CHANGE-IN-ASSETS> 6,423
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,023)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 911
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,338
<AVERAGE-NET-ASSETS> 121,252
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 8
<NAME> INTERNATIONAL FIXED INCOME FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 14,498
<INVESTMENTS-AT-VALUE> 15,036
<RECEIVABLES> 494
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 133
<TOTAL-ASSETS> 15,691
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 26
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,862
<SHARES-COMMON-STOCK> 1,475
<SHARES-COMMON-PRIOR> 1,224
<ACCUMULATED-NII-CURRENT> 206
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 62
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 535
<NET-ASSETS> 15,665
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,042
<OTHER-INCOME> 0
<EXPENSES-NET> (174)
<NET-INVESTMENT-INCOME> 868
<REALIZED-GAINS-CURRENT> 507
<APPREC-INCREASE-CURRENT> (557)
<NET-CHANGE-FROM-OPS> 818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (868)
<DISTRIBUTIONS-OF-GAINS> (27)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 500
<NUMBER-OF-SHARES-REDEEMED> 269
<SHARES-REINVESTED> 20
<NET-CHANGE-IN-ASSETS> 2,637
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (211)
<OVERDISTRIB-NII-PRIOR> (19)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 136
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 302
<AVERAGE-NET-ASSETS> 15,097
<PER-SHARE-NAV-BEGIN> 10.64
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.62)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 9
<NAME> INCOME EQUITY FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 49,963
<INVESTMENTS-AT-VALUE> 55,246
<RECEIVABLES> 452
<ASSETS-OTHER> 33
<OTHER-ITEMS-ASSETS> 280
<TOTAL-ASSETS> 56,011
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 92
<TOTAL-LIABILITIES> 92
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,910
<SHARES-COMMON-STOCK> 4,826
<SHARES-COMMON-PRIOR> 3,915
<ACCUMULATED-NII-CURRENT> 36
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,690
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,283
<NET-ASSETS> 55,919
<DIVIDEND-INCOME> 1,003
<INTEREST-INCOME> 929
<OTHER-INCOME> 0
<EXPENSES-NET> (464)
<NET-INVESTMENT-INCOME> 1,468
<REALIZED-GAINS-CURRENT> 2,672
<APPREC-INCREASE-CURRENT> 4,485
<NET-CHANGE-FROM-OPS> 8,625
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,554
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,587
<NUMBER-OF-SHARES-REDEEMED> 683
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 16,965
<ACCUMULATED-NII-PRIOR> 109
<ACCUMULATED-GAINS-PRIOR> (982)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 464
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686
<AVERAGE-NET-ASSETS> 46,302
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 1.66
<PER-SHARE-DIVIDEND> (0.36)
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<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 10
<NAME> GROWTH EQUITY FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 195,872
<INVESTMENTS-AT-VALUE> 224,202
<RECEIVABLES> 1,610
<ASSETS-OTHER> 42
<OTHER-ITEMS-ASSETS> 2
<TOTAL-ASSETS> 225,856
<PAYABLE-FOR-SECURITIES> 817
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 468
<TOTAL-LIABILITIES> 1,285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,250
<SHARES-COMMON-STOCK> 17,075
<SHARES-COMMON-PRIOR> 10,664
<ACCUMULATED-NII-CURRENT> 46
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,992
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,283
<NET-ASSETS> 224,571
<DIVIDEND-INCOME> 2,500
<INTEREST-INCOME> 354
<OTHER-INCOME> 0
<EXPENSES-NET> (1,684)
<NET-INVESTMENT-INCOME> 1,170
<REALIZED-GAINS-CURRENT> 13,891
<APPREC-INCREASE-CURRENT> 20,699
<NET-CHANGE-FROM-OPS> 35,760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,221
<DISTRIBUTIONS-OF-GAINS> 700
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,306
<NUMBER-OF-SHARES-REDEEMED> 1,908
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> 111,386
<ACCUMULATED-NII-PRIOR> 79
<ACCUMULATED-GAINS-PRIOR> (2,199)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,684
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,290
<AVERAGE-NET-ASSETS> 168,356
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 2.59
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.15
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 11
<NAME> SELECT EQUITY FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 30,352
<INVESTMENTS-AT-VALUE> 33,708
<RECEIVABLES> 281
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 34,019
<PAYABLE-FOR-SECURITIES> 148
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29
<TOTAL-LIABILITIES> 177
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,850
<SHARES-COMMON-STOCK> 2,580
<SHARES-COMMON-PRIOR> 1,404
<ACCUMULATED-NII-CURRENT> 25
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,611
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,356
<NET-ASSETS> 33,842
<DIVIDEND-INCOME> 221
<INTEREST-INCOME> 59
<OTHER-INCOME> 0
<EXPENSES-NET> (229)
<NET-INVESTMENT-INCOME> 51
<REALIZED-GAINS-CURRENT> 2,589
<APPREC-INCREASE-CURRENT> 2,233
<NET-CHANGE-FROM-OPS> 4,873
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> (738)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,710
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<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 18,719
<ACCUMULATED-NII-PRIOR> 22
<ACCUMULATED-GAINS-PRIOR> (240)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 438
<AVERAGE-NET-ASSETS> 22,962
<PER-SHARE-NAV-BEGIN> 10.77
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 2.73
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.12
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 12
<NAME> SMALL CAP GROWTH FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 142,087
<INVESTMENTS-AT-VALUE> 154,775
<RECEIVABLES> 538
<ASSETS-OTHER> 36
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 155,357
<PAYABLE-FOR-SECURITIES> 0
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<TOTAL-LIABILITIES> 119
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139,383
<SHARES-COMMON-STOCK> 13,401
<SHARES-COMMON-PRIOR> 7,681
<ACCUMULATED-NII-CURRENT> 123
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,976
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,756
<NET-ASSETS> 155,238
<DIVIDEND-INCOME> 1,769
<INTEREST-INCOME> 246
<OTHER-INCOME> 0
<EXPENSES-NET> (1,221)
<NET-INVESTMENT-INCOME> 794
<REALIZED-GAINS-CURRENT> 11,166
<APPREC-INCREASE-CURRENT> 12,075
<NET-CHANGE-FROM-OPS> 24,035
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (846)
<DISTRIBUTIONS-OF-GAINS> (8,114)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,400
<NUMBER-OF-SHARES-REDEEMED> 1,691
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 78,611
<ACCUMULATED-NII-PRIOR> 254
<ACCUMULATED-GAINS-PRIOR> (169)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,466
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,958
<AVERAGE-NET-ASSETS> 122,150
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 2.29
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.67)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.58
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 13
<NAME> INTERNATIONAL GROWTH EQUITY FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 171,415
<INVESTMENTS-AT-VALUE> 177,227
<RECEIVABLES> 10,404
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<OTHER-ITEMS-ASSETS> 1,303
<TOTAL-ASSETS> 188,975
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142
<TOTAL-LIABILITIES> 7,738
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,539
<SHARES-COMMON-STOCK> 17,712
<SHARES-COMMON-PRIOR> 11,928
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (302)
<ACCUMULATED-NET-GAINS> (1,354)
<OVERDISTRIBUTION-GAINS> (456)
<ACCUM-APPREC-OR-DEPREC> 5,810
<NET-ASSETS> 181,237
<DIVIDEND-INCOME> 2,733
<INTEREST-INCOME> 643
<OTHER-INCOME> 0
<EXPENSES-NET> 1,947
<NET-INVESTMENT-INCOME> 1,429
<REALIZED-GAINS-CURRENT> 5,567
<APPREC-INCREASE-CURRENT> 4,918
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<NUMBER-OF-SHARES-SOLD> 8,625
<NUMBER-OF-SHARES-REDEEMED> 2,891
<SHARES-REINVESTED> 50
<NET-CHANGE-IN-ASSETS> 66,564
<ACCUMULATED-NII-PRIOR> 99
<ACCUMULATED-GAINS-PRIOR> (5,091)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,870
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,569
<AVERAGE-NET-ASSETS> 155,681
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.72
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 14
<NAME> INTERNATIONAL SELECT EQUITY FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 98,490
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<OTHER-ITEMS-ASSETS> 245
<TOTAL-ASSETS> 105,407
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<OTHER-ITEMS-LIABILITIES> 41
<TOTAL-LIABILITIES> 2,688
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,601
<SHARES-COMMON-STOCK> 9,577
<SHARES-COMMON-PRIOR> 7,359
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (226)
<ACCUMULATED-NET-GAINS> (1,041)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,385
<NET-ASSETS> 102,719
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<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 97
<REALIZED-GAINS-CURRENT> 4,353
<APPREC-INCREASE-CURRENT> 3,675
<NET-CHANGE-FROM-OPS> 8,125
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (368)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3,949
<NUMBER-OF-SHARES-REDEEMED> 1,736
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 30,761
<ACCUMULATED-NII-PRIOR> 111
<ACCUMULATED-GAINS-PRIOR> (5,475)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,013
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<GROSS-EXPENSE> 1,443
<AVERAGE-NET-ASSETS> 84,334
<PER-SHARE-NAV-BEGIN> 9.78
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.99
<PER-SHARE-DIVIDEND> (0.05)
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.73
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 15
<NAME> U.S. GOVERNMENT SELECT MONEY MARKET FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 86,102
<INVESTMENTS-AT-VALUE> 86,102
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<ASSETS-OTHER> 23
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<TOTAL-ASSETS> 86,153
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 753
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,394
<SHARES-COMMON-STOCK> 85,399
<SHARES-COMMON-PRIOR> 82,161
<ACCUMULATED-NII-CURRENT> 6
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<NET-ASSETS> 85,400
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> (317)
<NET-INVESTMENT-INCOME> 5,207
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<NET-CHANGE-FROM-OPS> 5,207
<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 522,583
<NUMBER-OF-SHARES-REDEEMED> 520,924
<SHARES-REINVESTED> 1,579
<NET-CHANGE-IN-ASSETS> 3,238
<ACCUMULATED-NII-PRIOR> 1
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 576
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 956
<AVERAGE-NET-ASSETS> 95,909
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
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<PER-SHARE-DIVIDEND> (0.05)
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000916620
<NAME> NORTHERN FUNDS
<SERIES>
<NUMBER> 16
<NAME> CALIFORNIA MUNICIPAL MONEY MARKET FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 163,528
<INVESTMENTS-AT-VALUE> 163,528
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<TOTAL-ASSETS> 165,538
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<TOTAL-LIABILITIES> 451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 165,081
<SHARES-COMMON-STOCK> 165,086
<SHARES-COMMON-PRIOR> 161,294
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 165,087
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,567
<OTHER-INCOME> 0
<EXPENSES-NET> (546)
<NET-INVESTMENT-INCOME> 5,021
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,021
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,042)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 585,989
<NUMBER-OF-SHARES-REDEEMED> 582,282
<SHARES-REINVESTED> 85
<NET-CHANGE-IN-ASSETS> 3,792
<ACCUMULATED-NII-PRIOR> 22
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 851
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,336
<AVERAGE-NET-ASSETS> 141,650
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
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<PER-SHARE-DIVIDEND> (0.04)
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<RETURNS-OF-CAPITAL> 0
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