NORTHERN FUNDS, 497, 2000-01-04

NORTHERN FUNDS
497, 2000-01-04

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As filed with the Securities and Exchange Commission on December 28, 1999

Registration Nos. 33-73404
811-8236
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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. 28 x

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 30 x
____________________________

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 LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(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 December 29, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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.

Title of Securities Being Registered: Shares of beneficial interest

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NORTHERN FUNDS
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MONEY MARKET FUNDS
- - Money Market Fund
- - U.S. Government Money Market Fund
- - U.S. Government Select Money Market Fund
- - Tax-Exempt Money Market Fund
- - Municipal Money Market Fund
- - California Municipal Money Market Fund

FIXED INCOME FUNDS
- - U.S. Government Fund
- - Short-Intermediate U.S. Government Fund
- - Intermediate Tax-Exempt Fund
- - California Intermediate Tax-Exempt Fund
- - Florida Intermediate Tax-Exempt Fund
- - Fixed Income Fund
- - Tax-Exempt Fund
- - Arizona Tax-Exempt Fund
- - California Tax-Exempt Fund
- - International Fixed Income Fund
- - High Yield Municipal Fund
- - High Yield Fixed Income Fund

EQUITY FUNDS
- - Income Equity Fund
- - Stock Index Fund
- - Growth Equity Fund
- - Select Equity Fund

- - MarketCommand Fund

RISK/RETURN SUMMARY
- - Mid Cap Growth Fund
- - Small Cap Index Fund
- - Small Cap Fund
- - Small Cap Growth Fund
- - International Growth Equity Fund
- - International Select Equity Fund
- - Technology Fund

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PROSPECTUS DATED DECEMBER 29, 1999

An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. An investment in a Fund involves investment risks, including possible
loss of principal.

Although each of the Money Market Funds seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Money Market Funds.

The California Municipal Money Market, California Intermediate Tax-Exempt,
Arizona Tax-Exempt and California Tax-Exempt Funds are not available in certain
states. Please call (800) 595-9111 to determine the availability in your state.

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
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TABLE OF CONTENTS

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Risk/Return Summary
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Information about the objectives, principal strategies and risk characteristics
of each Fund.

INTRODUCTION.................................................................4
- - Definitions ...............................................................4
- - A Word About the Money Market Funds .......................................5
MONEY MARKET FUNDS
- - Money Market Fund .........................................................6
- - U.S. Government Money Market Fund .........................................6
- - U.S. Government Select Money Market Fund ..................................7
- - Tax-Exempt Money Market Fund ..............................................7
- - Municipal Money Market Fund ...............................................8
- - California Municipal Money Market Fund ....................................9
FIXED INCOME FUNDS
- - U.S. Government Fund .....................................................10
- - Short-Intermediate U.S. Government Fund ..................................11
- - Intermediate Tax-Exempt Fund .............................................12
- - California Intermediate Tax-Exempt Fund ..................................13
- - Florida Intermediate Tax-Exempt Fund .....................................14
- - Fixed Income Fund ........................................................15
- - Tax-Exempt Fund ..........................................................16
- - Arizona Tax-Exempt Fund ..................................................17
- - California Tax-Exempt Fund ...............................................19
- - International Fixed Income Fund ..........................................20
- - High Yield Municipal Fund ................................................21
- - High Yield Fixed Income Fund .............................................23
EQUITY FUNDS
- - Income Equity Fund .......................................................24
- - Stock Index Fund .........................................................25
- - Growth Equity Fund .......................................................26
- - Select Equity Fund .......................................................27

- - MarketCommand Fund .......................................................27

- - Mid Cap Growth Fund ......................................................28
- - Small Cap Index Fund .....................................................29
- - Small Cap Fund ...........................................................30
- - Small Cap Growth Fund ....................................................31
- - International Growth Equity Fund .........................................32
- - International Select Equity Fund .........................................33
- - Technology Fund ..........................................................34
PRINCIPAL INVESTMENT RISKS..................................................35
FUND PERFORMANCE............................................................40
- - Money Market Fund ........................................................40
- - U.S. Government Money Market Fund ........................................41
- - U.S. Government Select Money Market Fund .................................41
- - Municipal Money Market Fund ..............................................42
- - California Municipal Money Market Fund ...................................42
- - U.S. Government Fund .....................................................43
- - Intermediate Tax-Exempt Fund .............................................43
- - Florida Intermediate Tax-Exempt Fund .....................................44
- - Fixed Income Fund ........................................................44
- - Tax-Exempt Fund ..........................................................45
- - California Tax-Exempt Fund ...............................................45
- - International Fixed Income Fund ..........................................46
- - Income Equity Fund .......................................................46
- - Stock Index Fund .........................................................47
- - Growth Equity Fund .......................................................47
- - Select Equity Fund .......................................................48
- - Small Cap Fund ...........................................................48
- - International Growth Equity Fund .........................................49
- - International Select Equity Fund .........................................49
- - Technology Fund ..........................................................50
BROAD-BASED SECURITIES INDICES DESCRIPTIONS.................................51
FUND FEES AND EXPENSES......................................................52

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Management of the Funds
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Details that apply to the Funds as a group

INVESTMENT ADVISERS.........................................................58
ADVISORY FEES...............................................................59
FUND MANAGEMENT.............................................................60
- - Fixed Income Funds .......................................................60
- - Equity Funds .............................................................62
OTHER FUND SERVICES ........................................................64

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About Your Account
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How to open, maintain and close an account

PURCHASING AND SELLING SHARES
- - Purchasing Shares ........................................................65
- - Opening an Account .......................................................65
- - Selling Shares ...........................................................67
ACCOUNT POLICIES AND OTHER INFORMATION
- - Calculating Share Price ..................................................69
- - Timing of Money Market Fund Purchase Requests ............................69
- - Timing of Non-Money Market Fund Purchase Requests ........................69
- - Social Security/Tax Identification Number ................................70
- - In-Kind Purchases and Redemptions ........................................70
- - Miscellaneous Purchase Information .......................................70
- - Timing of Redemption and Exchange Requests ...............................70
- - Payment of Money Market Fund Redemption Proceeds .........................70
- - Payment of Non-Money Market Fund Redemption Proceeds .....................71
- - Miscellaneous Redemption Information .....................................71
- - Exchange Privileges ......................................................71
- - Telephone Transactions ...................................................71
- - Making Changes to Your Account Information ...............................72
- - Signature Guarantees .....................................................72
- - Business Day .............................................................72
- - Early Closings ...........................................................72
- - Authorized Intermediaries ................................................72
- - Service Organizations ....................................................72
- - Shareholder Communications ...............................................73
DIVIDENDS AND DISTRIBUTIONS.................................................74
TAX CONSIDERATIONS..........................................................76
TAX TABLE...................................................................78
YEAR 2000 ISSUES............................................................79

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Risk, Securities, Techniques and Financial Information
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RISKS, SECURITIES AND TECHNIQUES............................................80

- - Additional Information on Investment Objectives, Principal
Investment Strategies and Related Risks................................80

- - Additional Description of Securities and Common Investment Techniques ....86
- - Disclaimers ..............................................................95
FINANCIAL INFORMATION ......................................................96
- - Fund Financial Highlights ................................................97

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FOR MORE INFORMATION
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ANNUAL/SEMIANNUAL REPORT...................................................114
STATEMENT OF ADDITIONAL INFORMATION........................................114

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INTRODUCTION

NORTHERN FUNDS IS A FAMILY OF NO-LOAD MUTUAL FUNDS THAT OFFERS A SELECTION OF
FUNDS TO INVESTORS, EACH WITH A DISTINCT INVESTMENT OBJECTIVE AND RISK/REWARD
PROFILE.

The descriptions on the following pages may help you choose the fund or funds
that best fit your investment needs. Keep in mind, however, that no fund can
guarantee it will meet its investment objective, and no fund should be relied
upon as a complete investment program.

This Prospectus describes the six money market, twelve fixed income and twelve
equity funds (the "Funds") that make up the Northern Funds family.

In addition to the instruments described on the pages below, each Fund may use
various investment techniques in seeking its investment objective. Some of the
Funds may invest in derivative instruments, including options, futures, swaps
and structured securities, which may be leveraged. You can learn more about
these techniques and their related risks by reading "Risks, Securities and
Techniques" beginning on page 80 of this Prospectus and the Statement of
Additional Information.

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Definitions
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CALIFORNIA FUNDS -- California Municipal Money Market Fund, California
Intermediate Tax-Exempt Fund and California Tax-Exempt Fund.

EQUITY FUNDS -- Income Equity Fund, Stock Index Fund, Growth Equity Fund, Select
Equity Fund, MarketCommand Fund, Mid Cap Growth Fund, Small Cap Index Fund,
Small Cap Fund, Small Cap Growth Fund, International Growth Equity Fund,
International Select Equity Fund and Technology Fund. These Funds invest
at least 65% of their total assets under normal market conditions in equity
securities such as common stocks, preferred stocks, interests in real estate
investment trusts, convertible debt obligations, convertible preferred stocks,
equity interests in trusts, partnerships, joint ventures, limited liability
companies and similar enterprises, warrants and stock purchase rights.

FIXED INCOME FUNDS -- U.S. Government Fund, Short-Intermediate U.S. Government
Fund, Intermediate Tax-Exempt Fund, California Intermediate Tax-Exempt Fund,
Florida Intermediate Tax-Exempt Fund, Fixed Income Fund, Tax-Exempt Fund,
Arizona Tax-Exempt Fund, California Tax-Exempt Fund, International Fixed Income
Fund, High Yield Municipal Fund and High Yield Fixed Income Fund.

INTERNATIONAL FUNDS -- International Fixed Income Fund, International Growth
Equity Fund and International Select Equity Fund.

MONEY MARKET FUNDS -- Money Market Fund, U.S. Government Money Market Fund, U.S.
Government Select Money Market Fund, Tax-Exempt Money Market Fund, Municipal
Money Market Fund and California Municipal Money Market Fund.

MUNICIPAL FUNDS -- Municipal Money Market Fund, California Municipal Money
Market Fund and High Yield Municipal Fund.

NON-MONEY MARKET FUNDS -- Fixed Income Funds and Equity Funds.

TAX-EXEMPT FUNDS -- Tax-Exempt Money Market Fund, Intermediate Tax-Exempt Fund,
California Intermediate Tax-Exempt Fund, Florida Intermediate Tax-Exempt Fund,
Tax-Exempt Fund, Arizona Tax-Exempt Fund and California Tax-Exempt Fund.

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A Word About the Money Market Funds
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The Money Market Funds seek to maintain a stable net asset value of $1.00 per
share. Consistent with this policy, each of the Money Market Funds:

- - Limits its dollar-weighted average portfolio maturity to 90 days or less;

- - Buys securities with remaining maturities of 397 days or less (except for
certain variable and floating rate instruments and securities collateralizing
repurchase agreements); and

- - Invests only in U.S. dollar-denominated securities that represent minimal
credit risks.

In addition, each Money Market Fund limits its investments to "Eligible
Securities" as defined by the Securities and Exchange Commission ("SEC").
Eligible Securities include, generally, securities that either (a) have short-
term debt ratings at the time of purchase in the two highest rating categories
or (b) are issued or guaranteed by, or otherwise allow a Money Market Fund to
demand payment from, an issuer with those ratings. Securities that are unrated
(including securities of issuers that have long-term but not short-term ratings)
may be deemed to be Eligible Securities if determined to be of comparable
quality by The Northern Trust Company ("Northern Trust") under the direction of
the Board of Trustees. After its purchase, a portfolio security may be assigned
a lower rating or cease to be rated. If this occurs, a Fund may continue to
hold the issue if the Investment Adviser believes it is in the best interest of
the Fund and its shareholders. Securities in which the Money Market Funds
invest may not earn as high a level of income as long-term or lower quality
securities, which generally have greater market risk and more fluctuation in
market value.

In accordance with current SEC regulations, each Money Market Fund will not
invest more than 5% of the value of its total assets at the time of purchase in
the securities of any single issuer. However, the California Municipal Money
Market Fund may invest up to 25% of its total assets in fewer than 5 issuers,
and the other Funds may invest up to 25% of their total assets in the securities
of a single issuer for up to three Business Days. These limitations do not
apply to cash, certain repurchase agreements, U.S. government securities or
securities of other investment companies. In addition, securities subject to
certain unconditional guarantees and securities that are not "First Tier
Securities" as defined by the SEC are subject to different diversification
requirements as described in the Statement of Additional Information.

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MONEY MARKET FUND
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Investment Objective
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The 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.

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Principal Investment Strategies and Risks
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INVESTMENT STRATEGIES. The Fund seeks its objective by investing in a broad
range of government, bank and commercial obligations that are available in the
money markets, including:

- - 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);

- - U.S. dollar-denominated obligations of foreign commercial banks where such
banks have total assets in excess of $5 billion;

- - High-quality commercial paper and other obligations issued or guaranteed by
U.S. and foreign corporations and other issuers;

- - Corporate bonds, notes, paper and other instruments that are of high-quality;

- - Asset-backed securities;

- - 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;

- - U.S. dollar-denominated securities issued or guaranteed by one or more
foreign governments or political subdivisions, agencies or instrumentalities;

- - Repurchase agreements relating to the above instruments; and

- - Municipal securities issued or guaranteed by state or local governmental
bodies.

RISKS. These primary investment risks apply to the Fund: stable NAV, interest
rate/maturity, credit, prepayment, debt extension, counterparty failure and
guarantor risks. See page 35 for these risks and primary investment risks
common to all Funds.

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U.S. GOVERNMENT MONEY MARKET FUND
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Investment Objective
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The 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.

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Principal Investment Strategies and Risks
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INVESTMENT STRATEGIES. The Fund seeks its objective by investing
at least 65% of its total assets in:

- - Securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities; and

- - Repurchase agreements relating to such securities.

Subject to the foregoing policy, the Fund may also invest in Custodial receipts
representing interests in U.S. government securities.

RISKS. These primary investment risks apply to the Fund: stable NAV, interest
rate/maturity, prepayment, debt extension, U.S. government securities,
counterparty failure and guarantor risks. See page 35 for these risks and
primary investment risks common to all Funds.

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U.S. GOVERNMENT SELECT MONEY MARKET FUND
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Investment Objective
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The 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.

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Principal Investment Strategies and Risks
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INVESTMENT STRATEGIES. The Fund seeks its objective by investing exclusively in
securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities. Under normal market conditions,
the Fund will seek to acquire only those U.S. government securities the interest
upon which is generally exempt from state income taxation. These securities
include obligations issued by the U.S. Treasury and certain U.S. government
agencies and instrumentalities, such as the Federal Home Loan Bank and the
Federal Farm Credit Bank Funding Corp.

When appropriate securities that are exempt from state taxes are unavailable,
the Fund may also invest in non-exempt U.S. government securities and cash
equivalents including money market funds and time deposits with a maturity of
three months or less, and may hold uninvested cash.

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TAX-EXEMPT MONEY MARKET FUND
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Investment Objective
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The Fund seeks to provide a high level of income exempt from regular Federal
income tax, to the extent consistent with the preservation of capital, by
investing primarily in municipal instruments.

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Principal Investment Strategies and Risks
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INVESTMENT STRATEGIES. The Fund seeks to achieve its objective by investing
primarily in high-quality short-term municipal instruments. The high level of
income sought by the Fund is relative to yields currently available in the tax-
exempt marketplace. Municipal instruments are debt instruments, the interest on
which is, in the opinion of bond counsel or counsel for the issuers, exempt from
regular Federal income tax ("municipal instruments"). These may include:

- - Fixed, variable and floating rate notes and bonds;

- - Asset-backed securities;

- - Tax-exempt commercial paper;

- - Municipal bonds, notes, paper or other instruments; and

- - Municipal bonds and notes which are guaranteed as to principal and interest
or backed by the U.S. government or its agencies or instrumentalities.

Under normal market conditions, at least 80% of the Fund's annual gross income
will be derived from municipal instruments. Interest earned by the Fund on AMT
obligations ("private activity bonds") the interest on which may be treated as
an item of tax preference to shareholders under the Federal alternative minimum
tax, will not be deemed to have been derived from municipal instruments for the
purposes of determining whether the Fund meets this policy. For shareholders
subject to AMT, a limited portion of the Fund's dividends may be subject to
Federal tax.

RISKS. These primary investment risks apply to the Fund: stable NAV, interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, project/industrial revenue bond and tax risks. See page 35 for these
risks and primary investment risks common to all Funds.

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MUNICIPAL MONEY MARKET FUND
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Investment Objective
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The Fund seeks 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 by investing primarily in municipal instruments.

- - Fixed, variable and floating rate notes and bonds;

- - Asset-backed securities;

- - Tax-exempt commercial paper;

- - Municipal bonds, notes, paper or other instruments; and

- - Municipal bonds and notes which are guaranteed as to principal and interest
or backed by the U.S. government or its agencies or instrumentalities.

Under normal circumstances, at least 80% of the Fund's annual gross income will
be derived from municipal instruments. Under normal market conditions,
investments in taxable instruments will not exceed 20% of the value of the total
assets of the Fund. During temporary defensive periods, however, all or any
portion of the Fund's assets may be held uninvested or invested in taxable
instruments.

The Fund is not limited in the amount of its assets that may be invested in AMT
obligations ("private activity bonds") the interest on which may be treated as
an item of tax preference to shareholders under the Federal alternative minimum
tax. For shareholders subject to AMT, a significant portion of the Fund's
dividends may be subject to Federal tax.

RISKS. These primary investment risks apply to the Fund: stable NAV, interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, project/industrial development bond and tax risks. See page 35 for
these risks and primary investment risks common to all Funds.

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CALIFORNIA MUNICIPAL MONEY MARKET FUND
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Investment Objective
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The Fund seeks 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.

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Principal Investment Strategies and Risks
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INVESTMENT STRATEGIES. The Fund seeks to achieve its objective by investing
primarily in high-quality short-term instruments, the interest on which is
exempt from regular Federal income tax and California state personal income tax.
These may include:

- - Fixed, variable and floating rate notes and bonds;

- - Asset-backed securities;

- - Tax-exempt commercial paper;

- - Municipal bonds, notes, paper or other instruments; and

- - Municipal bonds and notes which are guaranteed as to principal and interest
or backed by the U.S. government or its agencies or instrumentalities.

Under normal circumstances, at least 80% of the Fund's annual gross income will
be derived from municipal instruments and at least 65% of the Fund's total
assets will be invested in instruments the interest on which is exempt from
California state personal income tax ("California municipal instruments").
Under normal market conditions, investments in taxable instruments will not
exceed 20% of the value of the total assets of the Fund. During temporary
defensive periods, however, all or any portion of the Fund's assets may be held
uninvested or invested in taxable instruments.

RISKS. These primary investment risks apply to the Fund: stable NAV, interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, California-specific, project/industrial development bond, tax and
non-diversification risks. See page 35 for these risks and primary investment
risks common to all Funds.

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U.S. GOVERNMENT FUND
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Investment Objective
- --------------------
The Fund seeks a high level of current income.

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Principal Investment Strategies and Risks
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INVESTMENT STRATEGIES. In seeking a high level of current income, the Fund will
invest, under normal market conditions, at least 65% of its total assets in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements relating to such securities. These
may include:

- - U.S. Treasury bills, notes and bonds;

- - Obligations of U.S. government agencies and instrumentalities;

- - Mortgage-related securities issued or guaranteed by U.S. government agencies
and instrumentalities;

- - Stripped securities evidencing ownership of future interest or principal
payments on obligations of the U.S. government, its agencies or
instrumentalities; and

- - Repurchase agreements relating to the above instruments.

In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that
analyze and compare expected returns and assumed risks. Under the relative
value approach, the investment management team will emphasize particular
securities and types of securities (such as treasury, agency and mortgage-
related securities) that the team believes will provide a favorable return in
light of these risks. The investment managment team may engage in active
trading, and will not consider portfolio turnover rate a limiting factor in
making decisions for the Fund.

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between one and ten years.

The Fund may make significant investments in structured debt securities, which
are derivative instruments, in seeking to achieve its investment objective. The
Fund may also invest, to a lesser extent, in futures contracts, options and
swaps for both hedging and non-hedging purposes.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, prepayment, debt extension, U.S. government securities,
counterparty failure, guarantor, derivatives and portfolio turnover risks. See
page 35 for these risks and primary investment risks common to all Funds.

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SHORT-INTERMEDIATE U.S. GOVERNMENT FUND
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Investment Objective
- --------------------
The Fund seeks to provide a high level of current income.

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Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking high current income, the Fund will invest,
under normal market conditions, at least 65% of its total assets in securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
and repurchase agreements relating to such securities. These may include:

- - U.S. Treasury bills, notes and bonds;

- - Obligations of U.S. government agencies and instrumentalities;

- - Mortgage-related securities issued or guaranteed by U.S. government agencies
and instrumentalities;

- - Stripped securities evidencing ownership of future interest or principal
payments on obligations of the U.S. government, its agencies or
instrumentalities; and

- - Repurchase agreements relating to the above instruments.

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between two and five years.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, prepayment, debt extension, U.S. government securities,
counterparty failure, guarantor and derivatives risks. See page 35 for these
risks and primary investment risks common to all Funds.

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INTERMEDIATE TAX-EXEMPT FUND
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- --------------------
Investment Objective
- --------------------
The Fund seeks to provide a high level of current income exempt from regular
Federal income tax by investing in municipal instruments.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking high current income exempt from regular
Federal income tax, the Fund may invest in a broad range of municipal
instruments. These may include:

- - General obligation bonds secured by the issuer's full faith, credit and
taxing power;

- - Revenue obligation bonds payable from the revenues derived from a particular
facility or class of facilities;

- - Industrial development bonds;

- - Moral obligation bonds;

- - Tax-exempt derivative instruments;

- - Stand-by commitments; and

- - Municipal instruments backed by letters of credit, insurance or other forms
of credit enhancement issued by domestic or foreign banks, insurance
companies and other financial institutions.

Although the Fund invests primarily in investment grade debt obligations (i.e.,
obligations rated within the top four rating categories by a Nationally
Recognized Statistical Rating Organization or of comparable quality as
determined by Northern Trust), it may invest to a limited extent in obligations
that are below investment grade ("junk bonds").

Under normal market conditions, investments in AMT obligations and taxable
instruments will not exceed 20% of the value of the total assets of the Fund.
During temporary defensive periods, however, all or any portion of the Fund's
assets may be held uninvested or invested in AMT obligations and taxable
instruments. Taxable investments will consist exclusively of those
instruments that may be purchased by the Fixed Income Fund. The Fund may not
achieve its investment objective when this temporary defensive strategy is used.

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between three and ten years.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, project/industrial development bond high yield and tax
risks. See page 35 for these risks and primary investment risks common to all
Funds.

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CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND
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- --------------------
Investment Objective
- --------------------
The Fund seeks to provide high current income exempt from regular Federal income
tax and California state personal income tax by investing in municipal
instruments.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking high current income exempt from regular
Federal income tax and California state personal income tax, the Fund may invest
in a broad range of municipal instruments. These may include:

- - General obligation bonds secured by the issuer's full faith, credit and
taxing power;

- - Revenue obligation bonds payable from the revenues derived from a particular
facility or class of facilities;

- - Industrial development bonds;

- - Moral obligation bonds;

- - Tax-exempt derivative instruments;

- - Stand-by commitments; and

- - Municipal instruments backed by letters of credit, insurance or other forms
of credit enhancement issued by domestic or foreign banks, insurance
companies and other financial institutions.

Under normal market conditions, at least 80% of the Fund's annual gross income
will be derived from tax-exempt municipal instruments. Interest earned by the
Fund on AMT obligations ("private activity bonds") the interest on which may be
treated as an item of tax preference to shareholders under the Federal
alternative minimum tax will not be deemed to have been derived from municipal
instruments for the purposes of determining whether the Fund meets this policy.
For shareholders subject to AMT, a limited portion of the Fund's dividends may
be subject to Federal tax. In addition, under normal market conditions at
least 65% of the Fund's total assets will be invested in California municipal
instruments.

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between three and ten years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, California-specific, project/industrial development
bond, tax high yield and non-diversification risks. See page 35 for these
risks and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
FLORIDA INTERMEDIATE TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide high current income exempt from regular Federal income
tax by investing in municipal instruments.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking high current income exempt from regular
Federal income tax, the Fund may invest in a broad range of municipal
instruments. These may include:

- - General obligation bonds secured by the issuer's full faith, credit and
taxing power;

- - Revenue obligation bonds payable from the revenues derived from a particular
facility or class of facilities;

- - Industrial development bonds;

- - Moral obligation bonds;

- - Tax-exempt derivative instruments;

- - Stand-by commitments; and

- - Municipal instruments backed by letters of credit, insurance or other forms
of credit enhancement issued by domestic or foreign banks, insurance
companies and other financial institutions.

Under normal market conditions, at least 80% of the Fund's annual gross income
will be derived from tax-exempt municipal instruments. Interest earned by the
Fund on AMT obligations ("private activity bonds") the interest on which may be
treated as an item of tax preference to shareholders under the Federal
alternative minimum tax will not be deemed to have been derived from municipal
instruments for the purposes of determining whether the Fund meets this policy.
For shareholders subject to AMT, a limited portion of the Fund's dividends may
be subject to Federal tax. In addition, under normal market conditions, at
least 65% of the Fund's total assets will be invested in municipal instruments
issued by the state of Florida and its municipalities, counties and other taxing
districts, as well as other securities exempt from the Florida intangibles tax
("Florida municipal instruments").

Under normal market conditions, investments in AMT obligations and taxable
instruments will not exceed 20% of the value of the total assets of the Fund.
During temporary defensive periods, however, all or any portion of the Fund's
assets may be held uninvested or invested in AMT obligations and taxable
instruments. Taxable investments will consist exclusively of those instruments
that may be purchased by the Fixed Income Fund. The Fund may not achieve its
investment objective when this temporary defensive strategy is used.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, Florida-specific, project/industrial development bond,
tax, high yield and non-diversification risks. See page 35 for these risks
and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
FIXED INCOME FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks a high level of current income.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking high current income, the Fund will invest,
under normal market conditions, at least 65% of its total assets in a broad
range of bonds and other fixed income securities. These may include:

- - Obligations of the U.S. government, its agencies or instrumentalities;

- - Obligations of state, local and foreign governments;

- - Obligations of domestic and foreign banks and corporations;

- - Zero coupon bonds, debentures, convertible debentures and preferred stock;

- - Mortgage and other asset-backed securities;

- - Stripped securities evidencing ownership of future interest or principal
payments on debt obligations; and

- - Repurchase agreements relating to the above instruments.

Although the Fund invests primarily in investment grade domestic debt
obligations (i.e., obligations rated within the top four rating categories by a
Nationally Recognized Statistical Rating Organization or of comparable quality
as determined by Northern Trust), it may invest to a limited extent in
obligations of foreign issuers and in securities that are below investment grade
("junk bonds").

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between seven and twelve years.

The Fund may make significant investments in structured debt securities, which
are derivative instruments, in seeking to achieve its investment objective. The
Fund may also invest, to a lesser extent, in futures contracts, options, swaps
and currency contracts for both hedging and non-hedging purposes.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, high-yield, currency, country, foreign regulatory and derivatives
risks. See page 35 for these risks and primary investment risks common to all
Funds.

- --------------------------------------------------------------------------------
TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide a high level of current income exempt from regular
Federal income tax by investing in municipal instruments.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking high current income exempt from regular
Federal income tax, the Fund may invest in a broad range of municipal
instruments. These may include:

- - General obligation bonds secured by the issuer's full faith, credit and
taxing power;

- - Revenue obligation bonds payable from the revenues derived from a particular
facility or class of facilities;

- - Industrial development bonds;

- - Moral obligation bonds;

- - Tax-exempt derivative instruments;

- - Stand-by commitments; and

- - Municipal instruments backed by letters of credit, insurance or other forms
of credit enhancement issued by domestic or foreign banks, insurance
companies and other financial institutions.

Under normal market conditions, investment in AMT obligations and taxable
instruments will not exceed 20% of the value of the total assets of the Fund.
During temporary defensive periods, however, all or any portion of the Fund's
assets may be held uninvested or invested in AMT obligations and taxable
instruments. Taxable investments will consist exclusively of those instruments
that may be purchased by the Fixed Income Fund. The Fund may not achieve its
investment objective when this temporary defensive strategy is used.

In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that
analyze and compare expected returns and assumed risks. Under the relative
value approach, the investment management team will emphasize particular
securities and types of securities (such as general obligation bonds and
revenue obligation bonds) that the team believes will provide a favorable
return in light of these risks. The investment management team may engage in
active trading, and will not consider portfolio turnover a limiting factor
in making decisions for the Fund.

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between ten and thirty years.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, project/industrial development bond, tax, high-yield and
portfolio turnover risks. See page 35 for these risks and primary investment
risks common to all Funds.

- --------------------------------------------------------------------------------
ARIZONA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide high current income exempt from regular Federal income
tax and Arizona state personal income tax by investing in municipal instruments.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking high current income exempt from regular
Federal income tax and Arizona state personal income tax, the Fund may invest,
under normal market conditions, at least 80% of its total assets in a broad
range of municipal instruments. These may include:

- - General obligation bonds secured by the issuer's full faith, credit and
taxing power;

- - Revenue obligation bonds payable from the revenues derived from a particular
facility or class of facilities;

- - Industrial development bonds;

- - Moral obligation bonds;

- - Tax-exempt derivative instruments;

- - Stand-by commitments; and

- - Municipal instruments backed by letters of credit, insurance or other forms
of credit enhancement issued by domestic or foreign banks, insurance
companies and other financial institutions.

Under normal market conditions, at least 80% of the Fund's annual gross income
will be derived from tax-exempt municipal instruments. Interest earned by the
Fund on AMT obligations ("private activity bonds") the interest on which may be
treated as an item of tax preference to shareholders under the Federal
alternative minimum tax will not be deemed to have been derived from municipal
instruments for the purposes of determining whether the Fund meets this policy.
For shareholders subject to AMT, a limited portion of the Fund's dividends may
be subject to Federal taxs. In addition, under normal market conditions, at
least 65% of the Fund's total assets will be invested in instruments the
interest on which is exempt from Arizona state personal income tax ("Arizona
municipal instruments").

Under normal market conditions, investments in AMT obligations and taxable
instruments will not exceed 20% of the value of the total assets of the Fund.
During temporary defensive periods, however, all or any portion of the Fund's
assets may be held uninvested or invested in AMT obligations and taxable
instruments. Taxable investments will consist exclusively of those instruments
that may be purchased by the Fixed Income Fund. The Fund may not achieve its
investment objective when this temporary defensive strategy is used.

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between ten and thirty years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, Arizona-specific, project/industrial development bond,
tax, high-yield and non-diversification risks. See page 35 for these risks and
primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide high current income exempt from regular Federal income
tax and California state personal income tax.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking high current income exempt from regular
Federal income tax and California state personal income tax, the Fund may invest
in a broad range of municipal instruments. These may include:

- - General obligation bonds secured by the issuer's full faith, credit and
taxing power;

- - Revenue obligation bonds payable from the revenues derived from a particular
facility or class of facilities;

- - Industrial development bonds;

- - Moral obligation bonds;

- - Tax-exempt derivative instruments;

- - Stand-by commitments; and

- - Municipal instruments backed by letters of credit, insurance or other forms
of credit enhancement issued by domestic or foreign banks, insurance
companies, and other financial institutions.

Under normal market conditions, at least 80% of the Fund's annual gross income
will be derived from tax-exempt municipal instruments. Interest earned by the
Fund on AMT obligations ("private activity bonds") the interest on which may be
treated as an item of tax preference to shareholders under the Federal
alternative minimum tax will not be deemed to have been derived from municipal
instruments for the purposes of determining whether the Fund meets this policy.
For shareholders subject to AMT, a limited portion of the Fund's dividends may
be subject to Federal tax. In addition, under normal market conditions, at
least 65% of the Fund's total assets will be invested in California municipal
instruments.

Under normal market conditions, investments in AMT obligations and taxable
instruments will not exceed 20% of the value of the total assets of the Fund.
During temporary defensive periods, however, all or any portion of the Fund's
assets may be held uninvested or invested in AMT obligations and taxable
instruments. Taxable investments will consist exclusively of those instruments
that may be purchased by the Fixed Income Fund. The Fund may not achieve its
investment objective when this temporary defensive strategy is used.

The Fund may make significant investments instructured debt securities, which
are derivative instruments, in seeking to achieve its investment objective. The
Fund may also invest, to a lesser extent, in futures contracts, options, and
swaps for both hedging and non-hedging purposes.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, California-specific, project/industrial development
bond, tax, high-yield and non-diversification risks. See page 35 for these
risks and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to maximize total return consistent with reasonable risk.

- - Obligations of foreign governments, their agencies or instrumentalities;

- - Obligations of supranational organizations (such as the World Bank);

- - Obligations of foreign corporations and banks;

- - Zero coupon bonds, debentures, convertible debentures and preferred stock of
foreign issuers; and

- - Mortgage and other asset-backed securities of foreign issuers.

The Fund will invest in the securities of issuers located in at least three
different foreign countries. Although the Fund primarily invests in mature
markets (such as Germany and Japan), it may also invest in emerging markets
(such as Argentina and China) depending upon the Fund management team's outlook
for the relative economic growth, expected inflation and other economic and
political prospects of each country or region.

The Fund may also invest a portion of its assets in domestic obligations,
including obligations of the U.S. government, its agencies and instrumentalities
and repurchase agreements collateralized by such obligations. It may also
invest in the obligations of domestic banks and corporations, zero coupon bonds,
debentures and convertible debentures, and mortgage and other asset-backed
securities.

In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that
analyze and compare expected returns and assumed risks. Under the relative
value approach, the investment management team will emphasize particular
securities and types of securities (such as foreign governmental, supranational
and foreign corporate obligations) that the team believes will provide a
favorable return in light of these risks. In this regard, the investment
management team will consider not only the income the Fund will receive from
its investments, but also the likelihood that particular securities will have
a more favorable or improving credit outlook.

The Fund's dollar-weighted average maturity will, under normal market
conditions, range between three and eleven years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds.

The Fund may make significant investments in structured debt securities, which
are derivative instruments, in seeking to achieve its investment objective. The
Fund may also invest, to a lesser extent in futures contracts, options, swaps
and currency contracts for both hedging and non-hedging purposes.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, non-diversification, high-yield, currency, country
foreign regulatory and emerging markets risks. See page 35 for these risks
and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
HIGH YIELD MUNICIPAL FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks a high level of current income exempt from regular Federal income
tax.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking high current income exempt from regular
Federal income tax, the Fund will invest, under normal market conditions, at
least 65% of its total assets in rated and unrated municipal securities that are
of low quality (commonly referred to as "junk bonds") or medium or upper medium
quality. These may include:

- - General obligation bonds secured by the issuer's full faith, credit and
taxing power;

- - Revenue obligation bonds payable from the revenues derived from a particular
facility or class of facilities;

- - Industrial development bonds;

- - Moral obligation bonds;

- - Tax-exempt derivative instruments;

- - Stand-by commitments; and

- - Municipal instruments backed by letters of credit, insurance or other forms
of credit enhancement issued by domestic or foreign banks, insurance
companies and other financial companies.

Upper medium quality securities are rated A by a Nationally Recognized
Statistical Rating Organization, and medium quality securities are rated BBB or
Baa by a Nationally Recognized Statistical Rating Organization. Lower quality
securities, sometimes referred to as "junk bonds," are rated BB, Ba or lower by
a Nationally Recognized Statistical Rating Organization. Unrated securities
will be of comparable quality.

Lower quality securities tend to offer higher yields than higher rated
securities with similar maturities. However, lower rated securities are
considered speculative and generally involve greater price volatility and
greater risk of loss than higher rated securities. Medium quality securities,
although considered investment grade, are also considered to have speculative
characteristics. There is no minimum rating for a municipal instrument
purchased or held by the Fund, and the Fund may purchase securities that are in
default. Although the Fund primarily invests in low, medium or upper medium
quality securities, it may invest a portion (or, during temporary defensive
periods, all) of its assets in securities of higher quality. During temporary
defensive periods the Fund may invest all of its assets in securities of higher
quality. The Fund may not achieve its investment objective when this temporary
defensive strategy is used.

Under normal market conditions, at least 80% of the Fund's annual gross income
will be derived from municipal securities. Under normal market conditions,
investments in taxable instruments will not exceed 20% of the value of the total
assets of the Fund; during temporary defensive periods, however, all or any
portion of a Fund's assets may be held uninvested or invested in such
instruments. Taxable investments will consist exclusively of those instruments
that may be purchased by the High Yield Fixed Income Fund. The Fund may not
achieve its investment objective when this temporary defensive strategy is used.

In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that
analyze and compare expected returns and assumed risks. Under the relative
value approach, the investment management team will emphasize particular
securities and types of securities (such as the corporate-backed municipal
bonds and revenue obligation bonds) that the team believes will provide a
favorable return in light of these risks. The investment management team may
engage in active trading, and will not consider portfolio turnover a limiting
factor in making decisions for the Fund.

The Fund does not have any portfolio maturity limitation, and may invest its
assets from time to time primarily in instruments with short, medium or long
maturities. The instruments held by the Fund are considered speculative, and an
investment in the Fund presents substantial risks in relation to a fund that
invests only in investment grade instruments.

The Fund may make significant investments in structured debt securities, which
are derivative instruments, in seeking to achieve its investment objective. The
Fund may also invest, to a lesser extent, in futures contracts, options, swaps
and currency contracts for both hedging and non-hedging purposes.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, prepayment, debt extension, counterparty failure, guarantor,
derivatives, tax, high-yield and portfolio turnover risks. See page 35 for
these risks and primary investment risks common to all Funds.

- -------------------------------------------------------------------------------
HIGH YIELD FIXED INCOME FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks a high level of current income. In doing so, the Fund may also
consider the potential for capital appreciation.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking to achieve its investment objective, the Fund
will invest, under normal market conditions, at least 65% of its total assets in
rated and unrated lower quality securities (commonly referred to as "junk
bonds"). These may include:

- - Obligations of U.S. and foreign corporations and banks;

- - Obligations of foreign, state and local governments;

- - Obligations of the U.S. government, its agencies or instrumentalities;

- - Senior and subordinated bonds and debentures;

- - Mortgage and other asset-related securities;

- - Zero coupon, pay-in-kind and capital appreciation bonds;

- - Convertible securities, preferred stock, structured securities and loan
participations;

- - Warrants, rights and other equity securities that are acquired in connection
with the Fund's investments in debt or convertible securities; and

- - Repurchase agreements relating to the above instruments.

Lower quality securities, sometimes referred to as "junk bonds," are rated BB,
Ba or lower by a Nationally Recognized Statistical Rating Organization. Unrated
securities will be determined to be of comparable quality by Northern Trust.

Lower rated securities tend to offer higher yields than higher rated securities
with similar maturities. However, lower rated securities are considered
speculative and generally involve greater price volatility and greater risk of
loss than higher rated securities. There is no minimum rating for a security
purchased or held by the Fund, and the Fund may purchase securities that are in
default. Although the Fund invests primarily in lower quality fixed income
securities, it may invest a portion of its assets in securities of higher
quality. During temporary defensive periods the Fund may invest all of its
assets in securities of higher quality. The Fund may not achieve its investment
objective when this temporary defensive strategy is used.

Although the Fund invests primarily in the debt obligations of domestic issuers,
it may invest to a limited extent in the obligations of foreign issuers.

In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that
analyze and compare expected returns and assumed risks. Under the relative
value approach, the investment management team will emphasize particular
securities and types of securities (such as asset-backed, mortgage-backed and
corporate securities) that the team believes will provide a favorable return in
light of the risks. The investment management team may also consider
obligations with a more favorable or improving credit or industry outlook that
provide the potential for capital appreciation. The investment management team
may engage in active trading, and will not consider portfolio turnover a
limiting factor in making decisions for the Fund.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, prepayment, debt extension, counterparty failure,
guarantor, derivatives, tax, high-yield, currency, country, foreign regulatory
and portfolio turnover risks. See page 35 for these risks and primary
investment risks common to all Funds.

- --------------------------------------------------------------------------------
INCOME EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide a high level of current income with long-term capital
appreciation as a secondary objective.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking to achieve its investment objective, the Fund
will, under normal market conditions, invest at least 65% of its total assets in
a mix of income-producing equity securities, including dividend-paying common
and preferred stocks and convertible securities. The Fund seeks to provide a
high level of current income relative to other mutual funds that invest in
equity securities.

Using fundamental research and quantitative analysis, the investment management
team buys and sells securities based on factors such as:

- - Current income;

- - Prospects for growth; and

- - Capital appreciation potential.

In determining capital appreciation potential, the investment management team
will analyze such fundamental factors as sales and earnings growth, financial
condition, product development and the valuation of the stock relative to market
and historical norms. For convertible securities, the team also analyzes the
conversion feature and the potential value of the underlying equity securities.

The Fund may also invest up to 35% of its total assets in a broad range of fixed
income securities that are permissible investments for the Fixed Income Fund
without limitation as to maturity. Although the convertible securities and fixed
income securities in which the Fund may invest will generally be investment
grade domestic securities (i.e., rated within the top four rating categories by
a Nationally Recognized Statistical Rating Organization or of comparable quality
as determined by Northern Trust), the Fund may invest up to 35% of its total
assets in convertible and fixed income securities that are below investment
grade ("junk bonds") and may invest to a limited extent in the securities of
foreign issuers.

RISKS. These primary investment risks apply to the Fund: interest
rate/maturity, credit, high-yield, currency, country, foreign regulatory and
stock risks. See page 35 for these risks and primary investment risks common to
all Funds.

- --------------------------------------------------------------------------------
STOCK INDEX FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide investment results approximating the aggregate price
and dividend performance of the securities included in the Standard & Poor's
("S&P") 500 Composite Stock Price Index ("S&P 500/R Index").

The S&P 500/R Index is an unmanaged index which includes 500 companies operating
across a broad spectrum of the U.S. economy, and its performance is widely
considered representative of the U.S. stock market as a whole.

The companies chosen for inclusion in the Index tend to be industry leaders
within the U.S. economy as determined by Standard & Poor's. However, companies
are not selected by Standard & Poor's for inclusion because they are expected to
have superior stock price performance relative to the market in general or other
stocks in particular. As of November 30, 1999, the approximate market
capitalization range of the companies included in the S&P 500 Index was between
$395 million and $464.7 billion.

S&P does not endorse any stock in the Index. It is not a sponsor of the Stock
Index Fund and is not affiliated with the Fund in any way.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. Under normal market conditions, the Fund will invest
substantially all at least 80%) of its total assets in the equity securities of
the companies that make up the S&P 500/R Index, in weightings that
approximate the relative composition of the securities contained in the Index.

The Fund is passively managed, which means it tries to duplicate the investment
composition and performance of the S&P 500/R Index using computer programs and
statistical procedures. As a result, the investment management team does not use
traditional methods of fund investment management for this Fund, such as
selecting securities on the basis of economic, financial and market analysis.
Rather, the investment management team will buy and sell securities in response
to changes in the index. Because the Fund will have fees and transaction
expenses (while the Index has none), returns are likely to be below those of
the Index.

Under normal market conditions, it is expected that the quarterly performance of
the Fund, before expenses, will track the performance of the S&P 500/R Index
within a .95 correlation coefficient.

RISKS. These primary investment risks apply to the Fund: stock and tracking
risks. See page 35 for these risks and primary investment risks common to all
Funds.

- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of a broad mix of companies. Such companies generally will
have market capitalizations in excess of $750 million. Although the Fund
primarily invests in the common stocks of U.S. companies, it may invest to a
limited extent in the stocks of foreign issuers.

Using fundamental research and quantitative analysis, the investment management
team buys securities it believes to have favorable growth characteristics
relative to their peers. Similarly, the investment management team sells
securities it believes no longer have these characteristics. The team may also
sell securities in order to maintain the desired portfolio securities
composition of the Fund, which may change in response to market conditions. In
determining whether a company has favorable growth characteristics, the
investment management team analyzes factors such as:

- - Sales and earnings growth;

- - Return on equity;

- - Financial condition (such as debt to equity ratio); and

- - Market share and competitive leadership of the company's products.

RISKS. These primary investment risks apply to the Fund: stock, currency,
country and foreign regulatory risk. See page 35 for these risks and primary
investment risks common to all Funds.

- --------------------------------------------------------------------------------
SELECT EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received
is incidental to this objective.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of a somewhat smaller number of companies (as compared to
the Growth Equity Fund) that are selected by the investment management team for
their growth potential. Such companies generally will have market
capitalizations in excess of $750 million. Although the Fund primarily invests
in the common, preferred and convertible stocks of U.S. companies, it may invest
to a limited extent in the securities of foreign issuers.

- - Sales and earnings growth;

- - Return on equity; and

- - Financial condition (such as debt to equity ratio).

The Fund may from time to time, emphasize particular companies or market
segments, such as technology, in attempting to achieve its investment objective.
Many of the companies in which the Fund invests retain their earnings to finance
current and future growth. These companies generally pay little or no
dividends.

RISKS. These primary investment risks apply to the Fund: stock, technology
stock, currency, country and foreign regulatory risks. See page 35 for these
risks and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
MARKETCOMMAND FUND
- --------------------------------------------------------------------------------

- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received
is incidental to this objective.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking long-term capital appreciation, the Fund
will, under normal market conditions, invest primarily (and at least 65% of its
total assets) in the equity securities of a focused group of companies that the
investment management team believes to have significant "market command," that
is, companies possessing dominant market share and other characteristics,
including patents, strong brand names and economies of scale, which allow these
companies to protect that share. The Fund will normally focus its investments
in the equity securities of 20 to 40 such companies with market capitalization
in excess of $300 million.

Using fundamental research and quantitative analysis, the investment management
team first screens a broad universe of companies in order to identify a group of
firms with "market command" characteristics. From this group, the management
team then employs further quantitative analysis to select a narrower group of
companies expected to achieve superior returns (based on an analysis of expected
earnings) but whose stock is deemed to be undervalued relative to the market.
Once a company's stock is selected for inclusion, the investment management team
monitors its continued appropriateness for the Fund. The management team might
decide to sell, for example, when a company shifts its emphasis from a
traditional core business (from which the majority of its profits have been
derived) to another business or experiences an erosion in its market command or
when the management team identifies a more attractive investment opportunity or
that a Company's full valuation has been achieved.

Although the Fund invests primarily in the securities of U.S. companies, it may
invest to a limited extent in the stocks of foreign issuers. The Fund is "non-
diversified" under the 1940 Act, and may invest more of its assets in fewer
issuers than "diversified" mutual funds.

The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.

RISKS. These primary investment risks apply to the Fund: stock, small cap
stock, non-diversification, technology stock, currency, country, foreign
regulatory and portfolio turnover risks. See page 35 for these risks and
primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of companies with market capitalizations, at the time of
purchase, that are within the range of the Standard & Poor's MidCap 400 Stock
Index.

Using fundamental research and quantitative analysis, the investment management
team buys securities of mid-sized companies that it believes have favorable
characteristics such as above average sales, earnings growth and competitive
returns on equity relative to their peers. Similarly, the investment management
team sells securities it believes no longer have these or other favorable
characteristics. The team may also sell securities in order to maintain the
desired portfolio securities composition of the Fund, which may change in
response to market conditions. In doing so, the investment management team
considers factors such as:

- - Financial condition (such as debt to equity ratio);

- - Market share and competitive leadership of the company's products;

- - Earnings growth relative to relevant competitors; and

- - Market valuation in comparison to securities of other mid cap companies and
the stock's own historical norms.

As of November 30, 1999, the approximate market capitalization range of the
companies included in the S&P MidCap 400 Index was between $195 million and
$23.4 billion. However, the Fund is not limited to the stocks included in the
S&P MidCap 400 Index and may invest in other stocks that meet the Investment
Adviser's criteria discussed above.

Although the Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.

The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.

S&P does not endorse any stock in the Index. It is not a sponsor of the Mid Cap
Growth Fund and is not affiliated with the Fund in any way.

RISKS. These primary investment risks apply to the Fund: stock, mid cap stock,
currency, country, foreign regulatory and portfolio turnover risks. See page
35 for these risks and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
SMALL CAP INDEX FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide investment results approximating the aggregate price
and dividend performance of the securities included in the Russell 2000 Index.

The Russell 2000 Index is a market value-weighted index which includes stocks of
the smallest 2,000 companies in the Russell 3000 Index. The Russell 3000 Index
consists of stocks of the 3,000 largest U.S. companies based on market
capitalization. The Russell 2000 Index is widely considered representative of
smaller company stock performance as a whole. The companies in the Russell 2000
Index are selected according to their total market capitalization. However,
companies are not selected by Frank Russell & Company ("Russell") for inclusion
in the Index because they are expected to have superior stock price performance
relative to the stock market in general or other stocks in particular. As of
November 30, 1999, the approximate market capitalization range of the companies
included in the Russell 2000 Index was between $2.7 million and $6.0 billion.

Russell does not endorse any stock in the Index. It is not a sponsor of the
Small Cap Index Fund and is not affiliated with the Fund in any way.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. Under normal market conditions, the Fund will invest
substantially all (at least 80%) of its total assets in the securities included
in the Russell 2000 Index, in weightings that approximate the relative
composition of the securities contained in the Index.

The Fund is passively managed, which means it tries to duplicate the investment
composition and performance of the Russell 2000 Index by using computer programs
and statistical procedures. As a result, the investment management team does not
use traditional methods of fund investment management for the Fund, such as
selecting securities on the basis of economic, financial and market analysis.
Rather, the investment management team will buy and sell securities in response
to changes to the Index. Because the Fund will have fees and transaction
expenses (while the Index has none), returns are likely to be below those of the
Index.

Under normal market conditions, it is expected that the quarterly performance of
the Fund, before expenses, will track the performance of the Russell 2000 Index
within a .95 correlation coefficient.

RISKS. These primary investment risks apply to the Fund: stock, tracking and
small cap stock risks. See page 35 for these risks and primary investment risks
common to all Funds.

- --------------------------------------------------------------------------------
SMALL CAP FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------
INVESTMENT STRATEGIES. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of small companies. At the time of purchase, these companies
will have market capitalizations that are at or below the median capitalization
of stocks listed on the New York Stock Exchange. As of December 10, 1999, the
median market capitalization of stocks listed on the New York Stock Exchange was
$1 billion.

Using fundamental research and quantitative analysis, the investment management
team buys small capitalization stocks of companies which it believes are worth
more than is indicated by current market prices. Similarly, the management team
will normally sell a security that it believes has achieved its full valuation
or is not attractively priced or for other reasons. The team may also sell
securities in order to maintain the desired portfolio characteristics of the
Fund, which may change in response to market conditions. In determining whether
a stock is attractively priced, the investment management team analyzes factors
such as:

- - The stock's price and book value;

- - Earnings and sales;

- - Trading volume; and

- - Bid-ask spreads.

Although the Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.

RISKS. These primary investment risks apply to the Fund: stock small cap
stock, currency, country and foreign regulatory risks. See page 35 for
these risks and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.

Using fundamental research and quantitative analysis, the investment management
team buys securities of small companies that it believes have favorable
characteristics such as above average sales, earnings growth and competitive
returns on equity relative to their peers. Similarly, the investment management
team sells securities it believes no longer have these or other favorable
characteristics. The team may also sell securities in order to maintain the
desired portfolio securities composition of the Fund, which may change in
response to market conditions. In doing so, the investment management team
considers factors such as a company's:

- - Financial condition (such as debt to equity ratio);

- - Market share and competitive leadership of the company's products;

- - Earnings growth relative to relevant competitors; and

- - Market valuation in comparison to securities of other small cap companies and
the stock's own historical norms.

As of November 30, 1999, the approximate market capitalization range of the
companies included in the Russell 2000 Index was between $2.7 million and $6.0
billion. However, the Fund is not limited to the stocks included in the Russell
2000 Index and may invest in other stocks that meet the Investment Adviser's
criteria discussed above.

Although the Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.

The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.

Russell does not endorse any stock in the Index. It is not a sponsor of the
Small Cap Growth Fund and is not affiliated with the Fund in any way.

RISKS. These primary investment risks apply to the Fund: stock, small cap
stock, currency, country, foreign regulatory and portfolio turnover risks.
See page 35 for these risks and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received
is incidental to this objective.

Using fundamental research and quantitative analysis, the investment management
team buys securities of foreign companies believed to have favorable growth
characteristics, low debt ratios and above-average returns on equity relative
to their peers. Similarly, the investment management team sells securities it
believes no longer have these characteristics. The team may also sell
securities in order to maintain the desired portfolio securities composition of
the Fund, which may change in response to market conditions. In doing so, the
investment management team analyzes factors such as:

- - Sales and earnings growth;

- - Return on equity;

- - Financial condition (such as debt to equity ratio); and

- - Market share and competitive leadership of a company's products.

The Fund will invest in equity securities of issuers located in at least three
different foreign countries. The Fund may invest in mature markets (such as
Germany and Japan) and it may also invest in emerging markets (such as Argentina
and China). In determining whether to invest in a particular country or region,
the investment management team looks for favorable factors associated with a
country or region relative to those of other countries or regions. These
factors include a country's (or region's):

- - Prospects for growth;

- - Expected level of inflation;

- - Government policies influencing business conditions; and

- - Outlook for currency relationships.

The investment mangement team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.

RISKS. These primary investment risks apply to the Fund: stock, currency,
country, foreign regulatory, emerging markets and portfolio turnover risks.
See page 35 for these risks and primary investment risks common to all Funds.

- --------------------------------------------------------------------------------
INTERNATIONAL SELECT EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of a somewhat smaller number of foreign companies (as
compared to the International Growth Equity Fund) that are selected by the
investment management team for their growth potential. Such companies generally
will have market capitalizations in excess of $750 million.

Using fundamental research and quantitative analysis, the investment management
team buys securities of foreign companies it believes to have favorable growth
characteristics relative to their peers. Similarly, the investment management
team sells securities it believes no longer have these characteristics. The
team may also sell securities in order to maintain the desired portfolio
securities composition of the Fund, which may change in response to market
conditions. In doing so, the investment management team analyzes factors such
as:

- - Sales and earnings growth;

- - Return on equity;

- - Financial condition (such as debt to equity ratio); and

- - Market share and competitive leadership of a company's products.

The Fund will invest in equity securities of issuers located in at least three
different foreign countries. The Fund may invest in mature markets (such as
Germany and Japan) and it may also invest in emerging markets (such as Argentina
and China). In determining whether to invest in a particular country or region,
the investment management team looks at a number of factors associated with a
country or region relative to those of other countries or regions, including a
country's (or region's):

- - Prospects for economic growth;

- - Expected level of inflation;

- - Government policies influencing business conditions; and

- - Outlook for currency relationships.

The Fund may, from time to time, emphasize particular companies or market
segments, such as technology, in attempting to achieve its investment objective.
Many of the companies in which the Fund invests retain their earnings to finance
current and future growth. These companies pay little or no dividends.

The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.

RISKS. These primary investment risks apply to the Fund: stock, technology
stock, currency, country, foreign regulatory, emerging markets and portfolio
turnover risks. See page 35 for these risks and primary investment risks
common to all Funds.

- --------------------------------------------------------------------------------
TECHNOLOGY FUND
- --------------------------------------------------------------------------------
- --------------------
Investment Objective
- --------------------
The Fund seeks to provide long-term capital appreciation by investing
principally in equity securities and securities of companies that develop,
produce or distribute products and services related to technology.

- -----------------------------------------
Principal Investment Strategies and Risks
- -----------------------------------------

INVESTMENT STRATEGIES. In seeking to achieve its investment objective, the Fund
will invest, under normal market conditions, at least 65% of its total assets in
securities of companies principally engaged in technology business activities.
In considering whether an issuer is principally engaged in technology business
activities, Northern Trust will consider whether it is listed on the Morgan
Stanley High-Technology 35 Index (the "Morgan Stanley Index"), 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/R Index or
any other comparable technology index.

Companies engaged in business related to the following products and services are
also considered by Northern Trust to be engaged in technology business
activities whether or not they are listed in a technology index: industrial
business machines; communications; computers, software and peripheral products;
electronics; electronic media; internet; television and video equipment and
services; and satellite technology and equipement. It is expected that more
than 25% of the Fund's total assets will normally be invested in technology
companies which develop or sell computers, software and peripheral products.
The Fund may invest in both small and large technology companies, without
regard to their size.

Using fundamental research and quantitative analysis, the investment management
team buys stocks of technology companies it believes to have the potential to
outperform the technology sector over the next one- to two-year period.
Similarly, the investment management team sells securities it believes no longer
have these characteristics. The team may also sell securities to maintain the
desired portfolio securities composition of the Fund, which may change in
response to market conditions. In doing so, the investment management team
selects investments based on factors such as:

- - Financial condition (such as debt to equity ratio);

- - Market share;

- - Competitive leadership of a company's products or market niches;

- - Earnings growth rates compared with relevant competitors; and

- - Market valuation compared to securities of other technology-related companies
and the stock's own historical norms.

Although the Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.

RISKS. These primary investment risks apply to the Fund: stock, small cap
stock, technology stock, computer, software and computer services, currency,
country and foreign regulatory risks. See page 35 for these risks and primary
investment risks common to all Funds.

- --------------------------
PRINCIPAL INVESTMENT RISKS

All investments carry some degree of risk which will affect the value of a
Fund's investments, its investment performance and the price of its shares. As a
result, loss of money is a risk of investing in each Fund.

AN INVESTMENT IN EACH OF THE FUNDS IS NOT A DEPOSIT OF ANY BANK AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE
OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUNDS.

The following summarizes the principal risks that apply to the Funds and may
result in a loss of your investment.

- -----------------------------
Risks that apply to all Funds
- -----------------------------
MARKET RISK is the risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.

MANAGEMENT RISK is the risk that a strategy used by the investment management
team may fail to produce the intended results.

LIQUIDITY RISK is the risk that a Fund will not be able to pay redemption
proceeds within the time periods described in this Prospectus because of unusual
market conditions, an unusually high volume of redemption requests or other
reasons.

YEAR 2000 RISK is the risk that a Fund's operations or value will be adversely
affected by the "Year 2000 Problem." This risk may be of greater significance
with respect to a Fund's investments in the securities of foreign issuers. (For
more information, please see "Year 2000 Issues" on page 79.)

- -------------------------------------------
Risk that applies to the Money Market Funds
- -------------------------------------------
STABLE NAV RISK is the risk that the Money Market Funds will not be able to
maintain a net asset value per share of $1.00 at all times.

- ---------------------------------------------------------------------
Risks that apply primarily to the Money Market and Fixed Income Funds
- ---------------------------------------------------------------------
INTEREST RATE/MATURITY RISK is the risk that during periods of rising interest
rates, a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield (and the market value of its securities) will tend to be higher.
The magnitude of these changes will often be greater for longer-term fixed
income securities (which are more likely to be held by the Fixed Income Funds)
than shorter-term securities.

CREDIT (OR DEFAULT) RISK is the risk that an issuer of fixed income securities
held by a Fund may default on its obligation to pay interest and repay
principal. Generally, the lower the credit rating of a security, the greater
the risk that the issuer of the security will default on its obligation. High
quality and investment grade securities are generally believed to have
relatively low degrees of credit risk.

PREPAYMENT (OR CALL) RISK is the risk that an issuer will exercise its right to
pay principal on an obligation held by a Fund (such as an asset-backed security)
earlier than expected. This may happen during a period of declining interest
rates. Under these circumstances, a Fund may be unable to recoup all of its
initial investment and will suffer from having to reinvest in lower yielding
securities. The loss of higher yielding securities and the reinvestment at lower
interest rates can reduce the Fund's income, total return and share price.

DEBT EXTENSION RISK is the risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding securities.

U.S. GOVERNMENT SECURITIES RISK is the risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.

COUNTERPARTY FAILURE RISK is the risk that an issuer of a security, or a bank or
other financial institution that has entered into a repurchase agreement, may
default on its payment obligations.

GUARANTOR (OR CREDIT ENHANCEMENT) RISK is the risk that changes in credit
quality of a U.S. or foreign bank, insurance company or other financial
institution could cause a Fund's investments in securities backed by guarantees,
letters of credit, insurance or other credit enhancements issued by such bank or
institution to decline in value.

- -----------------------------------------------------
Risk that applies primarily to the Fixed Income Funds
- -----------------------------------------------------

DERIVATIVES RISK is the risk that loss may result from a Fund's investments in
options, futures, swaps, structured debt securities and other derivative
instruments, which may be leveraged. Investments in derivative instruments
may result in losses exceeding the amounts invested.

- ----------------------------------------------------------------
Risks that apply primarily to the Tax-Exempt and Municipal Funds
- ----------------------------------------------------------------

ARIZONA-SPECIFIC RISK is the risk that a Fund that invests more than 25% of
its assets in Arizona municipal instruments will be more exposed to negative
political or economic factors in Arizona than a fund that invests more widely.
Arizona's economy is largely composed of services, manufacturing, mining,
tourism and the military. The exposure to these industries leaves Arizona
vulnerable to an economic slowdown associated with business cycles, including
a decline in tourism revenue resulting from a decline in the value of the
Canadian dollar, the peso and other currencies relative to the U.S. dollar.
From time to time Arizona and its political subdivisions have encountered
financial difficulties.

CALIFORNIA-SPECIFIC RISK is the risk that a Fund that invests more than 25%
of its assets in California municipal instruments will be more exposed to
negative political or economic factors in California than a Fund that invests
more widely. California's economy is largely composed of high technology
manufacturing and services, including computer software, electronic
manufacturing and motion picture/television production, and other services,
entertainment and tourism, and both residential and commercial construction.
The exposure to these industries leaves California vulnerable to an economic
slowdown associated with business cycles. Furthermore, the state budget
continues to be under stress from mandated spending on education and the social
needs of a growing population. From time to time California and its political
subdivisions have encountered financial difficulties.

FLORIDA-SPECIFIC RISK is the risk that a Fund invests more than 25% of its
assets in Florida municipal instruments will be more exposed to negative
political or economic factors in Florida than a Fund that invests more
widely. Florida's economy is largely composed of construction, agriculture,
manufacturing and tourism. The exposure to these industries, particularly
tourism, leaves Florida vulnerable to an economic slowdown associated
with business cycles. When compared with other states, Florida has a
proportionately greater retirement age population, and property income
(dividends, interest and rent) and transfer payments (including social
security and pension benefits) are a relatively more important source of
income. Proportionately greater dependency on these revenues leaves the
state vulnerable to a decline in these revenues. Furthermore, because of
Florida's rapidly growing population, corresponding increases in state
revenue will be necessary during the next decade to meet increased
burdens on the various public and social services provided by the state.
From time to time Florida and its political subdivisions have encountered
financial difficulties.

PROJECT/INDUSTRIAL DEVELOPMENT BOND RISK is the risk that a Fund may be more
sensitive to an adverse economic, business or political development if it
invests more than 25% of its assets in municipal instruments the interest upon
which is paid solely from revenues of similar projects, or in industrial
development bonds.

TAX RISK is the risk that future legislative or administrative changes or court
decisions may materially affect the ability of a Fund to pay tax-exempt
dividends.

- -------------------------------------------------------------------------------

Risk that applies primarily to the International Fixed Income Fund, the
California Funds, the Florida Intermediate Tax-Exempt Fund, the Arizona Tax-
Exempt Fund and the MarketCommand Fund

- --------------------------------------------------------------------------------
NON-DIVERSIFICATION RISK is the risk that a non-diversified Fund may be more
susceptible to adverse financial, economic or other developments affecting any
single issuer, and more susceptible to greater losses because of these
developments.

- ----------------------------------------------------------------------------
Risk that applies primarily to the High Yield Municipal and High Yield Fixed
Income Funds
- ----------------------------------------------------------------------------
HIGH-YIELD RISK may impact the value of non-investment grade securities held by
a Fund. Generally, these securities, sometimes known as "junk bonds," are
subject to greater credit risk, price volatility and risk of loss than
investment grade securities. In addition, there may be less of a market for
them, which could make it harder to sell them at an acceptable price. These and
related risks mean that a Fund may not achieve the expected income from non-
investment grade securities and that its share price may be adversely affected
by declines in the value of these securities.

- -----------------------------------------------
Risk that applies primarily to the Equity Funds
- -----------------------------------------------
STOCK RISK is the risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high levels.
There is no guarantee that such levels will continue.

- --------------------------------------------------------------
Risk that applies to the Stock Index and Small Cap Index Funds
- --------------------------------------------------------------
TRACKING RISK is the risk that a Fund's performance may vary substantially from
the performance of the benchmark index it tracks as a result of share purchases
and redemptions, transaction costs, expenses and other factors.

- ---------------------------------------------------------------------------

Risk that applies primarily to the MarketCommand, Small Cap Index, Small Cap,
Small Cap Growth and Technology Funds

- ---------------------------------------------------------------------------

SMALL CAP STOCK RISK is the risk that stocks of smaller companies may be subject
to more abrupt or erratic market movements than stocks of larger, more
established companies. Small companies may have limited product lines or
financial resources, or may be dependent upon a small or inexperienced
management group. In addition, small cap stocks typically are traded in lower
volume, and their issuers typically are subject to greater degrees of changes in
their earnings and prospects.

- ------------------------------------------------------
Risk that applies primarily to the Mid Cap Growth Fund
- ------------------------------------------------------
MID CAP STOCK RISK is the risk that stocks of mid-sized companies may be subject
to more abrupt or erratic market movements than stocks of larger, more
established companies. Mid-sized companies may have limited product lines or
financial resources, and may be dependent upon a particular niche of the market.

- -------------------------------------------------

Risks that apply primarily to the Technology Fund

- -------------------------------------------------
TECHNOLOGY STOCK RISK is the risk that stocks of technology companies may be
subject to greater price volatility than stocks of companies in other sectors.
Technology companies may produce or use products or services that prove
commercially unsuccessful, become obsolete or become adversely impacted by
government regulation. Technology securities may experience significant price
movements caused by disproportionate investor optimism or pessimism.

COMPUTER RISK is the risk that companies in the computer industry can be
significantly affected by competitive pressures. For example, as product cycles
shorten and manufacturing capacity increases, these companies could become
increasingly subject to aggressive pricing, which hampers profitability.
Profitability can also be affected by changing domestic and international
demand, research and development costs and product obsolescence.

SOFTWARE AND COMPUTER SERVICES RISK is the risk that companies in the software
and computer services industry can be significantly affected by competitve
pressures. For examply, an increasing number of companies and new product
offerings can lead to aggressive pricing and slower selling cycles.

- -----------
Other Risks
- -----------

HIGH-YIELD RISK may impact the value of non-investment grade securities held
by a Fund. Generally, these securities, commonly know as "junk bonds," are
subject to greater credit risk, price volatility and risk of loss than
investment grade securities. In addition, there may be less of a market for
them, which could make it harder to sell them at an acceptable price. These
and related risks mean that a Fund may not achieve the expected income from non-
investment grade securities and that its share price may be adversely affected
by declines in the value of these securities.

CURRENCY RISK is the potential for price fluctuations in the dollar value of
foreign securities because of changing currency exchange rates.

COUNTRY RISK is the potential for price fluctuations in foreign securities
because of political, financial and economic events in foreign countries.
these risks will normally be greatest when a Fund invests in emerging markets.
In addition, investment of more than 25% of a Fund's total assets in securities
of issuers located in one country will subject the Fund to increased country
risk with respect to the particular country.

FOREIGN REGULATORY RISK is the risk that a foreign security could lose value
because of less stringent foreign securities regulations and accounting and
disclosure standards.

EMERGING MARKETS RISK is the risk that the securities markets of emerging
countries are less liquid, are especially subject to greater price volatility,
have smaller market capitalizations, have less government regulation and are
not subject to as extensive and frequent accounting, financial and other
reporting requirements as the securities markets of more developed countries.

PORTFOLIO TURNOVER RISK is the risk that high portfolio turnover is likely to
result in increased Fund expenses which may result in lower investment returns.
High portfolio turnover is also likely to result in higher short-term capital
gains taxable to shareholders. For the last fiscal year, the annual portfolio
turnover rates of the U.S. Government Fund, Tax-Exempt Fund,
International Growth Equity Fund and International Select Equity Fund
exceeded 100%. It is expected that the annual portfolio turnover rates of the
High Yield Municipal Fund, High Yield Fixed Income Fund, MarketCommand Fund, Mid
Cap Growth Fund and Small Cap Growth Fund may also exceed 100%.

More information about the risks of investing in the Funds is provided in
"Risks, Securities and Techniques" beginning on page 80 of this Prospectus. You
should carefully consider the risks discussed in this section and "Risks,
Securities and Techniques" before investing in a Fund.

- ----------------
FUND PERFORMANCE
- ----------------
THE BAR CHARTS AND TABLES BELOW PROVIDE AN INDICATION OF THE RISKS OF INVESTING
IN A FUND BY SHOWING: (A) CHANGES IN THE PERFORMANCE OF A FUND FROM YEAR TO
YEAR; AND (B) HOW THE AVERAGE ANNUAL RETURNS OF A FUND COMPARE TO THOSE OF A
BROAD-BASED SECURITIES MARKET INDEX. FOR A DESCRIPTION OF EACH BROAD-BASED
SECURITIES MARKET INDEX PLEASE SEE PAGE 51.

The bar charts and tables assume reinvestment of dividends and distributions. A
Fund's past performance is not necessarily an indication of how the Fund will
perform in the future. Performance reflects expense limitations that were in
effect during the periods presented. If expense limitations were not in place,
a Fund's performance would have been reduced.

The Mid Cap Growth, High Yield Municipal, High Yield Fixed Income and Small Cap
Index Funds commenced operations on March 31, 1998, December 31, 1998,
December 31, 1998 and September 3, 1999, respectively. The Short-Intermediate
U.S. Government, California Intermediate Tax-Exempt, Arizona Tax-Exempt and
Small Cap Growth Funds commenced operations on October 1, 1999. The Tax-Exempt
Money Market and MarketCommand Funds had not commenced operations as of the date
of this Prospectus. The bar chart and performance table have been omitted for
these Funds because the Funds have been in operation for less than one calendar
year.

- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 5.71%
1996 5.08%
1997 5.25%
1998 5.19%

Year to date total return for the nine months ended September 30, 1999: 3.50%

BEST AND WORST QUARTERLY PERFORMANCE
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q2 '95 1.44%

- ---------------------
Worst Quarter Return:
- ---------------------
Q2 '96 1.22%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Money Market Fund (Inception 4/11/94) 5.19% 5.15%
- --------------------------------------------------------------------------------

The 7-day yield for the Fund as of December 31, 1998: 4.81%. You may call
1-800-595-9111 to obtain the current 7-day yield.

- --------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 5.62%
1996 4.96%
1997 5.14%
1998 5.11%

Year to date total return for the nine months ended September 30, 1999: 3.41%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q2 '95 1.42%

- ---------------------
Worst Quarter Return:
- ---------------------
Q4 '98 1.18%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Government Money
Market Fund (Inception 4/11/94) 5.11% 5.05%
- --------------------------------------------------------------------------------

The 7-day yield for the Fund as of December 31, 1998: 4.56%. You may call
1-800-595-9111 to obtain the current 7-day yield.

CALENDAR YEAR TOTAL RETURN

1995 5.75%
1996 5.09%
1997 5.21%
1998 5.03%

Year to date total return for the nine months ended September 30, 1999: 3.37%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q2 '95 1.45%

- ---------------------
Worst Quarter Return:
- ---------------------
Q4 '98 1.17%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Government Select Money Market Fund
(Inception 12/12/94) 5.03% 5.27%
- --------------------------------------------------------------------------------

The 7-day yield for the Fund as of December 31, 1998: 4.50%. You may call
1-800-595-9111 to obtain the current 7-day yield.

- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 3.64%
1996 3.18%
1997 3.27%
1998 3.09%

Year to date total return for the nine months ended September 30, 1999: 2.03%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q2 '95 0.95%

- ---------------------
Worst Quarter Return:
- ---------------------
Q1 '98 0.73%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Municipal Money Market Fund (Inception 4/11/94) 3.09% 3.21%
- --------------------------------------------------------------------------------

The 7-day yield for the Fund as of December 31, 1998: 3.21%. You may call
1-800-595-9111 to obtain the current 7-day yield.

CALENDAR YEAR TOTAL RETURN

1995 3.77%
1996 3.20%
1997 3.28%
1998 2.85%

Year to date total return for the nine months ended September 30, 1999: 1.85%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q2 '95 0.98%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 0.68%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
California Municipal Money Market Fund
(Inception 11/29/94) 2.85% 3.29%
- --------------------------------------------------------------------------------

The 7-day yield for the Fund as of December 31, 1998: 2.98%. You may call
1-800-595-9111 to obtain the current 7-day yield.

- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 12.59%
1996 3.05%
1997 7.24%
1998 7.53%

Year to date total return for the nine months ended September 30, 1999: 0.57%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q3 '98 4.46%

- ---------------------
Worst Quarter Return:
- ---------------------
Q1 '96 (1.07)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
U.S. Government Fund (Inception 4/1/94) 7.53% 6.32%
- --------------------------------------------------------------------------------
Lehman Brothers Intermediate Government Bond Index 8.49% 7.22%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INTERMEDIATE TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 11.91%
1996 3.36%
1997 5.84%
1998 5.15%

Year to date total return for the nine months ended September 30, 1999: (0.38)%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q1 '95 4.51%

- ---------------------
Worst Quarter Return:
- ---------------------
Q1 '96 (0.25)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Intermediate Tax-Exempt Fund (Inception 4/1/94) 5.15% 5.43%
- --------------------------------------------------------------------------------
Lehman Brothers 5-Year Municipal Bond Index 5.84% 6.20%
- --------------------------------------------------------------------------------
Lehman Brothers Mutual Fund Intermediate
Municipal Index<F1> 6.30% 7.05%
- --------------------------------------------------------------------------------

<F1> The Lehman Brothers Mutual Fund Intermediate Municipal Index, an unmanaged
index of investment grade tax-exempt bonds with maturities of five to ten
years, is replacing the Lehman Brothers 5-Year Municipal Bond Index as the
Intermediate Tax-Exempt Fund's performance benchmark. The Lehman Brothers
Mutual Fund Intermediate Municipal Index includes municipal obligations
with a wider range of maturities and, therefore, is expected to be a better
benchmark comparison of the Fund's performance. The Index figures do not
reflect any fees or expenses.

CALENDAR YEAR TOTAL RETURN

1997 7.64%
1998 5.68%

Year to date total return for the nine months ended September 30, 1999: (0.61)%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q3 '98 3.22%

- ---------------------
Worst Quarter Return:
- ---------------------
Q1 '97 (0.12)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Florida Intermediate Tax-Exempt Fund
(Inception 8/15/96) 5.68% 6.78%
- --------------------------------------------------------------------------------
Lehman Brothers Mutual Fund Florida
Intermediate Tax-Exempt Index 6.44% 6.67%
- --------------------------------------------------------------------------------
Lehman Brothers Mutual Fund
Intermediate Municipal Index 6.30% 6.97%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FIXED INCOME FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 18.80%
1996 2.61%
1997 9.24%
1998 8.00%

Year to date total return for the nine months ended September 30, 1999: (1.95)%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q2 '95 6.62%

- ---------------------
Worst Quarter Return:
- ---------------------
Q1 '96 (2.85)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Fixed Income Fund (Inception 4/1/94) 8.00% 8.02%
- --------------------------------------------------------------------------------
Lehman Brothers Government/
Corporate Bond Index 9.47% 8.42%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 17.37%
1996 2.83%
1997 8.71%
1998 5.84%

Year to date total return for the nine months ended September 30, 1999: (2.61)%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q1 '95 6.59%

- ---------------------
Worst Quarter Return:
- ---------------------
Q1 '96 (2.11)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Tax-Exempt Fund (Inception 4/1/94) 5.84% 6.98%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 6.48% 7.84%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1998 6.42%

Year to date total return for the nine months ended September 30, 1999: (2.48)%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q3 '98 4.40%
- ---------------------

- ---------------------
Worst Quarter Return:
- ---------------------
Q4 '98 (0.16)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
California Tax-Exempt Fund (Inception 4/8/97) 6.42% 10.00%
- --------------------------------------------------------------------------------
Lehman Brothers California Exempt Municipal Index 6.93% 9.83%
- --------------------------------------------------------------------------------
Lehman Brothers Mutual Fund Intermediate
Municipal Index 6.30% 8.27%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 19.70%
1996 5.53%
1997 (2.51)%
1998 17.09%

Year to date total return for the nine months ended September 30, 1999: (6.45)%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q1 '95 11.04%

- ---------------------
Worst Quarter Return:
- ---------------------
Q1 '97 (5.67)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
International Fixed Income Fund (Inception 4/1/94) 17.09% 8.35%
- --------------------------------------------------------------------------------
Morgan International Government Bond Index 18.31% 8.98%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INCOME EQUITY FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 18.92%
1996 19.99%
1997 20.84%
1998 9.17%

Year to date total return for the nine months ended September 30, 1999: 1.09%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q4 '98 10.98%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 (9.30)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Income Equity Fund (Inception 4/1/94) 9.17% 13.62%
- --------------------------------------------------------------------------------
Merrill Lynch Investment Grade
Convertible Bond Index 11.36% 14.02%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
STOCK INDEX FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1997 32.71%
1998 27.88%

Year to date total return for the nine months ended September 30, 1999: 4.89%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q4 '98 21.18%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 (10.05)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Stock Index Fund (Inception 10/7/96) 27.88% 29.73%
- --------------------------------------------------------------------------------
S&P 500/R Index 28.61% 30.61%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 26.15%
1996 17.82%
1997 30.13%
1998 33.14%

Year to date total return for the nine months ended September 30, 1999: 3.97%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q4 '98 24.82%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 (11.30)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Growth Equity Fund (Inception 4/1/94) 33.14% 22.44%
- --------------------------------------------------------------------------------
S&P 500/R Index 28.61% 26.49%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SELECT EQUITY FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 28.88%
1996 21.53%
1997 31.78%
1998 35.13%

Year to date total return for the nine months ended September 30, 1999: 9.86%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q4 '98 27.46%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 (10.70)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Select Equity Fund (Inception 4/6/94) 35.13% 24.43%
- --------------------------------------------------------------------------------
S&P 500/R Index 28.61% 26.42%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SMALL CAP FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 22.54%
1996 18.95%
1997 29.77%
1998 (5.94)%

Year to date total return for the nine months ended September 30, 1999: 2.03%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q3 '97 16.95%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 (20.46)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Small Cap Fund (4/1/94) (5.94)% 12.02%
- --------------------------------------------------------------------------------
Russell 2000 Index (2.44)% 13.05%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH EQUITY FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 2.04%
1996 5.02%
1997 6.26%
1998 23.98%

Year to date total return for the nine months ended September 30, 1999: 18.90%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q4 '98 18.84%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 (13.72)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
International Growth Equity Fund
(Inception 4/1/94) 23.98% 7.86%
- --------------------------------------------------------------------------------
MSCI EAFE Index 19.97% 8.89%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INTERNATIONAL SELECT EQUITY FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1995 (0.79)%
1996 2.89%
1997 9.08%
1998 22.36%

Year to date total return for the nine months ended September 30, 1999: 17.79%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q4 '98 16.27%

- ---------------------
Worst Quarter Return:
- ---------------------
Q3 '98 (11.80)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
International Select Equity Fund
(Inception 4/5/94) 22.36% 7.26%
- --------------------------------------------------------------------------------
MSCI EAFE Index Blended with
Emerging Markets Free Index 15.24% 7.62%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TECHNOLOGY FUND
- --------------------------------------------------------------------------------

CALENDAR YEAR TOTAL RETURN

1997 16.76%
1998 83.01%

Year to date total return for the nine months ended September 30, 1999: 41.98%

BEST AND WORST QUARTERLY PERFORMANCE:
(for the periods ended December 31, 1998)

- ---------------------
Best Quarter Return:
- ---------------------
Q4 '98 50.19%

- ---------------------
Worst Quarter Return:
- ---------------------
Q4 '97 (13.23)%

AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)

1-YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Technology Fund (Inception 4/1/96) 83.01% 45.93%
- --------------------------------------------------------------------------------
Morgan Stanley High-Technology 35 Index 95.70% 44.94%
- --------------------------------------------------------------------------------
S&P 500/R Index 28.61% 28.66%
- --------------------------------------------------------------------------------

- --------------------------------------------------
Broad-Based Securities Market Indices Descriptions
- --------------------------------------------------
THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX is an unmanaged index
including all public obligations of the U.S. Treasury and all publicly issued
debt of U.S. government agencies with maturities of up to 10 years. The Index
figures do not reflect any fees or expenses.

THE LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX is an unmanaged index of
investment grade (Baa or better) tax-exempt bonds with maturities of 4 to 6
years. The Index figures do not reflect any fees or expenses.

THE LEHMAN BROTHERS MUTUAL FUND FLORIDA INTERMEDIATE TAX-EXEMPT INDEX is an
unmanaged index of investment grade (Baa or better) tax-exempt Florida bonds
with a remaining maturity of at least one year. The index figures do not
reflect any fees or expenses.

THE LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE MUNICIPAL INDEX is an unmanaged
index of investment grade (Baa or better) tax-exempt bonds with maturities of
five to ten years. The figures do not reflect any fees or expenses.

THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an unmanaged index of
prices of U.S. government and corporate bonds with not less than one year to
maturity. The Index figures do not reflect any fees or expenses.

THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged index of investment
grade (Baa or better) tax-exempt bonds with a remaining maturity of at least one
year. The Index figures do not reflect any fees or expenses.

THE LEHMAN BROTHERS CALIFORNIA EXEMPT MUNICIPAL INDEX is an unmanaged index of
investment grade (Baa or better) tax-exempt California bonds with a remaining
maturity of at least one year. The Index figures do not reflect any fees or
expenses.

THE J.P. MORGAN INTERNATIONAL GOVERNMENT BOND INDEX is an unmanaged index of
non-U.S. government bonds with maturities of one to thirty years. The Index
figures do not reflect any fees or expenses.

THE MERRILL LYNCH INVESTMENT GRADE CONVERTIBLE BOND INDEX is an unmanaged index
consisting of investment grade (BBB or better) convertible bonds and preferred
stocks. The Index figures do not reflect any fees or expenses.

THE S&P 500/R INDEX is the Standard and Poor's Composite Index of 500 stocks, a
widely recognized, unmanaged index of common stock prices. The Index figures do
not reflect any fees or expenses.

THE RUSSELL 2000 INDEX is an unmanaged index which tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. The Index figures do not reflect any fees or expenses.

THE MSCI EAFE INDEX is the Morgan Stanley Capital International Europe,
Australasia and Far East Index, an unmanaged index which tracks the performance
of selected equity securities in Europe, Australia, Asia and the Far East. The
Index figures do not reflect any fees or expenses.

THE MSCI EAFE INDEX BLENDED WITH EMERGING MARKETS FREE INDEX is an unmanaged
index comprised of companies representative of developed European and Pacific
Basin countries as well as emerging market countries. The Index figures do not
reflect any fees or expenses.

THE MORGAN STANLEY HIGH-TECHNOLOGY 35 INDEX is an unmanaged index which tracks
the performance of stocks within the technology sector. The Index figures do
not reflect any fees or expenses.

This page intentionally left blank.

- ----------------------
FUND FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds. Please note that the following information does not
reflect any charges which may be imposed by The Northern Trust Company, its
affiliates, correspondent banks and other institutions on their customers. For
more information, please see "Account Policies and Other Information" on page
69.

ANNUAL FUND OPERATING EXPENSES
SHAREHOLDER FEES (expenses that are deducted from
(fees paid directly from your investment) Fund assets)
------------------------------------------------- ----------------------------------------
SALES
SALES CHARGE TOTAL
CHARGE (LOAD) ANNUAL
(LOAD) DEFERRED IMPOSED FUND
IMPOSED SALES ON REDEMPTION DISTRIBUTION OTHER OPERATING
ON CHARGE REINVESTED FEES EXCHANGE MANAGEMENT (12B-1) EXPENSES EXPENSES
FUND PURCHASES (LOAD) DISTRIBUTIONS <F1> FEES FEES <F2> <F3> <F5>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market None None None None None 0.60% 0.00% 0.29% 0.89%
- -------------------------------------------------------------------------------------------------------------------------------
Government Money Market None None None None None 0.60% 0.00% 0.31% 0.91%
- -------------------------------------------------------------------------------------------------------------------------------
Government Select Money Market None None None None None 0.60% 0.00% 0.31% 0.91%
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market<F4> None None None None None 0.60% 0.00% 0.32% 0.92%
- -------------------------------------------------------------------------------------------------------------------------------
Municipal Money Market None None None None None 0.60% 0.00% 0.29% 0.89%
- -------------------------------------------------------------------------------------------------------------------------------
California Municipal Money Market None None None None None 0.60% 0.00% 0.31% 0.91%
- -------------------------------------------------------------------------------------------------------------------------------
Government None None None None None 0.75% 0.00% 0.32% 1.07%
- -------------------------------------------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government None None None None None 0.75% 0.00% 0.52% 1.27%
- -------------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt None None None None None 0.75% 0.00% 0.31% 1.06%
- -------------------------------------------------------------------------------------------------------------------------------
California Intermediate Tax-Exempt None None None None None 0.75% 0.00% 0.46% 1.21%
- -------------------------------------------------------------------------------------------------------------------------------
Florida Intermediate Tax-Exempt None None None None None 0.75% 0.00% 0.54% 1.29%
- -------------------------------------------------------------------------------------------------------------------------------
Fixed Income None None None None None 0.75% 0.00% 0.33% 1.08%
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt None None None None None 0.75% 0.00% 0.33% 1.08%
- -------------------------------------------------------------------------------------------------------------------------------
Arizona Tax-Exempt None None None None None 0.75% 0.00% 0.55% 1.30%
- -------------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt None None None None None 0.75% 0.00% 0.42% 1.17%
- -------------------------------------------------------------------------------------------------------------------------------
International Fixed Income None None None None None 0.90% 0.00% 1.06% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------

</TABLE>

ANNUAL FUND OPERATING EXPENSES
SHAREHOLDER FEES (expenses that are deducted from
(fees paid directly from your investment) Fund assets)
------------------------------------------------- ----------------------------------------
SALES
SALES CHARGE TOTAL
CHARGE (LOAD) ANNUAL
(LOAD) DEFERRED IMPOSED FUND
IMPOSED SALES ON REDEMPTION DISTRIBUTION OTHER OPERATING
ON CHARGE REINVESTED FEES EXCHANGE MANAGEMENT (12B-1) EXPENSES EXPENSES
FUND PURCHASES (LOAD) DISTRIBUTIONS <F1> FEES FEES <F2> <F3> <F5>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Municipal None None None None None 0.75% 0.00% 0.97% 1.72%
- -------------------------------------------------------------------------------------------------------------------------------
High Yield Fixed Income None None None None None 0.75% 0.00% 0.45% 1.20%
- -------------------------------------------------------------------------------------------------------------------------------
Income Equity None None None None None 1.00% 0.00% 0.35% 1.35%
- -------------------------------------------------------------------------------------------------------------------------------
Stock Index None None None None None 0.60% 0.00% 0.40% 1.00%
- -------------------------------------------------------------------------------------------------------------------------------
Growth Equity None None None None None 1.00% 0.00% 0.30% 1.30%
- -------------------------------------------------------------------------------------------------------------------------------
Select Equity None None None None None 1.20% 0.00% 0.34% 1.54%
- -------------------------------------------------------------------------------------------------------------------------------
MarketCommand4 None None None None None 1.20% 0.00% 0.33% 1.53%
- -------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth None None None None None 1.00% 0.00% 0.65% 1.65%
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap Index None None None None None 0.65% 0.00% 0.57% 1.22%
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap None None None None None 1.20% 0.00% 0.32% 1.52%
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth None None None None None 1.20% 0.00% 0.68% 1.88%
- -------------------------------------------------------------------------------------------------------------------------------
International Growth Equity None None None None None 1.20% 0.00% 0.42% 1.62%
- -------------------------------------------------------------------------------------------------------------------------------
International Select Equity None None None None None 1.20% 0.00% 0.46% 1.66%
- -------------------------------------------------------------------------------------------------------------------------------
Technology None None None None None 1.20% 0.00% 0.33% 1.53%
- -------------------------------------------------------------------------------------------------------------------------------

</TABLE>

- ----------
Footnotes
- ----------

<F1> A fee of $15.00 may be applicable for each wire redemption.

<F2> During the last fiscal year the Funds did not pay any 12b-1 fees. The
Funds do not expect to pay any 12b-1 fees during the current fiscal year.
The maximum distribution fee is 0.25% of each Fund's average net assets
under Northern Funds' Distribution and Service Plan.

<F3> These expenses include custodian, transfer agency and co-administration
expenses as well as other customary Fund expenses. The co-administrators
are entitled to a co-administration fee of 0.15%, of which 0.09% is
currently being waived voluntarily. This waiver may be terminated at any
time. The High Yield Municipal, High Yield Fixed Income and Small Cap
Index Funds commenced operations on December 31, 1998, December 31, 1998
and September 3, 1999, respectively. The Short-Intermediate U.S.
Government, California Intermediate Tax-Exempt, Arizona Tax-Exempt and
Small Cap Growth Funds commenced operations on October 1, 1999. As a
result, "Other Expenses" for those Funds are based on estimates for the
current fiscal year.

<F4> Since the Tax-Exempt Money Market and MarketCommand Funds had not commenced
operations as of the date of this Prospectus, "Other Expenses" is based on
estimated amounts the Funds expect to pay during the current fiscal year.

<F5> As a result of voluntary fee reductions, waivers and reimbursements,
"Management Fees," "Other Expenses" and "Total Fund Operating Expenses"
which are actually incurred by the Funds are set forth below. The
voluntary fee reductions, waivers and reimbursements may be terminated at
any time at the option of the Investment Adviser. If this occurs,
"Management Fees," "Other Expenses" and "Total Fund Operating Expenses" may
increase without shareholder approval.

TOTAL
ANNUAL
DISTRIBUTION FUND
MANAGEMENT (12B-1) OTHER OPERATION
FUND FEES FEES EXPENSES EXPENSES
- -------------------------------------------------------------------------------
Money Market 0.40% 0.00% 0.15% 0.55%
- -------------------------------------------------------------------------------
U.S. Government Money Market 0.40% 0.00% 0.15% 0.55%
- -------------------------------------------------------------------------------
U.S. Government Select
Money Market 0.40% 0.00% 0.15% 0.55%
- -------------------------------------------------------------------------------
Tax-Exempt Money Market 0.40% 0.00% 0.15% 0.55%
- -------------------------------------------------------------------------------
Municipal Money Market 0.40% 0.00% 0.15% 0.55%
- -------------------------------------------------------------------------------
California Municipal
Money Market 0.40% 0.00% 0.15% 0.55%
- -------------------------------------------------------------------------------
U.S. Government 0.75% 0.00% 0.15% 0.90%
- -------------------------------------------------------------------------------
Short-Intermediate
U.S. Government 0.75% 0.00% 0.15% 0.90%
- -------------------------------------------------------------------------------
Intermediate Tax-Exempt 0.70% 0.00% 0.15% 0.85%
- -------------------------------------------------------------------------------
California Intermediate
Tax-Exempt 0.70% 0.00% 0.15% 0.85%
- -------------------------------------------------------------------------------
Florida Intermediate
Tax-Exempt 0.70% 0.00% 0.15% 0.85%
- -------------------------------------------------------------------------------
Fixed Income 0.75% 0.00% 0.15% 0.90%
- -------------------------------------------------------------------------------
Tax-Exempt 0.70% 0.00% 0.15% 0.85%
- -------------------------------------------------------------------------------
Arizona Tax-Exempt 0.70% 0.00% 0.15% 0.85%
- -------------------------------------------------------------------------------
California Tax-Exempt 0.70% 0.00% 0.15% 0.85%
- -------------------------------------------------------------------------------
International Fixed Income 0.90% 0.00% 0.25% 1.15%
- -------------------------------------------------------------------------------
High Yield Municipal 0.70% 0.00% 0.15% 0.85%
- -------------------------------------------------------------------------------
High Yield Fixed Income 0.75% 0.00% 0.15% 0.90%
- -------------------------------------------------------------------------------
Income Equity 0.85% 0.00% 0.15% 1.00%
- -------------------------------------------------------------------------------
Stock Index 0.40% 0.00% 0.15% 0.55%
- -------------------------------------------------------------------------------
Growth Equity 0.85% 0.00% 0.15% 1.00%
- -------------------------------------------------------------------------------
Select Equity 0.85% 0.00% 0.15% 1.00%
- -------------------------------------------------------------------------------
MarketCommand 1.00% 0.00% 0.23% 1.23%
- -------------------------------------------------------------------------------
Mid Cap Growth 0.85% 0.00% 0.15% 1.00%
- -------------------------------------------------------------------------------
Small Cap Index 0.50% 0.00% 0.15% 0.65%
- -------------------------------------------------------------------------------
Small Cap 0.85% 0.00% 0.15% 1.00%
- -------------------------------------------------------------------------------
Small Cap Growth 1.00% 0.00% 0.25% 1.25%
- -------------------------------------------------------------------------------
International Growth Equity 1.00% 0.00% 0.25% 1.25%
- -------------------------------------------------------------------------------
International Select Equity 1.00% 0.00% 0.25% 1.25%
- -------------------------------------------------------------------------------
Technology 1.00% 0.00% 0.23% 1.23%
- -------------------------------------------------------------------------------

EXAMPLE

The following Example is intended to help you compare the cost of investing in a
Fund (without fee waivers and expense reimbursements) with the cost of investing
in other mutual funds.

The Example assumes that you invest $10,000 in a Fund for the time periods
indicated (with reinvestment of all dividends and distributions) and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

FUND ONE YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Money Market $91 $284 $493 $1,096
- -------------------------------------------------------------------------------
U.S. Government Money Market 93 290 504 1,120
- -------------------------------------------------------------------------------
U.S. Government Select
Money Market 93 290 504 1,120
- -------------------------------------------------------------------------------
Tax-Exempt Money Market 94 295 N/A N/A
- -------------------------------------------------------------------------------
Municipal Money Market 91 284 493 1,096
- -------------------------------------------------------------------------------
California Municipal Money Market 93 290 504 1,120
- -------------------------------------------------------------------------------
U.S. Government 109 340 590 1,306
- -------------------------------------------------------------------------------
Short-Intermediate
U.S. Government 119 372 N/A N/A
- -------------------------------------------------------------------------------
Intermediate Tax-Exempt 108 337 585 1,294
- -------------------------------------------------------------------------------
California Intermediate
Tax-Exempt 114 356 N/A N/A
- -------------------------------------------------------------------------------
Florida Intermediate Tax-Exempt 131 409 708 1,556
- -------------------------------------------------------------------------------
Fixed Income 110 343 595 1,317
- -------------------------------------------------------------------------------
Tax-Exempt 110 343 595 1,317
- -------------------------------------------------------------------------------
Arizona Tax-Exempt 127 397 N/A N/A
- -------------------------------------------------------------------------------
California Tax-Exempt 119 372 644 1,420
- -------------------------------------------------------------------------------
International Fixed Income 199 615 1,057 2,285
- -------------------------------------------------------------------------------
High Yield Municipal 175 542 933 2,030
- -------------------------------------------------------------------------------
High Yield Fixed Income 122 381 660 1,455
- -------------------------------------------------------------------------------
Income Equity 137 428 739 1,624
- -------------------------------------------------------------------------------
Stock Index 102 318 552 1,225
- -------------------------------------------------------------------------------
Growth Equity 132 412 713 1,568
- -------------------------------------------------------------------------------
Select Equity 157 486 839 1,834
- -------------------------------------------------------------------------------
MarketCommand 156 483 N/A N/A
- -------------------------------------------------------------------------------
Mid Cap Growth 168 520 897 1,955
- -------------------------------------------------------------------------------
Small Cap Index 103 322 N/A N/A
- -------------------------------------------------------------------------------
Small Cap 155 480 829 1,813
- -------------------------------------------------------------------------------
Small Cap Growth 193 596 N/A N/A
- -------------------------------------------------------------------------------
International Growth Equity 165 511 881 1,922
- -------------------------------------------------------------------------------
International Select Equity 169 523 902 1,965
- -------------------------------------------------------------------------------
Technology 156 483 834 1,824
- -------------------------------------------------------------------------------

- --------------------
INVESTMENT ADVISERS

The Northern Trust Company ("Northern Trust"), an Illinois state-chartered bank
and member of the Federal Reserve System, serves as investment adviser for all
Funds except the Stock Index, Small Cap Index and Small Cap Funds. Northern
Trust Quantitative Advisors, Inc. ("NTQA"), an Illinois state-chartered trust
company, serves as investment adviser for the Stock Index, Small Cap Index and
Small Cap Funds. Prior to April 1, 1998 Northern Trust served as investment
adviser to the Stock Index, Small Cap Index and Small Cap Funds pursuant to
advisory agreements substantially identical as those currently in effect for
such Funds.

Northern Trust and NTQA are referred to as the "Investment Advisers." The
Investment Advisers are located at 50 S. LaSalle Street, Chicago, IL 60675 and
are wholly-owned subsidiaries of Northern Trust Corporation, a bank holding
company. As of September 30, 1999, Northern Trust Corporation and its
subsidiaries had approximately $33.7 billion in assets, $19.1 billion in
deposits and employed over 8,360 persons.

Northern Trust has for more than 100 years managed the assets of individuals,
charitable organizations, foundations and large corporate investors. Northern
Trust and its affiliates administered in various capacities (including
as master trustee, investment manager or custodian) approximately $ 1.38
trillion of assets as of September 30, 1999, including approximately $262.8
billion of assets for which Northern Trust and its affiliates had investment
management responsibility.

Under its Advisory Agreement with Northern Funds, each Investment Adviser,
subject to the general supervision of Northern Funds' Board of Trustees, is
responsible for making investment decisions for the Funds for which it serves as
adviser and for placing purchase and sale orders for portfolio securities.

- --------------
ADVISORY FEES

As compensation for its advisory services and its assumption of related
expenses, each Investment Adviser is entitled to an advisory fee, computed daily
and payable monthly, at annual rates set forth in the table below (expressed as
a percentage of each Fund's respective average daily net assets). The table
also reflects the advisory fees (after voluntary fee waivers) paid by the Funds
for the fiscal year ended March 31, 1999.

ADVISORY FEE PAID
CONTRACTUAL FOR FISCAL YEAR
FUND RATE ENDED 3/31/99
- -------------------------------------------------------------------------------
Money Market 0.60% 0.40%
- -------------------------------------------------------------------------------
U.S. Government Money Market 0.60% 0.40%
- -------------------------------------------------------------------------------
U.S. Government Select Money Market 0.60% 0.40%
- -------------------------------------------------------------------------------
Tax-Exempt Money Market 0.60% N/A
- -------------------------------------------------------------------------------
Municipal Money Market 0.60% 0.40%
- -------------------------------------------------------------------------------
California Municipal Money Market 0.60% 0.40%
- -------------------------------------------------------------------------------
U.S. Government 0.75% 0.75%
- -------------------------------------------------------------------------------
Short-Intermediate U.S. Government 0.75% N/A
- -------------------------------------------------------------------------------
Intermediate Tax-Exempt 0.75% 0.70%
- -------------------------------------------------------------------------------
California Intermediate Tax-Exempt 0.75% N/A
- -------------------------------------------------------------------------------
Florida Intermediate Tax-Exempt 0.75% 0.70%
- -------------------------------------------------------------------------------
Fixed Income 0.75% 0.75%
- -------------------------------------------------------------------------------
Tax-Exempt 0.75% 0.70%
- -------------------------------------------------------------------------------
Arizona Tax-Exempt 0.75% N/A
- -------------------------------------------------------------------------------
California Tax-Exempt 0.75% 0.70%
- -------------------------------------------------------------------------------
International Fixed Income 0.90% 0.90%
- -------------------------------------------------------------------------------
High Yield Municipal 0.75% 0.70%
- -------------------------------------------------------------------------------
High Yield Fixed Income 0.75% 0.75%
- -------------------------------------------------------------------------------
Income Equity 1.00% 0.85%
- -------------------------------------------------------------------------------
Stock Index 0.60% 0.40%
- -------------------------------------------------------------------------------
Growth Equity 1.00% 0.85%
- -------------------------------------------------------------------------------
Select Equity 1.20% 0.85%
- -------------------------------------------------------------------------------
MarketCommand 1.20% N/A
- -------------------------------------------------------------------------------
Mid Cap Growth 1.00% 0.85%
- -------------------------------------------------------------------------------
Small Cap Index 0.65% N/A
- -------------------------------------------------------------------------------
Small Cap 1.20% 0.85%
- -------------------------------------------------------------------------------
Small Cap Growth 1.20% N/A
- -------------------------------------------------------------------------------
International Growth Equity 1.20% 1.00%
- -------------------------------------------------------------------------------
International Select Equity 1.20% 1.00%
- -------------------------------------------------------------------------------
Technology 1.20% 1.00%
- -------------------------------------------------------------------------------

The difference, if any, between the contractual advisory fees and the actual
advisory fees paid by the Funds reflects that the Investment Advisers did not
charge the full amount of the advisory fees to which they were entitled. The
Investment Advisers may discontinue or modify their voluntary limitations in the
future at their discretion.

FUND MANAGEMENT

THE INVESTMENT ADVISERS EMPLOY A TEAM APPROACH TO THE INVESTMENT MANAGEMENT OF
THE FUNDS, RELYING UPON INVESTMENT PROFESSIONALS UNDER THE LEADERSHIP OF JAMES
M. SNYDER, CHIEF INVESTMENT OFFICER AND EXECUTIVE VICE PRESIDENT OF NORTHERN
TRUST AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF NTQA. BELOW IS INFORMATION
REGARDING THE MANAGEMENT OF THE FUNDS OTHER THAN THE MONEY MARKET FUNDS AND THE
STOCK INDEX AND SMALL CAP INDEX FUNDS.

- -------------------------------------------------------------------------------
Fixed Income Funds
- -------------------------------------------------------------------------------

The management team leaders for the U.S. Government Fund are Mark J. Wirth,
--------------------
Senior Vice President of Northern Trust and Monty M. Memler, Vice President of
Northern Trust. Mr. Wirth has had such responsibility for the Fund since July
1998. Mr. Memler has had such responsibility for the Fund since November 1994.
Messrs. Wirth and Memler joined Northern Trust in 1986 and during the past five
years have managed various fixed income portfolios.

Mr. Wirth and Peter T. Marchese, Second Vice President of Northern Trust will be
the management team leaders for the Short-Intermediate U.S. Government Fund
---------------------------------------
after it commences operations. Mr. Marchese joined Northern Trust in 1990 and
during the past five years has managed various fixed income portfolios.

The management team leaders for the Intermediate Tax-Exempt Fund are M. Jane
----------------------------
McCart, Senior Vice President of Northern Trust, and Joel F. Silva, Vice
President of Northern Trust. Ms. McCart and Mr. Silva have had such
responsibility for the Fund since September 1999. Ms. McCart joined Northern
Trust in 1998. From 1983 to December 1998, Ms. McCart was with Stein Roe &
Farnham Incorporated where she had been the portfolio manager of various
municipal bond portfolios. Mr. Silva joined Northern Trust in 1999. From 1989
to 1999, Mr. Silva was with American Century where he managed various municipal
bond portfolios.

Eric V. Boeckmann, Vice President of Northern Trust and Joel F. Silva will be
the management team leaders for the California Intermediate Tax-Exempt and
----------------------------------
Arizona Tax-Exempt Funds after they commence operations. Mr. Boeckmann joined
- ------------------------
Northern Trust in 1985 and during the past five years has managed various
municipal bond portfolios, including common trust funds invested in municipal
securities.

The management team leaders for the Florida Intermediate Tax-Exempt Fund are Ms.
------------------------------------
McCart and Gregory A. Bell, Second Vice President of Northern Trust. Ms. McCart
has had such responsibility for the Fund since September 1999. Mr. Bell has had
such responsibility for the Fund since November 1998. Mr. Bell joined Northern
Trust in 1984 and during the past five years has managed various municipal bond
portfolios.

The management team leaders for the Fixed Income Fund are Mr. Wirth and Steven
-----------------
M. Schafer, Vice President of Northern Trust. Mr. Wirth has had such
responsibility for the Fund since July 1998 and Mr. Schafer has had such
responsibility since the fund commenced operations in December 1998. Mr.
Schafer joined Northern Trust in 1988 and during the past five years has managed
various fixed income portfolios and served as credit analyst following both
industrial and utility companies.

The management team leaders for the Tax-Exempt Fund are Ms. McCart and Timothy
---------------
T. A. McGregor, Second Vice President of Northern Trust. Ms. McCart has had
such responsibility for the Fund since September 1999. Mr. McGregor has had
such responsibility for the Fund since November 1998. Mr. McGregor joined
Northern Trust in 1989 and during the past five years has managed various
municipal bond portfolios.

The management team leaders for the California Tax-Exempt Fund are Messrs.
--------------------------
Boeckmann and Silva. Mr. Boeckmann has had such responsibility for the Fund
since April 1998. Mr. Silva has had such responsibility for the Fund since
September 1999.

The management team leaders for the International Fixed Income Fund are Mr.
-------------------------------
Schafer and Guy Williams, Vice President of Northern Trust. Mr. Schafer has had
such responsibility for the Fund since July 1998. Mr. Williams has had such
responsibility for the Fund since September 1999. Mr. Williams joined Northern
Trust in 1999. From 1992 to 1999, he was a global fixed income manager for
Paribas Asset Management.

The management team leader for the High Yield Municipal Fund is Ms. McCart. Ms.
-------------------------
McCart has had such responsibility since the fund commenced operations in
December 1998.

The management team leader for the High Yield Fixed Income Fund is Eric
----------------------------
Misenheimer, Vice President of Northern Trust. Mr. Misenheimer has had such
responsibility since July 1999. Mr. Misenheimer joined Northern Trust in 1999.
From April 1998 to May 1999, Mr. Misenheimer was with Stein Roe & Farnham
Incorporated where he had been a senior research analyst and assisted with
portfolio management of various high yield bond portfolios. From 1993 to 1998,
he was a research analyst with Falcon Asset Management.

- -------------------------------------------------------------------------------
Equity Funds
- -------------------------------------------------------------------------------

Theodore T. Southworth, Vice President of Northern Trust, has led the management
team for the Income Equity Fund since 1995. He joined Northern Trust in 1984
------------------
and during the past five years has managed various equity portfolios.

Jon D. Brorson, Senior Vice President of Northern Trust, and John J. Zielinski,
Vice President of Northern Trust, are the management team leaders for the
Growth Equity Fund. Mr. Brorson has had such responsibility since July 1998 and
- ------------------
Mr. Zielinski has had such responsibility since April 1998. Mr. Brorson has
managed equity portfolios with Northern Trust since 1996, and from 1990 to 1996,
he was with Hartline Investment Corp., where his primary responsibilities
included portfolio management, investment research, sales, and trading. Mr.
Zielinski joined Northern Trust in 1980 and during the past five years has
managed various equity portfolios.

Robert N. Streed, Vice President of Northern Trust, is the management team
leader for the Select Equity Fund. Mr. Streed has had such responsibility for
------------------
the Fund since it commenced operations in April 1994. Mr. Streed joined
Northern Trust in 1990 and during the past five years has managed various equity
portfolios.

The management team leaders for the MarketCommand Fund will be R. Randall Canent
------------------
and Robert G. Mitchell, Vice Presidents of Northern Trust, after it commences
operations. Mr. Canent joined Northern Trust in 1992 and during the past five
years has managed various equity portfolios. Mr. Mitchell joined Northern Trust
in 1988 and during the past five years has managed various equity portfolios for
institutional clients.

Theodore Breckel, Senior Vice President of Northern Trust, is the management
team leader for the Mid Cap Growth Fund. Mr. Breckel has had such
-------------------
responsibility for the Fund since March 1998. Mr. Breckel has been with
Northern Trust since 1968. During the past five years he has managed various
equity portfolios.

Susan J. French is the management team leader for the Small Cap Fund. Ms.
--------------
French serves as Vice President of Northern Trust and, since 1998, NTQA. Ms.
French has had such responsibility for the Fund since it commenced operations in
April 1994. Ms. French joined Northern Trust in 1986 and during the past five
years has managed various short-term investment and equity index portfolios.

The management team leader for the Small Cap Growth Fund is David H. Burshtan,
---------------------
Vice President of Northern Trust. Mr. Burshtan has had such responsibility
since the Fund commenced operations in September 1999. Mr. Burshtan joined
Northern Trust in 1999. From 1995 to 1999, Mr. Burshtan was a Portfolio Manager
for various small cap mutual funds with Scudder Kemper Investments, Inc. From
1993 to 1995, Mr. Burshtan held a variety of analyst and portfolio management
positions with Northern Trust.

The management team leader for the International Growth Equity Fund and the
--------------------------------
International Select Equity Fund is Robert A. LaFleur, Senior Vice President of
- --------------------------------
Northern Trust. Mr. LaFleur has had such responsibility for the Fund since
1994. Mr. LaFleur joined Northern Trust in 1982 and during the past five years
has managed various international equity portfolios.

The management team leaders for the Technology Fund are John B. Leo, Senior Vice
---------------
President of Northern Trust, George J. Gilbert, Senior Vice President of
Northern Trust and Kevin J. Spoor, Vice President of Northern Trust. Mr. Leo
has had such responsibility since the Fund commenced operations in April 1996.
Mr. Gilbert has had such responsibility since July 1997. Mr. Spoor has had such
responsibility since September 1999. Mr. Leo joined Northern Trust in 1984.
During the past five years, Mr. Leo has managed various equity and bond
portfolios. Mr. Gilbert joined Northern Trust in 1980 and during the past five
years has managed various technology portfolios and served as a research
analyst. Mr. Spoor joined Northern Trust in 1999. From 1995 to 1998, Mr. Spoor
was a senior semi-conductor analyst with Salomon Smith Barney. Prior thereto,
Mr. Spoor pursued his MBA from the University of Rochester, which he received in
June 1995.

- -------------------------------------------------------------------------------
Other Fund Services
- -------------------------------------------------------------------------------

Northern Trust also serves as transfer agent ("Transfer Agent") and custodian
for each Fund. As Transfer Agent, Northern Trust performs various administrative
servicing functions, and any shareholder inquiries should be directed to it.
The fees that Northern Trust receives for its services in those capacities are
described in the Statement of Additional Information. Northern Trust and PFPC
Inc., formerly First Data Investor Services Group, Inc. ("PFPC") act as co-
administrators for Northern Funds. The fee that Northern Trust and PFPC
receives for their co-administrative services is described on page 52 under
"Fund Fees and Expenses."

- ------------------------------
PURCHASING AND SELLING SHARES

- -------------------------------------------------------------------------------
PURCHASING SHARES
- -------------------------------------------------------------------------------

You may purchase shares directly from Northern Funds or, if you maintain certain
accounts, through Northern Trust and certain other institutions. If you have any
questions or need assistance in opening an investment account or purchasing
shares, call (800) 595-9111.

As of the date of this Prospectus, shares of the Tax-Exempt Money Market Fund
are not being offered. The Fund is expected to commence operations during the
next twelve months. Please call (800) 595-9111 before investing to determine
availability.

- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
- -------------------------------------------------------------------------------

DIRECTLY FROM THE FUNDS. You may open a shareholder account and purchase shares
directly from the Funds with a minimum initial investment per Fund of $2,500
($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern Trust and its affiliates). The minimum subsequent
investment is $50 (except for reinvestments of distributions for which there is
no minimum). The Funds reserve the right to waive these minimums.

For your convenience, there are a number of ways to invest directly in the
Funds:

- --------
By Mail
- --------.
- - Read this Prospectus carefully

- - Complete and sign the Purchase Application

- - Enclose a check or money order payable to Northern Funds

- - If you are investing on behalf of a corporation or other entity, your
Purchase Application must be accompanied by a certified corporate resolution
(or other acceptable evidence of authority).

- - Mail your check, corporate resolution (if needed) and completed Purchase
Application to:

Northern Funds
P.O. Box 75986
Chicago, Illinois 60675-5986

- - For overnight delivery use the following address:

801 South Canal Street
Chicago, Illinois 60607
Attn: Northern Funds

- - For 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

All checks must be payable in U.S. dollars and drawn on a bank located in the
United States. Cash and third party checks are not acceptable.

- --------
By Wire
- --------
TO OPEN A NEW ACCOUNT:
- - Call (800) 595-9111 for instructions

- - Complete a Purchase Application and send it to:

Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986

TO ADD TO AN EXISTING ACCOUNT:
- - Have your bank wire Federal funds to:

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

- ------------------
By Direct Deposit
- ------------------
TO PURCHASE ADDITIONAL SHARES:
- - Determine if your employer has direct deposit capabilities through the
Automated Clearing House ("ACH")

- - Have your employer send payments to:

ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account No.)
(Reference Shareholder's Name)

- - The minimum periodic investment for direct deposit is $50

- ------------------------
By Automatic Investment
- ------------------------
TO OPEN A NEW ACCOUNT
- - Complete a Purchase Application, including the Automatic Investment section

- - Send it to:

Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986

- - The minimum initial investment is $250; $50 for monthly minimum additions

TO ADD TO AN ACCOUNT:
- - Call (800) 595-9111 to obtain an Automatic Investment Plan Application

- - The minimum for automatic investment additions is $50

If you discontinue participation in the plan, the Funds reserve the right to
redeem the investor's account involuntarily, upon 30 days written notice, if the
account's net asset value is $1,000 or less. Involuntary redemptions will not
be made if the value of shares in an account falls below the minimum amount
solely because of a decline in the Fund's net asset value.

- -------------------------
By Directed Reinvestment
- -------------------------
You may elect to have your income dividends and capital gains distributions
automatically invested in another Northern Fund.

- - Complete the Distribution Options section on the Purchase Application

- - Reinvestments can only be directed to an existing Northern Funds account
(which must meet the minimum investment requirement)

- ------------
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 "Selling
Shares - By Exchange."

- ------------
By Internet
- ------------
You may initiate transactions between Northern Trust banking and Northern Funds
accounts by using Northern Trust Private Passport. For details and to sign up
for this service, go to www.northerntrust.com/privatepassport or contact your
relationship manager.

THROUGH NORTHERN TRUST AND OTHER INSTITUTIONS

If you have an account with Northern Trust, you may purchase Northern Funds
shares through Northern Trust. You may also purchase shares through other
institutions (together with Northern Trust, "Service Organizations") that have
entered into agreements with Northern Funds. To determine whether you may
purchase shares through your institution, contact your institution directly or
call (800) 595-9111. Northern Trust or another Service Organization may impose
charges against your account which will reduce the net return on an investment
in a Fund. These charges may include asset allocation fees, account maintenance
fees, sweep fees, compensating balance requirements or other charges based upon
account transactions, assets or income.

- --------------------------------------------------------------------------------
SELLING SHARES
- --------------------------------------------------------------------------------

REDEEMING AND EXCHANGING DIRECTLY FROM THE FUNDS

If you purchased Northern Funds directly or, if you purchased 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 redeem all or
part of your shares using one of the methods described below.

- --------
By Mail
- --------
SEND A WRITTEN REQUEST TO:

Northern Funds
P.O. Box 75986
Chicago, Illinois 60675-5986

THE REDEMPTION REQUEST MUST INCLUDE:
- - The number of shares or the dollar amount to be redeemed

- - The Fund account number

- - A signature guarantee is also required if:

- The proceeds are to be sent elsewhere than the address of record, or

- The redemption amount is greater than $50,000

- --------
By Wire
- --------
If you authorize wire redemptions on your Purchase Application, you can redeem
shares and have 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

- - Call the Transfer Agent at (800) 595-9111 for instructions

- - The minimum amount that may be redeemed by this method is $250

- ---------
By Check
- ---------
If you authorize the checkwriting privilege on your Purchase Application, you
may redeem shares of the Money Market Funds by check in amounts of $250 or more.
If your account is already open:

- - Call (800) 595-9111 for the appropriate form

- - The application must be signed by each person whose name appears on the
account and must be accompanied by a signature guarantee

- - Dividends are earned until the check clears the Transfer Agent

- - Checks you write will not be returned to you, although copies are available
upon request

- - A fee of $20 will be charged to the account if there are insufficient funds
to cover the amount of your redemption by check

- - To place a stop payment request, call (800) 595-9111. A $20 fee will be
charged to the account

- - You may not use checks to close an account or redeem shares purchased within
the past fifteen days

- -------------------------
By Systematic Withdrawal
- -------------------------
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 and distributed in cash or
reinvested in one or more other Northern Funds.

- - Call (800) 595-9111 for an application form and additional information

- - The minimum amount is $250 per withdrawal

- ------------
By Exchange
- ------------
Northern Funds offers you the ability to exchange shares of one Northern Fund
for another Fund in the Northern Funds family.

- - When opening an account, complete the Exchange Privilege section of the
Purchase Application or, if your account is already opened, send a written
request to:

Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986

- - Shares being exchanged must have a value of at least $1,000 ($2,500 if a new
account is being established by the exchange)

- - Call (800) 595-9111 for more information

- -------------
By Telephone
- -------------
If you authorize the telephone privilege on your Purchase Application, you may
redeem Northern Funds shares by phone.

- - If your account is already opened, send a written request to:

Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986

- - The request must be signed by each owner of the account and must be
accompanied by signature guarantees

- - Call (800) 595-9111 to use the telephone privilege

- - During periods of unusual economic or market activity, telephone redemptions
may be difficult to implement. In such event, shareholders should follow the
procedures outlined above under "Selling Shares -- By Mail"

REDEEMING AND EXCHANGING THROUGH NORTHERN TRUST AND OTHER INSTITUTIONS

If you purchased your Northern Funds shares through an account at Northern Trust
or another Service Organization, you may redeem or exchange your shares
according to the instructions pertaining to that account.

- - 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

- - Contact your account representative at Northern Trust or other Service
Organization for more information about redemptions or exchanges

- ---------------------------------------
ACCOUNT POLICIES AND OTHER INFORMATION

CALCULATING SHARE PRICE. Northern Funds issues shares and redeems shares at net
asset value ("NAV"). The NAV for each Fund is calculated by dividing the value
of the Fund's net assets by the number of the Fund's outstanding shares. The
NAV is calculated 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. The NAV used in determining the price of your shares is the one calculated
after your purchase, exchange or redemption order is received and accepted as
described below.

The Money Market Funds seek to maintain an NAV of $1.00 per share by valuing the
obligations held by the Funds at amortized cost in accordance with SEC
regulations. Amortized cost will normally approximate market value. U.S.
and foreign securities held by the Non-Money Market Funds generally are valued
at their market prices. Shares of an investment company held by the Non-Money
Market Funds are valued at their NAV. Any securities, including restricted
securities, for which market prices are not readily available are valued at fair
value as determined by the Investment Advisers. Short-term obligations held by
a Fund are valued at their amortized cost which, according to the Investment
Advisers, approximates market value.

A Fund may hold foreign securities that trade on weekends or other days when the
Fund does not price its shares. Therefore, the value of such securities may
change on days when shareholders will not be able to purchase or redeem shares.

TIMING OF MONEY MARKET FUND PURCHASE REQUESTS. Requests accepted by the Transfer
Agent or other authorized intermediary by 1:00 p.m., Chicago time, on any
Business Day will be executed the same day, at that day's closing share price
provided that either:

- - The order is in proper form as described under "Purchasing and Selling Shares"
and accompanied by payment of the purchase price;

- - The order is placed by Northern Trust or a Service Organization and payment
in Federal or other immediately available funds is to be made by the close of
the same Business Day; or

- - The order is accepted by an authorized intermediary and payment in Federal or
other immediately available funds is to be made by the close of the same
Business Day in accordance with procedures acceptable to Northern Funds.

Orders received by the Transfer Agent or other authorized intermediary on a
non-Business Day or after 3:00 p.m. on a Business Day will be executed on the
next Business Day, at that day's closing share price, provided that payment is
made as noted above.

TIMING OF NON-MONEY MARKET FUND PURCHASE REQUESTS. Requests accepted by the
Transfer Agent or other authorized intermediary by 3:00 p.m., Chicago time, on
any Business Day will be executed the same day, at that day's closing share
price provided that either:

- - The order is in proper form as described under "Purchasing and Selling Shares"
and accompanied by payment of the purchase price;

- - The order is placed by Northern Trust or a Service Organization and payment
in Federal or other immediately available funds is to be made on the next
Business Day; or

- - The order is accepted by an authorized intermediary and payment is to be made
on the next Business Day in accordance with procedures acceptable to Northern
Funds.

Orders received by the Transfer Agent or other authorized intermediary on a non-
Business Day or after 3:00 p.m. on a Business Day will be executed on the next
Business Day, at that day's closing share price, provided that payment is made
as noted above.

SOCIAL SECURITY/TAX IDENTIFICATION NUMBER. Federal regulations require you to
provide a Social Security or other certified taxpayer identification number when
you open or reopen an account. Purchase Applications without such a number or an
indication that a number has been applied for will not be accepted. If you have
applied for a number, the number must be provided and certified within 60 days
of the date of the Purchase Application.

IN-KIND PURCHASES AND REDEMPTIONS. Northern Funds reserves the right to accept
payment for shares in the form of securities that are permissible investments
for a Fund. Northern Funds also reserves the right to pay redemptions by a
distribution "in-kind" of securities (instead of cash) from a Fund. See the
Statement of Additional Information for further information about the terms of
these purchases and redemptions.

MISCELLANEOUS PURCHASE INFORMATION.
- - You will be responsible for all losses and expenses of a Fund in the event of
any failure to make payment according to the procedures outlined in this
Prospectus. Northern Trust may redeem shares from any account it maintains
to protect the Funds and Northern Trust against loss. In addition, a $20
charge will be imposed if a check does not clear.

- - You may initiate transactions between Northern Trust banking and Northern
Funds accounts by using Northern Trust Private Passport. For additional
details, please visit our website www.northerntrust.com/privatepassport or
contact your relationship manager.

- - Northern Funds reserves the right to reject any purchase order. The Funds
also reserve the right to change or discontinue any of their purchase
procedures.

- - In certain circumstances, Northern Funds may advance the time by which
purchase orders must be received. See "Early Closings" on page 72.

- - 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 representative, may contact the Transfer
Agent for a free paper copy of this Prospectus by writing to the Northern
Funds Center at P.O. Box 75986, Chicago, IL 60675-5986, calling (800) 595-
9111 or sending an e-mail to: [email protected].

TIMING OF REDEMPTION AND EXCHANGE REQUESTS. Redemption and exchange requests
received in good order by the Transfer Agent or other authorized intermediary on
a Business Day by 3:00 p.m., Chicago time, with respect to the Non-Money Market
Funds, or by 1:00 p.m., Chicago time, with respect to the Money Market Funds,
will be executed on the same day. The redemption or exchange will be effected
at that day's closing share price.

Good order means that the request must include the following information:

- - The account number and Fund name

- - The amount of the transaction, in dollar amount or number of shares

- - The signature of all account owners exactly as they are registered on the
account (except for online, telephone and wire redemptions)

- - Required signature guarantees, if applicable

- - Other supporting legal documents that might be required in the case of
estates, corporations, trusts and certain other accounts. Call (800) 595-9111
for more information about documentation that may be required of these
entities

In certain circumstances, Northern Funds may advance the time by which
redemption and exchange orders must be received. See "Early Closings" on page
72.

PAYMENT OF MONEY MARKET FUND REDEMPTION PROCEEDS. If a money market redemption
request is received by the Transfer Agent in good order by 1:00 p.m., Chicago
time, on a Business Day, the proceeds will normally be sent on the next Business
Day, unless payment in immediately available funds on the same Business Day is
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, the Funds may delay the payment of the redemption proceeds until
the check has cleared and collected. This may take up to fifteen days from the
purchase date.

PAYMENT OF NON-MONEY MARKET FUND REDEMPTION PROCEEDS. 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 a redemption request is received
in good order by the Transfer Agent or an authorized intermediary (or such
longer period permitted by 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 check has cleared and collected.
This may take up to fifteen days from the purchase date.

MISCELLANEOUS REDEMPTION INFORMATION. All redemption proceeds will be sent by
check unless the Transfer Agent is directed otherwise. Redemption proceeds may
also be wired. A redemption request may not be processed if a shareholder has
failed to submit a completed and properly executed Purchase Application.

- - Northern Funds reserves the right to redeem shares held by any shareholder
who provides incorrect or incomplete account information or when such
involuntary redemptions are necessary to avoid adverse consequences to the
Fund and its shareholders.

- - Northern Funds may require any information reasonably necessary to ensure
that a redemption has been duly authorized.

- - Northern Funds reserves the right, on 60 days' written notice, to redeem the
shares held in any account if, at the time of redemption, the net asset value
of the remaining shares in the account falls below $1,000. Involuntary
redemptions will not be made if the value of shares in an account falls below
the minimum solely because of a decline in a Fund's net asset value.

- - You may initiate transactions between Northern Trust banking and Northern
Funds accounts by using Northern Trust Private Passport. For additional
details, please visit our web site at www.northerntrust.com/privatepassport or
contact your relationship manager.

- - Northern Funds reserves the right to change or discontinue any of its
redemption procedures.

- - Northern Funds reserves the right to defer crediting, sending or wiring
redemption proceeds for up to seven days (or such longer period permitted by
the SEC) after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.

EXCHANGE PRIVILEGES. You may exchange shares of one Northern Fund for another
only if the registration of both accounts is identical. An exchange is a
redemption of shares of one Fund and the purchase of shares of another Fund. It
is considered a taxable event and may result in a gain or loss. 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. Northern Funds may also modify or terminate the exchange privilege
with respect to any or all shareholders, and may reject any exchange request.

Exchanges are only available in states where an exchange can legally be made.
Before making an exchange you should read the Prospectus for the shares you are
acquiring.

TELEPHONE TRANSACTIONS. For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, the Transfer Agent has adopted
procedures in an effort to establish reasonable safeguards against fraudulent
telephone transactions. If reasonable measures are taken to verify that
telephone instructions are genuine, Northern Funds and its service providers
will not be responsible for any loss resulting from fraudulent or unauthorized
instructions received over the telephone. In these circumstances, shareholders
will bear the risk of loss. During periods of unusual market activity, you may
have trouble placing a request by telephone. In this event, consider sending
your request in writing.

The proceeds of redemption orders received by telephone will be sent by check,
wire or transfer according to proper instructions. All checks will be made
payable to the shareholder of record and mailed only to the shareholder's
address of record.

Northern Funds reserves the right to refuse a telephone redemption.

MAKING CHANGES TO YOUR ACCOUNT INFORMATION. You may make changes to wiring
instructions, address of record or other account information only in writing.
These instructions must be accompanied by a signature guarantee from an
institution participating in the Stock Transfer Agency Medallion Program
("STAMP"), or other acceptable evidence of authority. Additional requirements
may be imposed. In accordance with SEC regulations, the Funds and Transfer
Agent may charge a shareholder reasonable costs in locating a shareholder's
current address.

SIGNATURE GUARANTEES. If a signature guarantee is required, it must be from an
institution participating in STAMP, or other acceptable evidence of authority
must be provided. Additional requirements may be imposed by Northern Funds. In
addition to the situations described in this Prospectus, Northern Funds may
require signature guarantees in other circumstances based on the amount of a
redemption request or other factors.

BUSINESS DAY. A "Business Day" with respect to the Non-Money Market Funds is
each Monday through Friday when the New York Stock Exchange (the "Exchange") is
open for business. A "Business Day" with respect to the Money Market Funds is
each Monday through Friday when Northern Trust or the Exchange is open for
business. In 1999 the Funds will be closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving, Christmas Day and, for the Non-Money
Market Funds, Good Friday.

EARLY CLOSINGS. Northern Funds reserve the right to cease, or to advance the
time for, accepting purchase, redemption or exchange orders for same Business
Day credit when Northern Trust or the Exchange closes early as a result of
unusual weather or other conditions. They also reserve this right when The Bond
Market Association recommends that securities markets close or close early.

AUTHORIZED INTERMEDIARIES. Northern Funds may authorize certain financial
intermediaries (including banks, trust companies, brokers and investment
advisers), which provide recordkeeping, reporting and processing services, to
accept purchase, redemption and exchange orders from their customers on behalf
of the Funds. These financial intermediaries may also designate other
intermediaries to accept such orders, if approved by the Funds. Authorized
intermediaries are responsible for transmitting orders and delivering funds on a
timely basis. A Fund will be deemed to have received an order when the order is
accepted by the authorized intermediary on a Business Day, and the order will be
priced at the Fund's per share NAV next determined.

SERVICE ORGANIZATIONS. Northern Funds may enter into agreements with Service
Organizations such as banks, corporations, broker/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 may include:

- - support services such as assisting investors in processing purchase, exchange
and redemption requests;

- - processing dividend and distribution payments from the Funds;

- - providing information to customers showing their positions in the Funds; and

- - providing subaccounting 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 0.25% of the average daily net asset value of the shares covered
by their agreements. Because these fees are paid out of the Funds' assets on an
on-going basis, they will increase the cost of your investment in the Funds. In
addition, Northern Trust and NTQA may provide compensation to certain dealers
and other financial intermediaries who provide services to their customers who
invest in Northern Funds or whose customers purchase significant amounts of a
Fund's shares. The amount of such compensation may be made on a one-time and/or
periodic basis, and may represent all or a portion of the annual fees earned by
Northern Trust and NTQA as Investment Advisers (after adjustments). This
additional compensation will be paid by Northern Trust, NTQA or their affiliates
and will not represent an additional expense to Northern Funds or their
shareholders.

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

State securities laws regarding the registration of dealers may differ from
Federal law. As a result, Service Organizations investing in the Funds on
behalf of their customers may be required to register as dealers.

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.
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.

SHAREHOLDER COMMUNICATIONS. Shareholders of record will be provided each year
with a semiannual report showing portfolio investments and other information as
of September 30 and, after the close of the Funds' fiscal year on March 31, with
an annual report containing audited financial statements. If you have
consented to the delivery of a single copy of the shareholder reports,
prospectuses or (if and when permitted by law) proxy or information statements
to all shareholders who share the same mailing address with your account, you
may revoke your consent at any time by contacting The Northern Funds Center by
phone at (800) 595-9111 or by mail at Northern Funds, P.O. Box 75986, Chicago,
IL 60675-5986. You may also send an e-mail to [email protected].
The Funds will begin sending individual copies to you within 30 days after
receipt of your revocation.

- ----------------------------
DIVIDENDS AND DISTRIBUTIONS

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS OF EACH FUND ARE AUTOMATICALLY
REINVESTED IN ADDITIONAL SHARES OF THE SAME FUND WITHOUT ANY SALES CHARGE OR
ADDITIONAL PURCHASE PRICE AMOUNT.

You may, however, elect to have dividends or capital gain distributions (or
both) paid in cash or reinvested in shares of another Northern Fund at their net
asset value per share. If you would like to receive dividends or distributions
in cash or have them reinvested in another Northern Fund, you must notify the
Transfer Agent in writing. This election will become effective for
distributions paid two days after its receipt by the Transfer Agent. Dividends
and distributions may only be reinvested in a Northern Fund in which you
maintain an account.

MONEY MARKET FUNDS. Each Money Market Fund's net investment income is declared
as a dividend on each Business Day and paid monthly. Dividends will also be
paid promptly upon a total redemption of shares in an account not subject to a
standing order for the purchase of additional shares. Net investment income
includes interest accrued on the Fund's assets less the Fund's estimated
expenses. Net realized short-term capital gains 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.
Money market shares begin earning dividends on the day an order is executed if
payment in immediately available funds is received by Northern Funds by the time
designated under "Purchasing and Selling Shares." Otherwise, shares begin
earning dividends on the day payment in Federal or other immediately available
funds is received.

NON-MONEY MARKET FUNDS. The following table summarizes the general distribution
policies for each of the Non-Money Market Funds. A Fund with an annual dividend
or distribution policy may, in some years, make additional dividends or
distributions to the extent necessary for the Fund to avoid incurring
unnecessary tax liabilities or for other reasons.

DIVIDENDS, IF ANY, CAPITAL GAINS, IF ANY,
FUND DECLARED AND PAID DECLARED AND PAID
- --------------------------------------------------------------------------------
U.S. Government Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
Short-Intermediate
U.S. Government Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
Intermediate Tax-Exempt Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
California Intermediate
Tax-Exempt Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
Florida Intermediate
Tax-Exempt Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
Fixed Income Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
Tax-Exempt Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
Arizona Tax-Exempt Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
California Tax-Exempt Declared daily, paid monthly<F1> Annually
- --------------------------------------------------------------------------------
International
Fixed Income Quarterly Annually
- --------------------------------------------------------------------------------
High Yield Municipal At Least Monthly Annually
- --------------------------------------------------------------------------------
High Yield Fixed Income At Least Monthly Annually
- --------------------------------------------------------------------------------
Income Equity Monthly Annually
- --------------------------------------------------------------------------------
Stock Index Quarterly Annually
- --------------------------------------------------------------------------------
Growth Equity Quarterly Annually
- --------------------------------------------------------------------------------
Select Equity Annually Annually
- --------------------------------------------------------------------------------
MarketCommand Annually Annually
- --------------------------------------------------------------------------------
Mid Cap Growth Quarterly Annually
- --------------------------------------------------------------------------------
Small Cap Index Annually Annually
- --------------------------------------------------------------------------------
Small Cap Annually Annually
- --------------------------------------------------------------------------------
Small Cap Growth Annually Annually
- --------------------------------------------------------------------------------
International Growth Equity Annually Annually
- --------------------------------------------------------------------------------
International Select Equity Annually Annually
- --------------------------------------------------------------------------------
Technology Annually Annually
- --------------------------------------------------------------------------------

<F1> Shares of these Funds are entitled to the dividends declared by a Fund
beginning on the next Business Day after the purchase order is executed.

- -------------------
TAX CONSIDERATIONS

Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income, except as discussed below. You will be
subject to income tax on Fund distributions regardless of whether they are paid
in cash or reinvested in additional shares. You will be notified annually of
the tax status of distributions to you.

For any Fund other than a Money Market Fund, you should note that if you
purchase shares just before a distribution, the purchase price will reflect the
amount of the upcoming distribution, but you will be taxed on the entire amount
of the distribution received, even though, as an economic matter, the
distribution simply constitutes a return of capital. This is known as "buying
into a dividend."

You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.

Any loss realized on 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 were
received on the shares.

The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable.

If you (a) have provided either an incorrect Social Security Number or Taxpayer
Identification Number or no number at all, (b) are subject to withholding by the
Internal Revenue Service for prior failure to properly include on your return
payments of interest or dividends, or (c) have failed to certify to Northern
Funds, when required to do so, that you are not subject to backup withholding or
are an "exempt recipient," then 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 you.

There are certain tax requirements that the Funds must follow in order to avoid
Federal taxation. In their efforts to adhere to these requirements, the Funds
may have to limit their investment activity in some types of instruments.

THE TAX-EXEMPT AND MUNICIPAL FUNDS. The Tax-Exempt Funds and Municipal Funds
expect to pay "exempt-interest dividends" that are generally exempt from regular
Federal income tax. However, a portion of the exempt-interest dividends paid by
the Tax-Exempt Funds may be, and a portion of the dividends paid by the
Municipal Funds generally will be, an item of tax preference for purposes of
determining Federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments received
by you are subject to Federal income taxes.

Except as stated below, you may be subject to state and local taxes on Fund
distributions and redemptions. State income taxes may not apply, however, to
the portions of each Fund's distributions, if any, that are attributable to
interest on certain types of Federal securities or interest on securities issued
by the particular state or municipalities within the state.

The California Funds and the Arizona Tax-Exempt Fund expect to pay dividends
that are generally exempt from personal income tax in those respective states.
This exemption will apply, however, only to dividends that are derived from
interest paid on California or Arizona municipal instruments, respectively, or
on certain Federal obligations. In addition, dividends paid by these Funds will
be subject to state franchise and corporate income taxes, if applicable. The
Florida Intermediate Tax-Exempt Fund intends, but cannot guarantee, that its
shares will qualify for the exemption from the Florida intangibles tax.

In all cases, distributions, if any, derived from net long-term capital gains
will generally be taxable to you as long-term capital gains, and any dividends
derived from short-term capital gains and taxable interest income will be
taxable to you as ordinary income.

If you receive an exempt-interest dividend with respect to any share and the
share is held for six months or less, any loss on the sale or exchange of the
share will be disallowed to the extent of the dividend amount. Interest on
indebtedness incurred by a shareholder to purchase or carry shares of the Tax-
Exempt Funds and Municipal Funds generally will not be deductible for Federal
income tax purposes.

THE INTERNATIONAL FUNDS. It is expected that the International Funds will be
subject to foreign withholding taxes with respect to dividends or interest
received from sources in foreign countries. The International Funds may make an
election to treat a proportionate amount of such taxes as constituting a
distribution to each shareholder, which would allow each shareholder either (1)
to credit such proportionate amount of taxes against Federal income tax
liability or (2) to take such amount as an itemized deduction.

CONSULT YOUR TAX PROFESSIONAL. Your investment in the Funds could have
additional tax consequences. You should consult your tax professional for
information regarding all tax consequences applicable to your investments in the
Funds. More tax information is provided in the Statement of Additional
Information. This short summary is not intended as a substitute for careful tax
planning.

- ----------
TAX TABLE

You may find it particularly useful to compare the tax-free yields of the Tax-
Exempt Funds and the Municipal 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 table below 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.

TAX EXEMPT YIELDS
-------------------------------------------------------------------
TAXABLE INCOME FEDERAL 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
- ---------------------------------------------- MARGINAL -------------------------------------------------------------------
SINGLE RETURN JOINT RETURN TAX RATE EQUIVALENT TAXABLE YIELDS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $ 25,750 $0 - $ 43,050 15.0% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
- ------------------------------------------------------------------------------------------------------------------------------
$ 25,751 - $ 62,450 $ 43,051 - $104,050 28.0% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
- ------------------------------------------------------------------------------------------------------------------------------
$ 62,451 - $130,250 $104,051 - $158,550 31.0% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
- ------------------------------------------------------------------------------------------------------------------------------
$130,251 - $283,150 $158,551 - $283,150 36.0% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
- ------------------------------------------------------------------------------------------------------------------------------
Over $283,151 Over $283,151 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 1999 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 or Arizona state personal income
tax or the Florida intangibles tax or any other state tax.

- -----------------
YEAR 2000 ISSUES

Like every other business dependent upon computerized information processing,
Northern Trust Corporation must deal with ''Year 2000'' issues.

Many computer systems use two digits rather than four to identify the year.
Unless adapted, these systems may not be able to correctly distinguish the Year
2000 from the Year 1900. As the Year 2000 arrives, many systems may be unable to
accurately process certain date-based information, which could cause a variety
of operational problems for businesses. This could have a negative effect on the
companies in which the Funds invest, thus hurting the Funds' investment returns.

Northern Trust Corporation has implemented steps to prepare its mission-critical
computer systems and processes for Year 2000 processing. It has established a
dedicated Year 2000 Project Team whose members have significant systems
development and maintenance experience. Northern Trust Corporation's Year 2000
project included a comprehensive testing plan of its mission-critical systems.
Northern Trust Corporation has advised Northern Funds that it has completed work
on its mission-critical systems and testing with significant outside parties.

Northern Trust Corporation also instituted a program to monitor and assess the
efforts of other parties, such as other service providers to the Fund. However,
it cannot control the success of those other parties' efforts. Contingency plans
have been established where believed necessary to provide Northern Trust
Corporation with alternatives in case these entities experience significant Year
2000 difficulties that impact Northern Trust Corporation.

Furthermore, even if the actions taken by Northern Trust Corporation are
successful, the normal operations of the Funds may, in any event, be disrupted
significantly by the failure of communications and public utility companies,
governmental entities, financial processors or others to perform their services
as a result of Year 2000 problems.

Efforts in foreign countries to remediate potential Year 2000 problems are not
as extensive as those in the United States. As a result, the operations of
foreign markets, foreign issuers and foreign governments may be disrupted by the
Year 2000 problem and the investment portfolio of a Fund may be adversely
affected.

- ---------------------------------
RISKS, SECURITIES AND TECHNIQUES

Additional Information on Fund Strategies, Risks, Securities and Techniques

THIS SECTION TAKES A CLOSER LOOK AT SOME OF THE FUNDS' PRINCIPAL INVESTMENT
STRATEGIES AND RELATED RISKS. IT ALSO EXPLORES THE VARIOUS INVESTMENT
SECURITIES AND TECHNIQUES THAT THE INVESTMENT MANAGEMENT TEAM MAY USE. THE
FUNDS MAY INVEST IN OTHER SECURITIES AND ARE SUBJECT TO FURTHER RESTRICTIONS AND
RISKS WHICH ARE DESCRIBED IN THE STATEMENT OF ADDITIONAL INFORMATION.

- ---------------------------------------------------------------------------
Additional Information on Investment Objectives, Principal Investment
Strategies and Related Risks
- ---------------------------------------------------------------------------

INVESTMENT OBJECTIVES. A FUND'S INVESTMENT OBJECTIVE MAY BE CHANGED BY NORTHERN
FUNDS' BOARD OF TRUSTEES WITHOUST 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.

DERIVATIVES. The Funds may purchase certain "derivative" instruments. A
derivative is a financial instrument whose value is derived from---or based
upon---the performance of underlying assets, interest or currency exchange rates
or indices. Derivatives include futures contracts, options, interest rate and
currency swaps, equity swaps, structured securities, 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 leveraged ''inverse floaters'').

INVESTMENT STRATEGY. A Fund will invest in derivatives only if the potential
risks and rewards are consistent with the Fund's objective, strategies and
overall risk profile. The Funds may use derivatives for hedging purposes to
offset a potential loss in one position by establishing an interest in an
opposite position. Certain Funds may also use derivatives for speculative
purposes to invest for potential income or capital gain.

SPECIAL RISKS. Engaging in derivative transactions involves special risks,
including (a) market risk that the Fund's derivatives position will lose value;
(b) credit risk that the counterparty to the transaction will default; (c)
leveraging risk that the value of the derivative instrument will decline more
than the value of the assets on which it is based; (d) illiquidity risk that a
Fund will be unable to sell its position because of lack of market depth or
disruption; (e) pricing risk that the value of a derivative instrument will be
difficult to determine; and (f) operations risk that loss will occur as a result
of inadequate systems or human error. Many types of derivatives have been
recently developed and have not been tested over complete market cycles. For
these reasons, a Fund may suffer a loss whether or not the analysis of the
investment management team is accurate.

FOREIGN INVESTMENTS. Foreign securities include direct investments in non-U.S.
dollar-denominated securities traded outside of the United States and dollar-
denominated securities of foreign issuers. Foreign securities also include
indirect investments such as American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs"). ADRs are
U.S. dollar-denominated receipts representing shares of foreign-based
corporations. ADRs are issued by U.S. banks or trust companies, and entitle the
holder to all dividends and capital gains that are paid out on the underlying
foreign shares. EDRs and GDRs are receipts issued by non-U.S. financial
institutions that often trade on foreign exchanges. They represent ownership in
an underlying foreign or U.S. security and are generally denominated in a
foreign currency.

Investment strategy. The International Funds intend to invest a substantial
portion of their total assets in foreign securities. The Fixed Income, High
Yield Fixed Income, Income Equity, Growth Equity, Select Equity, MarketCommand,
Mid Cap Growth, Small Cap, Small Cap Growth and Technology Funds may invest up
to 25% of their total assets in foreign securities including ADRs, EDRs and
GDRs. These Funds may also invest in foreign time deposits and other short-term
instruments.

The Money Market Fund may invest in the U.S. dollar-denominated obligations
issued or guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities, foreign commercial banks
and foreign branches of U.S. banks. It may also invest in U.S. dollar-
denominated commercial paper and other obligations of foreign issuers.
Investments by the Money Market Fund in foreign issuer obligations will not
exceed 50% of the Fund's total assets measured at the time of purchase.

The International Growth Equity, International Select Equity and International
Fixed Income Funds may invest more than 25% of their total assets in the
securities of issuers located in countries with securities markets that are
highly developed, liquid and subject to extensive regulation. Such countries
may include, but are not limited to Japan, the United Kingdom, France, Germany
and Switzerland.

Special risks. Foreign securities involve special risks and costs. Foreign
securities, and in particular foreign debt securities, are sensitive to changes
in interest rates. In addition, investment in the securities of foreign
governments involves the risk that foreign governments may default on their
obligations or may otherwise not respect the integrity of their debt. The
performance of investments in securities denominated in a foreign currency will
also depend, in part, on the strength of the foreign currency against the U.S.
dollar and the interest rate environment in the country issuing the currency.
Absent other events 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 results in an
increase in value of a foreign currency-denominated security in terms of U.S.
dollars. A decline in the value of the foreign currency relative to the U.S.
dollar generally results in a decrease in value of a foreign currency-
denominated security.

Investment in foreign securities may involve higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments. Foreign investments may
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 political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or freezes on the convertibility of currency,
or the adoption of other governmental restrictions might adversely affect an
investment in foreign securities. Additionally, foreign banks and foreign
branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.

Additional risks are involved when investing in countries with emerging
economies or securities markets. These countries are located in the Asia/Pacific
region, Eastern Europe, Central and South America and Africa. In general, the
securities markets of these countries are less liquid, are subject to greater
price volatility, have smaller market capitalizations and have problems with
securities registration and custody. In addition, because the securities
settlement procedures are less developed in these countries, a Fund may be
required to deliver securities receiving payment and may also be unable to
complete transactions during market disruptions. As a result of these and other
risks, investments in these countries generally present a greater risk of loss
to the Funds.

While the Funds' investments may, if permitted, be denominated in foreign
currencies, the portfolio securities and other assets held by the Funds are
valued in U.S. dollars. Currency exchange rates may fluctuate significantly over
short periods of time causing a Fund's 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 is invested in foreign securities while also maintaining
currency positions, it may be exposed to greater combined risk. The Funds'
respective net currency positions may expose them to risks independent of their
securities positions.

The introduction of a single currency, the euro, on January 1, 1999 for
participating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates for
currencies being converted into the euro; the fluctuation of the euro relative
to non-euro currencies during the transition period from January 1, 1999 to
December 31, 2001 and beyond; whether the interest rate, tax and labor regimes
of European countries participating in the euro will converge over time; and
whether the conversion of the currencies of other countries in the European
Union ("EU"), such as the United Kingdom and Denmark, into the euro and the
admission of other non-EU countries such as Poland, Latvia and Lithuania as
members of the EU may have an impact on the euro. These or other factors,
including political and economic risks, could cause market disruptions, and
could adversely affect the value of securities held by the Funds. Because of
the number of countries using this single currency, a significant portion of the
assets of the International Funds may be denominated in the euro.

Investment Grade Securities. A security is considered investment grade if, at
the time of purchase, it is rated:

- - BBB or higher by Standard and Poor's Ratings Services ("S&P");

- - Baa or higher by Moody's Investors Service, Inc. ("Moody's");

- - BBB or higher by Duff & Phelps Credit Rating Co. ("Duff"); or

- - BBB or higher by Fitch IBCA Inc. ("Fitch").

A security will be considered investment grade if it receives one of the above
ratings, even if it receives a lower rating from other rating organizations.

Investment strategy. Except as stated in the next section, fixed income and
convertible securities purchased by the Funds will generally be rated investment
grade. The Funds may also invest in unrated securities if the Investment Adviser
believes they are comparable in quality.

Special risks. Although securities rated BBB by S&P, Duff or Fitch, or Baa by
Moody's are considered investment grade, they have certain speculative
characteristics. Therefore, they may be subject to a higher risk of default than
obligations with higher ratings. Subsequent to its purchase by a Fund, a rated
security may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Investment Adviser will consider
such an event in determining whether the Fund should continue to hold the
security.

NON-INVESTMENT GRADE SECURITIES. Non-investment grade fixed income and
convertible securities are generally rated BB or below by S&P, Duff or Fitch, or
Ba by Moody's.

Investment strategy. The High Yield Municipal Fund and the High Yield Fixed
Income Fund may invest without limitation in non-investment grade securities,
including convertible securities. The other Fixed Income Funds (with the
exception of the U.S. Government Fund and the Short-Intermediate U.S. Government
Fund) and the Equity Funds (with the exception of the Stock Index Fund and Small
Cap Index Fund ) may invest up to 15% (35% in the case of the Income Equity
Fund) of total assets in non-investment grade securities, including convertible
securities, when the investment management team determines that such securities
are desirable in light of the Funds' investment objectives and portfolio mix.

Special risks. Non-investment grade securities (sometimes referred to as ''junk
bonds'') are considered predominantly speculative by traditional investment
standards. The market value of these low-rated securities tends to be more
sensitive to individual corporate developments and changes in interest rates
and economic conditions than higher-rated securities. In addition, they
generally present a higher degree of credit risk. Issuers of low-rated
securities are often highly leveraged, so their ability to repay their debt
during an economic downturn or periods of rising interest rates may be impaired.
The risk of loss due to default by these issuers is also greater because low-
rated securities generally are unsecured and are often subordinated to the
rights of other creditors of the issuers of such securities. Investment by a
Fund in defaulted securities poses additional risk of loss should nonpayment of
principal and interest continue in respect of such securities. Even if such
securities are held to maturity, recovery by a Fund of its initial investment
and any anticipated income or appreciation will be uncertain. A Fund may also
incur additional expenses in seeking recovery on defaulted securities.

The secondary market for lower quality securities is concentrated in relatively
few market markers and is dominated by institutional investors. Accordingly,
the secondary market for such securities is not as liquid as, and is more
volatile than, the secondary market for higher quality securities. In addition,
market trading volume for these securities is generally lower and the secondary
market for such securities could contract under adverse market or economic
conditions, independent of any specific adverse changes in the condition of a
particular issuer. These factors may have an adverse effect on the market price
and a Fund's ability to dispose of particular portfolio investments. A less
developed secondary market may also make it more difficult for a Fund to obtain
precise valuations of the high yield securities in its portfolio.

Investments in lower quality securities, whether rated or unrated, will be more
dependent on Northern Trust's credit analysis than would be the case with
investments in higher quality securities.

SMALL CAP INVESTMENTS. Investments in small capitalization companies involve
greater risk and portfolio price volatility than investments in larger
capitalization stocks. Among the reasons for the greater price volatility of
these investments are the less certain growth prospects of smaller firms and the
lower degree of liquidity in the markets for such securities. Small
capitalization companies may be thinly traded and may have to be sold at a
discount from current market prices or in small lots over an extended period of
time. Because of the lack of sufficient market liquidity, a Fund may incur
losses because it will be required to effect sales at a disadvantageous time and
only then at a substantial drop in price. Small capitalization companies
include "unseasoned" issuers that do not have an established financial history;
often have limited product lines, markets or financial resources; may depend on
or use a few key personnel for management; and may be susceptible to losses and
risks of bankruptcy. Transaction costs for these investments are often higher
than those of larger capitalization companies. Investments in small
capitalization companies may be more difficult to price precisely than other
types of securities because of their characteristics and lower trading volumes.

TEMPORARY INVESTMENTS. Short-term obligations refer to U.S. government
securities, high-quality money market instruments (including commercial paper
and obligations of foreign and domestic banks such as certificates of deposit,
bank and deposit notes, bankers' acceptances and fixed time deposits) and
repurchase agreements with maturities of 13 months or less. Generally, these
obligations are purchased to provide stability and liquidity to a Fund.

Investment strategy. Each Non-Money Market Fund may invest all or any portion
of its assets in short-term obligations pending investment, to meet anticipated
redemption requests or as a temporary defensive measure in response to adverse
market or economic conditions (except for the Stock Index and Small Cap Index
Funds which generally will not invest in these securities as part of a temporary
defensive strategy to protect against potential stock market declines).

Special risks. A Non-Money Market Fund may not achieve its investment objective
when its assets are invested in short-term obligations.

MATURITY RISK. Each Fixed Income Fund will normally maintain the dollar-
weighted average maturity of its Fund within a specified range. However, the
maturities of certain instruments, such as variable and floating rate
instruments, are subject to estimation. In addition, in calculating average
weighted maturities, the maturity of mortgage and other asset-backed securities
will be based on estimates of average life. As a result, the Funds cannot
guarantee that these estimates will, in fact, be accurate or that their average
maturities will remain within their specified limits.

PORTFOLIO TURNOVER. The investment management team will not consider the Fund
turnover rate a limiting factor in making investment decisions for a Fund. A
high portfolio turnover rate (100% or more) is likely to involve higher
brokerage commissions and other transactions costs, which could reduce a Fund's
return. It may also result in higher short-term capital gains that are taxable
to shareholders. See "Financial Highlights" for the Funds' historical portfolio
turnover rates. Northern Funds expects that the annual portfolio turnover rate
of each of the Short-Intermediate U.S. Government Fund, the California
Intermediate Tax-Exempt Fund, the Arizona Tax-Exempt Fund, the California Tax-
Exempt Fund and the Small Cap Index Fund will generally not exceed 100%; the
annual portfolio turnover rate of the High Yield Municipal Fund, High Yield
Fixed Income Fund and Small Cap Growth Fund will generally not exceed 200%.
Northern Funds expects that the annual portfolio turnover rate of the
MarketCommand Fund and the Mid Cap Growth Fund will not exceed 150% and 125%,
respectively.

SPECIAL RISKS AND CONSIDERATIONS APPLICABLE TO THE CALIFORNIA FUNDS, FLORIDA
INTERMEDIATE TAX-EXEMPT FUND AND THE ARIZONA TAX-EXEMPT FUND. The investments
of the California Funds in California municipal instruments, the Florida
Intermediate Tax-Exempt Fund in Florida municipal instruments and the Arizona
Tax-Exempt Fund in Arizona municipal instruments raise additional
considerations. Payment of the interest on and the principal of these
instruments is dependent upon the continuing ability of issuers in these states
to meet their obligations.

Investment strategy. Under normal market conditions, at least 65% of the value
of the California Funds' total assets will be invested in California municipal
instruments, at least 65% of the value of the Florida Intermediate Tax-Exempt
Fund's total assets will be invested in Florida municipal instruments, and at
least 65% of the value of the Arizona Tax-Exempt Fund's total assets will be
invested in Arizona municipal instruments. Consequently, these Funds are more
susceptible to factors adversely affecting issuers of California, Florida and
Arizona municipal instruments, and may be riskier than comparable funds that do
not emphasize these issuers to this degree.

Special Risks. The California Funds' investments will be affected by political
and economic developments within the state of California, and by the financial
condition of the state, its public authorities and political subdivisions.
After suffering a severe recession in the early 1990's which caused the state
to experience financial difficulties, California's economy entered a sustained
recovery since late 1993 and the state's budget has been returned to a positive
balance. California's long-term credit rating has been raised after being
reduced during the recession. To respond to its own revenue shortfalls during
the recession, the state reduced assistance to its public authorities and
political subdivisions. Cutbacks in state aid could further adversely affect
the financial condition of cities, counties and education districts which are
subject to their own fiscal constraints. California voters in the past have
passed amendments to the California Constitution and other measures that limit
the taxing and spending authority of California governmental entities, and
future voter initiatives could result in adverse consequences affecting
California municipal instruments. Also, the ultimate fiscal effect of
federally-mandated reform of welfare programs on the state and its local
governments is still to be resolved. These factors, among others (including the
outcome of related pending litigation), could reduce the credit standing of
certain issuers of California municipal instruments.

Similarly, Florida's economy is influenced by numerous factors, including
transfer payments from the Federal government (social security benefits, pension
benefits, etc.), population growth, tourism, interest rates and hurricane
activity. From time to time Florida and its political subdivisions have
encountered financial difficulties. Florida is highly dependent upon sales and
use taxes, which account for the majority of its General Fund revenues. The
Florida Constitution does not permit a state or local personal income tax. The
Florida Constitution may limit the state's ability to raise revenues and may
have an adverse effect on the state's finances and political subdivisions.

Arizona's economy is also influenced by numerous factors, including develop-
ments in the aerospace, high technology, light manufactoring, governemnt and
service industries. During the 1990s, however, Arizona's efforts to diversify
its economy have enabled it to realize and sustain increasing growth rates.
Arizona has adopted a new method of financing its public school system
following the Arizona Supreme Court's 1994 ruling that the former system was
unconstitutional. The State of Arizona is not authorized to issue general
obligation bonds.

If Florida or Arizona or any of their respective political subdivisions should
suffer serious financial difficulties to the extent their ability to pay their
obligations might be jeopardized, the ability of such entities to market their
securities, and the value of the Florida Intermediate Tax-Exempt Fund or the
Arizona Tax-Exempt Fund, could be adversely affected.

In addition to the risk of nonpayment of California, Florida or Arizona
municipal instruments, if these obligations decline in quality and are
downgraded by an NRSRO, they may become ineligible for purchase by the Funds.
Since there are large numbers of buyers of these instruments, the supply of
California, Florida or Arizona municipal instruments that are eligible for
purchase by the Funds could become inadequate at certain times.

A more detailed description of special factors affecting investments in
California, Florida and Arizona municipal instruments is provided in the
Statement of Additional Information.

SPECIAL RISKS AND CONSIDERATIONS APPLICABLE TO THE TECHNOLOGY FUND. The
Technology Fund's concentration in technology securities presents special risk
considerations.

Investment Strategy. The Technology Fund invests principally in companies that
develop, produce or distribute products and services related to advances in
technology.

Special Risks. 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 significant price
movements caused by disproportionate investor 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. 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/R Index.

In addition, the Fund's investments may be concentrated in companies that
develop or sell computers, software and peripheral products, which present the
following additional risks. 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.

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Additional Description of Securities and Common Investment Techniques
- ----------------------------------------------------------------------

ASSET-BACKED SECURITIES. Asset-backed securities are sponsored by entities such
as government agencies, banks, financial companies and commercial or industrial
companies. They represent interests in pools of mortgages or other cash-flow
producing assets such as automobile loans, credit card receivables and other
financial assets. In effect, these securities "pass through" the monthly
payments that individual borrowers make on their mortgages or other assets net
of any fees paid to the issuers. Examples of these include guaranteed mortgage
pass-through certificates, collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs").

Investment strategy. The U.S. Government Money Market Fund, the U.S.
Government Select Money Market Fund, the U.S. Government Fund and the Short-
Intermediate U.S. Government Fund may purchase securities that are secured or
backed by mortgages and that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities. The other Funds may purchase these and other
types of asset-backed securities. The Funds will invest in asset-backed
securities rated investment grade (rated BBB or better by S&P, Duff or Fitch, or
Baa or better by Moody's) at the time of purchase. They may also invest in
unrated mortgage-backed securities which the Investment Adviser believes are of
comparable quality. These rating and comparable quality limitations do not
apply to the High Yield Municipal and High Yield Fixed Income Funds. In
addition, asset-backed securities purchased by the Money Market Funds must meet
the quality restrictions imposed by the SEC.

Special risks. In addition to credit and market risk, asset-backed securities
involve prepayment risk because the underlying assets (loans) may be prepaid at
any time. The value of these securities may also change because of actual or
perceived changes in the creditworthiness of the originator, the servicing
agent, the financial institution providing the credit support or the
counterparty. 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. In addition,
non-mortgage asset-backed securities involve certain risks not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the underlying collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws. Automobile
receivables are subject to the risk that the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing the receivables.

BORROWINGS AND REVERSE REPURCHASE AGREEMENTS. The Funds can borrow money from
banks and enter into reverse repurchase agreements with banks and other
financial institutions. Reverse repurchase agreements involve the sale of
securities held by a Fund subject to the Fund's agreement to repurchase them at
a mutually agreed upon date and price (including interest).

Investment strategy. Each Fund may borrow in amounts not exceeding one-third of
its total assets (including the amount borrowed). These transactions may be
entered into as a temporary measure for emergency purposes or to meet redemption
requests. The Funds (other than the Municipal Money Market, U.S. Government
Select Money Market, Tax-Exempt Money Market, California Municipal Money Market,
Income Equity, Growth Equity, Select Equity and Small Cap Funds) may utilize
reverse repurchase agreements when the investment management team expects that
the interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. 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.

Special risks. Borrowings and reverse repurchase agreements involve leveraging.
If the securities held by the Funds decline in value while these transactions
are outstanding, the net asset value of the Funds' outstanding shares will
decline in value by proportionately more than the decline in value of the
securities. In addition, reverse repurchase agreements involve the risks that
the interest income earned by a Fund (from the investment of the proceeds) will
be less than the interest expense of the transaction, that the market value of
the securities sold by a Fund will decline below the price the Fund is obligated
to pay to repurchase the securities, and that the securities may not be returned
to the Fund.

CONVERTIBLE SECURITIES. A convertible security is a bond or preferred stock
that may be converted (exchanged) into the common stock of the issuing company
within a specified time period for a specified number of shares. They offer the
Funds a way to participate in 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.

Investment strategy. The Equity Funds (other than the Stock Index and Small Cap
Index Funds), the Fixed Income Fund, High Yield Fixed Income Fund and the
International Fixed Income Fund may each acquire convertible securities. These
securities are subject to the same rating requirements as fixed income
securities held by a Fund.

CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. Custodial receipts are
participations in trusts that hold U.S. Treasury securities and are sold under
names such as TIGRs and CATS. Like other stripped obligations, they entitle the
holder to future interest or principal payments on the U.S. Treasury securities.

Investment strategy. To the extent consistent with their respective investment
objectives, the Funds, other than the U.S. Government Select Money Market Fund,
may invest a portion of their total assets in custodial receipts. Investments
by the U.S. Government Money Market Fund, U.S. Government Fund and Short-
Intermediate U.S. Government Fund in custodial receipts will not exceed 35% of
the value of such Funds' total assets.

Special risks. Like other stripped obligations, custodial receipts may be
subject to greater price volatility than ordinary debt obligations because of
the way in which their principal and interest are returned to investors.

EQUITY SWAPS. Equity swaps allow the parties to the swap agreement to exchange
components of return on one equity investment (e.g., a basket of equity
securities or an index) for a component of return on another non-equity or
equity investment, including an exchange of differential rates of return.

Investment strategy. The Equity Funds may invest in equity swaps. Equity swaps
may be used to invest in a market without owning or taking physical custody of
securities in circumstances where direct investment may be restricted for legal
reasons or is otherwise impractical. Equity swaps may also be used for other
purposes, such as hedging or seeking to increase total return.

Special risks. Equity swaps are derivative instruments and their values can be
very volatile. To the extent that the investment management team does not
accurately analyze and predict the potential relative fluctuation on the
components swapped with the other party, a Fund may suffer a loss. The value of
some components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.

EXCHANGE RATE-RELATED SECURITIES. Exchange rate-related securities represent
certain foreign debt obligations whose principal values are linked to a foreign
currency but which are repaid in U.S. dollars.

Investment strategy. The Fixed Income, International Fixed Income, High Yield
Fixed Income and Income Equity Funds may invest in exchange rate-related
securities.

Special risks. The principal payable on an exchange rate-related security is
subject to currency risk. In addition, the potential illiquidity and high
volatility of the foreign exchange market may make exchange rate-related
securities difficult to sell prior to maturity at an appropriate price.

FORWARD CURRENCY EXCHANGE CONTRACTS. A forward currency exchange contract is an
obligation to exchange one currency for another on a future date at a specified
exchange rate.

Investment strategy. The Equity Funds (other than the Stock Index and Small Cap
Index Funds), the International Funds, the Fixed Income Fund and the High Yield
Fixed Income Fund may enter into forward currency exchange contracts for hedging
purposes and to help reduce the risks and volatility caused by changes in
foreign currency exchange rates. The International Funds and the High Yield
Fixed Income Fund may also enter into these contracts for speculative purposes
(i.e., to increase total return) or for cross-hedging purposes. Foreign
currency exchange contracts will be used at the discretion of the investment
management team, and no Fund is required to hedge its foreign currency
positions.

Special risks. Forward foreign currency contracts are privately negotiated
transactions, and can have substantial price volatility. As a result, they offer
less protection against default by the other party than is available for
instruments traded on an exchange. When used for hedging purposes, they tend to
limit any potential gain that may be realized if the value of a Fund's foreign
holdings increases because of currency fluctuations. When used for speculative
purposes, forward currency exchange contracts may result in additional losses
that would not otherwise be incurred.

FUTURES CONTRACTS AND RELATED OPTIONS. A futures contract is a type of
derivative instrument that obligates the holder to buy or sell an asset in the
future at an agreed upon price. For example, a futures contract may obligate a
Fund, at maturity, to take or make delivery of certain domestic or foreign
securities, the cash value of a securities index or a stated quantity of a
foreign currency. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price during the option period. When a Fund sells an
option on a futures contract, it becomes obligated to purchase or sell a futures
contract if the option is exercised.

Investment strategy. To the extent consistent with its investment objective,
each Fund (other than the Money Market Funds) may invest in futures contracts
and options on futures contacts on domestic or foreign exchanges or boards of
trade. They may be used for hedging purposes, to increase total return 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 contacts may equal up to 100% of its total assets.
However, a Fund will not purchase or sell a futures contract unless, after the
transaction, the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options used for
non-hedging purposes is 5% or less of its total assets.

Special risks. Futures contracts and options present the following risks:
imperfect correlation between the change in market value of a Fund's securities
and the price of futures contracts and options; the possible inability to close
a futures contract when desired; losses due to unanticipated market movements
which are potentially unlimited; and the possible inability of the investment
management team to correctly predict the direction of securities prices,
interest rates, currency exchange rates and other economic factors. Foreign
exchanges or boards of trade generally do not offer the same protections as U.S.
exchanges.

ILLIQUID OR RESTRICTED SECURITIES. Illiquid securities include repurchase
agreements and time deposits with notice/termination dates of more than seven
days, certain variable amount master demand notes that cannot be called within
seven days, certain insurance funding agreements (see below), certain unlisted
over-the-counter options and other securities that are traded in the U.S. but
are subject to trading restrictions because they are not registered under the
Securities Act of 1933, as amended (the "1933 Act").

Investment strategy. Each Fund may invest up to 15% (10% in the case of the
Money Market Funds) of its net assets in securities that are illiquid. If
otherwise consistent with their investment objectives and policies, the Funds
may purchase commercial paper issued pursuant to Section 4(2) of the 1933 Act
and domestically traded securities that are not registered under the 1933 Act
but can be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act ("Rule 144A Securities"). These securities will not be
considered illiquid so long as the Investment Advisers determine, under
guidelines approved by the Northern Funds' Board of Trustees, that an adequate
trading market exists.

Special risks. Because illiquid and restricted securities may be difficult to
sell at an acceptable price, they may be subject to greater volatility and may
result in a loss to a Fund. The practice of investing in Rule 144A Securities
could increase the level of a Fund's illiquidity during any period that
qualified institutional buyers become uninterested in purchasing these
securities.

INSURANCE FUNDING AGREEMENTS. An insurance funding agreement ("IFA") is an
agreement that requires a Fund to make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
interest to the Fund for a set time period.

Investment Strategy. The Money Market Fund and Fixed Income Fund may invest in
IFAs issued by insurance companies that meet quality and credit standards
established by the Investment Adviser. The High Yield Fixed Income Fund may
invest in IFAs without regard to a minimum rating criteria.

Special risks. IFAs are not insured by a government agency--they are backed
only by the insurance company that issues them. As a result, they are subject to
default risk. In addition, the transfer of IFAs may be restricted and an active
secondary market in IFAs does not currently exist. This means that it may be
difficult or impossible to sell an IFA at an appropriate price.

INTEREST RATE SWAPS, FLOORS AND CAPS AND CURRENCY SWAPS. Interest rate and
currency swaps are contracts that obligate a Fund and another party to exchange
their rights to pay or receive interest or specified amounts of currency,
respectively. Interest rate floors entitle the purchasers to receive interest
payments if a specified index falls below a predetermined interest rate.
Interest rate caps entitle the purchasers to receive interest payments if a
specified index exceeds a predetermined interest rate.

Investment strategy. The Fixed Income Funds and the Income Equity Fund may
enter into interest rate swaps and the U.S. Government, Short-Intermediate U.S.
Government, Fixed Income, International Fixed Income, High Yield Municipal and
High Yield Fixed Income Funds may purchase interest rate floors or caps to
protect against interest rate fluctuations and fluctuations in the floating rate
market. The International Funds, the Fixed Income, High Yield Fixed Income,
Income Equity, Growth Equity, Select Equity, MarketCommand, Mid Cap Growth,
Small Cap, Small Cap Growth and Technology Funds may also enter into currency
swaps to protect against currency fluctuations.

Special risks. If the other party to an interest rate swap defaults, a Fund's
risk of loss consists of the amount of interest payments that the Fund is
entitled to receive. In contrast, currency swaps usually involve the delivery
of the entire principal value of one currency in exchange for the other
currency. Therefore, the entire principal value of a currency swap is subject
to the risk that the other party will default on its delivery obligations. Like
other derivative securities, swaps, floors and caps can be highly volatile. As
a result, they may not always be successful hedges and they could lower a Fund's
total return.

INVESTMENT COMPANIES. To the extent consistent with their respective investment
objectives and policies, the Funds may invest in securities issued by other
investment companies, including money market funds, index funds, "country funds"
(i.e., funds that invest primarily in issuers located in a specific foreign
country or region), S&P's Depository Receipts ("SPDRs") and similar securities
of other issuers.

Investment strategy. Investments by a Fund in other investment companies will
be subject to the limitations of the 1940 Act.

Special risks. As a shareholder of another investment company, a Fund would be
subject to the same risks as any other investor in that company. In addition, it
would bear a proportionate share of any fees and expenses paid by that company.
These would be in addition to the advisory and other fees paid directly by the
Fund.

LOAN PARTICIPATIONS. A loan participation is an interest in a loan to a U.S. or
foreign company or other borrower which is administered and sold by a financial
intermediary.

Investment strategy. The High Yield Fixed Income Fund may invest in loan
participations in the form of a direct or co-lending relationship with the
corporate borrower, an assignment of an interest in the loan by a co-lender or
another participant, or a participation in a seller's share of the loan.

Special risks. Like other debt obligations, loan participations may be subject
to credit risk if the borrower defaults on making interest payments and repaying
the principal. In the case where the Fund purchases a loan assignment or
participation from another lender, the Fund is also subject to delays, expenses
and risks greater than would have been involved if the Fund had purchased a
direct obligation of the borrower.

MUNICIPAL AND RELATED INSTRUMENTS. Municipal instruments include debt
obligations issued by or on behalf of states, territories and possessions of the
United States and their political subdivisions, agencies, authorities and
instrumentalities.

Municipal instruments include both "general" and "revenue" bonds and may be
issued to obtain funds for various public purposes. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power.
Revenue obligations are payable only from the revenues derived from a particular
facility or class of facilities. In some cases, revenue bonds are also payable
from the proceeds of a special excise or other specific revenue source such as
lease payments from the user of a facility being financed. Some municipal
instruments, known as private activity bonds, are issued to finance projects for
private companies. Private activity bonds are usually revenue obligations since
they are typically payable by the user of the facilities financed by the bonds.

Municipal instruments also include "moral obligation" bonds, municipal leases,
certificates of participation and custodial receipts. Moral obligation banks
are supported by a moral commitment but not a legal obligation of a state or
municipality. Municipal leases and participation certificates present the risk
that the state or municipality involved will not appropriate the monies to meet
scheduled payments on an annual basis. Custodial receipts represent interests
in municipal instruments held by a trustee.

The Tax-Exempt Funds (other than the Tax-Exempt Money Market Fund) and the High
Yield Municipal 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. Because some of 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. Also, because these instruments may be leveraged,
their market values may be more volatile than other types of municipal
instruments and may present greater potential for capital gain or loss. The
possibility of default by the issuer or the issuer's credit provider may be
greater for 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.

Each Tax-Exempt Fund and Municipal Fund may acquire "stand-by commitments"
relating to the municipal instruments it holds. Under a stand-by commitment, a
dealer agrees to purchase, at the Fund's option, specified municipal instruments
at a specified price. A stand-by commitment may increase the cost, and thereby
reduce the yield, of the municipal instruments to which the commitment relates.
The Funds will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights for trading purposes.

Investment strategy. Although it is not their current policy to do so on a
regular basis, in connection with their investments in municipal instruments,
the Tax-Exempt Funds and Municipal Funds may invest more than 25% of their total
assets in municipal instruments the interest upon which is paid solely by
governmental issuers from revenues of similar projects. However, the Tax-Exempt
Funds and Municipal Funds do not intend to invest more than 25% of the value of
their total assets in industrial development bonds or similar obligations where
the non-governmental entities supplying the revenues to be paid are in the same
industry.

The Florida Intermediate Tax-Exempt Fund expects to invest principally in
Florida municipal instruments, the California Funds expect to invest principally
in California municipal instruments and the Arizona Tax-Exempt Fund expects to
invest principally in Arizona municipal instruments. The other Tax-Exempt Funds
and Municipal Funds may also invest from time to time more than 25% of the value
of their total assets in municipal instruments whose issuers are in the same
state.

Funds in addition to the Tax-Exempt Funds and Municipal Funds may invest from
time to time in municipal instruments or other securities issued by state and
local governmental bodies. Generally, this will occur when the yield of
municipal instruments, on a pre-tax basis, is comparable to that of other
permitted short-term taxable investments. Dividends paid by the Funds other than
the Tax-Exempt Funds and Municipal Funds on such investments will be taxable to
shareholders.

Special risks. Municipal instruments purchased by the Tax-Exempt Funds and
Municipal Funds may be backed by letters of credit, insurance or other forms of
credit enhancement issued by foreign (as well as domestic) banks, insurance
companies and other financial institutions. If the credit quality of these
banks, insurance companies and financial institutions declines, a Fund could
suffer a loss to the extent that the Fund is relying upon this credit support.
Risks relating to foreign banks and financial institutions are described on page
81 under "Foreign Investments."

In addition, 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 instrument.

OPTIONS. An option is a type of derivative instrument that gives the holder
the right (but not the obligation) to buy (a "call") or sell (a "put") an asset
in the future at an agreed upon price prior to the expiration date of the
option.

Investment strategy. To the extent consistent with its investment objective,
each Fund (other than the Money Market Funds) may write (sell) covered call
options, buy put options, buy call options and write secured put options for
hedging (or, with respect to the International Funds, cross-hedging) purposes or
to earn additional income. Options may relate to particular securities, foreign
or domestic securities indices, financial instruments, foreign currencies or (in
the case of the International Fixed Income Fund and High Yield Fixed Income
Fund) the yield differential between two securities. A Fund will not purchase
put and call options in an amount that exceeds 5% of its net assets at the time
of purchase. The total value of a Fund's assets subject to options written by
the Fund will not be greater than 25% of its net assets at the time the option
is written. A Fund may "cover" a call option by owning the security underlying
the option or through other means. Put options written by a Fund are "secured"
if the Fund maintains liquid assets in a segregated account in an amount at
least equal to the exercise price of the option up until the expiration date.

Special risks. Options trading is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary
Fund securities transactions. The value of options can be highly volatile, and
their use can result in loss if the investment management team is incorrect in
its expectation of price fluctuations. The successful use of options for hedging
purposes also depends in part on the ability of the investment management team
to predict future price fluctuations and the degree of correlation between the
options and securities markets.

Each Fund will invest and trade in unlisted over-the-counter options only with
firms deemed creditworthy by the Investment Advisers. However, unlisted options
are not subject to the protections afforded purchasers of listed options by the
Options Clearing Corporation, which performs the obligations of its members
which fail to perform them in connection with the purchase or sale of options.

REAL ESTATE INVESTMENT TRUSTS (REITS). REITs are pooled investment vehicles
that invest primarily in either real estate or real estate related loans.

Investment strategy. The High Yield Fixed Income, Income Equity, Small Cap
Index, Small Cap and Small Cap Growth Funds may invest in REITs.

Special risks. The value of a REIT is affected by changes in the value of the
properties owned by the REIT or securing mortgage loans held by the REIT. REITs
are dependent upon cash flow from their investments to repay financing costs and
the ability of a REIT's manager. REITs are also subject to risks generally
associated with investments in real estate. A Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a REIT
in which it invests.

REPURCHASE AGREEMENTS. Repurchase agreements involve the purchase of securities
by a Fund subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price.

Investment strategy. Each Fund may enter into repurchase agreements with
financial institutions such as banks and broker-dealers that are deemed to be
creditworthy by the Investment Advisers. Although the securities subject to a
repurchase agreement may have maturities exceeding one year, settlement of the
agreement will never occur more than one year after a Fund acquires the
securities.

Special risks. In the event of a default, a Fund will suffer a loss to the
extent that the proceeds from the sale of the underlying securities and other
collateral are less than the repurchase price and the Fund's costs associated
with delay and enforcement of the repurchase agreement. In addition, in the
event of bankruptcy, a Fund could suffer additional losses if a court determines
that the Fund's interest in the collateral is unenforceable.

SECURITIES LENDING. In order to generate additional income, the Funds may lend
securities on a short-term basis to banks, broker-dealers or other qualified
institutions. In exchange, the Funds will receive collateral equal to at least
100% of the value of the securities loaned.

Investment strategy. Securities lending may represent no more than one-third
the value of a Fund's total assets (including the loan collateral). Any cash
collateral received by a Fund in connection with these loans may be invested in
U.S. government securities and other liquid high-grade debt obligations.

Special risks. The main risk when lending portfolio securities is that the
borrower might become insolvent or refuse to honor its obligation to return the
securities. In this event, a Fund could experience delays in recovering its
securities and may incur a capital loss. In addition, a Fund may incur a loss
in reinvesting the cash collateral it receives.

STRIPPED OBLIGATIONS. These securities are issued by the U.S. government (or
agency or instrumentality), foreign governments, banks and other issuers. They
entitle the holder to receive either interest payments or principal payments
that have been "stripped" from a debt obligation. These obligations include
stripped mortgage-backed securities, which are derivative multi-class mortgage
securities.

Investment strategy. To the extent consistent with their respective investment
objectives, the Funds may purchase stripped securities.

Special risks. Stripped securities are very sensitive to changes in interest
rates and to the rate of principal prepayments. A rapid or unexpected change in
prepayments could depress the price of certain stripped securities and adversely
affect a Fund's total return.

STRUCTURED SECURITIES. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.

Investment strategy. Each Fund may invest in structured securities to the
extent consistent with its investment objective.

Special risks. The terms of some structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, a Fund
could suffer a total loss of its investment. Structured securities may be
positively or negatively indexed, so that appreciation of the Reference may
produce an increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Reference.
Consequently, structured securities may entail a greater degree of market risk
than other types of securities. Structured securities may also be more
volatile, less liquid and more difficult to accurately price than less complex
securities due to their derivative nature.

UNITED STATES GOVERNMENT OBLIGATIONS. These include U.S. Treasury obligations,
such as bills, notes and bonds, which generally differ only in terms of their
interest rates, maturities and time of issuance. These also include obligations
issued or guaranteed by the U.S. government or its agencies and
instrumentalities. 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.

Investment strategy. To the extent consistent with its investment objective,
each Fund may invest in a variety of U.S. Treasury obligations and also may
invest in obligations issued or guaranteed by the U.S. government or its
agencies and instrumentalities.

Special risks. Not all U.S. government obligations carry the same credit
support. Some, such as those of the Government National Mortgage Association
("GNMA"), are supported by the full faith and credit of the United States
Treasury. Other obligations, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as those issued by 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 are supported only by the
credit of the instrumentality. 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. In addition, the secondary market for
certain participations in loans made to foreign governments or their agencies
may be limited.

VARIABLE AND FLOATING RATE INSTRUMENTS. Variable and floating rate instruments
have interest rates that are periodically adjusted either at set intervals or
that float at a margin above a generally recognized index rate. These
instruments include variable amount master demand notes, long-term variable and
floating rate bonds (sometimes referred to as "Put Bonds") where the Fund
obtains at the time of purchase the right to put the bond back to the issuer or
a third party at par at a specified date and (other than the Money Market Funds)
leveraged inverse floating rate instruments ("inverse floaters"). An inverse
floater is leveraged to the extent that its interest rate varies by an amount
that exceeds the amount of the variation in the index rate of interest.

Investment strategy. Each Fund may invest in rated and unrated variable and
floating rate instruments to the extent consistent with its investment
objective. Unrated instruments may be purchased by a Fund if they are
determined by the Investment Advisers to be of comparable quality to rated
instruments eligible for purchase by the Fund.

Special risks. The market values of inverse floaters are subject to greater
volatility than other variable and floating rate instruments due to their higher
degree of leverage. Because there is no active secondary market for certain
variable and floating rate instruments, they may be more difficult to sell if
the issuer defaults on its payment obligations or during periods when the Funds
are not entitled to exercise their demand rights. As a result, the Funds could
suffer a loss with respect to these instruments.

WARRANTS. A warrant represents the right to purchase a security at a
predetermined price for a specified period of time.

Investment strategy. Each Equity Fund (other than the Stock Index and Small Cap
Index Funds) and the High Yield Fixed Income Fund may invest up to 5% of its net
assets at the time of purchase in warrants and similar rights. A Fund may also
purchase bonds that are issued in tandem with warrants.

Special risks. Warrants are derivative instruments that present risks similar
to options.

WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND FORWARD COMMITMENTS.
A purchase of "when-issued" securities refers to a transaction made
conditionally because the securities, although authorized, have not yet been
issued. A delayed delivery or forward commitment transaction involves a
contract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.

Investment strategy. Each Fund may purchase or sell securities on a when-
issued, delayed delivery or forward commitment basis. Although the Funds would
generally purchase securities in these transactions with the intention of
acquiring the securities, the Funds may dispose of such securities prior to
settlement if the investment management team deems it appropriate to do so.

Special risks. Purchasing securities on a when-issued, delayed delivery or
forward commitment basis involves the risk that the value of the securities may
decrease by the time they are actually issued or delivered. Conversely, selling
securities in these transactions involves the risk that the value of the
securities may increase by the time they are actually issued or delivered.
These transactions also involve the risk that the seller may fail to deliver the
security or cash on the settlement date.

ZERO COUPON, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS. These are securities
issued at a discount from their face value because interest payments are
typically postponed until maturity. Interest payments on pay-in-kind securities
are payable by the delivery of additional securities. The amount of the
discount rate varies depending on factors such as the time remaining until
maturity, prevailing interest rates, a security's liquidity and the issuer's
credit quality. These securities also may take the form of debt securities that
have been stripped of their interest payments.

Investment strategy. Each Fund may invest in zero coupon, pay-in-kind and
capital appreciation bonds to the extent consistent with its investment
objective.

Special risks. The market prices of zero coupon, pay-in-kind and capital
appreciation bonds generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. A Fund's investments in zero coupon, pay-in-kind
and capital appreciation bonds may require the Fund to sell some of its Fund
securities to generate sufficient cash to satisfy certain income distribution
requirements.

- ------------
Disclaimers
- ------------

The Stock Index Fund is not sponsored, endorsed, sold or promoted by S&P, nor
does S&P guarantee the accuracy and/or completeness of the S&P 500/R Index or
any data included therein. S&P makes no warranty, express or implied, as to the
results to be obtained by the Fund, owners of the Fund, any person or any entity
from the use of the S&P 500/R Index or any data included therein. S&P makes no
express or implied warranties and expressly disclaims all such warranties of
merchantability or fitness for a particular purpose for use with respect to the
S&P 500/R Index or any data included therein.

The Small Cap Index Fund is not sponsored, endorsed, sold or promoted by
Russell, nor does Russell guarantee the accuracy and/or completeness of the
Russell 2000 Index or any data included therein. Russell makes no warranty,
express or implied, as to the results to be obtained by the Fund, owners of the
Fund, any person or any entity from the use of the Russell 2000 Index or any
data included therein. Russell makes no express or implied warranties and
expressly disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to the Russell 2000 Index or any data
included therein.

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

- ----------------------
FINANCIAL INFORMATION
- ----------------------

THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND A FUND'S
FINANCIAL PERFORMANCE FOR THE PAST FIVE YEARS (OR, IF SHORTER, THE PERIOD OF THE
FUND'S OPERATIONS). CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE
FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR
WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN A FUND (ASSUMING REINVESTMENT OF
ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE YEARS OR PERIODS
ENDED ON OR BEFORE MARCH 31, 1999 HAS BEEN AUDITED BY ARTHUR ANDERSEN LLP, WHOSE
REPORT IS INCLUDED IN THE FUNDS' ANNUAL REPORT ALONG WITH THE FUNDS' FINANCIAL
STATEMENTS. INFORMATION FOR THE PERIOD ENDED SEPTEMBER 30, 1999 HAS NOT BEEN
AUDITED AND IS INCLUDED IN THE SEMIANNUAL REPORT ALONG WITH THE FUNDS' FINANCIAL
STATEMENTS. THE ANNUAL REPORT AND SEMIANNUAL REPORT ARE AVAILABLE UPON REQUEST
AND WITHOUT CHARGE.

FINANCIAL HIGHLIGHTS
MONEY MARKET FUNDS

MONEY MARKET FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995<F1>
- --------------------------------------------------------------------------------------------------
<S> <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

INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.02 0.05 0.05 0.05 0.05 0.04
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.02) (0.05) (0.05) (0.05) (0.05) (0.04)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> 2.33% 5.04% 5.31% 5.05% 5.57% 4.55%

SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $5,249,673 $4,886,098 $3,296,030 $1,607,187 $1,061,813 $894,279
Ratio to average
net assets of <F3>:
Expenses, net of
waivers and
reimbursements 0.55% 0.55% 0.55% 0.55% 0.49% 0.45%
Expenses, before
waivers and
reimbursements 0.89% 0.89% 0.90% 0.90% 0.91% 0.96%
Net investment income,
net of waivers and
reimbursements 4.61% 4.91% 5.19% 4.94% 5.42% 4.94%
Net investment income,
before waivers and
reimbursements 4.27% 4.57% 4.84% 4.59% 5.00% 4.43%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period April 11, 1994 (commencement of operations) through March
31, 1995.
<F2> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F3> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET FUNDS

U.S. GOVERNMENT MONEY MARKET FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995<F1>
- --------------------------------------------------------------------------------------------------
<S> <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

SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $439,993 $469,866 $417,042 $314,259 $207,105 $227,543
Ratio to average
net assets of <F3>:
Expenses, net of
waivers and
reimbursements 0.55% 0.55% 0.55% 0.55% 0.49% 0.45%
Expenses, before
waivers and
reimbursements 0.91% 0.91% 0.93% 0.96% 0.94% 1.01%
Net investment income,
net of waivers and
reimbursement 4.50% 4.82% 5.10% 4.82% 5.33% 4.93%
Net investment income,
before waivers and
reimbursements 4.14% 4.46% 4.72% 4.41% 4.88% 4.37%
- ---------------------------------------------------------------------------------------------------

</TABLE>

FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET FUNDS

U.S. GOVERNMENT SELECT MONEY MARKET FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995<F2>
- --------------------------------------------------------------------------------------------------
<S> <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

INCOME FROM
INVESTMENT OPERATIONS:
Net investment
income 0.02 0.05 0.05 0.05 0.05 0.02
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.02) (0.05) (0.05) (0.05) (0.05) (0.02)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F3> 2.25% 4.87% 5.24% 5.07% 5.55% 1.75%

SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $376,885 $416,527 $306,425 $168,128 $85,400 $82,162
Ratio to average
net assets of <F4>:
Expenses, net of
waivers and
reimbursements 0.55% 0.55% 0.46% 0.40% 0.33% 0.30%
Expenses, before
waivers and
reimbursements 0.91% 0.91% 0.93% 0.97% 1.00% 1.32%
Net investment income,
net of waivers and
reimbursements 4.44% 4.73% 5.13% 4.95% 5.43% 5.84%
Net investment income,
before waivers and
reimbursements 4.08% 4.37% 4.66% 4.38% 4.76% 4.82%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period December 12, 1994 (commencement of operations) through March
31, 1995.
<F2> For the period April 11, 1994 (commencement of operations) through March
31, 1995.
<F3> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F4> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET FUNDS

MUNICIPAL MONEY MARKET FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995<F2>
- --------------------------------------------------------------------------------------------------
<S> <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

INCOME FROM
INVESTMENT OPERATIONS:
Net investment
income 0.01 0.03 0.03 0.03 0.03 0.03
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.01) (0.03) (0.03) (0.03) (0.03) (0.03)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F3> 1.40% 2.98% 3.27% 3.14% 3.54% 2.90%

SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $2,233,674 $2,384,030 $1,814,343 $1,420,041 $1,102,789 $927,747
Ratio to average
net assets of <F4>:
Expenses, net of
waivers and
reimbursements 0.55% 0.55% 0.55% 0.55% 0.49% 0.45%
Expenses, before
waivers and
reimbursements 0.89% 0.89% 0.89% 0.90% 0.91% 0.95%
Net investment income,
net of waivers and
reimbursements 2.76% 2.90% 3.20% 3.08% 3.46% 3.10%
Net investment income,
before waivers and
reimbursements 2.42% 2.56% 2.86% 2.73% 3.04% 2.60%
- ---------------------------------------------------------------------------------------------------

</TABLE>

FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET FUNDS

CALIFORNIA MUNICIPAL MONEY MARKET FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995<F2>
- --------------------------------------------------------------------------------------------------
<S> <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

INCOME FROM
INVESTMENT OPERATIONS:
Net investment
income 0.01 0.03 0.03 0.03 0.04 0.01
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.01) (0.03) (0.03) (0.03) (0.04) (0.01)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> 1.27% 2.75% 3.20% 3.19% 3.63% 1.27%

SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $451,814 $363,050 $224,843 $200,989 $165,087 $161,316
Ratio to average
net assets of <F3>:
Expenses, net of
waivers and
reimbursements 0.55% 0.55% 0.49% 0.45% 0.39% 0.35%
Expenses, before
waivers and
reimbursements 0.92% 0.91% 0.94% 0.94% 0.94% 1.07%
Net investment income,
net of waivers and
reimbursements 2.51% 2.68% 3.14% 3.13% 3.55% 3.78%
Net investment income,
before waivers and
reimbursements 2.14% 2.32% 2.69% 2.64% 3.00% 3.06%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period November 29, 1994 (commencement of operations) through March
31, 1995.
<F2> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at
the end of the year. Total return is not annualized for periods less than
one year.
<F3> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS
FIXED INCOME FUNDS

U.S. GOVERNMENT FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $10.05 $10.20 $9.88 $10.06 $9.84 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.23 0.50 0.54 0.51 0.51 0.50
Net realized and unrealized
gains (losses)
on investments (0.20) 0.10 0.32 (0.11) 0.29 (0.16)
- ---------------------------------------------------------------------------------------------------
Total Income from
Investment Operations 0.03 0.60 0.86 0.40 0.80 0.34
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.23) (0.49) (0.53) (0.51) (0.51) (0.50)
From net realized gains -- (0.26) (0.01) (0.05) (0.07) --
In excess of net
realized gains -- -- -- (0.02) -- --
- ---------------------------------------------------------------------------------------------------
Total Distributions Paid (0.23) (0.75) (0.54) (0.58) (0.58) (0.50)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $9.85 $10.05 $10.20 $9.88 $10.06 $9.84
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F1> 0.67% 6.01% 8.90% 3.98% 7.65% 3.49%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $260,684 $268,242 $229,352 $181,921 $149,062 $116,443
Ratio to average
net assets of <F2>:
Expenses, net of waivers
and reimbursements 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
Expenses, before waivers
and reimbursements 1.07% 1.07% 1.07% 1.09% 1.10% 1.12%
Net investment income,
net of waivers and
reimbursements 4.68% 4.73% 5.24% 5.19% 5.07% 5.20%
Net investment income,
before waivers and
reimbursements 4.51% 4.56% 5.07% 5.00% 4.87% 4.98%
Portfolio Turnover Rate 15.76% 123.75% 47.41% 83.41% 112.00% 42.29%

</TABLE>

<F1> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete
redemption of the investment at net asset value at the end of the year.
Total return is not annualized for periods less than one year.
<F2> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
FIXED INCOME FUNDS

INTERMEDIATE TAX-EXEMPT FUND FLORIDA INTERMEDIATE TAX-EXEMPT FUND
----------------------------------------------------------------- ---------------------------------------------
SIX SIX
MONTHS MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR ENDED YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED SEPT. 30, ENDED ENDED ENDED
1999 MARCH 31, MAR MARCH 31, MARCH 31, MARCH 31, 1999 MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995 (UNAUDITED) 1999 1998 1997<F1>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
NET ASSET VALUE,
BEGINNING OF
PERIOD $10.36 $10.36 $10.07 $10.22 $10.03 $10.00 $10.47 $10.47 $10.03 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment
income 0.19 0.39 0.40 0.40 0.41 0.40 0.18 0.39 0.40 0.24
Net realized and
unrealized gains
(losses) on
investments (0.32) 0.11 0.29 (0.06) 0.26 0.03 (0.32) 0.16 0.44 0.03
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
from Investment
Operations (0.13) 0.50 0.69 0.34 0.67 0.43 (0.14) 0.55 0.84 0.27
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.19) (0.39) (0.40) (0.40) (0.41) (0.40) (0.18) (0.39) (0.40) (0.24)
From net realized
gains -- (0.11) -- (0.07) (0.07) -- -- (0.16) -- --
In excess of net
realized gains -- -- -- (0.02) -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions
Paid (0.19) (0.50) (0.40) (0.49) (0.48) (0.40) (0.18) (0.55) (0.40) (0.24)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $10.04 $10.36 $10.36 $10.07 $10.22 $10.03 $10.15 $10.47 $10.47 $10.03
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> (0.97)% 4.88% 6.95% 3.39% 6.81% 4.38% (1.03)% 5.38% 8.51% 2.63%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets,
in thousands,
end of period $362,739 $344,789 $298,529 $264,630 $244,139 $221,251 $37,373 $37,121 $25,329 $14,807
Ratio to average net
assets of <F3>:
Expenses, net of
waivers and
reimbursements 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%
Expenses, before
waivers and
reimbursements 1.06% 1.06% 1.07% 1.07% 1.08% 1.09% 1.24% 1.29% 1.41% 2.31%
Net investment income,
net of waivers and
reimbursements 3.79% 3.76% 3.84% 3.90% 4.01% 4.09% 3.61% 3.67% 3.86% 3.84%
Net investment income,
before waivers and
reimbursements 3.58% 3.55% 3.62% 3.68% 3.78% 3.85% 3.22% 3.23% 3.30% 2.38%
Portfolio Turnover
Rate 22.23% 54.03% 61.83% 61.39% 137.85% 78.87% 45.00% 57.98% 46.12% 50.77%
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period August 15, 1996 (commencement of operations) through March
31, 1997.
<F2> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F3> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
FIXED INCOME FUNDS

FIXED INCOME FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $10.15 $10.42 $9.86 $10.10 $9.78 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.27 0.54 0.59 0.57 0.58 0.62
Net realized and unrealized
gains (losses)
on investments (0.38) -- 0.56 (0.12) 0.50 (0.22)
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations (0.11) 0.54 1.15 0.45 1.08 0.40
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.27) (0.54) (0.58) (0.56) (0.59) (0.62)
From net realized gains -- (0.27) (0.01) (0.10) (0.17) --
In excess of net
investment income -- -- -- (0.01) -- --
In excess of net
realized gains -- -- -- (0.02) -- --
- ---------------------------------------------------------------------------------------------------
Total Distributions Paid (0.27) (0.81) (0.59) (0.69) (0.76) (0.62)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $9.77 $10.15 $10.42 $9.86 $10.10 $9.78
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F1> (0.75)% 5.18% 11.90% 4.59% 11.18% 4.16%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $323,169 $275,108 $181,917 $122,444 $101,339 $65,929
Ratio to average
net assets of <F2>:
Expenses, net of waivers
and reimbursements 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
Expenses, before waivers
and reimbursements 1.07% 1.08% 1.09% 1.12% 1.14% 1.18%
Net investment income,
net of waivers and
reimbursements 5.37% 5.15% 5.71% 5.69% 5.79% 6.48%
Net investment income,
before waivers and
reimbursements 5.20% 4.97% 5.52% 5.47% 5.55% 6.20%
Portfolio Turnover
Rate 38.28% 84.85% 33.55% 87.64% 116.22% 55.27%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F2> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
FIXED INCOME FUNDS

TAX-EXEMPT FUND CALIFORNIA TAX-EXEMPT FUND
----------------------------------------------------------------- --------------------------------
SIX SIX
MONTHS MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR ENDED YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED SEPT. 30, ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, 1999 MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995 (UNAUDITED) 1999 1998<F1>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $10.63 $10.73 $10.24 $10.35 $10.08 $10.00 $10.89 $10.76 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.22 0.45 0.47 0.50 0.48 0.48 0.21 0.43 0.41
Net realized and unrealized
gains (losses) on
investments (0.58) 0.13 0.57 (0.06) 0.29 0.08 (0.58) 0.23 0.76
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations (0.36) 0.58 1.04 0.44 0.77 0.56 (0.37) 0.66 1.17
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.22) (0.45) (0.47) (0.47) (0.48) (0.48) (0.21) (0.43) (0.41)
From net realized gains -- (0.23) (0.08) (0.05) (0.02) -- -- (0.10) --
In excess of net
investment income -- -- -- (0.03) -- -- -- -- --
In excess of net
realized gains -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Paid (0.22) (0.68) (0.55) (0.55) (0.50) (0.48) (0.21) (0.53) (0.41)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $10.05 $10.63 $10.73 $10.24 $10.35 $10.08 $10.31 $10.89 $10.76
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> (3.17)% 5.47% 10.39% 4.32% 7.80% 5.78% (3.15)% 6.20% 11.86%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $227,458 $227,823 $167,220 $136,372 $125,113 $118,690 $76,417 $77,249 $39,943
Ratio to average
net assets of <F3>:
Expenses, net of waivers
and reimbursements 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%
Expenses, before waivers
and reimbursements 1.08% 1.08% 1.09% 1.10% 1.10% 1.11% 1.13% 1.17% 1.60%
Net investment income,
net of waivers and
reimbursements 4.18% 4.13% 4.42% 4.61% 4.62% 4.95% 3.98% 3.87% 4.01%
Net investment income,
before waivers and
reimbursements 3.95% 3.90% 4.18% 4.36% 4.37% 4.69% 3.70% 3.55% 3.26%
Portfolio Turnover Rate 83.97% 140.39% 74.32% 8.10% 60.50% 54.94% 27.37% 62.55% 22.22%
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period April 8, 1997 (commencement of operations) through March
31, 1998.
<F2> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F3> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
FIXED INCOME FUNDS

INTERNATIONAL FIXED INCOME FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $10.38 $9.85 $10.08 $10.62 $10.64 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.21 0.38 0.43 0.56 0.78 0.58
Net realized and unrealized
gains (losses) on
investments (0.34) 0.58 0.02 (0.40) (0.16) 0.64
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations (0.13) 0.96 0.45 0.16 0.62 1.22
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.19) (0.32) (0.59) (0.58) (0.62) (0.56)
From net realized gains -- (0.07) (0.09) (0.11) (0.02) --
In excess of net
investment income -- -- -- -- -- (0.02)
In excess of net
realized gains -- (0.04) -- (0.01) -- --
- ---------------------------------------------------------------------------------------------------
Total Distributions Paid (0.19) (0.43) (0.68) (0.70) (0.64) (0.58)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $10.06 $10.38 $9.85 $10.08 $10.62 $10.64
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F1> (1.25)% 9.68% 4.61% 1.39% 5.84% 12.77%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $15,907 $14,285 $13,675 $16,426 $15,665 $13,028
Ratio to average
net assets of <F2>:
Expenses, net of waivers
and reimbursements 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%
Expenses, before waivers
and reimbursements 1.82% 1.96% 1.87% 1.96% 2.00% 2.42%
Net investment income,
net of waivers and
reimbursements 4.30% 4.69% 4.98% 5.49% 5.75% 5.96%
Net investment income,
before waivers and
reimbursements 3.63% 3.88% 4.26% 4.68% 4.90% 4.69%
Portfolio Turnover Rate 3.32% 16.49% 30.26% 37.76% 52.05% 43.24%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F2> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
FIXED INCOME FUNDS

HIGH YIELD HIGH YIELD
MUNICIPAL FUND FIXED INCOME FUND
--------------------- ---------------------
SIX SIX
MONTHS MONTHS
ENDED YEAR ENDED YEAR
SEPT. 30, ENDED SEPT. 30, ENDED
1999 MARCH 31, 1999 MARCH 31,
(UNAUDITED) 1999<F1> (UNAUDITED) 1999<F1>
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $10.01 $10.00 $10.10 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.22 0.05 0.41 0.11
Net realized and unrealized
gains (losses) on
investments (0.54) -- (0.40) 0.08
- ---------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations (0.32) 0.05 0.01 0.19
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.22) (0.04) (0.41) (0.09)
From net realized gains -- -- -- --
In excess of net
investment income -- -- -- --
In excess of net
realized gains -- -- -- --
- ---------------------------------------------------------------------------
Total Distributions Paid (0.22) (0.04) (0.41) (0.09)
- ---------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $9.47 $10.01 $9.70 $10.10
- ---------------------------------------------------------------------------
TOTAL RETURN<F2> (3.27)% 0.57% 0.02% 2.06%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $17,023 $10,033 $101,326 $40,864
Ratio to average
net assets of <F3>:
Expenses, net of waivers
and reimbursements 0.85% 0.85% 0.90% 0.90%
Expenses, before waivers
and reimbursements 1.66% 5.60% 1.16% 2.18%
Net investment income,
net of waivers and
reimbursements 4.76% 2.92% 9.00% 6.78%
Net investment income (loss),
before waivers and
reimbursements 3.95% (1.83)% 8.74% 5.50%
Portfolio Turnover Rate 8.35% 0.00% 41.96% 0.00%
- ---------------------------------------------------------------------------

</TABLE>

<F1> Commenced investment operations after the close of business on December 31,
1998.
<F2> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F3> Annualized for periods less than a full year.

INCOME EQUITY FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $12.73 $13.81 $11.81 $11.59 $9.95 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.13 0.46 0.45 0.44 0.34 0.29
Net realized and unrealized
gains (losses) on
investments (0.13) (0.41) 3.02 1.19 1.66 (0.08)
- ---------------------------------------------------------------------------------------------------
Total Income from
Investment Operations -- 0.05 3.47 1.63 2.00 0.21
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment income (0.13) (0.48) (0.44) (0.44) (0.36) (0.26)
From net realized gains -- (0.65) (1.03) (0.97) -- --
- ---------------------------------------------------------------------------------------------------
Total Distributions Paid (0.13) (1.13) (1.47) (1.41) (0.36) (0.26)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $12.60 $12.73 $13.81 $11.81 $11.59 $9.95
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> (0.04)% 0.67% 31.00% 14.42% 20.41% 2.21%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $232,423 $118,414 $117,562 $77,102 $55,919 $38,954
Ratio to average
net assets of <F3>:
Expenses, net of waivers
and reimbursements 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, before waivers
and reimbursements 1.34% 1.35% 1.37% 1.42% 1.48% 1.55%%
Net investment income, net of
waivers and reimbursements 2.10% 3.54% 3.53% 3.71% 3.17% 3.08%
Net investment income (loss),
before waivers and
reimbursements 1.76% 3.19% 3.16% 3.29% 2.69% 2.53%
Portfolio Turnover Rate 40.35% 79.95% 81.24% 72.04% 67.32% 45.68%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period October 7, 1996 (commencement of operations) through March
31, 1997.
<F2> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F3> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
EQUITY FUNDS

STOCK INDEX FUND GROWTH EQUITY FUND
------------------------------------------- -----------------------------------------------------------------
SIX SIX
MONTHS MONTHS
ENDED YEAR YEAR YEAR ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MAR MARCH 31, 1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 (UNAUDITED) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
NET ASSET VALUE,
BEGINNING OF
PERIOD $17.34 $15.03 $10.74 $10.00 $21.94 $18.62 $13.93 $13.15 $10.61 $10.00
INCOME (LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.06 0.16 0.15 0.08 0.01 0.02 0.03 0.08 0.08 0.08
Net realized and
unrealized gains
(losses)
on investments (0.04) 2.49 4.80 0.74 (0.31) 4.51 6.36 1.49 2.59 0.60
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income from
Investment
Operations 0.02 2.65 4.95 0.82 (0.30) 4.53 6.39 1.57 2.67 0.68
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income (0.06) (0.17) (0.15) (0.07) (0.01) (0.02) (0.03) (0.08) (0.08) (0.07)
From net
realized gains -- (0.17) (0.51) (0.01) (1.10) (1.19) (1.67) (0.71) (0.05) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions
Paid (0.06) (0.34) (0.66) (0.08) (1.11) (1.21) (1.70) (0.79) (0.13) (0.07)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $17.30 $17.34 $15.03 $10.74 $20.53 $21.94 $18.62 $13.93 $13.15 $10.61
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> 0.12% 17.78% 47.11% 8.21% (1.45)% 24.72% 48.06% 11.72% 25.13% 6.90%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets,
in thousands,
end of period $460,022 $169,062 $93,907 $35,840 $1,080,285 $640,948 $479,782 $302,605 $224,571 $113,185
Ratio to average
net assets of <F3>:
Expenses, net
of waivers
and reimbursements 0.55% 0.55% 0.55% 0.55% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, before
waivers and
reimbursements 0.96% 1.00% 1.18% 2.23% 1.30% 1.30% 1.30% 1.33% 1.36% 1.40%
Net investment income,
net of waivers and
reimbursements 0.91% 1.10% 1.23% 1.92% 0.08% 0.08% 0.18% 0.56% 0.70% 0.86%
Net investment income
(loss), before
waivers and
reimbursements 0.50% 0.65% 0.60% 0.24% (0.22)% (0.22)% (0.12)% 0.23% 0.34% 0.46%
Portfolio Turnover
Rate 1.08% 2.46% 32.06% 64.94% 31.64% 49.67% 73.85% 67.34% 73.20% 82.90%
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

FINANCIAL HIGHLIGHTS (CONTINUED)
EQUITY FUNDS

SELECT EQUITY FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995<F1>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $23.33 $19.16 $14.55 $13.12 $10.77 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment
income (loss) (0.02) -- 0.02 0.02 0.02 0.06
Net realized and unrealized
gains (losses) on
investments, and futures
contracts 0.53 5.40 6.81 2.05 2.73 0.75
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations 0.51 5.40 6.83 2.07 2.75 0.81
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income -- (0.01) (0.02) (0.02) (0.03) (0.04)
From net realized gains -- (1.22) (2.20) (0.62) (0.37) --
- ---------------------------------------------------------------------------------------------------
Total Distributions Paid -- (1.23) (2.22) (0.64) (0.40) (0.04)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $23.84 $23.33 $19.16 $14.55 $13.12 $10.77
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F4> 2.19% 28.79% 49.71% 15.64% 25.70% 8.18%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $249,105 $198,530 $126,536 $63,677 $33,842 $15,123
Ratio to average
net assets of <F5>:
Expenses, net of waivers
and reimbursements 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, before waivers
and reimbursements 1.52% 1.54% 1.58% 1.67% 1.91% 2.61%
Net investment income (loss),
net of waivers and
reimbursements (0.24)% (0.15)% 0.15% 0.21% 0.22% 0.82%
Net investment income (loss),
before waivers and
reimbursements (0.76)% (0.69)% (0.43)% (0.46)% (0.69)% (0.79)%
Portfolio Turnover Rate 54.58% 87.73% 148.55% 72.68% 137.99% 48.88%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period April 6, 1994 (commencement of operations) through March 31,
1995.
<F2> Commenced investment operations after the close of business on March 31,
1998.
<F3> Commenced investment operations after the close of business on September 3,
1999.
<F4> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for the period less than one year.
<F5> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
EQUITY FUNDS

MID CAP SMALL CAP
GROWTH FUND INDEX FUND SMALL CAP FUND
------------------ ------------ ---------------------------------------------------------------
SIX SIX SIX
MONTHS MONTHS MONTHS
ENDED YEAR ENDED ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED SEPT. 30, SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, 1999<F3> 1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999<F2> (UNAUDITED)(UNAUDITED) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $11.72 $10.00 $10.00 $12.32 $16.76 $12.31 $11.58 $9.98 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment
income (loss) (0.02) -- 0.01 0.04 0.04 0.03 0.07 0.05 0.11
Net realized and unrealized
gains (losses) on
investments, and futures
contracts 1.13 1.72 (0.20) 1.70 (3.93) 5.14 1.37 2.29 (0.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations 1.11 1.72 (0.19) 1.74 (3.89) 5.17 1.44 2.34 0.06
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income -- -- -- -- (0.01) (0.04) (0.06) (0.07) (0.08)
From net realized gains -- -- -- -- (0.54) (0.68) (0.65) (0.67) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Paid -- -- -- -- (0.55) (0.72) (0.71) (0.74) (0.08)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $12.83 $11.72 $9.81 $14.06 $12.32 $16.76 $12.31 $11.58 $9.98
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN<F4> 9.47% 17.19% (1.90)% 14.12% (23.46)% 42.71% 12.48% 24.09% 0.57%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $246,003 $77,378 $137,043 $291,847 $264,434 $368,579 $197,113 $155,238 $76,627
Ratio to average net
assets of <F5>:
Expenses, net of waivers
and reimbursements 1.00% 1.00% 0.65% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, before waivers
and reimbursements 1.34% 1.65% 1.34% 1.51% 1.52% 1.53% 1.54% 1.61% 1.76%
Net investment income (loss),
net of waivers and
reimbursements (0.42)% (0.51)% 1.03% 0.47% 0.25% 0.28% 0.54% 0.65% 1.36%
Net investment income (loss),
before waivers and
reimbursements (0.76)% (1.16)% 0.34% (0.04)% (0.27)% (0.25)% 0.00% 0.04% 0.60%
Portfolio Turnover Rate 97.36% 173.39% 2.44% 9.90% 18.74% 18.59% 18.92% 46.59% 82.46%
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

FINANCIAL HIGHLIGHTS (CONTINUED)
EQUITY FUNDS

INTERNATIONAL GROWTH EQUITY FUND
------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE,
BEGINNING OF PERIOD $12.57 $11.66 $10.05 $10.23 $9.61 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment
Income (loss) 0.01 0.13 0.09 0.09 0.17 0.04
Net realized and unrealized
gains (losses) on
investments, options,
futures contracts
and foreign currency
transactions 1.81 1.36 1.98 0.18 0.65 (0.31)
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations 1.82 1.49 2.07 0.27 0.82 (0.27)
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income -- -- (0.07) (0.09) (0.11) (0.03)
From net realized gains (1.19) (0.46) (0.29) (0.23) -- --
In excess of net
investment income -- (0.12) (0.10) -- (0.09) --
In excess of accumulated
net realized gains on
investment transactions -- -- -- (0.13) -- (0.09)
- ---------------------------------------------------------------------------------------------------
Total Distributions Paid (1.19) (0.58) (0.46) (0.45) (0.20) (0.12)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $13.20 $12.57 $11.66 $10.05 $10.23 $9.61
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> 14.45% 13.04% 21.34% 2.61% 8.61% (2.65)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $486,545 $215,656 $178,210 $165,892 $181,237 $114,673
Ratio to average
net assets of <F3>:
Expenses, net of waivers
and reimbursements 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Expenses, before waivers
and reimbursements 1.59% 1.62% 1.62% 1.63% 1.65% 1.71%
Net investment income (loss),
net of waivers and
reimbursements 1.54% 0.52% 0.79% 0.78% 0.92% 0.47%
Net investment income (loss),
before waivers and
reimbursements 1.20% 0.15% 0.42% 0.40% 0.52% 0.01%
Portfolio Turnover
Rate 70.45% 177.89% 145.02% 190.94% 216.86% 158.31% 67.81%
- ---------------------------------------------------------------------------------------------------

</TABLE>

<F1> For the period April 5, 1994 (commencement of operations) through March 31,
1995.
<F2> Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
<F3> Annualized for periods less than a full year.

FINANCIAL HIGHLIGHTS (CONTINUED)
EQUITY FUNDS

INTERNATIONAL SELECT EQUITY FUND TECHNOLOGY FUND
----------------------------------------------------------------- ---------------------------------------------
SIX SIX
MONTHS MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR ENDED YEAR YEAR YEAR
SEPT. 30, ENDED ENDED ENDED ENDED ENDED SEPT. 30, ENDED ENDED ENDED
1999 MARCH 31, MAR MARCH 31, MARCH 31, MARCH 31, 1999 MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995 (UNAUDITED) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
NET ASSET VALUE,
Beginning of Period $12.98 $12.52 $10.37 $10.73 $9.78 $10.00 $29.99 $17.11 $11.95 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment
Income (loss) 0.21 0.04 0.22 0.04 0.01 0.04 (0.09) -- -- --
Net realized and
unrealized gains
(losses) on
investments,
options, futures
contracts and
foreign currency
transactions 1.71 1.08 2.19 (0.25) 0.99 (0.23) 6.35 13.55 6.06 2.10
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
from Investment
Operations1.92 1.12 2.41 (0.21) 1.00 (0.19) 6.26 13.55 6.06 2.10
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS PAID:
From net investment
income -- -- (0.16) (0.03) (0.02) (0.03) -- -- -- --
From net realized
gains -- (0.65) -- -- -- -- (2.90) (0.67) (0.90) (0.15)
In excess of net
investment income -- (0.01) (0.10) (0.04) (0.03) -- -- -- -- --
In excess of accumulated
net realized gains
on investment
transactions -- -- -- (0.08) -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions
Paid -- (0.66) (0.26) (0.15) (0.05) (0.03) (2.90) (0.67) (0.90) (0.15)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $14.90 $12.98 $12.52 $10.37 $10.73 $9.78 $33.35 $29.99 $17.11 $11.95
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN<F2> 14.79% 9.16% 23.74% (1.95)% 10.20% (1.95)% 21.10% 79.97% 52.62% 20.82%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets,
in thousands,
end of period $160,746 $124,513 $117,618 $108,944 $102,719 $71,958 $930,412 $343,709 $104,389 $43,754
Ratio to average
net assets of <F3>:
Expenses, net of
waivers and
reimbursements 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.20% 1.23% 1.25% 1.25%
Expenses, before
waivers and
reimbursements 1.62% 1.66% 1.64% 1.66% 1.71% 1.75% 1.51% 1.53% 1.59% 2.02%
Net investment
income (loss),
net of waivers and
reimbursements 1.66% 0.38% 0.29% 0.47% 0.12% 0.47% (0.96)% (0.87)% (0.96)% (0.75)%
Net investment
income (loss),
before waivers and
reimbursements 1.29% (0.03)% (0.10)% 0.06% (0.34)% (0.03)% (1.27)% (1.17)% (1.30)% (1.52)%
Portfolio Turnover
Rate 67.81% 168.19% 98.22% 97.60% 176.71% 97.69% 29.32% 61.01% 74.75% 67.89%
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

- ---------------------
FOR MORE INFORMATION

- --------------------------------------------------------------------------------
Annual/Semiannual Report
- --------------------------------------------------------------------------------
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders. In the Funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Funds' performance during their last fiscal
year.

- --------------------------------------------------------------------------------
Statement of Additional Information
- --------------------------------------------------------------------------------

Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("SAI"). The SAI is incorporated
by reference into this Prospectus (is legally considered part of this
Prospectus).

The Funds' annual and semiannual reports, and the SAI, are available free upon
request by calling The Northern Funds Center at (800) 595-9111.

TO OBTAIN OTHER INFORMATION AND FOR SHAREHOLDER INQUIRIES:
- -------------
BY TELEPHONE - Call (800) 595-9111
- -------------
- --------
BY MAIL - Northern Funds
- --------
P.O. Box 75986
Chicago, IL 60675-5986
- ----------------
ON THE INTERNET - Text-only versions of the Funds' documents are available:
- ----------------

- - On the SEC's website at http://www.sec.gov.
- - On Northern Funds' website at http://www.northernfunds.com.

You may review and obtain copies of Northern Funds' documents by visiting the
SEC's Public Reference Room in Washington, D.C. You may also obtain copies of
Northern Funds' documents, after paying a duplicating fee, by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request to: [email protected]. Information on the operation of the public
reference room may be obtained by calling the SEC at 1-800-942-8090.

This page intentionally left blank

[LOGO]

811-8236

33-73404
811-8236

PART B

STATEMENT OF ADDITIONAL INFORMATION

MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
U.S. GOVERNMENT SELECT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
CALIFORNIA MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT FUND
INTERMEDIATE TAX-EXEMPT FUND
CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND
FLORIDA INTERMEDIATE TAX-EXEMPT FUND
FIXED INCOME FUND
TAX-EXEMPT FUND
ARIZONA TAX-EXEMPT FUND
CALIFORNIA TAX-EXEMPT FUND
INTERNATIONAL FIXED INCOME FUND
HIGH YIELD MUNICIPAL FUND
HIGH YIELD FIXED INCOME FUND
INCOME EQUITY FUND
STOCK INDEX FUND
GROWTH EQUITY FUND
SELECT EQUITY FUND
MARKETCOMMAND FUND
MID CAP GROWTH FUND
SMALL CAP INDEX FUND
SMALL CAP FUND
SMALL CAP GROWTH FUND
INTERNATIONAL GROWTH EQUITY FUND
INTERNATIONAL SELECT EQUITY FUND
TECHNOLOGY FUND

NORTHERN FUNDS
(THE "TRUST")

This Statement of Additional Information dated December 29, 1999 (the
"Additional Statement") is not a prospectus. This Additional Statement should
be read in conjunction with the Prospectus dated December 29, 1999, as amended
or supplemented from time to time, for the Money Market Fund, U.S. Government
Money Market Fund, U.S. Government Select Money Market Fund, Tax-Exempt Money
Market Fund, Municipal Money Market Fund, California Municipal Money Market Fund
(collectively, the "Money Market Funds"), U.S. Government Fund, Short-
Intermediate U.S. Government Fund, Intermediate Tax-Exempt Fund, California
Intermediate Tax-Exempt Fund, Florida Intermediate Tax-Exempt Fund, Fixed Income
Fund, Tax-Exempt Fund, Arizona Tax-Exempt Fund, California Tax-Exempt Fund, High
Yield Municipal Fund, High Yield Fixed Income Fund, International Fixed Income
Fund, Income Equity Fund, Stock Index Fund, Growth Equity Fund, Select Equity
Fund, MarketCommand Fund, Mid Cap Growth Fund, Small Cap Index Fund, Small Cap
Fund, Small Cap Growth 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.

The unaudited financial statements contained in the semi-annual report to
the Funds' shareholders for the period ended September 30, 1999 and audited
financial statements and related report of Arthur Andersen LLP, independent
accountants, contained in the annual report to shareholders for the fiscal year
ended March 31, 1999 are incorporated herein by reference in the section
entitled "Financial Statements." No other part of the semi-annual report or
annual report is incorporated by reference herein. Copies of the semi-annual
report or annual report may be obtained, upon request and without charge by
calling The Northern Trust Company at 1-800-595-9111.

------------

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.

An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any government
agency. An investment in a Fund involves investment risks, including possible
loss of principal. Although each of the Money Market Funds seeks to preserve
the value of your investment at $1.00 per share, it is possible to lose money by
investing in the Funds.

INDEX
Page
----

ADDITIONAL INVESTMENT INFORMATION...........................................4
Investment Objectives and Policies..........................................4
Special Risk Factors and Considerations Relating to California Municipal
Instruments, Florida Municipal Instruments and Arizona Municipal
Instruments...........................................................34
California Municipal Instruments...........................................35
Florida Municipal Instruments..............................................46
Arizona Municipal Instruments..............................................50
Investment Restrictions....................................................53

ADDITIONAL TRUST INFORMATION...............................................58
Classification and History.................................................58
Trustees and Officers......................................................58
Investment Adviser, Transfer Agent and Custodian...........................63
Co-Administrators and Distributor..........................................76
Service Organizations......................................................80
Counsel and Auditors.......................................................81
In-Kind Purchases and Redemptions..........................................81
Automatic Investing Plan...................................................82
Directed Reinvestments.....................................................82
Redemptions and Exchanges..................................................82
Retirement Plans...........................................................83
Expenses...................................................................83

PERFORMANCE INFORMATION....................................................84
Money Market Funds.........................................................84
Non-Money Market Funds.....................................................86
General Information........................................................91

NET ASSET VALUE............................................................93

TAXES......................................................................95
Federal - General Information..............................................95
Federal - Tax-Exempt Information...........................................97
Taxation of Certain Financial Instruments..................................98
Special State Tax Considerations Pertaining to the California Funds........98
Special State Tax Considerations Pertaining to the Florida Intermediate
Tax-Exempt Fund......................................................100
Special State Tax Considerations Pertaining to the
Arizona Tax-Exempt Fund..............................................101

DESCRIPTION OF SHARES.....................................................101
FINANCIAL STATEMENTS......................................................105
OTHER INFORMATION.........................................................105
APPENDIX A................................................................A-1
APPENDIX B................................................................B-1

ADDITIONAL INVESTMENT INFORMATION

INVESTMENT OBJECTIVES AND POLICIES

The following supplements the investment objectives, strategies and risks
of the Funds as set forth in the Prospectus. The investment objective of each
Fund may be changed without the vote of the majority of the Fund's outstanding
shares. Except as expressly noted below, each Fund's investment policies may be
changed without shareholder approval. In addition to the instruments discussed
below and in the Prospectus, each Fund may purchase other types of financial
instruments, however designated, whose investment and credit quality
characteristics are determined by the Investment Advisers to be substantially
similar to those of any other investment otherwise permitted by the Funds'
investment policies.

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.

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.

Tax-Exempt Money Market Fund seeks to provide a high level of
income exempt from regular Federal income tax, to the extent
consistent with the preservation of capital, by investing
primarily in municipal instruments.

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.

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.

Short-Intermediate U.S. Government Fund seeks high current income
from a broad range of U.S. Government securities. The Fund's
dollar-weighted average maturity is anticipated to range between
two and five 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 securities. 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 and the Short-Intermediate 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.

High Yield Municipal Fund seeks a high level of current income
exempt from regular federal income tax.

High Yield Fixed Income Fund seeks a high level of current
income. In seeking current income, the Fund may also consider
the potential for capital appreciation. In pursuing its
investment objective, the Fund invests in high yield fixed income
instruments.

TAX-EXEMPT FIXED INCOME FUNDS

Intermediate Tax-Exempt Fund seeks high current income exempt
from regular federal income tax by investing in a broad range of
municipal instruments with an expected average maturity of three
to ten years.

California Intermediate Tax-Exempt Fund seeks high current income
exempt from regular federal income tax and California state
personal income tax by investing in municipal instruments with an
expected average maturity of three to ten years.

Florida Intermediate Tax-Exempt Fund seeks high current income
exempt from regular federal income tax by investing in municipal
instruments with an expected average maturity of three to ten
years. The Fund intends, but cannot guarantee, that its shares
will qualify for exemption from the Florida intangibles tax.

Tax-Exempt Fund 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.

Arizona Tax-Exempt Fund seeks high current income exempt from
regular federal income tax and Arizona state personal income tax
by investing in municipal instruments with an expected average
maturity of ten to thirty years.

California Tax-Exempt Fund seeks high current income exempt from
regular federal income tax and California state personal income
tax by investing in municipal instruments with an expected
average maturity of ten and 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 Funds' equity funds.

Stock Index Fund seeks to provide investment results
approximating the aggregate price and dividend performance of the
securities included in the S&P 500 Index.

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.

MarketCommand Fund seeks to provide long-term capital
appreciation by investing primarily in the equity securities of
a concentrated group of companies believed to have significant
"market command." Any income received is incidental to this
objective.

Mid Cap Growth Fund seeks long-term capital appreciation by
investing primarily in equity securities of companies with market
capitalizations that are within the capitalization range of the
Standard & Poor's MidCap 400 Stock Index at the time of
investment.

Small Cap Index Fund seeks to provide investment results
approximating the aggregate price and dividend performance of the
securities included in the Russell 2000 Index.

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.

Small Cap Growth Fund seeks long-term capital appreciation by
investing primarily in equity securities of companies with market
capitalizations that are within the capitalization range of the
Russell 2000 Small Stock Index.

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
will be considered principally engaged in technology business
activities if such issuer will be listed on the Morgan Stanley
High-Technology 35 Index (the "Morgan Stanley Index"), the
Hambrecht and Quist Technology Index (the "H&Q Index"), the
SoundView Technology Index, the technology grouping of the S&P
500 Index or any other comparable index. Companies engaged in
businesses related to the following products and services are
also considered by Northern Trust to be engaged in technology
business activities whether or not they are listed in a
technology index: industrial and business machines;
communications; computers, software and peripheral products;
electronics; electronic media; internet; television and video
equipment and services; and satellite technology and equipment.

The Morgan Stanley Index is an equal dollar weighted index of 35
stocks drawn from nine technology subsectors: computer services,
design software, server software, PC software and new media,
networking and telecom equipment, server hardware, PC hardware
and peripherals, specialized systems and semi-conductors. The
SoundView Technology Index is an equal dollar weighted index
designed to measure the performance of the technology industry.
It is comprised of 100 major technology companies chosen by
SoundView Financial Group. The H&Q Index is comprised of
publicly traded stocks of approximately 250 technology companies.
The H&Q Index includes companies in the electronics, services and
related technologies industries and is a market capitalization
weighted index. Changes in the indices may occur when Morgan
Stanley, 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. 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.

INSURANCE FUNDING AGREEMENTS. An insurance funding agreement ("IFA") is
normally a general obligation of the issuing insurance company and not a
separate account. The purchase price paid for an IFA 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 highly rated IFAs. The High Yield Fixed Income Fund is not subject to
any minimum rating criteria. Generally, IFAs are not assignable or transferable
without the permission of the issuing insurance companies, and an active
secondary market in IFAs may not exist. Therefore, IFAs 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.

ZERO COUPON, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS. To the extent
consistent with their respective investment objectives, each Fund may invest in
zero coupon bonds, capital appreciation bonds and pay-in-kind ("PIK")
securities. Zero coupon and capital appreciation bonds are debt securities
issued or sold at a discount from their face value and which do not entitle the
holder to any periodic payment of interest prior to maturity or a specified
date. The original issue discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, the liquidity of the
security and the perceived credit quality of the issuer. These securities also
may take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves or receipts or certificates
representing interests in such stripped debt obligations or coupons. The market
prices of zero coupon bonds, capital appreciation bonds and PIK securities
generally are more volatile than the market prices of interest bearing
securities and are likely to respond to a greater degree to changes in interest
rates than interest bearing securities having similar maturities and credit
quality.

PIK securities may be debt obligations or preferred shares that provide
the issuer with the option of paying interest or dividends on such obligations
in cash or in the form of additional securities rather than cash. Similar to
zero coupon bonds, PIK securities are designed to give an issuer flexibility in
managing cash flow. PIK securities that are debt securities can either be senior
or subordinated debt and generally trade flat (i.e., without accrued interest).
The trading price of PIK debt securities generally reflects the market value of
the underlying debt plus an amount representing accrued interest since the last
interest payment.

Zero coupon bonds, capital appreciation bonds and PIK securities involve
the additional risk that, unlike securities that periodically pay interest to
maturity, a Fund will realize no cash until a specified future payment date
unless a portion of such securities is sold and, if the issuer of such
securities defaults, a Fund may obtain no return at all on its investment. In
addition, even though such securities do not provide for the payment of current
interest in cash, the Funds are nonetheless required to accrue income on such
investments for each taxable year and generally are required to distribute such
accrued amounts (net of deductible expenses, if any) to avoid being subject to
tax. Because no cash is generally received at the time of the accrual, a Fund
may be required to liquidate other portfolio securities to obtain sufficient
cash to satisfy federal tax distribution requirements applicable to the Fund.

LOAN PARTICIPATIONS. The High Yield Fixed Income Fund may invest in
loan participations. Such loans must be to issuers in whose obligations the
High Yield Fixed Income Fund may invest. A loan participation is an interest in
a loan to a U.S. or foreign company or other borrower which is administered and
sold by a financial intermediary. In a typical corporate loan syndication, a
number of lenders, usually banks (co-lenders), lend a corporate borrower a
specified sum pursuant to the terms and conditions of a loan agreement. One of
the co-lenders usually agrees to act as the agent bank with respect to the loan.

Participation interests acquired by the High Yield Fixed Income Fund may
take the form of a direct or co-lending relationship with the corporate
borrower, an assignment of an interest in the loan by a co-lender or another
participant, or a participation in the seller's share of the loan. When the
High Yield Fixed Income Fund acts as co-lender in connection with a
participation interest or when the High Yield Fixed Income Fund acquires certain
participation interests, the High Yield Fixed Income Fund will have direct
recourse against the borrower if the borrower fails to pay scheduled principal
and interest. In cases where the High Yield Fixed Income Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit remedies
against the borrower. In these cases, the High Yield Fixed Income Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the bankruptcy
or insolvency of the corporate borrower, a loan participation may be subject to
certain defenses by the borrower as a result of improper conduct by the agent
bank. Moreover, under the terms of the loan participation, the High Yield Fixed
Income Fund may be regarded as a creditor of the agent bank (rather than of the
underlying corporate borrower), so that the High Yield Fixed Income Fund may
also be subject to the risk that the agent bank may become insolvent. The
secondary market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fixed Income Fund will be regarded as
illiquid.

For purposes of certain investment limitations pertaining to
diversification of the High Yield Fixed Income Fund's portfolio investments, the
issuer of a loan participation will be the underlying borrower. However, in
cases where the High Yield Fixed Income Fund does not have recourse directly
against the borrower, both the borrower and each agent bank and co-lender
interposed between the High Yield Fixed Income Fund and the borrower will be
deemed issuers of a loan participation.

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"). 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. 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 segregate liquid assets in 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, the Investment Advisers will consider 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 and ability to meet payment on demand. In determining weighted
average portfolio maturity, an instrument may, subject to applicable Securities
and Exchange Commission ("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.

Variable and floating rate instruments eligible for purchase by the Funds
include variable amount master demand notes, which permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate, and (except for the Money Market Funds) leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage interest in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. The Funds
may deem the maturity of variable and floating rate instruments to be less than
their stated maturities based on their variable and floating rate features
and/or their put features. Unrated variable and floating rate instruments will
be determined by the Investment Advisers to be of comparable quality at the time
of purchase to rated instruments which may be purchased by the Funds.

Variable and floating rate instruments including inverse floaters held by a
Fund will be subject to the Fund's limitation on illiquid investments when the
Fund may not demand payment of the principal amount within seven days absent a
reliable trading market.

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 will segregate liquid assets having a value
(determined daily) at least equal to the amount of the Fund's purchase
commitments until three days prior to the settlement date, or will otherwise
cover its position. 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.

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, 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. 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 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 ("SMBS").
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 instances, 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 in these securities. The market value of the class consisting
entirely of principal payments generally is 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 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 the Trust's 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 the net asset
value per share.

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 financial
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" such 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.

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 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 a Fund's
average weighted maturity, 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.

Asset-backed securities acquired by the Funds may include collateralized
mortgage obligations ("CMOs") issued by private companies. CMOs 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.

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. 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 the Federal Home Loan Mortgage Corporation ("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.

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.

MUNICIPAL INSTRUMENTS. Municipal instruments are generally issued to
finance public works, such as airports, bridges, highways, housing, health-
related entities, transportation-related projects, educational programs, water
and pollution control and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses and to
make loans to other public institutions and for other facilities. Municipal
instruments include private activity bonds issued by or on behalf of public
authorities. Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.

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. Private activity bonds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of a private activity bond is usually directly
related to the credit standing of the private user of the facility involved.

The Tax-Exempt Money Market Fund, Intermediate Tax-Exempt Fund, California
Intermediate Tax-Exempt Fund, Florida Intermediate Tax-Exempt Fund, Tax-Exempt
Fund, Arizona Tax-Exempt Fund and California Tax-Exempt Fund (the "Tax-Exempt
Funds") and the Municipal Money Market Fund, California Municipal Money Market
Fund and High Yield Municipal Fund (the "Municipal 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.

The Tax-Exempt Money Market, Municipal Money Market and California
Municipal Money Market Funds may invest in 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, D-2 or higher by D&P or F-2 or higher by Fitch
IBCA and tax-exempt commercial paper and similar debt instruments rated Prime-2
or higher by Moody's, A-2 or higher by S&P, D-2 or higher by D&P or F-2 or
higher by Fitch IBCA. The Tax-Exempt Money Market, Municipal Money Market and
California Municipal Money Market Funds may also invest in rated and unrated
municipal bonds, notes, paper or other instruments that are of comparable
quality to the tax-exempt commercial paper permitted to be purchased by the
Funds.

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 and participation
certificates are obligations issued by state or local governments or authorities
to finance the acquisition of equipment and facilities. Participation
certificates may represent participations in a lease, an installment purchase
contract, or a conditional sales contract. Certain municipal lease obligations
(and related participation certificates) 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 municipal securities. 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.

There are, of course, variations in the quality of municipal instruments,
both within a particular category and between categories, and the yields on
municipal instruments depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of an NRSRO, such as
Moody's, S&P and Fitch IBCA described in Appendix A hereto, represent such
NRSRO's opinion as to the quality of municipal instruments. It should be
emphasized that these ratings are general and are not absolute standards of
quality. Municipal instruments with the same maturity, interest rate and rating
may have different yields. Municipal instruments of the same maturity and
interest rate with different ratings may have the same yield.

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 availability of
municipal instruments for investment by the Tax-Exempt and Municipal 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 invest more than 25% of its total assets in municipal instruments
covered by insurance policies.

In addition, municipal instruments may be backed by letters of credit or
guarantees issued by domestic or foreign banks or other financial institutions
which are not subject to federal deposit insurance. Adverse developments
affecting the banking industry generally or a particular bank or financial
institution that has provided its credit or guarantee with respect to a
municipal instrument held by a Fund, including a change in the credit quality of
any such bank or financial institution, could result in a loss to the Fund and
adversely affect the value of its shares. As described below under "Foreign
Securities," letters of credit and guarantees issued by foreign banks and
financial institutions involve certain risks in addition to those of similar
instruments issued by domestic banks and financial institutions.

Interest earned by the Tax-Exempt Money Market Fund, Intermediate Tax-
Exempt Fund, California Intermediate Tax-Exempt Fund, Florida Intermediate Tax-
Exempt Fund, Tax-Exempt Fund, Arizona Tax-Exempt Fund or California 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.

The Tax-Exempt Funds and the Municipal 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 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.

Opinions relating to the validity of municipal instruments (including
California, Florida and Arizona municipal instruments) and to federal and state
tax issues relating to these securities 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.

Currently it is not the intention of the Tax-Exempt Funds and the Municipal
Funds to invest more than 25% of the value of their total assets in municipal
instruments whose issuers are in the same state.

STANDBY COMMITMENTS. The Tax-Exempt Funds and Municipal 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. 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, MarketCommand,
Mid Cap Growth, Small Cap, Small Cap Growth, International Growth Equity,
International Select Equity, Technology and High Yield Fixed Income 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 prices of warrants do not necessarily correlate with the prices of
the underlying shares. 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.

FOREIGN SECURITIES. The International Funds intend to invest primarily in
the securities of foreign issuers. In addition, each Equity Fund, the Fixed
Income Fund and the High Yield Fixed Income Fund may invest a portion 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, as well as other foreign issuers.
These obligations may be issued by supranational entities, including
international organizations (such as the European Coal and Steel Community)
designed 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 invests 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 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, the High Yield Fixed Income
Fund, each Equity Fund and each International Fund may invest in foreign debt,
including 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.

To the extent consistent with their investment objectives, the Funds may
also invest in obligations of the International Bank for Reconstruction and
Development (also known as the World Bank) which 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.

The end of the Cold War, the reunification of Germany, the accession of new
Western European members to the European Economic and Monetary Union and the
aspirations of Eastern European states to join and other political and social
events in Europe have caused considerable economic, social and political
dislocation. In addition, events in the Japanese economy, as well as social and
political developments there 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 in Europe, Japan and in the Asia\Pacific regional context can be
expected to produce continuing effects on securities and currency markets.

In addition, the International Funds and High Yield Fixed Income Fund 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
these countries may be undergoing significant evolution and rapid development,
and these countries may lack the social, political and economic stability
characteristics of more developed countries. Some of these countries may have
in the past failed to recognize private property rights and may have at times
nationalized or expropriated the assets of private companies. In general, the
securities markets of these countries are less liquid, subject to greater price
volatility, have smaller market capitalizations and have problems with
securities registration and custody. As a result, the risks presented by
investments in these countries are heightened. Additionally, settlement
procedures in emerging countries are frequently less developed and reliable than
those in the United States and may involve a Fund's delivery of securities
before receipt of payment for their sale. Settlement or registration problems
may make it more difficult for a Fund to value its portfolio securities and
could cause the Fund to miss attractive investment opportunities, to have a
portion of its assets uninvested or to incur losses due to the failure of a
counterparty to pay for securities the Fund has delivered or the Fund's
inability to complete its contractual obligations.

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 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 with 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 the
convertibility of currency.

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 costs 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 "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 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 and GDRs. EDRs and GDRs are receipts issued by a non-
U.S. financial institution evidencing ownership of underlying foreign or U.S.
securities and are usually denominated in foreign currencies. EDRs and GDRs may
not be denominated in the same currency as the securities they represent.
Generally, EDRs and GDRs are designed for use in the foreign securities markets.

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, High Yield
Fixed Income, Income Equity, Growth Equity, Select Equity, MarketPower, Mid Cap
Growth, Small Cap, Small Cap Growth, 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.

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.

In addition, when an Investment Adviser 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. A Fund's net long and short foreign currency exposure will not
exceed its total asset value. 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 currency exchange
contracts for the International Fixed Income Fund, International Growth Equity
Fund and International Select Equity Fund (collectively, the "International
Funds") and the High Yield Fixed Income Fund to seek to increase total return
when Northern Trust anticipates that the foreign currency will appreciate or
depreciate in value. The International Funds and the High Yield Fixed Income
Fund 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.

Liquid assets equal to the amount of a Fund's assets that could be required
to consummate forward contracts will be segregated except to the extent the
contracts are otherwise "covered." The segregated assets will be valued at
market or fair value. If the market or fair value of such assets declines,
additional liquid assets will be segregated daily so that the value of the
segregated assets 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
Fund segregates liquid assets in the amount of the difference. 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 Fund
segregates liquid assets in the amount of the difference.

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, foreign and domestic securities indices, financial
instruments, foreign currencies or (in the case of the International Fixed
Income Fund and the High Yield 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. 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 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.

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.

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, liquid assets in such amount are
segregated) 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 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 Fund
segregates liquid assets in the amount of the difference. The Funds will write
put options only if they are "secured" by segregated liquid assets 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 or High Yield Fixed Income Fund holds
another call (or put) option on the spread between the same two securities and
maintains in a segregated account liquid assets 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 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 assets (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 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 for hedging purposes, for speculative
purposes (to seek to increase total return), or for liquidity management
purposes. When used as a hedge, a Fund may sell a futures contract in order to
offset a decrease in the market value of its portfolio securities that might
otherwise result from a market decline or currency exchange fluctuations. A
Fund may do so either to hedge the value of its portfolio of securities as
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund may purchase a
futures contract as a hedge in anticipation of purchases of securities. In
addition, a Fund may utilize futures contracts in anticipation of changes in the
composition of its portfolio holdings. For a detailed description of futures
contracts and related options, see Appendix B to this Additional Statement.

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, persons 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, a 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.

In connection with a Fund's position in a futures contract or related
option, the Fund will segregate liquid assets or will otherwise cover its
position in accordance with applicable SEC requirements.

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

REAL ESTATE INVESTMENT TRUSTS. The High Yield Fixed Income Fund, Income
Equity Fund, Small Cap Index Fund, Small Cap Fund and Small Cap Growth Fund may
invest in equity real estate investment trusts ("REITs"). 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 trusts.
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, cash equivalents, 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, U.S. Government Fund and
Short-Intermediate 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 SWAPS, FLOORS AND CAPS AND CURRENCY SWAPS. The U.S.
Government, Short-Intermediate U.S. Government, Intermediate Tax-Exempt,
California Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Fixed
Income, Tax-Exempt, Arizona Tax-Exempt, California Tax-Exempt, International
Fixed Income, High Yield Municipal, High Yield Fixed Income and Income Equity
Funds may enter into interest rate swaps for hedging purposes and not for
speculation. The U.S. Government, Short-Intermediate U.S. Government, Fixed
Income, International Fixed Income, High Yield Municipal and High Yield Fixed
Income Funds may also purchase interest rate floors or caps 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 purchase of an interest rate floor or
cap entitles the purchaser to receive payments of interest on a notional
principal amount from the seller, to the extent the specified index falls below
(floor) or exceeds (cap) a predetermined interest rate. The International Funds
and the High Yield Fixed Income Fund 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 or interest rate floor or
cap transactions 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 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 the Investment Advisers believe that such
obligations do not constitute senior securities as defined in 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 or currency swap will be accrued
on a daily basis, and an amount of liquid assets having an aggregate net asset
value at least equal to such accrued excess, will be segregated by the Funds.

Except for the High Yield Fixed Income Fund (which is not subject to any
minimum rating criteria), a Fund will not enter into a currency or interest rate
swap or interest rate floor or cap transaction 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 IBCA, 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.

EQUITY SWAPS. Each Equity Fund may enter into equity swap contracts to
invest in a market without owning or taking physical custody of securities in
circumstances in which direct investment is restricted for legal reasons or is
otherwise impracticable. Equity swaps may also be used for hedging purposes or
to seek to increase total return. The counterparty to an equity swap contract
will typically be a bank, investment banking firm or broker/dealer. Equity swap
contracts may be structured in different ways. For example, a counterparty may
agree to pay the Fund the amount, if any, by which the notional amount of the
equity swap contract would have increased in value had it been invested in
particular stocks (or an index of stocks), plus the dividends that would have
been received on those stocks. In these cases, the Fund may agree to pay to the
counterparty the amount, if any, by which that notional amount would have
decreased in value had it been invested in the stocks. Therefore, the return to
the Fund on any equity swap contract should be the gain or loss on the notional
amount plus dividends on the stocks less the interest paid by the Fund on the
notional amount. In other cases, the counterparty and the Fund may each agree
to pay the other the difference between the relative investment performances
that would have been achieved if the notional amount of the equity swap contract
had been invested in different stocks (or indices of stocks).

A Fund will enter into equity swaps only on a net basis, which means that
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Payments may be made
at the conclusion of an equity swap contract or periodically during its term.
Equity swaps do not involve the delivery of securities or other underlying
assets. Accordingly, the risk of loss with respect to equity swaps is limited
to the net amount of payments that a Fund is contractually obligated to make.
If the other party to an equity swap defaults, a Fund's risk of loss consists of
the net amount of payments that such Fund is contractually entitled to receive,
if any. Inasmuch as these transactions are entered into for hedging purposes or
are offset by segregated cash or liquid assets to cover the Funds' potential
exposure, the Funds and their Investment Advisers believe that transactions do
not constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to a Fund's borrowing restrictions.

The Funds will not enter into any equity swap transactions unless the
unsecured commercial paper, senior debt or claims-paying ability of the other
party is rated either A, or A-1 or better by Standard & Poor's, Duff & Phelps or
Fitch IBCA, or A or P-1 or better by Moody's Investors Service. If there is a
default by the other party to such a transaction, a Fund will have contractual
remedies pursuant to the agreements related to the transaction.

The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Advisers are incorrect in
their forecasts of market values, the investment performance of a Fund would be
less favorable than it would have been if this investment technique were not
used.

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, the Investment Advisers will consider,
among other factors: an 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 securities and
to the underlying common stocks; whether the securities are entitled to the
benefits of sinking funds or other protective conditions; diversification of a
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 lower quality 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 quality fixed-income securities. Such lower quality securities generally
tend to reflect short-term corporate and market developments to a greater extent
than higher quality 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 quality securities.

RISKS RELATED TO SMALL COMPANY SECURITIES. While the Investment Advisers
believe 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 Small Cap Index, Small Cap and Small
Cap Growth Funds' primary investments, and stocks of recently organized
companies, in which the Small Cap Index, Small Cap and Small Cap Growth Funds
may also invest, have been more volatile in price than the larger capitalization
stocks included in 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.

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 a 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.

RISKS RELATED TO MEDIUM AND LOWER QUALITY SECURITIES. Investments in
medium and lower quality securities present special risk considerations. Medium
quality securities, although considered investment grade, are also considered to
have speculative characteristics. Lower quality securities are considered
predominately speculative by traditional investment standards. In some cases,
these obligations may be highly speculative and have poor prospects for reaching
investment grade standard. While any investment carries some risk, certain
risks associated with lower quality securities are different from those for
investment-grade securities. The risk of loss through default is greater because
lower quality 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 quality 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 quality securities (resulting in a greater number of
bond defaults) and the value of lower quality securities held in a portfolio of
investments.

The economy and interest rates can affect lower quality securities
differently than other securities. For example, the prices of lower quality
securities are more sensitive to adverse economic changes or individual
corporate developments than are the prices of higher quality 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.

The market value of lower quality securities tends to reflect individual
corporate developments to a greater extent than that of higher quality
securities which react primarily to fluctuations in the general level of
interest rates. Lower quality securities are often issued in connection with a
corporate reorganization or restructuring or as a part of a merger, acquisition,
takeover or similar event. They are also issued by less established companies
seeking to expand. Such issuers are often highly leveraged, may not have
available to them more traditional methods of financing and are generally less
able than more established or less leveraged entities to make scheduled payments
of principal and interest in the event of adverse economic developments or
business conditions.

A holder's risk of loss from default is significantly greater for lower
quality securities than is the case for holders of other debt securities because
such securities are generally unsecured and are often subordinated to the rights
of other creditors of the issuers of such securities. Investment by a Fund in
defaulted securities poses additional risk of loss should nonpayment of
principal and interest continue in respect of such securities. Even if such
securities are held to maturity, recovery by a Fund of its initial investment
and any anticipated income or appreciation will be uncertain. A Fund may also
incur additional expenses in seeking recovering on defaulted securities. 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 quality securities as well
as a Fund's net asset value. In general, both the prices and yields of lower
quality securities will fluctuate.

The secondary market for lower quality securities is concentrated in
relatively few market makers and is dominated by institutional investors,
including mutual funds, insurance companies and other financial institutions.
Accordingly, the secondary market for such securities is not as liquid as, and
is more volatile than, the secondary market for higher quality securities. In
addition, market trading volume for high yield fixed income securities is
generally lower and the secondary market for such securities could contract
under adverse market or economic conditions, independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the market price and a Fund's ability to dispose of particular
portfolio investments. A less developed secondary market may also make it more
difficult for a Fund to obtain precise valuations of the high yield securities
in its portfolio.

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of lower quality
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, liabilities and costs, and could involve other
liquidity and valuation difficulties.

The credit ratings assigned by a rating agency evaluate the safety of a
rated security's principal and interest payments, but do not address market
value risk and, therefore, may not fully reflect the true risks of an
investment. 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, the Investment Adviser performs its own analysis of the
issuers whose lower quality 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 quality securities.

INVESTMENT COMPANIES. With respect to the investments of the Funds in the
securities of other investment companies, such investments will be limited so
that, as determined after a purchase is made, either (a) not more than 3% of the
total outstanding stock of such investment company will be owned by a Fund,
Northern Funds as a whole and their affiliated persons (as defined in the 1940
Act) or (b) (i) not more than 5% of the value of the total assets of a Fund will
be invested in the securities of any one investment company; (ii) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund.

Certain investment companies whose securities are purchased by the Funds
may not be 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 this amount may be illiquid.
Notwithstanding the foregoing, a Fund may adhere to more restrictive limitations
with respect to its investments in securities issued by other investment
companies if required by the SEC or deemed to be in the best interests of
Northern Funds. If required by the 1940 Act, each Fund expects to vote the
shares of other investment companies that are held by it in the same proportion
as the vote of all other holders of such securities.

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
Standard & Poor's, Moody's, Duff, Fitch IBCA 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. For a more complete discussion
of ratings, see Appendix A to this Additional Statement.

Subject to the limitations stated in the Prospectus, if a security held by
a Fund undergoes a rating revision, the Fund may continue to hold the security
if the Investment Advisers determine such retention is warranted.

STOCK INDICES. The Standard & Poor's 500R Composite Stock Price Index (the
"S&P 500 Index") is a market value-weighted index consisting of 500 common
stocks which are traded on the New York Stock Exchange, American Stock Exchange
and the Nasdaq National Market System and selected by Standard & Poor's
Corporation ("Standard & Poor's") through a detailed screening process starting
on a macro-economic level and working toward a micro-economic level dealing with
company-specific information such as market value, industry group
classification, capitalization and trading activity. Standard & Poor's primary
objective for the S&P 500 Index is to be the performance benchmark for the U.S.
equity markets. The companies chosen for inclusion in the S&P 500 Index tend to
be leaders in important industries within the U.S. economy. However, companies
are not selected by Standard & Poor's for inclusion because they are expected to
have superior stock price performance relative to the market in general or other
stocks in particular. Standard & Poor's makes no representation or warranty,
implied or express, to purchasers of Stock Index Fund shares or any member of
the public regarding the advisability of investing in the Fund or the ability of
the S&P 500 Index to track general stock market performance.

The Standard & Poor's MidCap 400 Stock Index ("S&P MidCap 400 Index") is a
market-weighted index composed of 400 common stocks chosen by Standard & Poor's
for market size, liquidity and industry group representation. The purpose of
the S&P MidCap 400 Index is to represent the performance of the medium-
capitalization sector of the U.S. securities market. Medium capitalized stocks
which are included in the S&P 500 Index are excluded from the S&P MidCap 400
Index. Except for a limited number of Canadian securities, the S&P MidCap 400
does not include foreign securities. As of November 30, 1999, the approximate
market capitalization range of the companies included in the S&P MidCap 400
Index was between $195 million and $23.4 billion.

The Russell 2000 Index is a market value-weighted index composed of the
stocks of the smallest 2000 companies in the Russell 3000 Index, which is
composed of the stocks of 3000 large U.S. domiciled companies (based on market
capitalization) that represent approximately 98% of the investable U.S. equity
markets. Because of its emphasis on the smallest 2000 companies, the Russell
2000 Index represents approximately 10% of the total market capitalization of
the Russell 3000 Index. As of November 30, 1999, the average market
capitalization of the companies included in the Russell 2000 Index was
approximately $570 million. The Russell 2000 Index is reconstituted annually to
reflect changes in market capitalization. The primary criteria used by Frank
Russell & Company ("Russell") to determine the initial list of securities
eligible for inclusion in the Russell 3000 Index (and accordingly, the Russell
2000 Index) is total market capitalization adjusted for large private holdings
and cross-ownership. However, companies are not selected by Russell for
inclusion in the Russell 2000 Index because they are expected to have superior
stock price performance relative to the market in general or other stocks in
particular. Russell makes no representation or warranty, implied or express, to
purchasers of Small Cap Index or Small Cap Growth Fund shares or any member of
the public regarding the advisability of investing in the Fund or the ability of
the Russell 2000 Index to track general market performance of small
capitalization stocks.

RELATIVE VALUE APPROACH. In buying and selling securities for the Fixed
Income Funds, the investment management team uses a relative value approach.
This approach involves an analysis of economic and market information, including
economic growth rates, interest and inflation rates, deficit levels, the shape
of the yield curve, sector and quality spreads and risk premiums. It also
involves the use of proprietary valuation models to analyze and compare expected
returns and assumed risks. Under the relative value approach, the investment
management team will emphasize particular securities and particular types of
securities that the team believes will provide a favorable return in light of
these risks.

TRACKING VARIANCE. As discussed in the Prospectus, the Stock Index and
Small Cap Index Funds are subject to the risk of tracking variance. Tracking
variance may result from share purchases and redemptions, transaction costs,
expenses and other factors. Share purchases and redemptions may necessitate the
purchase and sale of securities by a Fund and the resulting transaction costs
which may be substantial because of the number and the characteristics of the
securities held. In addition, transaction costs are incurred because sales of
securities received in connection with spin-offs and other corporate
organizations are made to conform a Fund's holdings with its investment
objective. Tracking variance may also occur due to factors such as the size of
a Fund, the maintenance of a cash reserve pending investment or to meet expected
redemptions, changes made in the Fund's designated Index or the manner in which
the Index is calculated or because the indexing and investment approach of the
Investment Adviser does not produce the intended goal of the Fund. Tracking
variance is monitored by the Investment Adviser at least quarterly. In the event
the performance of a Fund is not comparable to the performance of its designated
Index, the Board of Trustees will evaluate the reasons for the deviation and the
availability of corrective measures. If substantial deviation in a Fund's
performance were to continue for extended periods, it is expected that the Board
of Trustees would consider recommending to shareholders possible changes to the
Fund's investment objective.

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 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, changes in the holdings of specific issuers, changes in country and
currency weightings, 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, 1999, the turnover rates with respect to the U.S.
Government, Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Fixed
Income, Tax-Exempt, California Tax-Exempt Fund, International Fixed Income, High
Yield Municipal, High Yield Fixed Income, Income Equity, Stock Index, Growth
Equity, Select Equity, Mid Cap Growth, Small Cap, International Growth Equity,
International Select Equity and Technology Funds were 123.75%, 54.03%, 57.98%,
84.85%, 140.39%, 62.55%, 16.49%, 0.00%, 0.00%, 79.95%, 2.46%, 49.67%, 87.73%,
173.39%, 18.74%, 177.89%, 168.19% and 61.01%, respectively. The Tax-Exempt
Money Market Fund, Short-Intermediate U.S. Government Fund, California
Intermediate Tax-Exempt Fund, Arizona Tax-Exempt Fund, MarketCommand Fund, Small
Cap Index Fund and Small Cap Growth Fund had not commenced operations during the
fiscal year ended March 31, 1999. 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.

MISCELLANEOUS. 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 AND CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL
INSTRUMENTS, FLORIDA MUNICIPAL INSTRUMENTS AND ARIZONA MUNICIPAL INSTRUMENTS

Some of the risk factors relating to investments by the California, Florida
Intermediate Tax-Exempt and Arizona Tax-Exempt Funds in California, Florida, and
Arizona municipal instruments are summarized below. This summary does not
purport to be a comprehensive description of all relevant factors. 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 with respect to California municipal instruments 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 and, with
respect to the Florida Intermediate Tax-Exempt and Arizona Tax-Exempt Funds, the
information is derived principally from official statements relating to issues
of Florida and Arizona municipal instruments released prior to the date of this
Additional Statement. Further, any 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.

CALIFORNIA MUNICIPAL INSTRUMENTS

General

The financial condition of the State of California ("California"), its
public authorities and local governments could affect the market values and
marketability of, and therefore the net asset value per unit and the interest
income of, the California Funds, or result in the default of existing
obligations, including obligations which may be held by the California Funds.
It should be noted that the creditworthiness of obligations issued by local
issuers may be unrelated to the creditworthiness of California, and that there
is no obligation on the part of California to make payment on such local
obligations in the event of default in the absence of a specific guarantee or
pledge provided by California.

During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved significantly since 1994, with ratings increases since 1996. The
ratings of certain related debt of other issuers for which California has an
outstanding lease purchase, guarantee or other contractual obligation (such as
for state-insured hospital bonds) are generally linked directly to California's
rating. Should the financial condition of California deteriorate again, its
credit ratings could be reduced, and the market value and marketability of all
outstanding notes and bonds issued by California, its public authorities or
local governments could be adversely affected.

Economic Factors
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of almost 34 million represents
over 12 percent of the total United States population and grew by 26 percent in
the 1980s, more than double the national rate. Population growth slowed to less
than 1 percent annually in 1994 and 1995, but rose to 1.8 percent in 1996 and
1.6 percent in 1997. During the early 1990's, net population growth in the
State was due to births and foreign immigration, but in recent years, in-
migration from the other states has increased.

Total personal income in the State, at an estimated $902 billion in 1998,
accounts for almost 13 percent of all personal income in the nation. Total
employment is over 15 million, the majority of which is in the service, trade
and manufacturing sectors.

From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Employment levels
stabilized by late 1993 and pre-recession job levels were reached in 1996.
Unemployment, while remaining higher than the national average, has come down
from its 10 percent recession peak to under 6 percent in early 1999. Economic
indicators show a steady and strong recovery underway in California since the
start of 1994 particularly in high technology manufacturing and services,
including computer software, electronic manufacturing and motion
picture/television production, and other services, entertainment and tourism,
and both residential and commercial construction. International economic
problems starting in 1997 had some moderating impact on California's economy,
but negative impacts, such as a sharp drop in exports to Asia which have hurt
the manufacturing and agricultural sectors, have apparently been offset by
increased exports to Latin American and other nations, and a greater strength in
services, computer software and construction. Current forecasts predict
continued strong growth of the State's economy in 1999, with a slowdown in the
rate of growth predicted in 2000 and beyond. Any delay or reversal of the
recovery may create new shortfalls in State revenues.

Constitutional Limitations on Taxes, Other Charges and Appropriations

Limitation on Property Taxes. Certain California municipal instruments may
be obligations of issuers which rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by
Article XIIIA of the California Constitution, enacted by the voters in 1978 and
commonly known as "Proposition 13." Briefly, Article XIIIA limits to 1 percent
of full cash value of the rate of ad valorem property taxes on real property and
generally restricts the reassessment of property to 2 percent per year, except
under new construction or change of ownership (subject to a number of
exemptions). Taxing entities may, however, raise ad valorem taxes above the 1
percent limit to pay debt service on voter-approved bonded indebtedness.

Under Article XIIIA, the basic 1 percent ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, but it was upheld by the U.S. Supreme Court
in 1992.

Article XIIIA prohibits local governments from raising revenues through ad
valorem taxes above the 1 percent limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed a non-voter approved levy of "general taxes" which
were not dedicated to a specific use.

Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.

Article XIIIC requires that all new or increased local taxes be submitted
to the electorate before they become effective. Taxes for general governmental
purposes require a majority vote and taxes for specific purposes require a two-
thirds vote. Further, any general purpose tax which was imposed, extended or
increased without voter approval after December 31, 1994 must be approved by a
majority vote within two years.

Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform to
requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property related"
for purposes of Article XIIID), no property related fee or charge may be imposed
or increased without majority approval by the property owners subject to the fee
or charge or, at the option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.

In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.

The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.

Appropriations Limits. The State and its local governments are subject to
an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.

Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.

The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.

"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50 percent of any excess, with the other 50 percent paid to schools and
community colleges. With more liberal annual adjustment factors since 1988, and
depressed revenues since 1990 because of the recession, few governments are
currently operating near their spending limits, but this condition may change
over time. Local governments may by voter approval exceed their spending limits
for up to four years. During fiscal year 1986-87, State receipts from proceeds
of taxes exceeded its appropriations limit by $1.1 billion, which was returned
to taxpayers. Since that year, appropriations subject to limitation have been
under the State limit. State appropriations were $6.8 billion under the limit
for fiscal year 1998-99.

Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID of
the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California municipal instruments or on the ability of the
State or local governments to pay debt service on such California municipal
instruments. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Further initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.

Obligations of the State of California
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. As of May 1,
1999, the State had outstanding approximately $19.7 billion of long-term general
obligation bonds, plus $246 million of general obligation commercial paper which
will be refunded by long-term bonds in the future, and $6.6 billion of lease-
purchase debt supported by the State General Fund. The State also had about
$15.3 billion of authorized and unissued long-term general obligation bonds and
lease-purchase debt. In FY 1997-98, debt service on general obligation bonds
and lease purchase debt was approximately 4.4 percent of General Fund revenues.

Recent Financial Results
The principal sources of General Fund revenues in 1997-1998 were the
California personal income tax (51 percent of total revenues), the sales tax (32
percent), bank and corporation taxes (11 percent), and the gross premium tax on
insurance (2 percent). The State maintains a Special Fund for Economic
Uncertainties (the "SFEU"), derived from General Fund revenues, as a reserve to
meet cash needs of the General Fund, but which is required to be replenished as
soon as sufficient revenues are available. Year-end balances in the SFEU are
included for financial reporting purposes in the General Fund balance. Because
of the recession and an accumulated budget deficit, no reserve was budgeted in
the SFEU from 1992-93 to 1995-96.

Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 35 percent).

Recent Budgets. As a result of the severe economic recession from
1990-94 and other factors, during this period the State experienced substantial
revenue shortfalls, and greater than anticipated social service costs. The
State accumulated and sustained a budget deficit in the budget reserve, the
SFEU, approaching $2.8 billion at its peak at June 30, 1993. The Legislature
and Governor responded to these deficits by enacting a series of fiscal steps
between FY1991-92 and FY1994-95, including significant cuts in health and
welfare and other program expenditures, tax increases, transfers of program
responsibilities and some funding sources from the State to local governments,
and transfer of about $3.6 billion in annual local property tax revenues
primarily from cities and counties to local school districts, thereby reducing
State funding for schools.

A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. The State's cash condition became so serious that from
late spring 1992 until 1995, the State had to rely on issuance of short term
notes which matured in a subsequent fiscal year to finance its ongoing deficit,
and pay current obligations. The last of these deficit notes was repaid in
April 1996.

The State's financial condition improved markedly in the years from FY1995-
96 onward, with a combination of better than expected revenues, slowdown in
growth of social welfare programs, and continued spending restraint based on the
actions taken in earlier years. The State's cash position also improved, and no
external deficit borrowing has occurred over the fiscal year since FY 1994-95.

The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97, $2.1 billion in 1997-98, and $1.0 billion in
1998-99) than were initially planned when the budgets were enacted. These
additional funds were largely directed to school spending as mandated by
Proposition 98, and to make up shortfalls from reduced federal health and
welfare aid in 1995-96 and 1996-97. The accumulated budget deficit from the
recession years was finally eliminated. The Department of Finance estimates
that the State's budget reserve (the SFEU) totaled about $1.8 billion at June
30, 1998 and $1.9 billion at June 30, 1999.

The growth in General Fund revenues since the end of the recession resulted
in significant increases in State funding for local school districts under
Proposition 98. From the recession level of about $4,300 per pupil, annual
State funding has increased to over $6,000 per pupil in FY 1999-2000. A
significant amount of the new moneys have been directed to specific educational
reforms, including reduction of class sizes in many grade levels. The improved
budget condition also allowed annual increases in support for higher education
in the State, permitting increased enrollment and reduction of student fees.

Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called "CalWORKs," became effective January 1, 1998, and emphasizes
programs to bring aid recipients into the workforce. As required by federal
law, new time limits are placed on receipt of welfare aid. Generally, health and
welfare costs have been contained even during the recent period of economic
recovery, with the first real increases (after inflation) in welfare support
levels occurring in 1999-2000.

FY 1998-99 Budget. The FY 1998-99 Budget Act was signed on August 21,
1998. After giving effect to line-item vetoes made by the Governor, the Budget
plan resulted in spending of about $57.3 billion for the General Fund and $14.7
billion for Special Funds. The Budget Act assumed General Fund revenues and
transfers in FY 1998-99 of $57.0 billion. After enactment of the Budget Act,
the Legislature passed a number of additional fiscal bills. Taking these into
account, the Administration projected in September, 1998 that the balance in the
SFEU at June 30, 1999 would be about $1.2 billion.

One of the most important elements of the 1998-99 Budget Act was agreement
on substantial tax cuts. The largest of these was a phased-in cut in the
Vehicle License Fee (an annual tax on the value of cars registered in the State,
the "VLF"). Starting on January 1, 1999, the VLF has been reduced by 25
percent. Under pre-existing law, VLF funds are automatically transferred to
cities and counties, so the new legislation provided for the General Fund to
make up the reductions. If State General Fund revenues continue to grow above
certain targeted levels in future years, the cut could reach as much as 67.5
percent by the year 2003. The initial 25 percent VLF cut will be offset by
about $500 million in General Fund money in FY 1998-99, and $1 billion annually
for future years. Other tax cuts in FY 1998-99 included an increase in the
dependent credit exemption for personal income tax filers, restoration of a
renter's tax credit for taxpayers, and a variety of business tax relief
measures. The total cost of these tax cuts was estimated at $1.4 billion for FY
1998-99.

The Administration released new projections for the balance of FY 1998-99
on May 14, 1999 as part of the May Revision of the Governor's Proposed Budget
for 1999-2000 (the "May Revision"). The May Revision revealed that the State's
economy was much stronger in late 1998 and into 1999 than the Administration had
thought when it made its first FY 1999-2000 Budget Proposal in January 1999. As
a result, the May Revision updated 1998-99 General Fund revenues to be $57.9
billion, almost $1 billion above the original FY 1998-99 estimates, and over
$1.6 billion above the Administration's January estimate. Most of the increase
is from personal income taxes, reflecting stronger wage employment than
previously estimated, and extraordinary growth in capital gain realizations
resulting from the stock market's rise. The May Revision projected the SFEU
will have a balance of almost $1.9 billion at June 30, 1999.

Although, as noted, the Administration projected a budget reserve in the
SFEU of about $1.9 billion on June 30, 1999, the General Fund fund balance on
that date also reflects $1.0 billion of "loans" which the General Fund made to
local schools in the recession years, representing cash outlays above the
mandatory minimum funding level. Settlement of litigation over these
transactions in July 1996 calls for repayment of these loans over the period
ending in 2001-02, about equally split between outlays from the General Fund and
from schools' entitlements. The 1998-99 Budget Act contained a $300 million
appropriation from the General Fund toward this settlement.

FY 1999-2000 Budget. The newly elected Governor, Gray Davis, released his
proposed FY 1999-00 Budget in January 1999. It projected somewhat lower General
Fund revenues than in earlier projections, due to slower economic growth which
was expected in late 1998, but totaling an estimated $60.3 billion. The May
Revision has sharply increased the revenue estimates, by over $2.7 billion, to a
total of almost $63.0 billion, which would represent a 9 percent increase above
FY 1998-99. Again, the greatest increase is expected in personal income taxes
(about 10 percent year-over-year increase), with more moderate increases in
sales taxes (6 percent) and corporate taxes (3 percent).

The 1999-00 Budget Act was signed on June 29, 1999, only the second time in
the decade the budget was in place at the start of the fiscal year. After the
Governor used his line-item veto power to reduce expenditures by about $581
million, the final spending plan called for about $63.7 billion of General Fund
expenditures, $16.1 billion of Special Fund expenditures, and $1.5 billion in
bond funded expenditures. The Governor's final budget actions left the SFEU
with an estimated balance of $881 million at June 30, 2000, but the Governor
also reduced spending to set aside $300 million for future appropriation for
either employee pay raises or potential litigation costs. If not fully used,
these "set-aside" funds would increase the SFEU year-end balance.

The final Budget Act generally provided increased funding for a wide range
of programs. Education spending under Proposition 98 received the largest
increase (over $2.3 billion above 1998-99), with other significant increases for
higher education, health and welfare, natural resources and capital outlay. The
budget provides several hundred million dollars in direct new aid to cities and
counties. A proposal is being drafted to place a constitutional amendment on
the ballot in 2000 to provide more extensive, permanent fiscal relief for local
government.

The final spending plan includes several targeted tax cuts for businesses,
totaling under $100 million in 1999-00. The plan also includes a one-time, one-
year additional cut of 10 percent in the Vehicle License Fee for calendar year
2000. This cut will cost the General Fund about $500 million in each of 1999-00
and 2000-01 to make up lost funds for local governments. Under the 1998 law, the
VLF cut to 35 percent would become permanent in the year 2001 if General Fund
revenues reach a certain specified level in 2000-01.

Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending
growth also put pressure on local governments. There can be no assurances that,
if economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.

Bond Rating

The ratings on California's long-term general obligation bonds were reduced
in the early 1990's from "AAA" levels which had existed prior to the recession.
After 1996, the three major rating agencies raised their ratings of California's
general obligation bonds, which as of July 1, 1999 were assigned ratings of "A+"
from Standard & Poor's, "Aa3" from Moody's and "AA-" from Fitch IBCA.

There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.

Legal Proceedings
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues. Trial courts have recently entered tentative decisions or
injunctions which would overturn several parts of the State's recent budget
compromises. The matters covered by these lawsuits include reductions in
welfare payments and the use of certain cigarette tax funds for health costs.
All of these cases are subject to further proceedings and appeals, and if
California eventually loses, the final remedies may not have to be implemented
in one year.

Year 2000 Preparations

The State and local governments, along with all other public and private
institutions in the nation, face a major challenge to ensure that their computer
systems, including microchips embedded into existing machinery, will not fail
prior to or at the January 1, 2000 date which may not be recognized properly by
software utilizing only two digits to identify a year. The new State
Administration has placed a very high priority on "Year 2000" remediation and
contingency planning. The State has a Department of Information Technology
("DOIT") which coordinates activities, provides technical assistance to State
agencies and local governments, and reports on the status of remediation efforts
by over 100 State departments and agencies.

DOIT has reported that, as of early 1999, 372 of 564 "mission critical"
systems in State government had been remediated (although final testing was
still going on in some cases). Of the balance, 54 were being retired and 138
were in process. DOIT does not report on all State agencies. In addition to
hardware and software changes, agencies are preparing business contingency plans
in case of computer problems at 1/1/2000, and are actively coordinating with
outside agencies, vendors, contractors and others with whom computer data is
shared. The State Treasurer and State Controller, responsible for State fiscal
controls and debt service payments, have reported they were fully remediated by
December 31, 1998 and are spending the 1999 year in testing and confirmation of
their systems.

The State has expended and plans to spend many hundreds of millions of
dollars on Year 2000 projects of all sorts, and has set aside several tens of
millions of dollars in contingency funds to support late-coming needs. There is
no survey of local government costs, or the overall status of their activities.
It is likely that larger government agencies are better prepared at this time
than smaller ones. Both the State and local governments are preparing emergency
plans for Year 2000 computer difficulties similar to their normal planning for
natural emergencies, such as floods or earthquakes.

Obligations of Other Issuers

Other Issuers of California Municipal Instruments. There are a number of
State agencies, instrumentalities and political subdivisions of the State that
issue municipal instruments, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.

State Assistance. Property tax revenues received by local governments
declined more than 50 percent following passage of Proposition 13.
Subsequently, the California Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies, the
reallocation of certain State revenues to local agencies and the assumption of
certain governmental functions by the State to assist municipal issuers to raise
revenues. Total local assistance from the State's General Fund was budgeted at
approximately 75 percent of General Fund expenditures in recent years, including
the effect of implementing reductions in certain aid programs. To reduce State
General Fund support for school districts, the 1992-93 and 1993-94 Budget Acts
caused local governments to transfer $3.9 billion of property tax revenues to
school districts, representing loss of the post-Proposition 13 "bailout" aid.
Local governments have in return received greater revenues and greater
flexibility to operate health and welfare programs. However, except for
agreement in 1997 on a new program for the State to substantially take over
funding for local trial courts (saving cities and counties some $400 million
annually), there has been no large-scale reversal of the property tax shift to
help local government.

To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. Los Angeles County, the
largest in the State, was forced to make significant cuts in services and
personnel, particularly in the health care system, in order to balance its
budget in FY1995-96 and FY1996-97. Orange County, which emerged from Federal
Bankruptcy Court protection in June 1996, has significantly reduced county
services and personnel, and faces strict financial conditions following large
investment fund losses in 1994 which resulted in bankruptcy.

Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August,
1997 in order to comply with the federal welfare reform law. Generally,
counties play a large role in the new system, and are given substantial
flexibility to develop and administer programs to bring aid recipients into the
workforce. Counties are also given financial incentives if either at the county
or statewide level, the "Welfare-to-Work" programs exceed minimum targets;
counties are also subject to financial penalties for failure to meet such
targets. Counties remain responsible to provide "general assistance" for able-
bodied indigents who are ineligible for other welfare programs. The long-term
financial impact of the new CalWORKs system on local governments is still
unknown.

Assessment Bonds. California municipal instruments which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured
by land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.

California Long Term Lease Obligations. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement
is not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due. Although
litigation is brought from time to time which challenges the constitutionality
of such lease arrangements, the California Supreme Court issued a ruling in
August, 1998 which reconfirmed the legality of these financing methods.

Other Considerations

The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks related
to the policy of awarding exclusive contracts to certain hospitals.

Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.

Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.

The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not possible, at present, to predict the extent to which any such legislation
will be enacted. Nor is it possible, at present, to determine the impact of any
such legislation on California municipal instruments in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal instruments.

Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance coverage
rates; (ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.

FLORIDA MUNICIPAL INSTRUMENTS

The financial condition of the State of Florida may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities but also by entities that are not under the control of the
State. Adverse developments affecting the State's financing activities, its
agencies or its political subdivisions could adversely affect the State's
financial condition.

The State's revenues increased from $32,957,715,000 during the 1996-97
fiscal year ended June 30, 1997 to $35,849,518,000 during the fiscal year ended
June 30, 1998. The State's operating expenditures increased from
$31,494,591,000 during the 1996-97 fiscal year ended June 30, 1997 to
$33,373,020,000 during the 1997-98 fiscal year ended June 30, 1998. The Office
of Economic and Demographic Research of the Florida Legislature also projected
non-agricultural jobs to grow 3.5% and 3.1% in fiscal years 1998-99 and 1999-
2000, respectively. The revenue growth in the 1998-1999 fiscal year is driven
by the State's sales tax collections. The sales tax accounts for close to 75% of
total revenues through March 31, 1999. A March 31, 1999 estimate shows an
expected year-end surplus of $573.8 million. When this is combined with the
Budget Stabilization Fund balance of $786.9 million, Florida's total reserves
are $1,360.7 million.

The Constitution of the State of Florida limits the right of the State
and its local governments to tax. The Constitution requires the State to have a
balanced budget and to raise revenues to defray its operating expenses. The
State may not borrow for the purpose of maintaining ordinary operating expenses,
but may generally borrow for capital improvements.

An amendment to the Florida Constitution adopted in 1994 requires that
state revenues in excess of an allowed amount plus a growth factor must be
contributed to a Budget Stabilization Fund until this fund reaches a certain
amount at which time the excess state revenues must be distributed to the
taxpayers. The growth factor is the average annual rate of growth in the state
personal income over the most recent 20 quarters times the amount of state
revenue allowed under the Constitution for the prior fiscal year. Included among
the categories of revenues that are exempt from this revenue limitation are
revenues pledged to state bonds and other payments related to debt. A two-thirds
vote of the Florida legislature can raise the amount of the limit on state
revenues. It is difficult to predict the impact of this amendment on Florida
state finances, especially since courts have not interpreted it extensively. To
the extent that local governments traditionally receive revenues from the state
which are subject to or limited by this Constitutional amendment, the further
distribution of such state revenues may be adversely impacted by the amendment.

There are a number of methods by which the State of Florida may incur
debt. The State may issue bonds backed by the State's full faith and credit to
finance or refinance certain capital projects authorized by its voters. The
total outstanding principal of State bonds pledging the full faith and credit of
the State may not exceed 50% of the total tax revenues of the State for the two
preceding fiscal years, excluding any tax revenues held in trust. The State
also may issue certain bonds backed by the State's full faith and credit to
finance or refinance pollution control, solid waste disposal and water
facilities for local governments; county roads; school districts and capital
public education projects without voter authorization. The State may also,
pursuant to specific constitutional authorization, directly guarantee certain
obligations of the State's authorities, agencies and instrumentalities.
Payments of debt service on State bonds backed by the State's full faith and
credit and State-guaranteed bonds and notes are legally enforceable obligations
of the State. Revenue bonds to finance or refinance certain capital projects
also may be issued by the State of Florida without voter authorization.
However, revenue bonds are payable solely from funds derived directly from
sources other than state tax revenues.

The State of Florida currently imposes, among other taxes, an ad
valorem tax on intangible property and a corporate income tax. The Florida
Constitution prohibits the levying of a personal income tax. Certain other
taxes the State of Florida imposes include: an estate or inheritance tax which
is limited by the State's Constitution to an amount not in excess of the amount
allowed to be credited upon or deducted from federal estate taxes or the estate
taxes of another state; and a 6% sales tax on most goods and certain services
with an option for counties to impose up to an additional 1% sales tax on such
goods and services. In addition, counties chartered before June 1, 1976 or
county with a consolidated county/municipal government may assess up to a 1%
discretionary sales surtax within the county for the development, construction,
maintenance and operation of a fixed guideway rapid transit system.

The Constitution reserves the right to charge an ad valorem tax on
real estate and tangible personal property to Florida's local governments. All
other forms of taxation are preempted to the State of Florida except as may be
provided by general law. Motor vehicles, boats, airplanes, trailers, trailer
coaches and mobile homes, as defined by law, may be subject to a license tax for
their operation, but may not be subject to an ad valorem tax.

Under the Constitution, ad valorem taxes may not be levied in excess
of the following millage upon the assessed value of real estate and tangible
personal property: for all county purposes, ten mills; for all municipal
purposes, ten mills; for all school purposes, ten mills; for water management
purposes for the northwest portion of the State, .05 mills; for water management
purposes for the remaining portion of the State, one mill; and for all other
special districts a millage authorized by law and approved by referendum. When
authorized by referendum, the above millage caps may be exceeded for up to two
years. Counties, school districts, municipalities, special districts and local
governmental bodies with taxing powers may issue bonds to finance or refinance
capital projects payable from ad valorem taxes in excess of the above millage
cap when approved by referendum. It should be noted that several municipalities
and counties have charters that further limit either ad valorem taxes or the
millage that may be assessed.

The Florida legislature has passed a number of mandates which limit or
place requirements on local governments without providing the local governments
with compensating changes in their fiscal resources. The Florida legislature
enacted a comprehensive growth management act which forces local governments to
establish and implement comprehensive planning programs to guide and control
future development. This legislation prohibits public or private development
that does not conform with the locality's comprehensive plan. Local governments
may face greater requirements for services and capital expenditures than they
had previously experienced if their locality experiences increased growth or
development. The burden for funding these potential services and capital
expenditures which has been left to the local governments may be quite large.

The Florida Constitution limits the assessed value of homestead real
property for ad valorem tax purposes to the lower of (A) three percent (3%) of
the assessed value for the prior year; or (B) the percentage change in the
Consumer Price Index for the preceding calendar year. In addition, no such
assessed value shall exceed "just value" and such just value shall be reassessed
(notwithstanding the 3% cap) as of January 1 of the year following a change of
ownership of the assessed real property.

Florida has grown dramatically since 1980 and as of April 1, 1997
ranked fourth nationally with an estimated population of 14.7 million. Florida's
substantial population increases over the past few years are expected to
continue. It is anticipated that corresponding increases in State revenues will
be necessary during the next decade to meet increased burdens on the various
public and social services provided by the State. Much of this growth is being
funded by bonded revenues secured by the expanding real property tax base. As of
1997, real property values exceed $724 billion. Residential property values
account for over $400 billion in value while commercial and industrial property
values exceed $100 billion.

Florida's job market continues to reflect strong performance. The
state's March 1999 unemployment rate was 4.1 percent, 0.3 percentage points
lower than the year ago rate of 4.4 percent. Florida's unemployment rate was one
of the lowest since October 1973 when it was 3.4 percent. The U.S. unemployment
rate was 4.2 percent in March 1999, just above Florida's rate. Fueled by low
interest rates, construction had the fastest growth rate at 5.8 percent and
added 20,000 jobs over the year. Similarly, finance, insurance, and real estate
and government also experienced year to year increases of 19,100 jobs and 16,400
jobs, respectively. The apparel and textiles industries lost 1,500 jobs due to
tariffs and foreign competition. The State is gradually becoming less dependent
on employment related to construction, agriculture and manufacturing, and more
dependent on employment related to trade and services. Presently, services
constitute 34.9% and trade 25.6% of the State's total non-farm jobs.

Personal income in the State has been growing strongly the last
several years and has generally outperformed both the nation as a whole and the
Southeast in particular. The reasons for this are strong population growth and
diversification of the economy. From 1992 through 1997, the State's per capita
income rose an average of 5.0% per year, while the national per capita income
increased an average of 4.8%. For 1997, the State's per capita personal income
rose an average of 4.0% while the national per capita personal income rose 4.7%.
In 1997, per capita personal income in Florida was $24,795, while the national
per capita personal income was $25,298. The structure of the State's income
differs from that of the nation and the Southeast. Because the State has a
proportionately greater retirement age population, property income (dividends,
interest and rent) and transfer payments (social security and pension benefits,
among other sources of income) are a relatively more important source of income.
Transfer payments, such as social security, are occasionally subject to
legislative change.

Tourism is one of Florida's most important industries. According to
Visit Florida (formerly the Florida Tourism Commission), about 47 million people
visited the State in 1997. Tourists to Florida effectively represent additional
residents, spending their dollars predominantly at eating and drinking
establishments, hotels and motels, and amusement and recreation parks. Their
expenditures generate additional business activity and State tax revenues. The
State's tourist industry over the years has become more sophisticated,
attracting visitors year-round, thus to a degree, reducing its seasonality.

The State also has a strong construction industry, with single and
multi-family housing starts accounting for approximately 9.2% of total U.S.
housing starts in 1997, while the State's population was only 5.5% of the
nation's total population. The reason for such a dynamic construction industry
was the rapid growth of the State's population. Since 1985, total housing
starts have averaged approximately 148,000 per year. Total housing starts were
132,813 in 1997, and are projected to be 97,600 in 1998-99.

Florida has experienced a diversifying economic base as technology
related industry, healthcare and financial services have grown into leading
elements of Florida's economy, complementing the State's previous reliance
primarily on agriculture and tourism. With the increasing costs and capital
needs related to its growing population, Florida's ability to meet its expenses
will be dependent in part upon the State's continued ability to foster business
and economic growth. Florida has also increased its funding of capital projects
through more frequent debt issuance rather than its historical pay-as-you go
method.

At the regional level, local economies within Florida perform
differently according to their urban or rural qualities and level of economic
diversification. The spectrum of local economies spans dense urban centers such
as Miami and Tampa to rural agricultural regions of citrus, cattle ranching and
sugar cane production. For example, Central Florida is a premier world-class
resort/vacation destination with its economy driven by the presence of Disney
World, studio theme parks and other tourist oriented recreational parks with a
laser/optical research node and motion picture industries helping to diversify
the Central Florida local economy. In contrast to the highly urban areas of
Southeast Florida, North Florida and the Florida Panhandle are rural in many
areas with local economies is dominated by the logging and paper industries,
defense, tourism, state government and retirement.

Florida has a moderate debt burden. As of June 30, 1998 full faith and
credit bonds totaled $8.7 billion and revenue bonds totaled $5 billion for a
total debt of $13.7 billion. Full faith and credit debt per capita was $577. In
the 1998 fiscal year, debt service as a percent of Governmental Fund
expenditures was 2.0%. In recent years debt issuance for the State has been
increasing. The State brought a new indenture to the market in late Fiscal Year
1998, the Florida Lottery Bonds. These bonds will finance capital improvements
for Florida schools.

The payment on most Florida municipal instruments held by the Florida
Intermediate Tax-Exempt Fund will depend upon the issuer's ability to meet its
obligations. If the State or any of its political subdivisions were to suffer
serious financial difficulties jeopardizing their ability to pay their
obligations, the marketability of obligations issued by the State or localities
within the State, and the value of the Florida Intermediate Tax-Exempt Fund's
portfolio, could be adversely affected.

ARIZONA MUNICIPAL INSTRUMENTS

Under its Constitution, the State of Arizona is not permitted to issue
general obligation bonds secured by the State's full faith and credit. However,
agencies and instrumentalities of the State are authorized under specified
circumstances to issue bonds secured by revenues. The State enters into certain
lease transactions that are subject to annual renewal at its option. Local
governmental units in the State are also authorized to incur indebtedness. The
major source of financing for such local government indebtedness is an ad
valorem property tax. In addition, to finance public projects, local
governments may issue revenue bonds to be paid from the revenues of an
enterprise or the proceeds of an excise tax, from assessment bonds payable from
special proceeds of an excise tax, or from assessment bonds payable by special
assessments. Arizona local governments have also financed public projects
through leases that are subject to annual appropriation at the option of the
local government.

There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval.
It is possible that if such a proposal were enacted, there would be an adverse
impact on State or local government financing. It is not possible to predict
whether any such proposals will be enacted in the future or what would be their
possible impact on state or local government financing.

The State is required by law to maintain a balanced budget. To achieve
this objective, it has in the past utilized a combination of spending
reductions and tax increases. In recent years, the State's fiscal situation has
improved, even while tax reduction measures have been enacted each year since
1992. In 1992, voters passed a measure that requires a two-thirds vote of the
legislature to increase state taxes.

The State's population, because of continued employment growth, is expected
to record above-average growth rates. After population growth of 3% in 1997 and
2.9% in 1998, 2.8% growth is expected in 1999 and 2.6% in 2000. That translates
into almost 132,000 more people in the state in 1999 and 126,000 in 2000.

The State's diversified economic base is not dependent on any single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. Agriculture, at one time a major sector, plays a much
smaller role in the economy. For several decades, the population has grown at a
substantially higher rate than the population of the United States.

The economy of the State is growing. Since the current boom peaked in
1994, when employment grew by 6.8%, the rate of growth has slowed, but only
modestly. Through November 1998 (the latest data available), employment was
4.7% higher than the year before.

Different parts of the State have different growth rates and structures.
The Phoenix metropolitan area accounts for 70.6% of all Arizona jobs and almost
80% of the State's employment growth. The Tucson area saw growth accelerate in
1998 by 3%, versus 1.8% in 1997. The balance of the State also grew at more
moderate levels.

On a percentage basis, this expansion has not been as strong as previous
expansions. Yet, in terms of absolute employment growth, this expansion has
created more jobs than any period of economic growth in the State's history.
For example, since the beginning of the current expansion in March 1991, more
than 580,000 jobs have been created. In comparison, 297,200 jobs were created
in the 1975-1980 expansion, and about 450,000 jobs were created in the expansion
that lasted from 1982 to 1990.

According to the national Blue Chip Economic Indicators, after real GDP
growth of 3.9% in 1997 and 3.6% in 1998, growth is expected to moderate to 2.2%
in 1999. Inflation is expected to remain low and interest rates are also likely
to be low and through most of 1999.

As of 1998, 47% of all manufacturing employment in the Phoenix area and 25%
in Pima County is in high technology. The national average is 14.3%. The high-
tech areas include computers, telecommunications, electronic components,
aviation, and instrumentation. In the Phoenix area, the economy is weighted
towards electronic components employment, which accounts for 27% of all
manufacturing jobs. Tucson's high-tech manufacturing employment is more evenly
spread among computers, electronic components, aviation and instrumentation.

It is expected that international trade in the high-tech industry will
continue to grow, which will be a positive for the Arizona economy. But in the
near term, the unbalanced mix of employment could be a problem. Roughly 52% of
Arizona manufacturing exports are of high-tech products; further, nearly 40% of
the state's exports are to Japan, Malaysia, Taiwan, Hong Kong and Singapore, all
of which are experiencing some degree of economic problems.

In 1997, Arizona's total exports as a percent of personal income ranked
fifth in the U.S. at 13.5%, compared to 9.2% for the nation. When analyzing data
using only high-tech exports, Arizona ranked second at 7.1%, versus 2.1%
nationally. Thus, the impact of the reduction in high-tech exports will likely
affect Arizona more than other states. This is expected to result in some
continued layoffs in the manufacturing sector.

The unemployment rate, 4.1% for 1998, is also expected to remain relatively
low, especially in the State's metropolitan areas. However, it is expected to
increase in both 1999 and 2000. The current level of unemployment, the lowest in
nearly three decades, suggests a tight labor market. The modest rise in
unemployment projected for 1999 suggests that labor markets will moderately
soften. After employment growth of 5.6% in 1996, 4.5% in 1997 and an estimated
4.6% in 1998, employment should increase by another 3.5% in 1999 with growth
continuing at about 3% in 2000 and 2001. The Phoenix area's unemployment rate
remains low, at about 2.7%.

The outlook for continued, albeit slower, growth for the U.S. economy acts
as a base for the Arizona economy. The state has been one of the top five
employment-growth states for quite some time, and it is expected to remain in
the top five through 1999. There are other positive factors as well. First, as
of November 1998, manufacturing was 2.3% above the November 1997 rate. Second,
the unemployment rate is low in greater Phoenix and for many other parts of
Arizona. That suggests that job growth will continue. Third, California, the
State's leading domestic trading partner, is expected to enjoy continued, albeit
slower, growth. Fourth, single-family housing markets continue to boom. Although
the absolute level of permits is expected to decline from 1998's record levels,
the outlook is for a relatively strong housing market.

Housing, which is expected to be up by about 15% in 1998, is expected to
decrease by about 10% in 1999. The slowdown is expected to be in single-family
activity. In 1999, even if single-family housing slows, commercial construction
is expected to continue to do well throughout most of the year, despite higher
vacancy rates in the Phoenix-area office and industrial markets. This is
expected to prevent any significant problem in construction employment in 1999,
despite the likelihood of a slowdown.

Another uncertainty is the tourism market. Given the strong economy,
tourist activity is expected to be strong. But declines in the value of the
Canadian dollar, the peso and other currencies versus the U.S. dollar could hurt
winter visitation in Arizona.

Personal income, after growing by 8% in 1996 and 7.3% in 1997, is expected
to grow by another 8% in 1998, 7.8% in 1999, and 7% in 2000.

Overall, General Fund revenues are expected to grow modestly, including 4%
in FY 1999 and 5.7% in FY 2001. However, the FY 1999 rate of growth reflects the
impact of the $120 million tax reduction program passed last year, and the FY
2000 revenue estimate includes an incremental reduction to account for an
additional $60 million of tax reductions already enacted.

The Governor's budget proposals in 1999 sought to limit overall spending,
continue the growth of the State's "rainy day" funds, reflect conservative
revenue forecasts to reflect a slowing economy, and propose for the 8th and 9th
consecutive years tax reductions.

State policy makers have been very successful in recent years in depositing
monies into various accounts that have been established for a "rainy day."
These monies are reserved for a true budget emergency precipitated by an
economic downturn. By the end of FY 2001, the rainy day fund is expected to
reach $425 million, or 7.08% of the General Fund revenues.

OTHER INFORMATION ON CALIFORNIA, FLORIDA AND ARIZONA MUNICIPAL
INSTRUMENTS

Northern Trust believes that it is likely that sufficient California,
Florida and Arizona municipal instruments and certain specified federal
obligations should be available to satisfy the respective investment objectives,
policies and limitations of the California, Florida Intermediate Tax-Exempt and
the Arizona Tax-Exempt Funds. If Northern Funds' Board of Trustees, after
consultation with Northern Trust, should for any reason determine that it is
impracticable to satisfy a Fund's investment objective, policies and limitations
because of the unavailability of suitable investments, the Board would re-
evaluate the particular Fund's investment objective and policies and consider
changes in its structure and name or possible dissolution.

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.<F1>

(2) Mortgage, pledge or hypothecate any assets (other than
pursuant to reverse repurchase agreements) except to secure permitted
borrowings.<F1>

(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 may, to the extent appropriate to its investment policies,
purchase securities of companies engaging in whole or in part in such
activities, and (other than the Money Market Funds) may enter into futures
contracts and related options and forward currency exchange contracts in
accordance with its investment objective and policies.<F1>

(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. (This restriction does
not apply to the Tax-Exempt Money Market Fund, Short-Intermediate U.S.
Government Fund, California Intermediate Tax-Exempt Fund, Arizona Tax-
Exempt Fund, High Yield Municipal Fund, High Yield Fixed Income Fund, Small
Cap Index Fund, Small Cap Growth Fund and MarketCommand Fund. In
addition, this restriction does not apply to any type of option, futures
contract, forward contract, short sale, swap or pair-off transaction unless
it involves a put, call or combination thereof written by a Fund.)

(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, the
Florida Intermediate Tax-Exempt Fund, the California Intermediate Tax-
Exempt Fund, the Arizona Tax-Exempt Fund, the California Tax-Exempt Fund or
the MarketCommand Fund. (Investments by the Tax-Exempt Money Market Fund,
Short-Intermediate U.S. Government Fund, Small Cap Index Fund, Small Cap
Growth, Mid Cap Growth Fund, High Yield Municipal Fund and High Yield Fixed
Income Fund in the securities of other investment companies are also not
subject to this investment restriction.)

(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. (Investments by the Tax-Exempt Money Market Fund,
Short-Intermediate U.S. Government Fund, California Intermediate Tax-Exempt
Fund, Arizona Tax-Exempt Fund, Small Cap Index Fund, Small Cap Growth Fund,
Mid Cap Growth Fund, MarketCommand Fund, High Yield Municipal Fund and High
Yield Fixed Income Fund in the securities of other investment companies are
not subject to this investment restriction.)

(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 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.<F1>

(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, the Florida Intermediate Tax-Exempt Fund, the California
Intermediate Tax-Exempt Fund, the Arizona Tax-Exempt Fund, the California
Tax-Exempt Fund and the MarketCommand Fund.) (Investments by the
Tax-Exempt Money Market Fund, Short-Intermediate U.S. Government Fund,
Small Cap Index Fund, Small Cap Growth, Mid Cap Growth, High Yield
Municipal Fund and High Yield Fixed Income Fund in the securities of other
investment companies are also not subject to this investment restriction.)

<F1> The MarketCommand Fund is not subject to this investment
restriction, but instead is subject to the fundamental investment
restrictions enumerated below.

The Fund may not:

(1) Make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, (c) loans of securities, and (d) an
interfund lending program with other affiliated funds provided
that no such loan will be made if, as a result, the aggregate
of such loans would exceed 33-1/3% of the value of the Fund's
total assets (at the time such loans are made).

(2) Invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.

(3) Borrow money, except that to the extent permitted by applicable
law (a) the Fund may borrow from banks, other affiliated
investment companies and other persons, and may engage in
reverse repurchase agreements, other transactions which involve
borrowings, in amounts up to 33-1/3% of its total assets
(including the amount borrowed) or such other percentage
permitted by law, (b) the Fund may borrow up to an additional
5% of its total assets for temporary purposes, (c) the Fund
may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of portfolio securities,
and (d) the Fund may purchase securities on margin. If due to
market fluctuations or other reasons Fund's borrowings exceed
the limitations stated above, the Trust will promptly reduce the
borrowings of such Fund in accordance with the 1940 Act. In
addition, as a matter of fundamental policy, the Fund will not
issue senior securities to the extent such issuance would
violate applicable law.

* * *

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.

Also, as a matter of fundamental policy, changeable only with the
approval of the holders of a majority of the outstanding shares of the Fund
involved, at least 80% of the annual gross income of the Tax-Exempt Funds and
the Municipal Funds will be derived from municipal instruments (as defined in
the Prospectus), 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
securities. Interest earned by the Tax-Exempt Funds on "private activity bonds"
(if any) that is treated as an item of tax preference under the federal
alternative minimum tax will not be deemed (but such interest earned by the
Municipal Funds will be deemed) to have been derived from municipal instruments
for purposes of determining whether the Tax-Exempt and the Municipal Funds meet
this fundamental policy.

As a non-fundamental investment restriction, the International Fixed
Income, Florida Intermediate Tax-Exempt, California Intermediate Tax-Exempt,
Arizona Tax-Exempt, California Tax-Exempt and MarketCommand Funds may not hold,
at the end of any tax quarter, 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 each 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, its
agencies and instrumentalities). Also, as a non-fundamental investment
restriction, these Funds will not hold any securities (except U.S. government
securities) that would cause, at the end of any tax quarter, more than 5% of
their respective total assets to be invested in the securities of any one
issuer, except that up to 50% of the respective 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).

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 Bloomberg Industry
Group Classifications. 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 in the Morgan Stanley Index, 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. 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.

The Money Market, U.S. Government Money Market, U.S. Government Select
Money Market, Municipal Money Market, Tax-Exempt Money Market and California
Municipal Money Market Funds intend, as a non-fundamental policy, to diversify
their investments in accordance with current SEC regulations. Investments in the
securities of any single issuer (excluding cash, cash items, certain repurchase
agreements, U.S. Government securities and securities of other investment
companies) will be limited to not more than 5% of the value of a Fund's total
assets at the time of purchase, except that (a) 25% of the total assets of the
California Municipal Money Market Fund may be invested in fewer than five
issuers; and 25% of the value of the total assets of the other Money Market
Funds may be invested in the securities of any one issuer for a period of up to
three Business Days. A security that has an unconditional guarantee meeting
special SEC requirements (a "Guarantee") does not need to satisfy the foregoing
issuer diversification requirements that would otherwise apply, but the
Guarantee is instead 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 Guarantees from the same person, except that a Fund, subject to
certain conditions, may invest up to 25% of its total assets in securities
issued or subject to Guarantees of the same persons. This percentage is 100% if
the Guarantee is issued by the U.S. Government or an agency thereof. In
addition, the Municipal Money Market, Tax-Exempt Money Market and California
Municipal Money Market Funds will limit their investments in certain conduit
securities that are not rated in the highest short-term rating category as
determined by two nationally recognized statistical rating organizations (each
an "NRSRO") (or one NRSRO if the security is rated by only one NRSRO) or, if
unrated, are not of comparable quality to First Tier Securities ("Second Tier
Securities") 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 a
Guarantee and involve an arrangement whereunder a person, other than a municipal
issuer, provides for 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. The Money Market, U.S.
Government and U.S. Government Select Money Market Funds will limit their
investments in all Second Tier Securities (that are not subject to Guarantees)
in accordance with the foregoing percentage limitations.

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.

Each Investment Restriction which involves a maximum percentage (other than
the restriction set forth above in Investment Restriction (10)) 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 the Fund. The 1940 Act requires that if the asset coverage for borrowings at
any time falls below the limits described in Investment Restriction (10), the
Fund involved will, within three days thereafter (not including Sundays and
holidays), reduce the amount of its borrowings to an extent that the net asset
coverage of such borrowings shall conform to such limits.

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, they are 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
purchase any bank or corporate obligation during the current fiscal year.

ADDITIONAL TRUST INFORMATION

CLASSIFICATION AND HISTORY

Northern Funds is an open-end, management investment company. Each Fund is
classified as diversified under the 1940 Act, except the California Municipal
Money Market, California Intermediate Tax-Exempt, Florida Intermediate Tax-
Exempt, Arizona Tax-Exempt, California Tax-Exempt, International Fixed Income
and MarketCommand Funds. Each Fund is a series of the Trust which was formed as
a Massachusetts business trust on October 12, 1993 under an Agreement and
Declaration of Trust.

TRUSTEES AND OFFICERS

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

PRINCIPAL
NAME POSITION(S) OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ----------- -------------------

Mr. James W. Cozad 72 Chairman of the Vice Chairman of
12094 Lost Tree Way Board of Trustees Amoco Corporation
North Palm Beach, Florida from September 1983
33408 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. Retired
Director of Whitman
Corporation, Eli
Lilly and Company
(life science
products), Inland
Steel Company, Inland
Steel Industries,
Inc., Sears, Roebuck
& Company and GATX
Corporation
(transportation,
distribution and
warehousing).

Mr. Wesley M. Dixon, Jr. 71 Trustee Director of Earl
400 Skokie Blvd., Suite 300 Kinship Capital
Northbrook, Illinois 60062 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. 67 Trustee Partner of Arthur
1534 Basswood Circle Andersen & Co. S.C.
Glenview, Illinois 60025 (accounting firm)
from 1966 to 1989.
Financial Consultant,
Ernst & Young from
1992 to 1993 and
1997, Director of
Household Bank,
Federal Savings Bank
since May 1995, and
Director of First
Central National Life
Insurance Company
since July 1998.

Mr. Raymond E. George, Jr.<F1> 69 Trustee Senior Vice President
703 Prospect Avenue and Senior Fiduciary
Winnetka, Illinois 60093 Officer of The
Northern Trust
Company from 1990
until his retirement
in October 1993.

Mr. Michael E. Murphy<F1> 62 Trustee President of Sara Lee
Suite 2222, 20 South Clark Foundation since
Street November 1997. Vice
Chicago, Illinois 60603 Chairman and Chief
Administrative
Officer of Sara Lee
Corporation (consumer
products) from
November 1994 to
October 1997. Vice
Chairman and Chief
Financial and
Administrative
Officer of Sara Lee
Corporation from July
1993 to November
1994.
Director of Payless
Shoe Source, Inc.,
True North
Communications, Inc.,
American General
Corporation, GATX
Corporation, and
Bassett Furniture
Industries, Inc.

Mary Jacobs Skinner, 41 Trustee Partner in the law
Esquire<F1> firm of Sidley &
One First National Plaza Austin.
Chicago, Illinois 06063

Jylanne M. Dunne 39 President Senior Vice President
4400 Computer Drive for Distribution
Westborough, MA 01581 Services at PFPC Inc.
(formerly First
Data Investor
Services Group, Inc.)
("PFPC") (since
1988).

Richard H. Rose 43 Vice President Vice President and
4400 Computer Drive Division Manager of
Westborough, MA 01581 Mutual Fund
Administration at
PFPC (since 1994);
Senior Vice President
at The Boston Company
Advisors, Inc. (prior
thereto).

Brian R. Curran 31 Treasurer Director of Fund
4400 Computer Drive Administration and
Westborough, MA 01581 Accounting at PFPC
(since 1997);
Director of Fund
Accounting at State
Street Bank and
Trust Company(February
1997 to October
1997); Senior Auditor
at Price Waterhouse
L.L.P. (February 1994
to February 1997);
Manager of Fund
Accounting at State
Street Bank (prior
thereto).

Judith E. Clear 33 Assistant Treasurer Client Treasury
4400 Computer Drive Manager of Mutual
Westborough, MA 01581 Fund Administration
at PFPC (since 1997);
Compliance Manager
at Citizens Trust
(1994 to 1996);
Senior Fund
Administration
Analyst at Keystone
Investor Services
Group (1988 to 1994).

Jeffrey A. Dalke 49 Secretary Partner in the law
One Logan Square firm of Drinker
18th and Cherry Streets Biddle & Reath LLP.
Philadelphia, PA
19103-6996

Linda J. Hoard 51 Assistant Secretary Counsel at PFPC
4400 Computer Drive (since 1998);
Westborough, MA 01581 Attorney Consultant
for Fidelity
Management of
Research (a financial
services company).
Investors Bank &
Trust Company (a
financial service
provider) and
PFPC (September 1994
to June 1998); Vice
President and
Assistant General
Counsel at MFS
Investment Management
(prior thereto).

Therese Hogan 36 Assistant Secretary Director of the State
4400 Computer Drive Regulation Department
Westborough, MA 01581 at PFPC (since
1994); Senior Legal
Assistant at Palmer
and Dodge (prior
thereto).

<F1> Messrs. George and Murphy and Ms. Skinner are considered to be
"interested" Trustees of Northern Funds as defined in the 1940 Act.

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, PFPC Inc., formerly First Data Investor Services Group,
Inc. ("PFPC") 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. As a result of the
responsibilities assumed by Northern Funds' service providers under Northern
Funds' Advisory Agreement, Transfer Agency Agreement, Custodian Agreement, Co-
Administration Agreement and Distribution Agreement, Northern Funds itself
requires no employees.

Each officer (except Mr. Dalke) holds comparable positions with certain
other investment companies for which PFPC provides services.

Each Trustee, except the Chairman, earns an annual fee of $25,000 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 $30,000 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
Investor Services Group, of which certain officers are also officers, receives
fees from Northern Funds for administrative services. Drinker Biddle & Reath
LLP, of which Mr. Dalke is a partner, receives legal fees as counsel to Northern
Funds.

In addition, the Trustees have established an Audit Committee consisting of
two members, including a Chairman of the Committee. The Audit Committee members
are Messrs. Cozad (Chairman) and Dolan. Each member earns a fee of $1,500 for
each meeting of the Audit Committee he attends. The Chairman of the Audit
Committee receives an additional annual retainer of $5,000.

For the fiscal year ended March 31, 1999, the Trustees received the
following compensation:

- --------------------------------------------------------------
Pension or
Retirement
Benefits Total
Aggregate Accrued as Compensation
Compensation Part of from the
from the Trust Trust
Name of Trustee Trust Expense Complex*
- --------------------------------------------------------------
Silas S. Cathcart<F1> $35,000 None $35,000
- --------------------------------------------------------------
James W. Cozad $30,000 None $30,000
- --------------------------------------------------------------
Wesley M. Dixon, $27,500 None $27,500
Jr.
- --------------------------------------------------------------
William J. Dolan, $30,000 None $30,000
Jr.
- --------------------------------------------------------------
Raymond E. George, $30,000 None $30,000
Jr.
- --------------------------------------------------------------
Michael E. Murphy $30,000 None $30,000
- --------------------------------------------------------------
Mary Jacobs $22,500 None $22,500
Skinner<F2>
- --------------------------------------------------------------

* 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.

<F1> Mr. Cathart retired from the Board of Trustees on September 30, 1999.
<F2> Ms. Skinner was appointed to the Board of Trustees on September 18, 1998.

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
Colorado, Illinois, Florida, Michigan, New York, Arizona, Georgia, 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 September 30, 1999, Northern Trust Corporation and its
subsidiaries had approximately $33.7 billion in assets and $19.1 billion in
deposits. 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 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. NTQA, also
a wholly-owned subsidiary of Northern Trust Corporation, serves as investment
adviser principally to defined benefit and defined contribution plans and
manages over 60 equity and bond commingled and common trust funds. As of
September 30, 1999, the Investment Advisers and their affiliates administered
approximately $1.38 trillion in assets, including $262.8 billion for which the
Investment Advisers had investment management responsibility, for clients
including public and private retirement funds, endowments, foundations, trusts,
corporations, other investment companies and individuals.

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 (other than the Stock Index, Small Cap Index
and Small Cap Funds), and also provides certain ancillary services. NTQA
provides similar services to the Stock Index, Small Cap Index and Small Cap
Funds. The Investment Advisers are 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 may 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.

Northern Funds' Investment Advisory and Ancillary Services Agreement with
Northern Trust and NTQA (the "Advisory Agreement") 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, the Investment Advisers shall use their
best judgment to obtain the best overall terms available, and (b) with respect
to other securities, the Investment Advisers 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.

In assessing the best overall terms available for any transaction, the
Investment Advisers are to consider all factors they deem 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
Investment Advisers may consider the brokerage and research services provided to
the Funds and/or other accounts over which the Investment Advisers or an
affiliate of the Investment Advisers exercise investment discretion. A broker
or dealer providing brokerage and/or research services may receive a higher
commission than another broker or dealer would receive for the same transaction.
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.

Supplemental research information so received is in addition to, and not in
lieu of, services required to be performed by the Investment Advisers and does
not reduce the advisory fees payable to the Investment Advisers by the Funds.
The Trustees will periodically review the commissions paid by the Funds to
consider whether the commissions paid over representative periods of time appear
to be reasonable in relation to the benefits inuring to the Funds. It is
possible that certain of the supplemental research or other services received
will primarily benefit one or more other investment companies or other accounts
for which investment discretion is exercised. Conversely, a Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.

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

--------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
March 31, 1999 March 31, 1998 March 31, 1997
- ------------------------------------------------------------------------
Income Equity Fund $36,166 $91,382 $67,369
- ------------------------------------------------------------------------
Stock Index Fund $12,651 $32,541 $27,972
- ------------------------------------------------------------------------
Growth Equity Fund $252,010 $475,781 $364,847
- ------------------------------------------------------------------------
Select Equity Fund $119,043 $312,832 $96,747
- ------------------------------------------------------------------------
Mid Cap Growth $46,823 N/A N/A
Fund<F1>
- ------------------------------------------------------------------------
Small Cap Fund $137,526 $324,908 $170,785
- ------------------------------------------------------------------------
International Growth $1,717,776 $1,455,258 $2,043,586
Equity Fund
- ------------------------------------------------------------------------
International Select $1,024,518 $610,796 $634,588
Equity Fund
- ------------------------------------------------------------------------
Technology Fund $84,102 $79,005 $40,228
- ------------------------------------------------------------------------

<F1> The Mid Cap Growth Fund commenced operations on March 31, 1998.

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, the Investment Advisers 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, 1999, the Money Market Fund acquired
or sold securities of Bear Stearns & Co., Inc., Morgan (J.P.) & Co., Inc. and
Lehman Brothers, Inc. As of March 31, 1999 the Money Market Fund owned
securities of Bear Stearns & Co., Inc., Morgan (J.P.) & Co. and Lehman
Brothers, Inc. in the amounts of $25,001,000, $55,374,000 and $335,214,000
respectively.

During the fiscal year ended March 31, 1999, the U.S. Government Money
Market Fund acquired or sold securities of ABN-AMRO and Lehman Brothers, Inc.
As of March 31, 1999, the U.S. Government Money Market Fund owned securities of
ABN-AMRO and Lehman Brothers, Inc. in the amounts of $20,000,000 and $28,564,000
respectively.

During the fiscal year ended March 31, 1999, the U.S. Government Select
Money Market Fund did not acquire or sell securities of its regular broker-
dealers.

During the fiscal year ended March 31, 1999, the Municipal Money Market
Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the California Municipal Money
Market Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the U.S. Government Fund did
not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the Intermediate Tax-Exempt
Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999; the Florida Intermediate Tax-
Exempt Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the Fixed Income Fund did not
acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the Tax-Exempt Fund did not
acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the California Tax-Exempt Fund
did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the International Fixed Income
Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the High Yield Municipal Fund
did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the High Yield Fixed Income
Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the Income Equity Fund did not
acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the Stock Index Fund acquired
or sold securities of Merrill Lynch & Co., Inc., Morgan Stanley Dean Witter &
Co. and Bear Stearns Co., Inc. As of March 31, 1999, the Stock Index Fund owned
securities of Merrill Lynch & Co., Inc., Morgan Stanley Dean Witter & Co. and
Bear Stearns Co., Inc. in the amount of $478,000, $884,000 and $75,000.

During the fiscal year ended March 31, 1999, the Growth Equity Fund
acquired or sold securities of Merrill Lynch & Co., Inc. and Morgan Stanley Dean
Witter & Co. As of March 31, 1999, the Growth Equity Fund owned securities of
Merrill Lynch & Co., Inc. and Morgan Stanley Dean Witter & Co. in the amount of
$3,997,000 and $3,898,000.

During the fiscal year ended March 31, 1999, the Select Equity Fund
acquired or sold securities of Merrill Lynch & Co., Inc. and Morgan Stanley
Dean Witter & Co. As of March 31, 1999, the Select Equity Fund owned
securities of Merrill Lynch & Co., Inc. and Morgan Stanley Dean Witter & Co.
in the amount of $619,000 and $1,699,000.

During the fiscal year ended March 31, 1999, the Mid Cap Growth Fund did
not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the Small Cap Fund did not
acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the International Growth
Equity Fund acquired or sold securities of Deutsche Bank and Societe Generale
Securities. As of March 31, 1999 the International Growth Equity Fund owned
securities of Deutsche Bank and Societe Generale Securities in the amount of
$2,109,000 and $2,690,000.

During the fiscal year ended March 31, 1999, the International Select
Equity Fund did not acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999, the Technology Fund did not
acquire or sell securities of its regular broker-dealers.

During the fiscal year ended March 31, 1999 the Small Cap Index Fund, Small
Cap Growth Fund, Short-Intermediate U.S. Government Fund, California
Intermediate Tax-Exempt Fund, Arizona Tax-Exempt Fund and MarketCommand Fund had
not yet commenced operations.

During the fiscal year ending March 31, 1999, 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, $65,524,789 in research commission transactions and $30,231
in research commissions; for the Stock Index Fund, $32,559,925 in research
commission transactions and $12,014 in research commissions; for the Growth
Equity Fund, $242,523,742 in research commission transactions and $239,086 in
research commissions; for the Select Equity Fund, $112,947,776 in research
commission transactions and $94,548 in research commissions; for the Mid Cap
Growth Fund, $79,512,853 in research commission transactions and $37,383 in
research commissions; for the Small Cap Fund, $19,684,916 in research commission
transactions and $17,506 in research commissions; for the International Growth
Equity Fund, $405,230,730 in research commission transactions and $1,067,083 in
research commissions; for the International Select Equity Fund, $196,523,961 in
research commission transactions and $573,230 in research commissions; and for
the Technology Fund, $227,815,831 in research commission transactions and
$77,653 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 the Investment
Advisers believe 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 an Investment Adviser 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 an Investment Adviser acts as
adviser), the Agreement provides that the Investment Adviser, 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 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
the Investment Adviser 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 each Investment Adviser, at its discretion but subject to
applicable law, to select the executing broker or dealer on the basis of the
Investment Adviser's opinion of the reliability and quality of the broker or
dealer.

The Advisory Agreement provides that the Investment Advisers may render
similar services to others so long as their services under such Agreement are
not impaired thereby. The Advisory Agreement also provides that Northern Funds
will indemnify the Investment Advisers 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, the Investment Advisers may voluntarily waive a portion
or all of their fees otherwise payable to it with respect to the Funds.

For the fiscal years or periods indicated, Northern Trust and NTQA received
advisory fees, after fee waivers and reimbursements, as follows:

-------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended March 31, Ended March 31, Ended March 31,
1999<F1> 1998<F2> 1997<F3>
- -------------------------------------------------------------------------------
Money Market Fund $15,349,562 $9,490,597 $5,197,260
- -------------------------------------------------------------------------------
U.S. Government Money $1,730,444 $1,364,316 $950,352
Market Fund
- -------------------------------------------------------------------------------
U.S. Government Select $1,450,638 $673,956 $297,792
Money Market Fund
- -------------------------------------------------------------------------------
Municipal Money Market $8,162,930 $6,064,365 $4,796,468
Fund
- -------------------------------------------------------------------------------
California Municipal $1,091,368 $719,108 $494,616
Money Market Fund
- -------------------------------------------------------------------------------
U.S. Government Fund $1,895,842 $1,527,868 $1,199,667
- -------------------------------------------------------------------------------
Intermediate Tax-Exempt $2,242,387 $1,973,661 $1,741,679
Fund
- -------------------------------------------------------------------------------
Florida Intermediate $196,206 $125,977 $ 0
Tax-Exempt Fund
- -------------------------------------------------------------------------------
Fixed Income Fund $1,752,818 $1,105,332 $779,240
- -------------------------------------------------------------------------------
Tax-Exempt Fund $1,365,071 $1,035,810 $874,423
- -------------------------------------------------------------------------------
California Tax-Exempt $404,924 $88,551 N/A
Fund
- -------------------------------------------------------------------------------
International Fixed $118,107 $129,287 $111,384
Income Fund
- -------------------------------------------------------------------------------
High Yield Municipal $0 N/A N/A
Fund
- -------------------------------------------------------------------------------
High Yield Fixed Income $0 N/A N/A
Fund
- -------------------------------------------------------------------------------
Income Equity Fund $978,113 $818,335 $519,235
- -------------------------------------------------------------------------------
Stock Index Fund<F4> $490,454 $226,431 $ 0
- -------------------------------------------------------------------------------
Growth Equity Fund $4,529,273 $3,339,695 $2,267,044
- -------------------------------------------------------------------------------
Select Equity Fund $1,249,368 $802,297 $369,460
- -------------------------------------------------------------------------------
Mid Cap Growth Fund $216,101 N/A N/A
- -------------------------------------------------------------------------------
Small Cap Fund<F4> $2,669,690 $2,460,252 $1,468,705
- -------------------------------------------------------------------------------
International Growth $1,946,058 $1,756,185 $1,817,708
Equity Fund
- -------------------------------------------------------------------------------
International Select $1,195,310 $1,138,571 $1,111,449
Equity Fund
- -------------------------------------------------------------------------------
Technology Fund $1,757,940 $754,963 $198,909
- -------------------------------------------------------------------------------

<F1> The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth Funds
commenced operations on December 31, 1998, December 31, 1998, and March 31,
1998, respectively.

<F2> The California Tax-Exempt Fund commenced operations on April 8, 1997.

<F3> The Florida Intermediate Tax-Exempt Fund commenced operations on August 15,
1996; the Stock Index Fund commenced operations on October 7, 1996 and the
Technology Fund commenced operations on April 1, 1996.

<F4> NTQA assumed investment advisory responsibilities for these Funds on April
1, 1998.

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

-------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
March 31, March 31, March 31,
1999<F1> 1998<F2> 1997<F3>
- -----------------------------------------------------------------------------
Money Market Fund $7,674,790 $4,745,304 $2,622,157
- -----------------------------------------------------------------------------
U.S. Government Money Market $865,224 $682,159 $519,441
Fund
- -----------------------------------------------------------------------------
U.S. Government Select Money $725,320 $632,972 $419,570
Market Fund
- -----------------------------------------------------------------------------
Municipal Money Market Fund $4,081,471 $3,032,186 $2,417,444
- -----------------------------------------------------------------------------
California Municipal Money $545,685 $568,061 $497,282
Market Fund
- -----------------------------------------------------------------------------
U.S. Government Fund $0 $ 0 $31,267
- -----------------------------------------------------------------------------
Intermediate Tax-Exempt Fund $160,168 $140,974 $153,096
- -----------------------------------------------------------------------------
Florida Intermediate Tax- $23,427 $26,197 $53,960
Exempt Fund
- -----------------------------------------------------------------------------
Fixed Income Fund $0 $ 0 $36,750
- -----------------------------------------------------------------------------
Tax-Exempt Fund $97,545 $73,985 $99,421
- -----------------------------------------------------------------------------
California Tax-Exempt Fund $28,923 $53,795 N/A
- -----------------------------------------------------------------------------
International Fixed Income $15,857 $10,037 $34,638
Fund
- -----------------------------------------------------------------------------
High Yield Municipal Fund $10,562 N/A N/A
- -----------------------------------------------------------------------------
High Yield Fixed Income Fund $41,621 N/A N/A
- -----------------------------------------------------------------------------
Income Equity Fund $172,607 $144,411 $138,239
- -----------------------------------------------------------------------------
Stock Index Fund<F4> $245,227 $117,685 $70,191
- -----------------------------------------------------------------------------
Growth Equity Fund $799,277 $589,353 $440,662
- -----------------------------------------------------------------------------
Select Equity Fund $514,443 $330,356 $209,152
- -----------------------------------------------------------------------------
Mid Cap Growth Fund $93,569 N/A N/A
- -----------------------------------------------------------------------------
Small Cap Fund<F4> $1,099,279 $1,013,041 $639,770
- -----------------------------------------------------------------------------
International Growth Equity $389,208 $351,234 $368,198
Fund
- -----------------------------------------------------------------------------
International Select Equity $239,060 $227,712 $225,196
Fund
- -----------------------------------------------------------------------------
Technology Fund $351,585 $150,991 $89,958
- -----------------------------------------------------------------------------

<F1> The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth Funds
commenced operations on December 31, 1998, December 31, 1998, and March 31,
1998, respectively.

<F2> The California Tax-Exempt Fund commenced operations on April 8, 1997.

<F4> NTQA assumed investment advisory responsibilities for these Funds on April
1, 1998.

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
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:

------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended March 31, Ended March 31, Ended March 31,
1999<F1> 1998<F2> 1997<F3>
- ------------------------------------------------------------------------------
Money Market Fund $3,837,356 $2,372,628 $1,299,295
- ------------------------------------------------------------------------------
U.S. Government Money $432,607 $341,076 $244,185
Market Fund
- ------------------------------------------------------------------------------
U.S. Government $362,656 $217,819 $119,115
Select Money Market
Fund
- ------------------------------------------------------------------------------
Municipal Money $2,040,714 $1,516,077 $1,199,098
Market Fund
- ------------------------------------------------------------------------------
California Municipal $272,840 $214,526 $164,871
Money Market Fund
- ------------------------------------------------------------------------------
U.S. Government Fund $252,777 $203,714 $164,123
- ------------------------------------------------------------------------------
Intermediate Tax- $320,338 $281,949 $251,858
Exempt Fund
- ------------------------------------------------------------------------------
Florida Intermediate $29,284 $20,290 $6,302
Tax-Exempt Fund
- ------------------------------------------------------------------------------
Fixed Income Fund $233,707 $147,377 $108,797
- ------------------------------------------------------------------------------
Tax-Exempt Fund $195,008 $147,971 $129,549
- ------------------------------------------------------------------------------
California Tax-Exempt $57,846 $18,926 N/A
Fund
- ------------------------------------------------------------------------------
International Fixed $14,885 $15,480 $16,224
Income Fund
- ------------------------------------------------------------------------------
High Yield Municipal $1,408 N/A N/A
Fund
- ------------------------------------------------------------------------------
High Yield Fixed $5,549 N/A N/A
Income Fund
- ------------------------------------------------------------------------------
Income Equity Fund $115,071 $96,274 $65,560
- ------------------------------------------------------------------------------
Stock Index Fund $122,613 $57,352 $8,670
- ------------------------------------------------------------------------------
Growth Equity Fund $532,850 $392,901 $270,025
- ------------------------------------------------------------------------------
Select Equity Fund $146,983 $94,387 $48,045
- ------------------------------------------------------------------------------
Mid Cap Growth Fund $30,967 N/A N/A
- ------------------------------------------------------------------------------
Small Cap Fund $314,078 $289,438 $175,244
- ------------------------------------------------------------------------------
International Growth $194,604 $175,617 $181,765
Equity Fund
- ------------------------------------------------------------------------------
International Select $119,530 $113,856 $111,143
Equity Fund
- ------------------------------------------------------------------------------
Technology Fund $175,792 $75,496 $23,916
- ------------------------------------------------------------------------------

<F1> The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth Funds
commenced operations on December 31, 1998, December 31, 1998, and March 31,
1998, respectively.

<F2> The California Tax-Exempt Fund commenced operations on April 8, 1997.

<F3> The Florida Intermediate Tax-Exempt Fund commenced operations on August 15,
1996; the Stock Index Fund commenced operations on October 7, 1996; and the
Technology Fund commenced operations on April 1, 1996.

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 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, subject to certain monitoring responsibilities, 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. 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 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.

Northern's fees under the Custodian Agreement and Foreign Custody Agreement
are subject to reduction based on the Funds' daily uninvested cash balances (if
any).

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

-------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
March 31, March 31, March 31,
1999<F1> 1998<F2> 1997<F3>
- -------------------------------------------------------------------
Money Market Fund $844,081 $540,182 $319,698
- -------------------------------------------------------------------
U.S. Government $136,794 $114,701 $90,285
Money Market Fund
- -------------------------------------------------------------------
U.S. Government $110,597 $79,062 $61,237
Select Money Market
Fund
- -------------------------------------------------------------------
Municipal Money $478,551 $358,220 $280,150
Market Fund
- -------------------------------------------------------------------
California $100,159 $86,643 $72,486
Municipal Money
Market Fund
- -------------------------------------------------------------------
U.S. Government $85,772 $72,223 $65,101
Fund
- -------------------------------------------------------------------
Intermediate Tax- $103,042 $91,127 $87,303
Exempt Fund
- -------------------------------------------------------------------
Florida $48,986 $46,979 $31,173
Intermediate Tax-
Exempt Fund
- -------------------------------------------------------------------
Fixed Income Fund $84,111 $64,094 $57,834
- -------------------------------------------------------------------
Tax-Exempt Fund $78,492 $64,384 $60,461
- -------------------------------------------------------------------
California Tax- $50,725 $48,223 N/A
Exempt Fund
- -------------------------------------------------------------------
International Fixed $77,396 $74,075 $75,592
Income Fund
- -------------------------------------------------------------------
High Yield $14,132 N/A N/A
Municipal Fund
- -------------------------------------------------------------------
High Yield Fixed $14,132 N/A N/A
Income Fund
- -------------------------------------------------------------------
Income Equity Fund $61,425 $56,325 $54,136
- -------------------------------------------------------------------
Stock Index Fund $122,803 $133,408 $64,425
- -------------------------------------------------------------------
Growth Equity Fund $143,431 $115,833 $92,102
- -------------------------------------------------------------------
Select Equity Fund $72,051 $60,090 $51,726
- -------------------------------------------------------------------
Mid Cap Growth Fund $44,274 N/A N/A
- -------------------------------------------------------------------
Small Cap Fund $141,187 $136,631 $88,231
- -------------------------------------------------------------------
International $257,479 $228,550 $239,257
Growth Equity Fund
- -------------------------------------------------------------------
International $182,139 $167,301 $168,250
Select Equity Fund
- -------------------------------------------------------------------
Technology Fund $78,748 $55,245 $63,987
- -------------------------------------------------------------------

<F1> The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth Funds
commenced operations on December 31, 1998, December 31, 1998, and March 31,
1998, respectively.

<F2> The California Tax-Exempt Fund commenced operations on April 8, 1997.

Unless sooner terminated, Northern Funds' Advisory Agreement, Transfer
Agency Agreement, Custodian Agreement and Foreign Custody Agreement will
continue in effect with respect to a particular Fund until March 31, 2000, 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 "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 "Description of
Shares"). 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 (or NTQA) and by Northern Trust (or NTQA) on 60 days' written
notice to Northern Funds.

Northern Trust is active as an underwriter of municipal instruments. Under
the 1940 Act, the Funds are precluded, subject to certain exceptions, from
purchasing in the primary market those municipal instruments with respect to
which Northern Trust is serving as a principal underwriter. In the opinion of
Northern Trust, this limitation will not significantly affect the ability of the
Funds to pursue their respective investment objectives.

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" 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."

CO-ADMINISTRATORS AND DISTRIBUTOR

Northern Trust and PFPC, 4400 Computer Drive, Westborough, Massachusetts
01581, act as co-administrators for the Funds under a Co-Administration
Agreement with Northern Funds. Subject to the general supervision of Northern
Funds' Board of Trustees, Northern Trust and PFPC (the "Co-Administrators")
provide supervision of all aspects of Northern Funds' non-investment advisory
operations and perform various corporate secretarial, treasury and blue sky
services, including but not limited to: (a) maintaining office facilities and
furnishing corporate officers for Northern Funds; (b) furnishing data
processing services, clerical services, and executive and administrative
services and standard stationery and office supplies; (c) performing all
functions ordinarily performed by the office of a corporate treasurer,
and furnishing the services and facilities ordinarily incident
thereto, such as expense accrual monitoring and payment of Northern Funds'
bills, preparing monthly reconciliation of Northern Funds' expense records,
updating projections of annual expenses, preparing materials for review by the
Board of Trustees and compliance testing; (d) preparing and submitting reports
to Northern Funds' shareholders and the SEC; (e) preparing and printing
financial statements; (f) preparing monthly Fund profile reports; (g) preparing
and filing Northern Funds' federal and state tax returns (other than those
required to be filed by Northern Funds' custodian and transfer agent) and
providing shareholder tax information to Northern Funds' transfer agent; (h)
assisting in marketing strategy and product development; (i) performing
oversight/management responsibilities, such as the supervision and coordination
of certain of Northern Funds' service providers; (j) effecting and maintaining,
as the case may be, the registration of shares of Northern Funds for sale under
the securities laws of various jurisdictions; (k) assisting in maintaining
corporate records and good standing status of Northern Funds in its state of
organization; and (l) monitoring Northern Funds' arrangements with respect to
services provided by Service Organizations to their customers who are the
beneficial owners of shares.

Subject to the limitations described below, as compensation for their
administrative services and the assumption of related expenses, the Co-
Administrators are entitled to a fee from each Fund, computed daily and payable
monthly, at an annual rate of 0.15% of the average daily net assets of each
Fund.

Prior to October 1, 1999, Sunstone Financial Group, Inc., 207 E. Buffalo
Street, Milwaukee, Wisconsin 53202 acted as Northern Funds' administrator
pursuant to an administration agreement substantially similar to the Co-
Administration Agreement currently in effect with Northern Trust and PFPC.

For the fiscal years or periods indicated, Sunstone received, after
waivers, administrative fees as follows:

------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended March 31, Ended March 31, Ended March 31,
1999<F1> 1998<F2> 1997<F3>
- ------------------------------------------------------------------------------
Money Market Fund $2,447,894 $1,186,568 $1,164,584
- ------------------------------------------------------------------------------
U.S. Government $294,367 $217,652 $218,281
Money Market Fund
- ------------------------------------------------------------------------------
U.S. Government $226,085 $124,207 $23,962
Select Money Market
Fund
- ------------------------------------------------------------------------------
Municipal Money $1,339,727 $929,212 $1,075,662
Market Fund
- ------------------------------------------------------------------------------
California Municipal $176,849 $131,467 $81,496
Money Market Fund
- ------------------------------------------------------------------------------
U.S. Government Fund $171,664 $124,997 $195,647
- ------------------------------------------------------------------------------
Intermediate Tax- $215,890 $178,379 $301,417
Exempt Fund
- ------------------------------------------------------------------------------
Florida Intermediate $17,638 $11,284 $7,174
Tax-Exempt Fund
- ------------------------------------------------------------------------------
Fixed Income Fund $154,709 $85,293 $129,589
- ------------------------------------------------------------------------------
Tax-Exempt Fund $128,048 $92,041 $154,841
- ------------------------------------------------------------------------------
California Tax- $35,426 $6,684 N/A
Exempt Fund
- ------------------------------------------------------------------------------
International Fixed $10,053 $10,534 $19,435
Income Fund
- ------------------------------------------------------------------------------
High Yield Municipal $708 N/A N/A
Fund
- ------------------------------------------------------------------------------
High Yield Fixed $2,958 N/A N/A
Income Fund
- ------------------------------------------------------------------------------
Income Equity Fund $78,886 $57,142 $77,746
- ------------------------------------------------------------------------------
Stock Index Fund $77,739 $30,318 $9,252
- ------------------------------------------------------------------------------
Growth Equity Fund $349,439 $235,526 $320,662
- ------------------------------------------------------------------------------
Select Equity Fund $94,686 $53,548 $56,368
- ------------------------------------------------------------------------------
Mid Cap Growth Fund $14,391 N/A N/A
- ------------------------------------------------------------------------------
Small Cap Fund $224,567 $157,708 $208,264
- ------------------------------------------------------------------------------
International Growth $132,079 $115,012 $219,176
Equity Fund
- ------------------------------------------------------------------------------
International Select $82,930 $74,312 $133,479
Equity Fund
- ------------------------------------------------------------------------------
Technology Fund $87,044 $41,187 $27,287
- ------------------------------------------------------------------------------

<F1> The High Yield Municipal Fund, High Yield Fixed Income, and Mid Cap Growth
Funds commenced operations on December 31, 1998, December 31, 1998, and
March 31, 1998, respectively.

<F2> The California Tax-Exempt Fund commenced operations on April 8, 1997.

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

------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended March 31, Ended March 31, Ended March 31,
1999<F1> 1998<F2> 1997<F3>
- ------------------------------------------------------------------------------
Money Market Fund $3,308,194 $2,372,408 $790,270
- ------------------------------------------------------------------------------
U.S. Government Money $354,550 $293,967 $149,167
Market Fund
- ------------------------------------------------------------------------------
U.S. Government Select $317,904 $202,525 $155,378
Money Market Fund
- ------------------------------------------------------------------------------
Municipal Money Market $1,721,373 $1,344,926 $727,816
Fund
- ------------------------------------------------------------------------------
California Municipal $232,414 $244,331 $166,479
Money Market Fund
- ------------------------------------------------------------------------------
U.S. Government Fund $207,505 $180,577 $51,170
- ------------------------------------------------------------------------------
Intermediate Tax-Exempt $264,621 $244,548 $77,538
Fund
- ------------------------------------------------------------------------------
Florida Intermediate $26,288 $19,151 $2,308
Tax-Exempt Fund
- ------------------------------------------------------------------------------
Fixed Income Fund $195,856 $135,774 $34,026
- ------------------------------------------------------------------------------
Tax-Exempt Fund $164,475 $129,918 $39,928
- ------------------------------------------------------------------------------
California Tax-Exempt $51,343 $21,785 N/A
Fund
- ------------------------------------------------------------------------------
International Fixed $12,274 $12,687 $4,953
Income Fund
- ------------------------------------------------------------------------------
High Yield Municipal $1,405 N/A N/A
Fund
- ------------------------------------------------------------------------------
High Yield Fixed Income $5,367 N/A N/A
Fund
- ------------------------------------------------------------------------------
Income Equity Fund $93,722 $87,270 $20,875
- ------------------------------------------------------------------------------
Stock Index $106,182 $55,711 $3,836
- ------------------------------------------------------------------------------
Growth Equity Fund $449,843 $353,831 $85,494
- ------------------------------------------------------------------------------
Select Equity Fund $125,790 $88,034 $15,958
- ------------------------------------------------------------------------------
Mid Cap Growth Fund $32,060 N/A N/A
- ------------------------------------------------------------------------------
Small Cap Fund $246,554 $276,453 $55,295
- ------------------------------------------------------------------------------
International Growth $159,830 $148,415 $54,062
Equity Fund
- ------------------------------------------------------------------------------
International Select $96,366 $96,473 $33,602
Equity Fund
- ------------------------------------------------------------------------------
Technology Fund $176,646 $72,057 $8,821
- ------------------------------------------------------------------------------

<F1> The High Yield Municipal Fund, High Yield Fixed Income, and Mid Cap Growth
Funds commenced operations on December 31, 1998, December 31, 1998, and
March 31, 1998, respectively.

<F2> The California Tax-Exempt Fund commenced operations on April 8, 1997.

Unless sooner terminated, the Co-Administration Agreement will continue in
effect until September 30, 2001, and thereafter for successive one-year terms
with respect to each Fund, provided that the Agreement is approved annually (1)
by the Board of Trustees or (2) by the vote of a majority of the outstanding
shares of such Fund (as defined below under "Description of Shares"), provided
that in either event the continuance is also approved by a majority of the
Trustees who are not parties to the Agreement and who are not interested persons
(as defined in the 1940 Act) of any party thereto, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Co-Administration
Agreement is terminable at any time after September 30, 2001 without penalty by
Northern Funds on at least 60 days written notice to the Co-Administrators.
Each Co-Administrator may terminate the Co-Administration Agreement with respect
to itself at any time after September 30, 2001 without penalty on at least 60
days written notice to Northern Funds and the other Co-Administrator.

Northern Funds may terminate the Co-Administration Agreement prior to
September 30, 2001 in the event that Northern Funds or its shareholders incur
damages in excess of $100,000 as a result of the willful misfeasance, bad faith
or negligence of the Co-Administrators, or the reckless disregard of their
duties under the Agreement. Northern Funds may also terminate the Co-
Administration Agreement prior to September 30, 2001 in the event that the Co-
Administrators fail to meet one of the performance standards set forth in the
Agreement.

Northern Funds has also entered into a Distribution Agreement under which
Northern Funds Distributors, LLC, as agent, sells shares of each Fund on a
continuous basis. Northern Funds Distributors, LLC pays the cost of printing
and distributing prospectuses to persons who are not shareholders of Northern
Funds (excluding preparation and typesetting expenses) and of certain other
distribution efforts. No compensation is payable by Northern Funds to Northern
Funds Distributors, LLC for such distribution services. Northern Funds
Distributors, LLC is a wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). PDI, based in West Conshohocken, Pennsylvania, is an independently
owned and operated broker-dealer.

The Co-Administration Agreement provides that the Co-Administrators may
render similar services to others so long as their services under such Agreement
are not impaired thereby. The Co-Administration Agreement also provides that
Northern Funds will indemnify each Co-Administrator against all claims except
those resulting from the willful misfeasance, bad faith or negligence of such
Co-Administrator, or the Co-Administrator's breach of confidentiality. The
Distribution Agreement provides that Northern Funds will indemnify Northern
Funds Distributors, LLC against certain liabilities relating to untrue
statements or omissions of material fact except those resulting from the
reliance on information furnished to Northern Funds by Northern Funds
Distributors, LLC, or those resulting from the willful misfeasance, bad faith or
negligence of Northern Funds Distributors, LLC, or Northern Funds Distributors,
LLC's breach of confidentiality.

Under a Service Mark License Agreement with Northern Funds Distributors,
LLC, Northern Trust Corporation agrees that the name "Northern Funds" may be
used in connection with Northern Funds' business on a royalty-free basis.
Northern Trust Corporation has reserved to itself the right to grant the non-
exclusive right to use the name "Northern Funds" to any other person. The
Agreement provides that at such time as the Agreement is no longer in effect,
Northern Funds Distributors, LLC will cease using the name "Northern Funds."

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. 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 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, 1999, the Money Market Fund, U.S.
Government Money Market Fund, Income Equity Fund, Growth Equity Fund, Stock
Index Fund, Select Equity Fund, Small Cap Fund, International Growth Equity
Fund, International Select Equity Fund and Technology Fund paid fees of $25,567,
$29,542, $146, $37, $37, $73, $110, $957, $37 and $2,103, respectively, under
the Service Plan. No other Funds paid fees under either Plan.

For the fiscal period ended March 31, 1998, the Money Market Fund, U.S.
Government Money Market Fund, Income Equity Fund, Growth Equity Fund, Select
Equity Fund, Small Cap Fund, International Select Equity Fund and Technology
Fund paid fees of $107, $40,296, $181, $145, $440, $368, $78 and $449,
respectively, under the Service Plan. No other Funds paid fees under either
Plan.

For the fiscal period ended March 31, 1997, the Municipal Money Market Fund
and the U.S. Government Money Market Fund paid fees of $98 and $59,754,
respectively, under the Service Plan. No other Funds paid fees under either
Plan.

COUNSEL AND AUDITORS

Drinker Biddle & Reath LLP, with offices at One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103, 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, 1999, 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 AND REDEMPTIONS

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.

Although each Fund generally will redeem shares in cash, each Fund reserves
the right to pay redemptions by a distribution in-kind of securities (instead of
cash) from such Fund. The securities distributed in-kind would be readily
marketable and would be valued for this purpose using the same method employed
in calculating the Fund's net asset value per share. If a shareholder receives
redemption proceeds in-kind, the shareholder should expect to incur transaction
costs upon the disposition of the securities received in the redemption.

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 shares at a price
which is lower than their purchase price. An investor may want to consider his
or her financial ability to continue purchases through periods of low price
levels.

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.
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 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.

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 involved in the request are priced will be processed on the next
Business Day in the manner described above.

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' Prospectus from time to time. Northern
Funds reserves the right on 60 days' written notice, to redeem the shares held
in any account if at the time of redemption, the net asset value of the
remaining shares in the account falls below $1,000. Such involuntary
redemptions will not be made if the value of shares in an account falls below
the minimum solely because of a decline in the Fund's net asset value. 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").

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 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.

EXPENSES

Except as set forth above and in this 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 PFPC
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 of the same to the Funds' shareholders and
regulatory authorities, compensation and expenses of its Trustees, payments to
Services Organizations, fees of industry organizations such as the Investment
Company Institute, and miscellaneous and extraordinary expenses incurred by
Northern Funds.

Northern Trust and PFPC, intend to voluntarily reimburse a portion of the
Funds' expenses and/or reduce their advisory and co-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.

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 the Municipal
Money Market Fund, Tax-Exempt Money Market Fund and the California Municipal
Money Market Fund may advertise their "tax-equivalent yields" and "tax-
equivalent effective yields." These yield figures will fluctuate, are based on
historical earnings and are not intended to indicate future performance.
"Yield" refers to the net investment income generated by an investment in the
Fund over a seven-day period identified in the advertisement. This net
investment income is then "annualized." That is, the amount of net investment
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.

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, 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.

"Effective yield" is calculated similarly but, when annualized, the net
investment income earned by an investment in the Fund 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 "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.

The "tax-equivalent yield" demonstrates the level of taxable yield
necessary to produce an after-tax yield equivalent to a Fund's tax-free yield.
It is calculated by taking that portion of the seven-day "yield" which is tax-
exempt and adjusting it to reflect the tax savings associated with a stated tax
rate. The "tax-equivalent current yield" will always be higher than the Fund's
yield.

"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 quotient 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.

The "tax-equivalent effective yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to a Fund's tax-free
effective yield. It is calculated by taking that portion of the seven-day
"effective yield" which is tax-exempt and adjusting it to reflect the tax
savings associated with a stated tax rate. The "tax-equivalent effective yield"
will always be higher than the Fund's effective yield.

"Tax-equivalent effective yield" is computed by dividing the tax-exempt
portion of the effective yield by 1 minus a stated income tax-rate, and then
adding the quotient to the taxable portion of the effective yield, if any.
There may be more than one tax-equivalent effective yield, if more than one
stated income tax rate is used.

The annualized yield of each Money Market Fund for the seven-day period
ended March 31, 1999 was as follows<F1>:

- ------------------------------------------------------------------------------
Tax-
Tax- Equivalent
Effective Equivalent Effective
Yield Yield Yield Yield
- ------------------------------------------------------------------------------
Money Market Fund 4.97% 5.09% 7.20% 7.38%
- ------------------------------------------------------------------------------
U.S. Government Money Market Fund 4.82% 4.93% 6.99% 7.14%
- ------------------------------------------------------------------------------
U.S. Government Select Money 4.70% 4.81% 6.81% 6.97%
Market Fund
- ------------------------------------------------------------------------------
Municipal Money Market Fund 3.16% 3.21% 4.58% 4.65%
- ------------------------------------------------------------------------------
California Municipal Money Market 2.95% 2.99% 4.28% 4.33%
Fund
- ------------------------------------------------------------------------------

<F1> An income tax rate of 31% is used in the calculation of tax-equivalent
yield and tax-equivalent effective yield.

The information set forth in the foregoing table reflects certain fee
reductions and expense limitations. See "Additional Trust Information _
Investment Adviser, Transfer Agent and Custodian" and "Co-Administrators and
Distributor." In the absence of such fee reductions and expense limitations,
the annualized yield of each Fund for the same seven-day period would have been
as follows<F1>:

- ------------------------------------------------------------------------------
Tax-
Tax- Equivalent
Effective Equivalent Effective
Yield Yield Yield Yield
- ------------------------------------------------------------------------------
Money Market Fund 4.77% 4.89% 6.91% 7.09%
- ------------------------------------------------------------------------------
U.S. Government Money Market Fund 4.62% 4.73% 6.70% 6.86%
- ------------------------------------------------------------------------------
U.S. Government Select Money 4.50% 4.61% 6.52% 6.68%
Market Fund
- ------------------------------------------------------------------------------
Municipal Money Market Fund 2.96% 3.01% 4.29% 4.36%
- ------------------------------------------------------------------------------
California Municipal Money Market 2.75% 2.79% 3.99% 4.04%
Fund
- ------------------------------------------------------------------------------

<F1> An income tax rate of 31% is used in the calculation of tax-equivalent
yield and tax-equivalent effective yield.

A Money Market Fund may also quote, from time to time, total return
information using the formula described in the following section.

NON-MONEY MARKET FUNDS

The Non-Money Market Funds calculate their total returns separately on an
"average annual total return" basis for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in the Fund over the measuring period. Total returns for each Non-Money Market
Fund 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 the shares and assume that any dividends and capital
gain distributions made by a Fund during the period are reinvested in the shares
of the Fund. When considering average total return figures for periods longer
than one year, it is important to note that the annual total return of a Fund
for any one year in the period might have been more or less than the average for
the entire period. The Non-Money Market Funds may also advertise from time to
time the total return on a year-by-year or other basis for various specific
periods by means of quotations, charts, graphs or schedules.

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:

1
---
n
ERV
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

n = period covered by the computation, expressed in years.

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 = T= [(---)] -1
P

The calculations set forth below 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.

FOR PERIODS ENDED MARCH 31, 1999

AVERAGE ANNUAL TOTAL RETURNS (%) AGGREGATE TOTAL RETURNS (%)

SINCE SINCE
1 YEAR 5 YEAR 10 YEAR INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.<C><C> GOVERNMENT FUND 6.01% 5.99% N/A 5.99% 6.01% 33.74% N/A 33.74%
(4/1/94 inception)

INTERMEDIATE TAX-EXEMPT 4.88% 5.27% N/A 5.27% 4.88% 29.28% N/A 29.28%
FUND
(4/1/94 inception)

FLORIDA INTERMEDIATE TAX- 5.38% N/A N/A 6.28% 5.38% N/A N/A 17.36%
EXEMPT FUND
(8/15/96 inception)

FIXED INCOME FUND 5.18% 7.35% N/A 7.35% 5.18% 42.55% N/A 42.55%
(4/1/94 inception)

TAX-EXEMPT FUND 5.47% 6.73% N/A 6.73% 5.47% 38.50% N/A 38.50%
(4/1/94 inception)

CALIFORNIA TAX-EXEMPT FUND 6.20% N/A N/A 9.09% 6.20% N/A N/A 18.80%
(4/8/97 inception)

INTERNATIONAL FIXED INCOME 9.68% 6.78% N/A 6.78% 9.68% 38.84% N/A 38.84%
FUND
(4/1/94 inception)

INCOME EQUITY FUND 0.67% 13.18% N/A 13.18% 0.67% 85.70% N/A 85.70%
(4/1/94 inception)

</TABLE>

FOR PERIODS ENDED MARCH 31, 1999

AVERAGE ANNUAL TOTAL RETURNS (%) AGGREGATE TOTAL RETURNS (%)

SINCE SINCE
1 YEAR 5 YEAR 10 YEAR INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK INDEX FUND 17.78% N/A N/A 28.82% 17.78% N/A N/A 87.49%
(10/7/96 inception)

GROWTH EQUITY FUND 24.72% 22.54% N/A 22.54% 24.72% 176.29% N/A 176.29%
(4/1/94 inception)

SELECT EQUITY FUND 28.79% N/A N/A 24.90% 28.79% N/A N/A 203.19%
(4/6/94 inception)

MID CAP GROWTH FUND 17.19% N/A N/A 17.19% 17.19% N/A N/A 17.19%
(3/31/98 inception)

(23.46)% 8.92% N/A 8.92% (23.46)% 53.32% N/A 53.32%
SMALL CAP FUND
(4/1/94 inception)

INTERNATIONAL GROWTH 13.04% 8.28% N/A 8.28% 13.04% 48.82% N/A 48.82%
EQUITY FUND
(4/1/94 inception)

INTERNATIONAL SELECT 9.16% N/A N/A 7.44% 9.16% N/A N/A 43.08%
EQUITY FUND
(4/5/94 inception)

TECHNOLOGY FUND 79.97% N/A N/A 49.16% 79.97% N/A N/A 231.84%
(4/1/96 inception)

The yield of a Non-Money Market Fund 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 the per share net income during the
relevant period by the net asset value per share on the last day of the period
and annualizing the result on a semi-annual basis.

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:

a-b 6
Yield = 2 [(--- + 1) -1]
cd

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,
1999, the yields for the U.S. Government, Intermediate Tax-Exempt, Florida
Intermediate Tax-Exempt, Fixed Income, Tax-Exempt, California Tax-Exempt,
International Fixed Income, High Yield Municipal, High Yield Fixed Income and
Income Equity Funds, after fee waivers, were 4.77%, 3.26%, 3.42%, 5.20%, 3.84%,
3.77%, 2.55%, 3.26%, 7.43% and 2.83%, respectively. Also for the 30-day period
ended March 31, 1999, the yields for the U.S. Government, Intermediate Tax-
Exempt, Florida Intermediate Tax-Exempt, Fixed Income, Tax-Exempt, California
Tax-Exempt, International Fixed Income, High Yield Municipal and High Yield
Fixed Income Funds, absent fee waivers, were 4.60%, 3.04%, 3.00%, 4.92%, 3.61%,
3.46%, 1.56%, (0.91)%, 6.24% and 2.45%, 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 30-day period ended March 31, 1999, and
using a federal income tax rate of 31%, the 30-day tax-equivalent yields, after
fee waivers, were 4.72%, 4.96%, 5.57%, 5.46% and 4.72% for the Intermediate Tax-
Exempt, Florida Intermediate Tax-Exempt, Tax-Exempt, California Tax-Exempt and
High Yield Municipal Funds, respectively. Also, for the 30-day period ended
March 31, 1999, and using a federal income tax rate of 31%, the 30-day tax-
equivalent yields, absent fee waivers, were 4.41%, 4.35%, 5.23%, 5.01% and
(0.91)% for the Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Tax-
Exempt, California Tax-Exempt and High Yield Municipal Funds, respectively.

GENERAL INFORMATION

The performance information set forth above includes the reinvestment of
dividends and distributions. Certain performance information set forth above
reflects fee waivers in effect; in the absence of fee waivers, these performance
figures would be reduced. Any fees imposed by Northern Trust, NTQA 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.

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 S&P MidCap 400 Index, the Russell
2000 or 1000 Small Stock Index, the Consumer Price Index or the Dow Jones
Industrial Average. In addition, performance of the U.S. Government and Fixed
Income 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, the Lehman Brothers Intermediate Government Bond
Index and the Lehman Brothers Government/Corporate 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; performance of the
California Intermediate Tax-Exempt Fund may be compared to the Lehman Brothers
Mutual Fund California Intermediate Index; performance of the Florida
Intermediate Tax-Exempt Fund may be compared to the Lehman Brothers Florida
Intermediate Tax-Exempt Index; performance of the Arizona Tax-Exempt Fund may be
compared to the Lehman Brothers Arizona Municipal Bond Index; performance of the
California Tax-Exempt Fund may be compared to the Lehman Brothers California
Municipal Exempt Index and performance of the California Intermediate Tax-Exempt
Fund, Florida Intermediate Tax-Exempt Fund, Arizona Tax-Exempt Fund and
California Tax-Exempt Fund may be compared to the Lehman Brothers Mutual Fund
Intermediate Municipal Index. Performance of the High Yield Municipal Fund may
be compared to Lehman Brothers Municipal Non-Investment Grade Bond Index.
Performance of the High Yield Fixed Income Fund may be compared to Merrill Lynch
High Yield Master II Index, Lehman Brothers High Yield Corporate Bond Index and
Salomon Brothers Extended High-Yield Market Index. Performance of the Income
Equity Fund may be compared to the Merrill Lynch Investment Grade Convertible
Bond Index. Performance of the International Funds may be compared to the
Mortan Stanley Capital International Europe, Australia and Far East Index
("EAFE"), the Morgan Stanley EAFE blended with Emerging Markets Free Index and
the J.P. Morgan International Government Bond Index. Performance of the
Technology Fund may be compared to the Morgan Stanley Index, the Hambrecht and
Quist Technology Index, the SoundView Technology 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, 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. From time to time, the Funds may also quote the mutual fund ratings of
Morningstar, Inc. and other services in their advertising materials.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices. The Funds may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Funds. The Funds may also compare performance to that of other
compilations or indices that may be developed and made available in the future.

The Funds may also from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a Fund would increase the value, not only of the original
investment in the Fund, but also of the additional Fund shares received through
reinvestment.

The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments), economic and political conditions, the relationship
between sectors of the economy and the economy as a whole, 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,
sales literature, communications to shareholders or other materials 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 and NTQA 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. In addition,
selected indices may be used to illustrate historic performance of selected
asset classes. The Funds may also include in advertisements, sales literature,
communications to shareholders or other materials, charts, graphs or drawings
which illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, stocks, bonds, treasury bills
and shares of a Fund. In addition, advertisements, sales literature,
communications to shareholders or other materials may include a discussion of
certain attributes or benefits to be derived by an investment in a Fund and/or
other mutual funds, shareholder profiles and hypothetical investor scenarios,
timely information on financial management, tax and retirement planning and
investment alternative to certificates of deposit and other financial
instruments. Such sales literature, communications to shareholders or other
materials may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail therein.

Materials may include lists of representative clients of Northern Trust and
NTQA. Materials may refer to the CUSIP numbers of the Funds and may illustrate
how to find the listings of the Funds in newspapers and periodicals. Materials
may also include discussions of other Funds, products, and services.

The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these measures
to those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data.

The Funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.

A Fund may advertise its current interest rate sensitivity, duration,
weighted average maturity or similar maturity characteristics.

Advertisements and sales materials relating to a Fund may include
information regarding the background and experience of its portfolio managers.

NET ASSET VALUE

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 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
as to reduce such maturity to the prescribed limit as soon as reasonably
practicable.

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 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.

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.

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").

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.

Dividends and distributions from each Fund will generally be taxable to you
in the tax year in which they are paid, with one exception. Dividends and
distributions declared by a Fund in October, November or December and paid in
January are taxed as though they were paid by December 31.

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, Stock Index Fund,
Growth Equity Fund, Select Equity Fund, MarketCommand Fund, Mid Cap Growth,
Small Cap Index Fund, Small Cap Fund, Small Cap Growth Fund and Technology
Fund, may constitute "qualifying dividends." The other Funds, however, are not
expected to pay qualifying dividends.

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, Tax-Exempt Money Market, Intermediate Tax-Exempt,
California Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Tax-Exempt,
Arizona Tax-Exempt, California Tax-Exempt and High Yield Municipal Funds are
designed to provide investors with federally 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 or 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 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,
partnerships and their partners and S corporations and their shareholders.

In order for the Municipal Money Market, California Municipal Money Market,
Tax-Exempt Money Market, Intermediate Tax-Exempt, California Intermediate Tax-
Exempt, Florida Intermediate Tax-Exempt, Tax-Exempt, Arizona Tax-Exempt,
California Tax-Exempt or High Yield Municipal 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
shares of a tax exempt Fund generally is not deductible for federal income tax
purposes to the extent attributable to exempt-interest-dividends. 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.

Corporate taxpayers will be required to take into account all exempt-
interest dividends from the Tax-Exempt Funds and the Municipal Funds in
determining certain adjustments for alternative minimum tax purposes.

The Funds will determine annually the 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.

Shareholders will be advised annually as to the federal income tax
consequences of distributions made by the Funds.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

The tax principles applicable to transactions in financial instruments and
futures contacts and options that may be engaged in by a Fund, and investments
in passive foreign investment companies ("PFICs"), are complex and, in some
cases, uncertain. Such transactions and investments may cause a Fund to
recognize taxable income prior to the receipt of cash, thereby requiring the
Fund to liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income.

In addition, in the case of any shares of a PFIC in which a Fund invests,
the Fund may be liable for corporate-level tax on any ultimate gain or
distributions on the shares if the Fund fails to make an election to recognize
income annually during the period of its ownership of the shares.

SPECIAL STATE TAX CONSIDERATIONS PERTAINING TO THE CALIFORNIA FUNDS

Assuming each of the California Funds 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. Each of the California Funds may be taxed on its undistributed
taxable income. If for any year one of the California Funds does not qualify as
a regulated investment company, all of that 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 obligations the interest on which, if held by an individual, is
exempt from taxation by California ("California municipal instruments") 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 is defined as a
segregated portfolio of assets, the beneficial interest in which is defined as a
series of stock of the company. Each of the California Funds intends to qualify
under the above requirements so that it can pay California exempt-interest
dividends. If one of the California Funds fails to so qualify, no part of that
Fund's dividends to shareholders will be exempt from the California state
personal income tax. Each of the California Funds 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, each of the California
Funds 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 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 one of the California
Funds, 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 shares of one of the
California Funds is not deductible for California state personal income tax
purposes if that Fund distributes California exempt-interest dividends during
the shareholder's taxable year.

In addition, any loss realized by a shareholder of the California Funds
upon the sale of shares held for six months or less may be disallowed to the
extent of any exempt-interest dividends received with respect to such shares.
Moreover, any loss realized upon the redemption of shares within six months from
the date of purchase of such shares and following receipt of a long-term capital
gains distribution will be treated as long-term capital loss to the extent of
such long-term capital gains distribution. Finally, any loss realized upon the
redemption of shares within thirty days before or after the acquisition of other
shares of the same Fund may be disallowed under the "wash sale" rules.

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 Funds and
their shareholders. No attempt is made to present a detailed explanation of the
California state personal income tax treatment of the California Funds or their
shareholders, and this discussion is not intended as a substitute for careful
planning. Further, it should be noted that the portion of a 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
one of the California Funds, 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.

SPECIAL STATE TAX CONSIDERATIONS PERTAINING TO THE FLORIDA INTERMEDIATE TAX-
EXEMPT FUND

The State of Florida does not currently impose an income tax on
individuals. Thus, individual shareholders of the Florida Intermediate Tax-
Exempt Fund will not be subject to any Florida income tax on distributions
received from the Fund. However, Florida does currently impose an income tax on
certain corporations. Consequently, distributions may be taxable to corporate
shareholders.

The State of Florida currently imposes an "intangibles tax" at the annual
rate of 2 mills or 0.20% on certain securities and other intangible assets owned
by Florida residents. Every natural person is entitled to an exemption of the
first $20,000 of the value of taxable property against the first mill of the
annual tax. Spouses filing jointly are entitled to a $40,000 exemption. With
respect to the second mill, natural persons are entitled to an exemption of the
first $100,000 of otherwise taxable property (joint filers are entitled to a
$200,000 exemption). Taxpayers are limited to only one exemption under each
provision. Notes, bonds and other obligations issued by the State of Florida or
its municipalities, counties, and other taxing districts, or by the United
States Government, its agencies and certain U.S. territories and possessions
(such as Guam, Puerto Rico and the Virgin Islands) as well as cash are exempt
from this intangibles tax. If on December 31 of any year at least 90 percent of
the net asset value of the portfolio of the Florida Intermediate Tax-Exempt Fund
consists solely of such exempt assets, then the Fund's shares will be exempt
from the Florida intangibles tax payable in the following year.

In order to take advantage of the exemption from the intangibles tax in any
year, it may be necessary for the Fund to sell some of its non-exempt assets
held in its portfolio during the year and reinvest the proceeds in exempt assets
including cash prior to December 31. Transaction costs involved in
restructuring the portfolio in this fashion would likely reduce the Fund's
investment return and might exceed any increased investment return the Fund
achieved by investing in non-exempt assets during the year.

Outside the State of Florida, income distributions may be taxable to
shareholders under state or local law as dividend income even though all or a
portion of such distributions may be derived from interest on tax-exempt
obligations or U.S. Government obligations which, if realized directly, would be
exempt from such income taxes. Shareholders are advised to consult their tax
advisers concerning the application of state and local taxes.

SPECIAL STATE TAX CONSIDERATIONS PERTAINING TO THE ARIZONA TAX-EXEMPT FUND

Individuals, trusts and estates who are subject to Arizona income tax will
not be subject to such tax on dividends paid by the Arizona Tax-Exempt Fund, to
the extent that such dividends qualify as exempt-interest dividends of a
regulated investment company under Section 852(b)(5) of the Code and are
attributable to either (i) obligations of the State of Arizona or its political
subdivisions thereof or (ii) obligations issued by the governments of Guam,
Puerto Rico, or the Virgin Islands. In addition, dividends paid by the Arizona
Tax-Exempt Fund which are attributable to interest payments on direct
obligations of the United States government will not be subject to Arizona
income tax to the extent the Arizona Tax-Exempt Fund qualifies as a regulated
investment company under Subchapter M of the Code. Other distributions from the
Arizona Tax-Exempt Fund, however, such as distributions of short-term or long-
term capital gains, will generally not be exempt from Arizona income tax.

There are no municipal income taxes in Arizona. Moreover, because shares
of the Arizona Tax-Exempt Fund are intangibles, they are not subject to Arizona
property tax. Shareholders of the Arizona Tax-Exempt Fund should consult their
tax advisors about other state and local tax consequences of their investment in
the Arizona Tax-Exempt Fund.

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 thirty 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 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. In the interests of economy and convenience,
certificates representing shares of the Funds are not issued.

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.

Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Each Fund entitled
to vote on a matter will vote in the aggregate and not by Fund, except as
required by law or when the matter to be voted on affects only the interests of
shareholders of a particular Fund.

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
are exempt from the separate voting requirements stated above.

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 December 1, 1999 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 60675, 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 or shared voting or investment power with respect to such shares.
As of December 1, 1999 the names and share ownership of the entities or
individuals which held of record or beneficially more than 5% of the outstanding
shares of any Fund were as follows: Money Market Fund: Northern Trust Bank -
Miami on behalf of its customers, 9.6%, Short Term Investment Fund, 18.2%,
Northern Trust Bank Florida - M&I Sweep Account, 5.5%; U.S. Government Money
Market Fund: Sahara Enterprises, Inc., 7.1%, Northern Trust - Miami on behalf
of its customers, 22.8%; Northern Trust Bank - Miami on behalf of its customers,
9.5%, Northern Trust Bank Florida - M&I Sweep Account, 11.0%;
Municipal Money Market Fund: Northern Trust Bank - Miami on behalf of its
customers, 25.9%; U.S. Government Select Money Market Fund: Northern Trust Bank
- - Miami on behalf of its customers, 45.3%; Northern Trust Bank Florida -
M&I Sweep Account, 6.6%; Northern Trust Bank Florida - M&I Sweep Account, 6.6%
Florida Intermediate Tax-Exempt Fund: Abraham General Partnership, - 5.0%,
Donaldson, Lufkin & Jenrette, - 8.3% and John C. Schumann, Jr., - 6.7%;
California Municipal Money Market Fund: Northern Trust Bank - M&I Sweep Account,
- - 12.0%; Fixed Income Fund: Northern Trust Bank Florida, 8.0%; Stock Index Fund:
CCT Comb Funds, - 8.3%; Select Equity Fund: Donaldson, Lufkin & Jenrette, -
11.7%; International Select Equity Fund: James L. Knight 1969 Trust, - 5.2%;
Williams Trust, 7.0%; California Tax-Exempt Fund: Julius Epstein Residuary
T/U/W, 5.5%; Small Cap Index Fund: Dupont JB, - 6.7% and CCT Comb Funds, -
12.6%; Small Cap Growth Fund: Offield Foundation, 5.1%; High Yield Fixed Income
Fund: The Northern Trust Company Pension Plan, 5.0% and William B. Graham, 7.3%;
High Yield Municipal Fund: William D. Cox, - 5.5%. The address of all of the
above persons is c/o The Northern Trust Bank, 50 S. LaSalle Street, Chicago,
Illinois 60675.

As of December 1, 1999, 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. As of the same date, Northern Fund's
Trustees and officers as a group owned less than 1% of the outstanding shares of
each Fund.

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. In addition, the
Trustees have adopted a by-law (changeable without shareholder approval) that
provides that a Trustee will cease to serve as a Trustee effective as of the
last calendar day in the semi-annual fiscal period of Northern Funds in which
the earlier of the following events occurs: (a) the date such Trustee attains
the age of seventy-three years; and (b) the twelfth anniversary of the date of
such Trustee's written acceptance to serve as a Trustee.

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.

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 willful 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 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, 1999 (the "Annual Report") are hereby incorporated
herein by reference. In addition, the unaudited financial statements contained
in the Semi-Annual Report for the period ended September 30, 1999 are
incorporated herein by reference. No other part of the Annual Report or the
Semi-Annual Report is incorporated by reference herein. Copies of the Annual
Report and the Semi-Annual Report 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.

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.

APPENDIX A

COMMERCIAL PAPER RATINGS
- ------------------------

A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:

"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.

"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.

"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation 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. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:

"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings 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.

"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt 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, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

"Not Prime" - Issuers do 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 the 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 issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.

"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure 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 IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:

"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+"to denote any exceptionally strong credit
feature.

"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.

"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non-
investment grade.

"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.

"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.

"D" - Securities are in actual or imminent payment default.

Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:

"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.

"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment 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 Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.

"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation 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" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.

"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.

"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation 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. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk _ such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

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 risk appear somewhat larger than the "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 are considered as 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 speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of 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 operating 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.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.

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 to be 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 in periods of greater 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 addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:

"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.

"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.

"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.

"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.

"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.

"CCC", "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.

"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.

To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.

Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:

"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.

"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.

"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.

"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.

"D" - This designation indicates that the long-term debt is in
default.

PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.

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 a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.

"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" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.

"MIG-3"/"VMIG-3" - This designation denotes 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" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.

"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.

Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.

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. 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 a Fund, by using futures contracts.

Interest rate future contracts can also be used by a Fund for non-
hedging (speculative) purposes to increase total return.

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.

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's
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. To the extent consistent with its investment objective, a Fund may
also engage 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).

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.

Index futures contracts may also be used by a Fund for non-hedging
(speculative) purposes to increase total return.

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 purchases 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 a custodian or sub-custodian an amount of liquid assets, 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-market." For example, when a particular Fund has purchased a
futures contract and the 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.
Prior to expiration of the futures contract, Northern Trust or NTQA 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. 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 the Investment Advisers. 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 the
Investment Advisers. 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 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 Investment 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 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 trading 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 the
Investment Advisers' 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 margin deposits. As an example,
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.

PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

The following exhibits are incorporated herein by reference:

(a) (1) Agreement and Declaration of Trust dated October 12, 1993 filed
as Exhibit 1(a) to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A, filed on July
29, 1996 ("PEA No. 11").

(2) Amendment No. 1 to Agreement and Declaration of Trust filed as
Exhibit 1(b) to PEA No. 11.

(3) Amendment No. 2 to Agreement and Declaration of Trust filed as
Exhibit 1(c) to PEA No. 11.

(4) Amendment No. 3 to Agreement and Declaration of Trust filed as
Exhibit 1(d) to PEA No. 11.

(5) Amendment No. 4 to Agreement and Declaration of Trust filed as
Exhibit 1(e) to PEA No. 11.

(6) 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").

(7) Amendment No. 6 to Agreement and Declaration of Trust dated
August 6, 1996 filed as Exhibit 1(g) to Post-Effective Amendment
No. 12 to Registrant's Registration Statement on Form N-1A, filed
on October 30, 1996 ("PEA No. 12").

(8) Amendment No. 7 to Agreement and Declaration of Trust dated
August 6, 1996 filed as Exhibit 1(h) to PEA No. 12.

(9) Amendment No. 8 to Agreement and Declaration of Trust dated
February 12, 1996 filed as Exhibit 1(i) to Post-Effective
Amendment No. 15 to Registrant's Registration Statement on Form
N-1A, filed on February 26, 1997 ("PEA No. 15").

(10) Amendment No. 9 to Agreement and Declaration of Trust dated
February 12, 1997 filed as Exhibit 1(j) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form
N-1A, filed on July 31, 1997 ("PEA No. 16").

(11) Amendment No. 10 to Agreement and Declaration of Trust dated
November 18, 1997 filed as Exhibit 1(k) to Post-Effective
Amendment No. 19 to Registrant's Registration Statement on Form
N-1A, filed on March 20, 1998 ("PEA No. 19").

(12) Amendment No. 11 to Agreement and Declaration of Trust dated
September 18, 1998 filed as Exhibit (a)(12) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form
N-1A, filed on May 28, 1999 ("PEA No. 22").

(13) Amendment No. 12 to Agreement and Declaration of Trust dated
November 18, 1998 filed as Exhibit (a)(13) to PEA No. 22.

(14) Amendment No. 13 to Agreement and Declaration of Trust dated
September 15, 1999 filed as Exhibit (a)(14) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form
N-1A, filed on September 17, 1999 ("PEA No. 25").

(15) Amendment No. 14 to Agreement and Declaration of Trust dated
October 1, 1999 filed as Exhibit (a)(15) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form
N-1A, filed on October 15, 1999 ("PEA No. 27").

(b) (1) By-Laws filed as Exhibit 2 to PEA No. 11.

(2) Amendment to the By-Laws dated August 4, 1994 filed as Exhibit
2(a) to PEA No. 11.

(3) Amendment No. 2 to the By-Laws dated May 22, 1997 filed as
Exhibit 2(b) to PEA No. 16.

(4) Amendment No. 3 to the By-Laws dated September 15, 1999 filed as
Exhibit (b)(4) to PEA No. 27.

(d) (1) Investment Advisory and Ancillary Services Agreement between
Registrant and The Northern Trust Company dated April 1, 1994
("Investment Advisory Agreement") filed as Exhibit 5 to PEA No.
11.

(2) Addendum No. 1 to the Investment Advisory Agreement dated
November 29, 1994 filed as Exhibit 5(a) to PEA No. 11.

(3) Addendum No. 2 to the Investment Advisory Agreement dated
March 29, 1996 filed as Exhibit 5(b) to PEA No. 9.

(4) Addendum No. 3 to the Investment Advisory Agreement dated August
7, 1996 filed as Exhibit 5(c) to PEA No. 12.

(5) Addendum No. 4 to the Investment Advisory Agreement dated March
24, 1997 filed as Exhibit 5(d) to PEA No. 16.

(6) Addendum No. 5 to the Investment Advisory Agreement dated
February 12, 1997 filed as Exhibit 5(e) to PEA No. 19.

(7) Addendum No. 6 to the Investment Advisory Agreement dated
November 18, 1997 filed as Exhibit 5(f) to PEA No. 19.

(8) Assumption Agreement between The Northern Trust Company and
Northern Trust Quantitative Advisors, Inc. dated April 1, 1998
filed as exhibit 5(g) to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, filed on July
31, 1998 ("PEA No. 20").

(9) Addendum No. 7 to the Investment Advisory Agreement dated
December 21, 1998 filed as Exhibit (d)(9) to PEA No. 22.

(10) Addendum No. 8 to the Investment Advisory Agreement dated
September 15, 1999 filed as Exhibit (d)(10) to PEA No. 27.

(e) (1) Distribution Agreement between Registrant and Northern Funds
Distributors, LLC dated October 1, 1999 filed as Exhibit (e)(1)
to PEA No. 27.

(f) None.

(g) (1) Custodian Agreement between Registrant and The Northern Trust
Company dated April 1, 1994 ("Custodian Agreement") filed as
Exhibit 8(a) to PEA No. 11.

(2) Addendum No. 1 to the Custodian Agreement dated November 29, 1994
filed as Exhibit 8(d) to PEA No. 11.

(3) Addendum No. 2 to the Custodian Agreement dated March 29, 1996
filed as Exhibit 8(f) to PEA No. 9.

(4) Foreign Custody Agreement between the Registrant and The Northern
Trust Company dated April 1, 1994 filed as Exhibit 8(g) to PEA
No. 11.

(5) Addendum No. 3 to the Custodian Agreement dated August 7, 1996
filed as Exhibit 8(i) to PEA No. 12.

(6) Addendum No. 4 to the Custodian Agreement dated August 7, 1996
filed as Exhibit 8(j) to PEA No. 12.

(7) Addendum No. 5 to the Custodian Agreement dated March 24, 1997
filed as Exhibit 8(n) to PEA No. 16.

(8) Addendum No. 6 to the Custodian Agreement dated February 12, 1997
filed as Exhibit 8(l) to PEA No. 19.

(9) Addendum No. 7 to the Custodian Agreement dated November 18, 1997
filed as Exhibit 8(o) to PEA No. 19.

(10) Addendum No. 1 to the Foreign Custody Agreement dated April 1,
1998 filed as Exhibit 8(p) to PEA No. 19.

(11) Foreign Custody Monitoring Agreement between the Registrant and
The Northern Trust Company dated February 18, 1998 filed as
exhibit 8(r) to PEA No. 20.

(12) Addendum No. 8 to the Custodian Agreement dated December 21, 1998
filed as Exhibit (g)(12) to PEA No. 22.

(13) Addendum No. 9 to the Custodian Agreement dated September 15,
1999 filed as Exhibit (g)(13) to PEA No. 27.

(h) (1) Transfer Agency Agreement between Registrant and The Northern
Trust Company dated April 1, 1994 ("Transfer Agency Agreement")
filed as Exhibit 8(b) to PEA No. 11.

(2) Addendum No. 1 to the Transfer Agency Agreement dated November
29, 1994 filed as Exhibit 8(c) to PEA No. 11.

(3) Addendum No. 2 to the Transfer Agency Agreement dated March 29,
1996 filed as Exhibit 8(e) to PEA No. 9.

(4) Addendum No. 3 to the Transfer Agency Agreement dated August 7,
1996 filed as Exhibit 8(h) to PEA No. 12.

(5) Addendum No. 4 to the Transfer Agency Agreement dated March 24,
1997 filed as Exhibit 8(m) to PEA No. 16.

(6) Addendum No. 5 to the Transfer Agency Agreement dated February
12, 1997 filed as Exhibit 8(k) to PEA No. 19.

(7) Addendum No. 6 to the Transfer Agency Agreement dated November
18, 1997 filed as Exhibit 8(q) to PEA No. 19.

(8) Addendum No. 7 to the Transfer Agency Agreement dated December
21, 1998 filed as Exhibit (h)(11) to PEA No. 22.

(9) Addendum No. 8 to the Transfer Agency Agreement dated September
15, 1999 filed as Exhibit (h)(9) to PEA No. 27.

(10) Amended and Restated Service Plan, adopted as of April 1, 1999
and most recently revised as of September 15, 1999, and Related
Agreement filed as Exhibit (h)(11) to PEA No. 27.

(11) Co-Administration Agreement among Registrant, First Data Investor
Services Group, Inc. and The Northern Trust Company dated October
1, 1999 filed as Exhibit (h)(12) to PEA No. 27.

(12) Form of Amended and Restated Schedule A to the Co-Administration
Agreement dated ________, 1999 filed as Exhibit (h)(13) to PEA
#27.

(i) Opinion of Hale & Dorr LLP filed as Exhibit (i) to PEA No. 25.

(k) None.

(l) (1) Purchase Agreement between Registrant and The Northern Trust
Company dated March 31, 1994 filed as Exhibit 13(a) to PEA No.
11.

(2) Purchase Agreement between Registrant and Miriam M. Allison dated
March 14, 1994 filed as Exhibit 13(b) to PEA No. 11.

(3) Purchase Agreement between Registrant and Miriam M. Allison dated
March 31, 1998 for shares of the Mid Cap Growth Fund filed as
Exhibit (l)(3) to PEA No. 22.

(4) Purchase Agreement between Registrant and Miriam M. Allison dated
December 31, 1998 for shares of the High Yield Fixed Income Fund
filed as Exhibit (l)(4) to PEA No. 22.

(5) Purchase Agreement between Registrant and Miriam M. Allison dated
December 31, 1998 for shares of the High Yield Municipal Fund
filed as Exhibit (l)(5) to PEA No. 22.

(6) Purchase Agreement between Registrant and Miriam M. Allison dated
September 3, 1999 for shares of the Small Cap Index Fund filed as
Exhibit (l)(6) to PEA No. 27.

(7) Purchase Agreement between Registrant and The Northern Trust
Company dated September 3, 1999 for shares of the Income Equity
Fund, Stock Index Fund, Growth Equity Fund, Technology Fund,
International Growth Equity Fund and Small Cap Index Fund filed
as Exhibit (l)(7) to PEA No. 27.

(8) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the Small Cap Growth Fund filed
as Exhibit (l)(8) to PEA No. 27.

(9) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the Short-Intermediate U.S.
Government Fund filed as Exhibit (l)(9) to PEA No. 27.

(10) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the California Intermediate Tax-
Exempt Fund filed as Exhibit (l)(10) to PEA No. 27.

(11) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the Arizona Tax-Exempt Fund
filed as Exhibit (l)(11) to PEA No. 27.

(12) Purchase Agreement between Registrant and The Northern Trust
Company dated October 1, 1999 for shares of the U.S. Government
Fund, Intermediate Tax-Exempt Fund, Fixed Income Fund, Tax-Exempt
Fund, California Tax-Exempt Fund, International Fixed Income
Fund, Arizona Tax-Exempt Fund, California Intermediate Tax-Exempt
Fund and Short-Intermediate U.S. Government Fund filed as Exhibit
(l)(12) to PEA No. 27.

(m) Amended and Restated Distribution and Service Plan, adopted April
1, 1994 and most recently revised as of September 15, 1999, and
Related Agreement filed as Exhibit (m) to PEA No. 27.

(n) None.

The following exhibits to the Registration Statement are filed herewith
electronically pursuant to EDGAR rules:

(a) (16) Amendment No. 15 to Agreement and Declaration of Trust dated
November 17, 1999.

(d) (11) Addendum No. 9 to the Investment Advisory Agreement dated
December 28, 1999.

(e) (2) Amended and Restated Schedule A to the Distribution Agreement
dated December 28, 1999.

(g) (14) Addendum No. 10 to the Custodian Agreement dated December 28,
1999.

(h) (10) Addendum No. 9 to the Transfer Agency Agreement dated
December 28, 1999.

(j) (1) Consent of Drinker Biddle & Reath LLP.

(j) (2) Consent of Independent Public Accountants.

(l) (13) Form of Purchase Agreement between Registrant and the Northern
Trust Company dated _________, 1999 for shares of the
MarketPower Fund.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is controlled by its Board of Trustees.

ITEM 25. INDEMNIFICATION

Section 7 of the Investment Advisory and Ancillary Services Agreement
between the Registrant and The Northern Trust Company ("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 incorporated by reference herein as
Exhibit (d)(1).

Article 10 of the Co-Administration Agreement dated October 1, 1999
among the Registrant, The Northern Trust Company and First Data Investor
Services Group, Inc. provides that Registrant will indemnify The Northern Trust
Company and First Data Investor Services Group, Inc. (each a "Co-Administrator")
against all claims except those resulting from the willful misfeasance, bad
faith or negligence of such Co-Administrator, or the Co-Administrator's breach
of confidentiality. A copy of the Co-Administration Agreement is incorporated
by reference herein as Exhibit (h)(11).

Section 3.1 of the Distribution Agreement between the Registrant and
Northern Funds Distributors, LLC provides for indemnification of Northern Funds
Distributors, LLC, in connection with certain claims and liabilities to which
Northern Funds Distributors, LLC, in its capacity as Registrant's Distributor,
may be subject. A copy of the Distribution Agreement is incorporated by
reference herein as Exhibit (e)(1).

In addition, Section 6.3 of Registrant's Agreement and Declaration of
Trust, a copy of which is incorporated by reference herein as Exhibit (a)(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 incorporated by reference herein as Exhibit (a)(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, 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 willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office (such willful
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.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The Northern Trust Company, 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 Company 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 within the last two fiscal years, as well as the capacity
in which such person was connected.

NAME AND PRINCIPAL
NAME AND POSITION BUSINESS ADDRESS CONNECTION WITH
WITH INVESTMENT ADVISER OF OTHER COMPANY OTHER COMPANY
- ----------------------- ---------------- ------------------

Gregg D. Behrens
Executive Vice President None

J. David Brock
Executive Vice President None

Duane L. Burnham Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Abbott Laboratories Chairman of the
150 Field Drive Board and Director
Suite 160
Lake Forest, IL 60045

Sara Lee Corp. Director
Three First National Plaza
Chicago, IL 60602

Dr. Dolores E. Cross Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Morris Brown College President (6/99)
Administration Building, President -
2nd Floor Elect (10/98)
643 Martin Luther
King Jr. Drive
Atlanta, GA 30314

Chicago State University Former President
95th Street at King Drive
Chicago, IL 60643

General Electric Company Former President
3135 Easton Turnpike GE Fund
Fairfield, CT 06432

The Graduate School and GE Fund
University Center Distinguished
The City University Professor of
of New York Leadership and Diversity
33 W. 42nd Street,
Room 1400 N
New York, NY 10036

Susan Crown Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Henry Crown & Co. Vice President
222 North LaSalle Street
Suite 2000
Chicago, IL 60601

Baxter International Director
One Baxter Parkway
Deerfield, IL 60015

Illinois Tool Works Director
3600 West Lake Ave
Glenview, IL 60025-5811

John R. Goodwin NTQA Director, Managing
Senior Vice President 50 South LaSalle Street Director, Chief
Chicago, IL 60675 Investment Officer

Robert S. Hamada Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

The University of Chicago Dean and Edward
Graduate School of Business Eagle Brown
1101 East 58th Street Distinguished
Chicago, IL 60637 Service Professor of
Finance

A.M. Castle & Co. Director
3400 North Wolf Road
Franklin Park, IL 60131

Chicago Board of Trade Director
141 West Jackson Boulevard
Chicago, IL 60604

Barry G. Hastings Northern Trust Corporation President and Chief
President and Chief 50 South LaSalle Street Operating Officer
Operating Officer Chicago, IL 60675 and Director
and Director
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

Nortrust Realty Management, Inc. Director
50 South LaSalle Street
Chicago, IL 60675

Robert A. Helman Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Mayer, Brown & Platt Partner
190 South LaSalle Street,
38th Fl.
Chicago, IL 60603

Zenith Electronics Director
1000 Milwaukee Ave.
Glenview, IL 60025

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

Dreyer's Grand Ice Director
Cream, Inc.
5929 College Ave.
Oakland, CA 94618

Arthur L. Kelly Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

KEL Enterprises L.P. Managing Partner
Two First National Plaza
20 S. Clark St., Suite 2222
Chicago, IL 60603

Bayerische Motoren Werke Director
(BMW) A.G.
BMW Haus
Petuelring 130
Postfach 40 02 40
D-8000
Munich 40 Germany

Nalco Chemical Company Director
One Nalco Center
Naperville, IL 60563-1198

Snap-on Incorporated Director
2801 80th Street
Kenosha, WI 53140

A.G Deere & Company Director
John Deere Road
Moline, IL 61265

Thyssen Industries AG
Am Thyssenhaus 1
45128 Essen
Germany

Frederick A. Krehbiel Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Molex Incorporated Chairman, CEO and
2222 Wellington Court Director
Lisle, IL 60532-1682

Frederick A. Krehbiel Nalco Chemical Company Director
(continued) One Nalco Center
Naperville, IL 60563-1198

Tellabs, Inc. Director
4951 Indiana Avenue
Lisle, IL 60532

Devry, Inc. Director
One Tower Lane
Suite 1000
Oak Brook Terrace, IL 60181

John V.N. McClure None
Executive Vice President

James J. Mitchell, III The Northern Trust Company Director
Executive Vice President of New York
40 Broad Street
8th Floor
New York, NY 10004

William G. Mitchell Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Peoples Energy Corporation Director
122 South Michigan Avenue
Chicago, IL 60603

The Sherwin-Williams Company Director
101 Prospect Avenue, N.W.
Cleveland, OH 44115-1075

Edward J. Mooney Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Nalco Chemical Company Chairman, Chief
One Nalco Center Executive Officer,
Naperville, IL 60563-1198 President and
Director

Edward J. Mooney Morton International, Inc. Director
(continued) 100 North Riverside Plaza
Chicago, IL 60606

FMC Corp. Director
200 E. Randolph Drive
Chicago IL 60601

J. Terrance Murray None
Executive Vice President

William A. Osborn Northern Trust Corporation Director
Chairman and Chief 50 South LaSalle Street
Executive Officer Chicago, IL 60675

Nortrust Realty Director
Management, Inc.
50 South LaSalle Street
Chicago, IL 60675

Northern Futures Corporation Director
50 South LaSalle Street
Chicago, IL 60675

Sheila A. Penrose Northern Trust Global Director
President _ Advisors, Inc.
Corporate and Institutional 29 Federal Street
Services and Executive Stamford, CT 06901
Vice President

Northern Trust Retirement Manager
Consulting, L.L.C.
400 Perimeter Center Terrace
Suite 850
Atlanta, GA 30346

Nalco Chemical Company Director
One Nalco Center
Naperville, IL 60563-1198

NTQA Director
50 South LaSalle Street
Chicago, IL 60675

Perry R. Pero Northern Futures Corporation Director
Senior Executive Vice 50 South LaSalle Street
President and Chief Chicago, IL 60675
Financial Officer

Northern Investment President and,
Corporation Director
50 South LaSalle Street
Chicago IL 60675

Northern Trust Global Director
Advisors, Inc.
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

NTQA Director

50 South LaSalle Street
Chicago, IL 60675

Stephen N. Potter NTQA Director, Managing
Senior Vice President 50 South LaSalle Street Director
Chicago, IL 60675

Peter L. Rossiter None
Executive Vice President
and General Counsel

Lee Selander Northern Trust Retirement Manager
Executive Vice President Consulting, L.L.C.
400 Perimeter Center Terrace
Suite 850
Atlanta, GA 30346

Jean Sheridan None
Executive Vice President

Harold B. Smith Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

Illinois Tool Works Inc. Chairman of the
3600 West Lake Avenue Executive Committee
Glenview, IL 60025-5811 and Director

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 Northern Trust Corporation Director
Chairman 50 South LaSalle Street
Director Chicago, IL 60675

The Quaker Oats Company Retired
321 North Clark Street Chairman,
Chicago, IL 60610 President and
Chief
Executive
Officer

Abbott Laboratories Director
One Abbott Park Road
Abbott Park, IL 60064-3500

Corning Incorporated Director
Corning, NY 14831

Prime Capital Corporation Director
10275 W. Higgins Road
Suite 200
Rosemont, IL 60018

James M. Snyder NTQA Chairman, CEO and
Executive Vice President 50 South LaSalle Street Director
Chicago, IL 60675

Northern Trust Global Director
Advisors, Inc.
29 Federal Street
Stamford, CT 06901

Mark Stevens None
Executive Vice President

Bide L. Thomas Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675

R. R. Donnelley & Sons Director
Company
77 West Wacker Drive
Chicago, IL 60601

MYR Group Inc. Director
<F1>(formerly L.E. Myers
Company)
2550 West Golf Road
Rolling Meadows, IL 60008
<F1> Name change

Stephen B. Timbers Northern Trust Global Director
President- Northern Trust Advisors, Inc.
Global Investments and 29 Federal Street
Executive Vice President Stamford, CT 06901

LTV Steel Co. Director
200 Public Square
Cleveland, OH 44114-2308

Zurich-Kemper Investments Former
222 S. Riverside Plaza President and
Chicago, IL 60606 Chief Executive Officer
(January 1996 _
December 1997)

Stephen B. Timbers NTQA Director
(continued) 50 S. LaSalle Street
Chicago, IL 60675

William S. Trukenbrod None
Executive Vice President

Frederick Waddell None
Executive Vice President

<PAGE>

Jeffrey H. Wessel NTQA President,
Executive Vice President 50 South LaSalle Street Director
Chicago, IL 60675

Northern Trust Retirement Manager
Consulting, L.L.C.
400 Perimeter Center Terrace
Suite 850
Atlanta, GA 30346

Northern Trust Global Director
Advisors, Inc
29 Federal Street
Stamford, CT 06901

ITEM 27. PRINCIPAL UNDERWRITER

(a) None

(b) To the best of Registrant's knowledge, the directors and
executive officers of Northern Funds Distributors, LLC, distributor for
Registrant, are as follows:

POSITIONS AND
OFFICES WITH POSITIONS AND
NAME AND PRINCIPAL NORTHERN FUNDS OFFICES WITH
BUSINESS ADDRESS DISTRIBUTORS, LLC REGISTRANT
- ---------------- ----------------- ----------

Jane Haegele Director None
Four Falls Corporate Center
6th Floor
West Conshohocken, PA 19428

Philip H. Rinnander President and Secretary None
Four Falls Corporate Center
6th Floor
West Conshohocken, PA 19428

Jason A. Greim Vice President and Treasurer None
Four Falls Corporate Center
6th Floor
West Conshohocken, PA 19428

ITEM 28. 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 LLP, One
Logan Square, 18th and Cherry Streets, Philadelphia, Pennsylvania 19103.
Records relating to PFPC, Inc.' s (formerly First Data Investor Services Group)
Inc., functions as co-administrator for the Registrant are located at 101
Federal Street, Boston, Massachusetts 02110. Records relating to Northern Funds
Distributors, LLC's functions as distributor, for the Registrant are located at
Four Falls Corporate Center, 6th Floor, West Conshohocken, Pennsylvania 19428-
2961. 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
Company, 50 S. LaSalle Street, Chicago, Illinois 60675 or 801 S. Canal Street,
Chicago, Illinois 60607 (relating to transfer agent).

ITEM 29. MANAGEMENT SERVICES

Not Applicable.

ITEM 30. UNDERTAKINGS

Not Applicable.

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 Post-Effective Amendment No. 28 to
its Registration Statement under Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 28 to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Westborough and State of Massachusetts on the 28th
day of December, 1999.

NORTHERN FUNDS

By: /s/ Jylanne M. Dunne
----------------------
Jylanne M. Dunne
President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 28 to Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.

Name Title Date

/s/ James W. Cozad<F1> Trustee December 28, 1999
- ------------------------------
James W. Cozad

/s/ Wesley M. Dixon, Jr. <F1> Trustee December 28, 1999
- ------------------------------
Wesley M. Dixon, Jr.

/s/ William J. Dolan, Jr. <F1> Trustee December 28, 1999
- ------------------------------
William J. Dolan, Jr.

/s/ Raymond E. George, Jr. <F1> Trustee December 28, 1999
- ------------------------------
Raymond E. George, Jr.

/s/ Michael E. Murphy<F1> Trustee December 28, 1999
- ------------------------------
Michael E. Murphy

/s/ Mary Jacobs Skinner<F1> Trustee December 28, 1999
- ------------------------------
Mary Jacobs Skinner

/s/ Jylanne M. Dunne President December 28, 1999
- ------------------------------
Jylanne M. Dunne (Chief Executive
Officer)

/s/ Brian R. Curran Treasurer December 28, 1999
- ------------------------------
Brian R. Curran (Chief Financial
and Accounting
Officer)

<F1>By: /s/ Brian R. Curran
------------------------
Brian R. Curran,
Attorney-in-fact

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a Trustee
of Northern Funds, a business trust organized under the laws of The Commonwealth
of Massachusetts (the "Trust"), does hereby make, constitute and appoint Richard
H. Rose, Brian R. Curran, Linda J. Hoard, Jylanne M. Dunne, and Jeffrey A.
Dalke, and each of them, attorneys-in-fact and agents of the undersigned with
full power and authority of substitution and re-substitution, in any and all
capacities, to execute for and on behalf of the undersigned any and all filings
and amendments to the Registration Statement on Form N-1A relating to the shares
of the Trust and any other documents and instruments incidental thereto, and to
deliver and file the same, with all exhibits thereto, and all documents and
instruments in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing that
said attorneys-in-fact and agents, and each of them, deem advisable or necessary
to enable the Trust to effectuate the intents and purposes hereof, and the
undersigned hereby fully ratifies and confirms all that said attorneys-in-fact
and agents, of any of them, or their or his or her substitute or substitutes,
shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed his or her name on this
15th day of September 1999.

/s/ James W. Cozad
--------------------------
James W. Cozad

/s/ Wesley M. Dixon, Jr.
--------------------------
Wesley M. Dixon, Jr.

/s/ William J. Dolan, Jr.
--------------------------
William J. Dolan, Jr.

/s/ Raymond E. George, Jr.
--------------------------
Raymond E. George, Jr.

/s/ Michael E. Murphy
--------------------------
Michael E. Murphy

/s/ Mary Jacobs Skinner
--------------------------
Mary Jacobs Skinner

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
President of Northern Funds, a business trust organized under the laws of The
Commonwealth of Massachusetts (the "Trust"), does hereby make, constitute and
appoint Richard H. Rose, Brian R. Curran, Linda J. Hoard and Jeffrey A. Dalke,
and each of them, attorneys-in-fact and agents of the undersigned with full
power and authority of substitution and re-substitution, in any and all
capacities, to execute for and on behalf of the undersigned any and all filings
and amendments to the Registration Statement on Form N-1A relating to the shares
of the Trust and any other documents and instruments incidental thereto, and to
deliver and file the same, with all exhibits thereto, and all documents and
instruments in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing that
said attorneys-in-fact and agents, and each of them, deem advisable or necessary
to enable the Trust to effectuate the intents and purposes hereof, and the
undersigned hereby fully ratifies and confirms all that said attorneys-in-fact
and agents, of any of them, or their or his or her substitute or substitutes,
shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed her name this 15th day
of September 1999.

/s/ Jylanne M. Dunne
-------------------------
Jylanne M. Dunne

</TABLE>

NORTHERN FUNDS

EXHIBIT INDEX

(a) (16) Amendment No. 15 to Agreement and Declaration of Trust dated
November 17, 1999.

(d) (11) Addendum No. 9 to the Investment Advisory Agreement dated
December 28, 1999.

(e) (2) Amended and Restated Schedule A to the Distribution Agreement
dated December 28, 1999.

(g) (14) Addendum No. 10 to the Custodian Agreement dated December 28,
1999.

(h) (10) Addendum No. 9 to the Transfer Agency Agreement dated
December 28, 1999.

(j) (1) Consent of Drinker Biddle & Reath LLP.

(j) (2) Consent of Independent Public Accountants.

(l) (13) Form of Purchase Agreement between Registrant and the Northern
Trust Company dated _________, 1999 for shares of the
MarketPower Fund.

EXHIBIT (A)(16)

NORTHERN FUNDS

AMENDMENT NO. 15 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 one
additional Series and Class of Shares ("Additional Series and Classes") to
be known as the Initial Classes of the "MarketPower Fund," the 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 17th day of November, 1999.

/s/ James W. Cozad /s/ Raymond E. George
- -------------------- -----------------------
James W. Cozad Raymond E. George, Jr.

/s/ Wesley M. Dixon /s/ Michael E. Murphy
- -------------------- -----------------------
Wesley M. Dixon, Jr. Michael E. Murphy

/s/ William J. Dolan /s/ Mary Jacobs Skinner
- -------------------- -----------------------
William J. Dolan, Jr. Mary Jacobs Skinner

Exhibit (d)(11)

NORTHERN FUNDS

ADDENDUM NO. 9 TO THE INVESTMENT ADVISORY AGREEMENT
---------------------------------------------------

This Addendum, dated as of the 28th day of December, 1999, 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 and Ancillary Services Agreement dated as of April 1, 1994
as amended by Addendum No. 1 dated November 29, 1994, by Addendum No. 2 dated
March 29, 1996, by Addendum No. 3 dated August 7, 1996, by Addendum No. 4 dated
March 24, 1997, by Addendum No. 5 dated February 12, 1997, by Addendum No. 6
dated November 18, 1997, by Addendum No. 7 dated December 21, 1998 and by
Addendum No. 8 dated September 15, 1999 (the "Advisory Agreement") pursuant to
which the Trust has appointed the Investment Adviser to act as investment
adviser to the Trust 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, 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, Stock Index Fund, Short-Intermediate U.S. Government Fund, California
Intermediate Tax-Exempt Fund, Arizona Tax-Exempt Fund, California Tax-Exempt
Fund, Florida Intermediate Tax-Exempt Fund, Small Cap Index Fund, Mid Cap Growth
Fund, High Yield Municipal Fund, High Yield Fixed Income Fund, Tax-Exempt Money
Market Fund and the Small Cap Growth Fund; and

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 MarketPower Fund
(the "Fund"), and that it desires to retain the Investment Adviser to act as the
investment adviser for the Fund and the Investment Adviser has notified the
Trust that it is willing to serve as investment adviser for the Fund;

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 Fund in accordance with the terms
set forth in the Advisory Agreement. The Investment Adviser hereby accepts such
appointment 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 Fund, the Trust will pay the
Investment Adviser, and the Investment Adviser will accept as full compensation
therefor from the Trust, a fee at the annual rate of 1.20% of the MarketPower
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
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 Fund shall continue, unless sooner terminated in accordance with
the Advisory Agreement, until March 31, 2000. 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.

All signatures need not appear on the same copy of this Addendum.

IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the date and year first above written.

NORTHERN FUNDS

Attest: By: /s/ Jylanne M. Dunne
----------------------------

Title: President
-------------------------

THE NORTHERN TRUST COMPANY

Attest: /s/ Diane Anderson By: /s/ Archibald E. King
-------------------- -----------------------

Title: Vice President
--------------------

Exhibit (e)(2)

AMENDED AND RESTATED
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
NORTHERN FUNDS
AND
NORTHERN FUNDS DISTRIBUTORS, LLC
DATED DECEMBER 28, 1999

Intending to be legally bound, the undersigned hereby amend and restate Schedule
A to the aforesaid Agreement to include the following investment portfolios:

Money Market Fund International Fixed Income Fund
U.S. Government Money Market Fund High Yield Municipal Fund
U.S. Government Select Money Market Fund High Yield Fixed Income Fund
Tax-Exempt Money Market Fund Income Equity Fund
Municipal Money Market Fund Stock Index Fund
California Municipal Money Market Fund Growth Equity Fund
U.S. Government Fund Select Equity Fund
Short-Intermediate U.S. Government Fund Mid Cap Growth Fund
Intermediate Tax-Exempt Fund Small Cap Index Fund
California Intermediate Tax-Exempt Fund Small Cap Fund
Florida Intermediate Tax-Exempt Fund Small Cap Growth Fund
Fixed Income Fund International Growth Equity Fund
Tax-Exempt Fund International Select Equity Fund
Arizona Tax-Exempt Fund Technology Fund
California Tax-Exempt Fund MarketPower Fund

All signatures need not appear on the same copy of this Amended and Restated
Schedule A.

NORTHERN FUNDS

By: /s/ Jylanne M. Dunne
-----------------------------

Title: President
--------------------------

Date: December 2, 1999
---------------------------

NORTHERN FUNDS DISTRIBUTORS, LLC

By: /s/ Philip H. Rinnander
----------------------------

Title: President
--------------------------

Date: December 17, 1999
---------------------------

Exhibit (g)(14)

NORTHERN FUNDS

ADDENDUM NO. 10 TO THE CUSTODIAN AGREEMENT
------------------------------------------

This Addendum, dated as of the 28th day of December, 1999, 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 as of April 1, 1994 as amended by Addendum No. 1 dated November
29, 1994, by Addendum No. 2 dated March 29, 1996, by Addendum No. 3 dated August
7, 1996, by Addendum No. 4 dated August 6, 1996, by Addendum No. 5 dated March
24, 1997, by Addendum No. 6 dated February 12, 1997, by Addendum No. 7 dated
November 18, 1997, by Addendum No. 8 dated December 21, 1998 and by Addendum No.
9 dated September 15, 1999 (the "Custodian Agreement") pursuant to which the
Trust has appointed Northern to act as custodian to the Trust 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, U.S. Government Fund, Fixed Income Fund, Intermediate Tax-Exempt Fund,
Tax-Exempt Fund, Income Equity Fund, Growth Equity Fund, Select Equity Fund,
Small Cap Fund, Technology Fund, Stock Index Fund, Florida Intermediate Tax-
Exempt Fund, Short-Intermediate U.S. Government Fund, California Intermediate
Tax-Exempt Fund, Arizona Tax-Exempt Fund, California Tax-Exempt Fund, Small Cap
Index Fund, Mid Cap Growth Fund, High Yield Municipal Fund, High Yield Fixed
Income Fund, Tax-Exempt Money Market and the Small Cap Growth Fund;

WHEREAS, the Trust is establishing the MarketPower Fund (the "Fund"),
and the Trust desires to retain Northern under the terms of the Custodian
Agreement to act as the custodian for the Fund, and Northern is willing to so
act; and

WHEREAS, the Trust and Northern desire to enter into this Addendum No.
10 to provide compensation for the Fund for uninvested cash balances maintained
with Northern under the Custodian Agreement;

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 Fund 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 Fund. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the
Custodian Agreement.

3. Cash Balance Compensation. Northern shall compensate the Fund
-------------------------
for uninvested cash balances maintained with Northern at the end
of each day ("Cash Balance Compensation") in accordance with this
paragraph. Cash Balance Compensation with respect to the Fund's
uninvested cash balance shall be determined at the end of each
day based on an annual rate equal to 96% of the previous calendar
month's average 90-day Treasury bill interest rate. The amount
of the Fund's accumulated Cash Balance Compensation shall be paid
monthly in the form of reductions to the custody fees otherwise
allocable to the Fund under the Custodian Agreement for such
month. In the event that the Fund's Cash Balance Compensation
for any month exceeds the custody fees payable by the Fund under
the Custodian Agreement for such month, the Fund's excess Cash
Balance Compensation may be carried forward and credited against
future custody fees, provided that no excess Cash Balance
--------
Compensation may be carried forward beyond the end of any fiscal
year.

4. Miscellaneous. The initial term of the Custodian Agreement with
-------------
respect to the Fund shall continue, unless sooner terminated in
accordance with the Custodian Agreement, until March 31, 2000.
Except to the extent supplemented hereby, 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.

All signatures need not appear on the same copy of this Addendum.

NORTHERN FUNDS

Attest: By: /s/ Jylanne M. Dunne
-----------------------------

Title: President
--------------------------

THE NORTHERN TRUST COMPANY

Attest: /s/ Diane Anderson By: /s/ Archibald E. King
-------------- ------------------------

Title: Vice President
---------------------

Exhibit (h)(10)

NORTHERN FUNDS

ADDENDUM NO. 9 TO THE TRANSFER AGENCY AGREEMENT
-----------------------------------------------

This Addendum, dated as of the 28th day of December, 1999, 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 as amended by Addendum No. 1 dated
November 29, 1994, by Addendum No. 2 dated March 29, 1996, by Addendum No. 3
dated August 7, 1996, by Addendum No. 4 dated March 24, 1997, by Addendum No. 5
dated February 12, 1997, by Addendum No. 6 dated November 18, 1997, Addendum
No. 7 dated December 21, 1998 and by Addendum No. 8 dated September 15, 1999
(the "Transfer Agency Agreement") pursuant to which the Trust has appointed the
Transfer Agent to act as transfer agent to the Trust 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, 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, Stock Index Fund, Florida
Intermediate Tax-Exempt Fund, Short-Intermediate U.S. Government Fund,
California Intermediate Tax-Exempt Fund, Arizona Tax-Exempt Fund, California
Tax-Exempt Fund, Small Cap Index Fund, Mid Cap Growth Fund, High Yield Municipal
Fund, High Yield Fixed Income Fund, Tax-Exempt Money Market Fund and the Small
Cap Growth Fund; and

WHEREAS, the Trust is establishing the MarketPower Fund (the "Fund"), 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 Fund and the record and/or beneficial owners of the Fund, 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 Fund 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 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 Fund shall continue, unless sooner terminated in
accordance with the Transfer Agency Agreement, until March 31, 2000.
Except to the extent supplemented hereby, the Transfer Agency
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.

All signatures need not appear on the same copy of this Addendum.

NORTHERN FUNDS

Attest: By: /s/ Jylanne M. Dunne
-----------------------

Title: President
--------------------

THE NORTHERN TRUST COMPANY

Attest: /s/ Diane Anderson By: /s/ Archibald E. King
--------------- -----------------------

Title: Vice President
--------------------

Exhibit (j)(1)

CONSENT OF COUNSEL

We hereby consent to the use of our name and to the reference to our Firm
under the caption "Counsel" in the Statement of Additional Information that is
included in Post-Effective Amendment No. 28 to the Registration Statement (No.
33-73404/811-8236) on Form N-1A of Northern Funds, under the Securities Act of
1933 and the Investment Company Act of 1940, respectively. 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 LLP
------------------------------
DRINKER BIDDLE & REATH LLP

Philadelphia, Pennsylvania
December 28, 1999

Exhibit (j)(2)

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated May 14, 1999, 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, U.S. Government Select Money Market Fund,
Municipal Money Market Fund, California Municipal Money Market Fund, U.S.
Government Fund, Intermediate Tax-Exempt Fund, Florida Intermediate Tax-Exempt
Fund, Fixed Income Fund, Tax-Exempt Fund, California Tax-Exempt Fund,
International Fixed Income Fund, High Yield Municipal Fund, High Yield Fixed
Income Fund, Income Equity Fund, Stock Index Fund, Growth Equity Fund, Select
Equity Fund, Mid Cap Growth Fund, Small Cap Fund, International Growth Equity
Fund, International Select Equity Fund and Technology Fund).

/s/ Arthur Andersen LLP
- ------------------------
ARTHUR ANDERSEN LLP

Chicago, Illinois
December 28, 1999

Exhibit (l) (13)
FORM OF
-------
PURCHASE AGREEMENT
------------------

Northern Funds (the "Trust"), a Massachusetts business trust, and Martin
C. Gawne hereby agree as follows:

1. The Trust hereby offers Martin C. Gawne, and Martin C. Gawne
hereby purchases, five shares of the Trust's MarketPower Fund (the "Shares")
at $ ______ per Share. The Trust hereby acknowledges receipt from Martin C.
Gawne of funds in full payment for the foregoing Shares.

2. Martin C. Gawne represents and warrants to the Trust that the
foregoing Shares are being acquired for investment purposes and not with a
view to the distribution thereof.

IN AGREEMENT WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of ______________, 1999.

NORTHERN FUNDS

By: _______________________

Martin C. Gawne
----------------------