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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Schedule 14a

(Rule 14a-101)

Schedule 14a Information

(Rule 14a-101)

Proxy Statement pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant x   Filed by a Party other than the Registrant ¨

Check the appropriate box:

NORTHERN INSTITUTIONAL FUNDS

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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IMPORTANT NOTICE

To Shareholders of Northern Funds,

Northern Institutional Funds and

Northern Multi-Manager Funds

Q U E S T I O N S  &  A N S W E R S

Although we encourage you to read the complete Proxy Statement, for your convenience we have provided answers to some of the most frequently asked questions, including a brief summary of the issues to be voted on.

A As described in the Proxy Statement, you are being asked to approve: (1) the election of Trustees who oversee your Fund and (2) an amended and restated investment advisory agreement between your Fund (except a Multi-Manager Fund) and its investment adviser reflecting a change in the termination and renewal date of the agreement to June 30 of each year.

A Seven current Trustees and one additional nominee, Casey Sylla, are standing for election to Northern Funds and Northern Institutional Funds. The Northern Multi-Manager Funds are overseen by a separate Board of Trustees. Six current Trustees, and one additional nominee, Casey Sylla, are standing for election to the Northern Multi-Manager Funds. Information about each of the nominees is set forth in the Joint Proxy Statement.

A Your Trustees unanimously approved the proposals and recommend that you vote in favor of each proposal.

A You can provide voting instructions:

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Note: If you are invested in your Fund through your bank or broker/dealer, please reference the proxy card for the appropriate phone number.

A You are being sent a proxy card for each Fund account that you have. Please vote on all proposals shown on each proxy card that you receive.

A Your vote is very important and can make a difference in the governance and management of the Funds, no matter how many shares that you own. Your vote is needed to ensure that the proposals can be acted upon. And, your immediate response will help save on the costs of any further solicitations for a shareholder vote. We encourage all shareholders to participate in the governance of their Fund.

A The Funds will pay for the expenses related to the preparation and assembling of the proxy statements and the holding of the shareholder meeting. Expenses are currently estimated at $475,000 for Northern Funds and $475,000 for Northern Institutional Funds. Northern Trust and other financial intermediaries that have entered into shareholder servicing agreements with the Funds will pay for all mailing expenses related to the solicitation of proxies.

A If you receive your proxy card in the mail, you may use the postage-paid envelope provided, or mail your proxy card to:

Northern Funds

c/o Broadridge

51 Mercedes Way

Edgewood, NY 11717

A We will be happy to answer your questions about the proxy statement. Simply call us at 800-595-9111 between the business hours of 7:00 a.m. and 7:00 p.m. Central time, Monday through Friday.

Please vote now. Your vote is important.

To avoid the wasteful and unnecessary expense of further solicitation, we urge you to indicate your voting instructions on the proxy card, if received by mail, date and sign it and return it promptly in the envelope provided, or record your voting instructions by telephone or via the Internet, no matter how large or small your holdings may be. If your shares are held through a broker, you must provide voting instructions to your broker about how to vote your shares in order for your broker to vote your shares as you instruct at the Meeting.

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NORTHERN FUNDS

NORTHERN INSTITUTIONAL FUNDS

NORTHERN MULTI-MANAGER FUNDS

October 31, 2007

Dear Shareholder:

You are cordially invited to attend a Special Joint Meeting of Shareholders of Northern Funds, including the Northern Multi-Manager Funds, and Northern Institutional Funds (each a “Trust” and collectively the “Trusts”), to be held on January 29, 2008 at 10:00 a.m. Central time at the offices of The Northern Trust Company, 50 South LaSalle Street, B-4, Room 7, Chicago, Illinois 60603.

At this important meeting, you will be asked to consider and take action on the following:

We believe that these proposals are important and, if approved, will allow us to improve the Funds’ operations. You should carefully read the Proxy Statement that discusses each Proposal in detail.

The Board Members responsible for your Fund have approved the proposals and recommend that you vote “for” the proposals for your Fund.

Your vote is important. Even if you plan to attend and vote in person at the Meeting, please promptly follow the enclosed directions to submit voting instructions by telephone or over the Internet. Alternatively, you may submit voting instructions by signing and dating each proxy card that you receive, and if received by mail, returning it in the accompanying postage-paid return envelope.

If you have any questions about these proposals, please call 800-595-9111.

Sincerely,

Lloyd A. Wennlund

President

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NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS

A Special Joint Meeting of Shareholders (the “Meeting”) of each investment portfolio (the “Funds”) of Northern Funds and Northern Institutional Funds (each a “Trust” and collectively the “Trusts”) will be held on January 29, 2008 at 10:00 a.m. Central time at the offices of The Northern Trust Company, 50 South LaSalle Street, B-4, Room 7, Chicago, Illinois 60603, and any adjournments or postponements thereof (the “Meeting”) for the following purposes:

Shareholders of record at the close of business on October 3, 2007 are entitled to notice of and to vote at the Meeting. The Joint Proxy Statement and accompanying material, or this Notice and Notice of Internet Availability of Proxy Materials are being mailed to shareholders on or about October 31, 2007.

YOUR TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THE PROPOSALS RELATING TO YOUR FUND.

By Order of the Board of Trustees

of Northern Funds

By Order of the Board of Trustees

of Northern Institutional Funds

By Order of the Board of Trustees

of Northern Multi-Manager

International Equity,

Multi-Manager Mid Cap and

Multi-Manager Small Cap Funds

Diana E. McCarthy

Secretary

October 31, 2007

Even if you expect to attend the Meeting in person, please promptly follow the enclosed instructions to submit voting instructions by telephone or over the Internet. Alternatively, you may submit voting instructions by signing and dating each proxy card that you receive, and if received by mail, returning it in the accompanying postage-paid return envelope.

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NORTHERN FUNDS

NORTHERN INSTITUTIONAL FUNDS

NORTHERN MULTI-MANAGER FUNDS

SPECIAL JOINT MEETING OF SHAREHOLDERS

JANUARY 29, 2008

JOINT PROXY STATEMENT

This joint proxy statement is furnished in connection with the solicitation of proxies by and on behalf of the Boards of Trustees including, for Proposal 1, the nominees to the Boards (each a “Board” and collectively the “Boards”) of each of the Northern Funds; Northern Institutional Funds (each a “Trust” and collectively the “Trusts”); and Northern Multi-Manager International Equity, Multi-Manager Mid Cap and Multi-Manager Small Cap Funds (the “Multi-Manager Funds”). The proxies are to be voted at a Special Joint Meeting of Shareholders of the investment portfolios of each of the Trusts and the Multi-Manager Funds (together, the “Funds”). The Special Joint Meeting will be held at the offices of The Northern Trust Company, 50 South LaSalle Street, B-4, Room 7, Chicago, Illinois 60603, on January 29, 2008, at 10:00 a.m. Central time for the purposes set forth in the accompanying Notice of Meeting. The Special Joint Meeting and any adjournment or postponement thereof is referred to as the “Meeting.”

Each Board of each of the Trusts and the Multi-Manager Funds has determined that the use of this Joint Proxy Statement for the Meeting is in the best interests of the Funds that it oversees and their shareholders in light of the similar matters being considered and voted on by shareholders of each of the Funds. This Joint Proxy Statement and the accompanying materials, or a Notice of Meeting and a Notice of Internet Availability of Proxy Materials, are being sent to shareholders on or about October 31, 2007.

Shareholders of record of a Fund as of the close of business on October 3, 2007 (the “Record Date”) are entitled to attend and to vote at the Meeting. Shareholders of the Funds are entitled to one vote for each share held, and each fractional share is entitled to a proportionate fractional vote, with no shares having cumulative voting rights.

Appendix A sets forth the number of shares of each Fund outstanding as of the close of business on the Record Date. Appendix B sets forth the information regarding shareholders known to beneficially own 5% or more of the outstanding shares of any class of any Fund as of the Record Date.

The Proxies will be solicited by mail and may also be solicited in person or by telephone, fax or personal interview by officers of The Northern Trust

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Company (“Northern Trust”). In addition, employees of Northern Trust, its affiliates, correspondent banks, brokers and similar record holders may solicit proxies by these means and may forward proxy materials and printed direction forms to the customers on whose behalf they hold record ownership of shares of the Funds.

Please read this Joint Proxy Statement and keep it for future reference. Each Fund has previously sent its annual report and semiannual report to its shareholders. A Shareholder may request, without charge, copies of a Fund’s most recent annual or semiannual shareholder report in writing to Northern Funds, P.O. Box 75986, Chicago, Illinois 60675-5986, by telephone at 800-595-9111 or by e-mail at northern-funds@ntrs.com.

SUMMARY OF PROPOSALS AND FUNDS VOTING

The following table describes the proposals (each a “Proposal” and collectively the “Proposals”) to be considered at the Meeting and the shareholders that are entitled to vote on each Proposal:

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PROPOSAL 1—ELECTION OF TRUSTEES

(All Funds)

Information About Current Trustees and Nominees For Election as Trustees

Northern Funds and Northern Institutional Funds. Each of the following eight individuals currently serves on the Board of the Northern Funds and the Board of the Northern Institutional Funds: William L. Bax, Richard G. Cline, Edward J. Condon, Jr., Sharon Gist Gilliam, Sandra Polk Guthman, Michael E. Murphy, Mary Jacobs Skinner and Richard P. Strubel (each a “Trustee, collectively, the “Trustees”). Mr. Cline, Chairman of the Boards of Northern Funds and Northern Institutional Funds, will retire from the Boards pursuant to the retirement provisions of each Trust’s by-laws as of December 31, 2007 and will not be a nominee. As of January 1, 2008, Mr. Strubel will become Chairman of the Boards of Northern Funds and Northern Institutional Funds. All of the Trustees are deemed to be noninterested persons of the Trusts within the meaning of the Investment Company Act of 1940 (the “1940 Act”), except Ms. Skinner who is deemed to be an “interested person” of the Trusts because she is a partner in a law firm which provides legal services to Northern Trust Corporation and its affiliates. Six of the current Trustees have been previously elected by shareholders.

Multi-Manager Funds. The Multi-Manager Funds are overseen by a separate Board (the “Multi-Manager Board”) of seven Trustees. Each of the foregoing Trustees, with the exception of Ms. Skinner, also serves on the Multi-Manager Board (each also a “Trustee, collectively, the “Trustees” or the “Multi-Manager Trustees”). Mr. Cline, Chairman of the Board of the Multi-Manager Funds, will retire from the Multi-Manager Board pursuant to the retirement provisions of the by-laws as of December 31, 2007 and will not be a nominee. As of January 1, 2008, Mr. Strubel will become Chairman of the Multi-Manager Board. Messrs. Cline and Murphy and Ms. Guthman are each deemed interested persons of the Multi-Manager Funds because they own shares of an entity that controls an investment sub-adviser to the Multi-Manager Funds. All of the Multi-Manager Board’s current Trustees have been elected by the sole shareholder upon inception of the Multi-Manager Funds.

At their respective meetings held on August 3, 2007, each Board determined to present the election of Trustees to hold office until their respective successors are elected and qualified. The Boards of the Northern Funds and Northern Institutional Funds each nominated seven of their current Trustees and a new Trustee, Casey Sylla, and the Board of the Multi-Manager Funds nominated six of its current Trustees and Casey Sylla (together, the “Nominees”). The Boards did not nominate for election Mr. Cline for the reasons stated above. If elected, Mr. Sylla would be a noninterested Trustee of each of the Boards. Information for each of the Trustees is provided below.

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Each Nominee has consented to being named in this Proxy Statement and to serve if elected. No Trust knows of any reason why the Nominees would be unable or unwilling to serve if elected.

Each elected Trustee will hold office for an indefinite term until the earliest of:

Normally, there will be no meetings of shareholders for the purpose of electing Trustees except as required by the 1940 Act. See “Additional Information – Shareholder Proposals.” The Trustees may, as permitted by the 1940 Act, appoint additional Trustees without shareholder approval.

Board Consideration

After careful consideration, each Board concluded that it was in the best interests of shareholders to submit for their approval the election of each of the Nominees, even if previously elected. Each Board considered that the election of Trustees provided flexibility to add new Trustees to a Board. In considering the Nominees for election, the Board members took into account the qualifications of each Nominee and the concern for the continued efficient conduct of each Fund’s business. In particular, the Board members considered the requirements of the 1940 Act as they apply to the election of Trustees generally and the Nominees in particular.

The proxies will vote for the election of each applicable Nominee unless you withhold authority to vote for any or all of them in the proxy. If an executed proxy card is received without voting instructions, the shares will be voted for the Nominees named on the proxy card. If a Nominee withdraws from the election or is otherwise unable to serve, the named proxies will vote for the election of such substitute Nominee as the applicable Board may recommend, unless the Board decides to reduce the number of Trustees serving on the Board.

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Proposals 1(a) and 1(b) – Nominees for Board of Northern Funds, except the Multi-Manager Funds, and Northern Institutional Funds

The following table sets forth certain information about the Nominees for the Boards of the Northern Funds, except the Multi-Manager Funds, and Northern Institutional Funds. The Northern Funds Complex consists of each Trust. As of the date of this Joint Proxy Statement, Northern Funds offered 38 portfolios and Northern Institutional Funds offered 22 portfolios.

NOMINEES FOR ELECTION AS NONINTERESTED TRUSTEES

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NOMINEE FOR ELECTION AS INTERESTED TRUSTEE

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Required Vote

Because your Fund is a portfolio of either the Northern Funds or Northern Institutional Funds, your vote will be counted together with the votes of shareholders of the other portfolios of that Trust, voting as a single class in the election of Trustees, except the Multi-Manager Funds will vote separately for their Board, as discussed on page 13. Election of each Nominee requires a plurality of the shares voted at the Meeting. The eight Nominees to each Board who receive the highest number of votes cast at the Meeting will be elected as Trustees, provided that there is a sufficient number of shares represented in person or by proxy to meet that Trust’s quorum requirements. Cumulative voting is not permitted.

THE TRUSTEES OF EACH TRUST, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE SHAREHOLDERS VOTE “FOR” EACH NOMINEE LISTED.

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Proposal 1(c) – Nominees for Election to the Multi-Manager Board

The following table sets forth certain information about the Nominees for the Multi-Manager Board.

NOMINEES FOR ELECTION AS NONINTERESTED TRUSTEES

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NOMINEES FOR ELECTION AS INTERESTED TRUSTEES

Required Vote

Shareholders of the Multi-Manager International Equity, Multi-Manager Mid Cap and Multi-Manager Small Cap Funds will vote together as a single class in the election of Trustees to the Board of the Multi-Manager Funds. Election of each Nominee requires a plurality of the shares voted at the Meeting. The seven

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Nominees who receive the highest number of votes cast at the Meeting will be elected as Trustees, provided that there is a sufficient number of shares represented in person or by proxy to meet the quorum requirements. Cumulative voting is not permitted.

THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT THE SHAREHOLDERS VOTE “FOR” EACH NOMINEE LISTED.

Additional Information

The following table sets forth information regarding the officers of each Trust. The Officers are appointed by each Board and hold office at the pleasure of the Board of Trustees until the next annual meeting of the Trust or until their successors are duly elected and qualified, or until they die, resign, are removed or become disqualified. Certain officers hold comparable positions with certain other investment companies of which Northern Trust Corporation, PFPC or an affiliate thereof is the investment adviser, custodian, transfer agent, administrator and/or distributor.

OFFICERS OF THE TRUSTS

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Remuneration of the Trustees and Officers

Each Trust pays the fees of its respective Trustees. The Trusts’ officers do not receive fees from the Trusts for services in such capacities, although PFPC, of which Ms. Hoard is also an officer, receives fees from the Trusts for administrative services. Drinker Biddle & Reath LLP, of which Ms. McCarthy is a partner, receives fees from the Trusts for legal services. Northern Trust Corporation and/or its affiliates, of which Mses. Hill and Mairs and Messrs. Ovaert, Rein, Schweitzer and Wennlund are officers, receive fees from the Trusts as Investment Adviser, Co-Administrator, Custodian, Transfer Agent, Securities Lending Agent and/or shareholder servicing fees.

Trustees are paid an annual retainer plus chairperson fees, both at the Board and Committee levels, in addition to any travel and other expenses incurred in attending Board and Committee meetings. The Trusts do not provide pension or

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retirement benefits to the Trustees. The Trusts’ officers who are employees of Northern Trust or its affiliates are paid by Northern Trust or its affiliates.

Effective October 29, 2002, each Trustee became entitled to participate in the Northern Funds Deferred Compensation Plan (the “Plan”). Under the Plan, a Trustee may elect to have his or her deferred fees treated as if they had been invested by the Trust in the shares of the Diversified Assets Portfolio of Northern Institutional Funds and/or at the discretion of the Trust, another money market fund selected by the Trust that complies with the provisions of Rule 2a-7 under the 1940 Act or one or more short-term fixed income instruments selected by the Trust that are “eligible securities” as defined by that rule. The amount paid to the Trustees under the Plan will be determined based upon the performance of such investments. Deferral of Trustees’ fees will not obligate the Trust to retain the service of any Trustee or obligate a Fund to any level of compensation to the Trustee. The Trusts may invest in underlying securities without shareholder approval.

The compensation paid by each Trust to its Trustees is set forth in Appendix D.

Trustee Ownership of Fund Shares

The following table shows the dollar range of the value of shares of each Fund, and the dollar value of the shares of all Funds in the Northern Funds Complex, owned directly or beneficially by the Trustees, including the Nominees, as of December 31, 2006. The Northern Funds Complex consists of the Trusts.

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Interests of Certain Noninterested Nominees

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 Corporation, PFPC, Northern Funds Distributors, LLC and their respective affiliates. The Trusts have 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 the Trusts’ service providers, the Trusts themselves require no employees.

As of October 3, 2007, the Trust’s Trustees and officers as a group owned beneficially less than 1% of the outstanding shares of each Fund.

Board Meetings, Committees and Other Related Matters

Each Board is responsible for overseeing generally the operation of its respective Funds, including reviewing and approving the Funds’ contracts with its investment advisers. The officers are responsible for the day-to-day management and administration of the Funds’ operations. The Northern Funds Board met five times during the year ended December 31, 2006. The Northern Institutional Funds Board met four times during the year ended December 31, 2006. The Northern Multi-Manager Funds Board met three times during the year ended December 31, 2006. Each Trustee attended or participated telephonically in at least 75% of all applicable Board and Committee meetings. None of the Boards has a policy regarding Trustee attendance at special meetings of shareholders. A shareholder may send communications to a Board by writing the Board c/o Secretary of the Trust (Diana E. McCarthy, Drinker Biddle & Reath LLP, One Logan Square, 18^th and Cherry Streets, Philadelphia, PA 19103).

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Committees of Boards of Northern Funds and Northern Institutional Funds

The Boards of Northern Funds and Northern Institutional Funds have each established standing Audit, Governance and Valuation Committees.

Each Audit Committee currently consists of four non-interested members: Messrs. Condon (Chairperson), Bax and Strubel and Ms. Gilliam. The Audit Committee of each Board oversees the audit process and provides assistance to the full Board of Trustees for fund accounting, tax compliance and financial statement matters. In performing its responsibilities, the Audit Committee selects and recommends annually to the entire Board of Trustees an independent registered public accounting firm to audit the books and records of the Trust for the ensuing year, and reviews with the firm the scope and results of each audit. The Audit Committee also is designated as the Qualified Legal Compliance Committee. The Audit Committee convenes at least four times each year to meet with the independent registered public accounting firm to review the scope and results of the audit and to discuss other nonaudit matters as requested by the Board’s Chairperson, the Committee Chairperson or the independent registered public accounting firm. During the fiscal year ended March 31, 2007, the Audit Committee of the Northern Funds convened five times. During the fiscal year ended November 30, 2006, the Audit Committee of the Northern Institutional Funds convened five times.

Each Governance Committee consists of three noninterested members: Ms. Guthman (Chairperson) and Messrs. Bax and Strubel. The functions performed by each Governance Committee include, among other things, selecting and nominating candidates to serve as Trustees, reviewing and making recommendations regarding Trustee compensation, developing policies regarding Trustee education and, subject to Board oversight, supervising the Trust’s CCO. During the fiscal years ended March 31, 2007 and November 30, 2006, respectively, the Governance Committee of the applicable Trust convened three times. A copy of the Boards’ Governance Committee Charter is attached as Appendix E.

In connection with the selection and nomination of candidates to the Board of Trustees, the Committee is required to evaluate the qualifications of candidates for Board membership and, for Independent Trustees, their independence from the Trust’s investment advisers and other principal service providers. Persons selected as Independent Trustees must be independent in terms of both the letter and the spirit of the 1940 Act. The Committee is also required to consider the effect of any relationships beyond those delineated in that Act that might impair independence (for example, business, financial or family relationships with the investment advisers or other service providers). In filling Board vacancies, the Governance Committee will consider nominees recommended by shareholders. Nominee recommendations should be submitted to the Trust at its mailing address and

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should be directed to the attention of Northern Funds or Northern Institutional Funds Governance Committee, as the case may be. The applicable Governance Committee has selected and nominated the Nominees for election at the Meeting.

Each Valuation Committee consists of three members: Messrs. Murphy (Chairperson) and Strubel and Ms. Skinner. Each Valuation Committee is authorized to act for the respective Board in connection with the valuation of portfolio securities of the respective Trust’s non-money market Funds in accordance with the Trust’s valuation procedures. During the fiscal years ended March 31, 2007, and November 30, 2006, respectively, the Valuation Committee of the applicable Trust convened four times.

Committees of the Northern Multi-Manager Board

The Northern Multi-Manager Board has one standing committee, the Audit Committee.

The Audit Committee currently consists of four non-interested members: Messrs. Condon (Chairperson), Bax and Strubel and Ms. Gilliam. The Audit Committee oversees the audit process and provides assistance to the full Board of Trustees for fund accounting, tax compliance and financial statement matters. In performing its responsibilities, the Audit Committee selects and recommends annually to the entire Multi-Manager Board of Trustees an independent registered public accounting firm to audit the books and records of the Trust for the ensuing year, and reviews with the firm the scope and results of each audit. The Audit Committee also is designated as the Qualified Legal Compliance Committee. The Audit Committee convenes at least four times each year to meet with the independent registered public accounting firm to review the scope and results of the audit and to discuss other nonaudit matters as requested by the Board’s Chairperson, the Committee Chairperson or the independent registered public accounting firm. During the fiscal year ended March 31, 2007, the Multi-Manager Board’s Audit Committee convened three times.

The Multi-Manager Board determined that a standing nominating committee is unnecessary and that the Independent Trustees will carry out the functions of a nominating committee. In connection with the selection and nomination of candidates to the Board, the Independent Trustees of the Multi-Manager Board evaluate the qualifications of candidates for Board membership and, for the Independent Trustees, their independence from the Trust’s investment advisers, sub-advisers and other principal service providers. Persons selected as Independent Trustees must be independent in terms of both the letter and the spirit of the 1940 Act. The Committee also considers the effect of any relationships beyond those delineated in that Act that might impair independence (for example, business, financial or family relationships with the investment advisers or other service

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providers). In filling Board vacancies, the Independent Trustees will consider nominees recommended by shareholders. Nominee recommendations should be submitted to the Trust at its mailing address and should be directed to the attention of the Secretary. The Independent Trustees have selected and nominated the Nominees for election to the Multi-Manager Board at the Meeting.

THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE “FOR” EACH NOMINEE LISTED ABOVE.

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PROPOSAL 2—APPROVAL OF AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENTS

(All Funds except the Multi-Manager Funds)

Overview

Each Fund’s current investment advisory agreement (“Advisory Agreements”) states that it will continue in effect for that Fund for successive 12-month periods, provided that the continuance is approved at least annually by a certain date (“Renewal Date”) of each year. The Renewal Date currently specified in the Advisory Agreements is March 31 for the Northern Funds, other than the Multi-Manager Funds, and April 30 for the Northern Institutional Funds. After careful consideration, the Trustees concluded that it would be in the best interests of shareholders to amend and restate the Advisory Agreements with respect to all Funds (except the Multi-Manager Funds) to change the Renewal Date to June 30 for each Fund, and submit the proposed amended and restated investment advisory agreements (“Proposed Amended and Restated Advisory Agreements”) to each applicable Fund’s shareholders for their approval. The Trustees considered that such a change would allow for more time for management to assemble calendar year-end information as part of the materials for their consideration of the continuation of the Advisory Agreements. They also determined that, although there were a number of changes to update the Proposed Amended and Restated Advisory Agreements, the only change of substance was the change of the Renewal Date to June 30. Importantly, there are no changes to the Funds’ advisory fees. The Trustees considered that the Renewal Date change would not affect the compensation paid to the Investment Advisers nor the level and quality of services provided to the Funds. If shareholders approve this Proposal, each Fund’s agreement will terminate by June 30 of each year unless the continuation of the agreement is approved by such date. If a Fund’s shareholders do not approve this Proposal for their Fund, none of the Funds will enter into the Amended and Restated Advisory Agreements – the practical effect of which will be that the Renewal Date for your Fund will remain March 31 or April 30, as the case may be.

The Proposed Amended and Restated Advisory Agreements for the applicable Funds are attached to this Proxy Statement as Appendices G-I. The Proposed Amended and Restated Advisory Agreements contain a number of changes to update the Agreements, but the only change of substance is the change of the Renewal Date to June 30. Both the Trusts’ Advisory Agreements and the Proposed Amended and Restated Advisory Agreements: (1) continue in effect for a Fund from year to year so long as such continuance is approved annually by the majority of the Trusts’ Independent Trustees and by either a majority of the outstanding voting shares of the Funds or the Trustees; (2) may be terminated without payment of penalty by the Trust or by the Investment Adviser on 60 days’ notice, and terminates automatically in the event of its assignment; and (c) may not be

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amended without the approval of the majority of Trusts’ Trustees, including a majority of the Independent Trustees, and to the extent required by the 1940 Act, a majority of the outstanding voting shares of the Funds.

Information Regarding the Investment Advisers

Currently, Northern Trust Investments, N.A. (“NTI”) and Northern Trust Global Investments Limited (“NTGIL”), (each an “Investment Adviser” and collectively, the “Investment Advisers”) serve jointly as the investment advisers of the Global Fixed Income Fund, International Growth Equity Fund and the International Growth Portfolio under the respective Advisory Agreements with the Trusts. NTI serves as the investment adviser of each of the other Funds under the respective Advisory Agreements with the Trusts. Under the Advisory Agreements, each Investment Adviser, subject to the general supervision of the Trusts’ Board of Trustees, is responsible for making investment decisions for the Funds and for placing purchase and sale orders for portfolio securities.

Each Investment Adviser is a wholly-owned subsidiary of The Northern Trust Company (“TNTC”), an Illinois state chartered banking organization and a member of the Federal Reserve System. Formed in 1889, it administers and manages assets for individuals, personal trusts, defined contribution and benefit plans and other institutional and corporate clients. TNTC is the principal wholly-owned subsidiary of Northern Trust Corporation, a financial holding company. As of June 30, 2007, Northern Trust Corporation had assets under custody of $4 trillion, and assets under investment management of $767 billion. NTI is located at 50 South LaSalle Street, Chicago, IL 60603, and NTGIL is located at 50 Bank Street, Canary Wharf, London, E145NT, United Kingdom.

Attached as Appendix F is information about NTI and NTGIL’s principal executive officers and directors.

The Amended and Restated Investment Advisory Agreements

The Advisory Agreements were approved by the sole shareholder of each Fund upon the Fund’s inception. The Advisory Agreements have not been submitted previously to a shareholder vote, with the exception of the shareholders of: the International Growth Portfolio on September 2, 1997; the U.S. Government Securities Portfolio on January 26, 1998; and, the Arizona Tax-Exempt, California Intermediate Tax-Exempt, California Municipal Money Market, California Tax-Exempt, Fixed Income, Global Fixed Income, High Yield Fixed Income, High Yield Municipal, Income Equity, Intermediate Tax-Exempt, International Growth Equity, Mid Cap Growth, Money Market, Municipal Money Market, Short-Intermediate U.S. Government, Select Equity, Small Cap Value, Small Cap Growth, Small Cap Index, Stock Index, Tax-Exempt, Technology Fund, U.S.

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Government, U.S. Government Money Market and U.S. Government Select Money Market Funds on March 21, 2000, in which those funds’ sole shareholders were deemed to have approved the Advisory Agreement for such funds upon reorganization of the Trust in Delaware.

Northern Funds currently has two agreements that govern the investment advisory services provided to its portfolios. The first agreement is the Investment Advisory and Ancillary Services Agreement, dated July 31, 2000, as amended from time to time, among Northern Funds, NTI and NTGIL. Pursuant to that agreement, Northern Funds has appointed NTI and NTGIL to act as co-investment advisers to the Global Fixed Income and International Growth Equity Fund, and NTI to act as investment adviser to the Arizona Tax-Exempt Fund, California Intermediate Tax-Exempt Fund, California Municipal Money Market Fund, California Tax-Exempt Fund, Fixed Income Fund, Growth Equity Fund, High Yield Fixed Income Fund, High Yield Municipal Fund, Income Equity Fund, Intermediate Tax-Exempt Fund, Mid Cap Growth Fund, Money Market Fund, Municipal Money Market Fund, Select Equity Fund, Short-Intermediate U.S. Government Fund, Small Cap Growth Fund, Small Cap Index Fund, Small Cap Value Fund, Stock Index Fund, Tax-Exempt Fund, Technology Fund, U.S. Government Fund, U.S. Government Money Market Fund and U.S. Government Select Money Market Fund.

The second agreement is the Investment Advisory and Ancillary Services Agreement, dated August 2, 2000, as amended from time to time, between Northern Funds and NTI. Pursuant to that agreement, Northern Funds has appointed NTI to act as investment adviser to the Bond Index Fund, Emerging Markets Equity Fund, Enhanced Large Cap Fund, Global Real Estate Index Fund, International Equity Index Fund, Large Cap Value Fund, Mid Cap Index Fund and Short-Intermediate Tax-Exempt Fund. These two Investment Advisory and Ancillary Services Agreements are virtually identical, except as to advisory fees, and have been consolidated into one amended and restated agreement, a form of which is included in Appendix G.

Northern Institutional Funds currently has three substantially identical (except for advisory fees) agreements that govern the investment advisory services provided to its portfolios. The first agreement is the Investment Advisory Agreement, dated March 31, 1998, as amended from time to time, among Northern Institutional Funds, NTI and NTGIL. Pursuant to that agreement, Northern Institutional Funds has appointed NTI and NTGIL to act as co-investment advisers to the International Growth Portfolio, and NTI to act as investment adviser to the Balanced Portfolio, Bond Portfolio, Diversified Assets Portfolio, Diversified Growth Portfolio, Equity Index Portfolio, Focused Growth Portfolio, Government Portfolio, Government Select Portfolio, Intermediate Bond Portfolio, International Equity Index Portfolio, Mid Cap Growth Portfolio, Municipal Portfolio, Short

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Bond Portfolio, Small Company Growth Portfolio, Small Company Index Portfolio, Tax-Exempt Portfolio, U.S. Government Securities Portfolio and U.S. Treasury Index Portfolio.

The second agreement is the Investment Advisory Agreement, dated March 1, 2001, as amended from time to time, between Northern Institutional Funds and NTI. Pursuant to that agreement, Northern Institutional Funds has appointed NTI to act as investment adviser to the Core Bond Portfolio and Prime Obligations Portfolio. These two Investment Advisory Agreements have been consolidated into one amended and restated agreement, a form of which is included in Appendix H.

The third agreement is the Investment Advisory Agreement, dated July 31, 2001, between Northern Institutional Funds and NTI. Pursuant to that agreement, Northern Institutional Funds has appointed NTI to act as investment adviser to the Liquid Assets Portfolio. A form of the amended and restated agreement for the Liquid Assets Portfolio is included as Appendix I.

All of these Investment Advisory Agreements have been approved by the initial sole shareholder of the Funds upon inception. None of these Agreements, however, has been submitted to a voted by shareholders.

Compensation to Investment Advisers

As compensation for advisory services and the assumption of related expenses, the Investment Advisers are 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).

NORTHERN FUNDS

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NORTHERN INSTITUTIONAL FUNDS

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The following tables show the dollar amount of fees payable to the Investment Advisers for their services for each Fund, after voluntary fee waivers and/or expense reimbursements by the Investment Advisers, if any, for the Northern Funds’ and Northern Institutional Funds’ fiscal years ended March 31, 2007, and November 30, 2006, respectively. The Investment Advisers may, at their discretion, voluntarily waive all or any portion of their advisory fees for any Fund or voluntarily reimburse expenses of the Funds. The Investment Advisers did not waive any portion of their advisory fees for any of the Northern Funds portfolios during the fiscal year ended March 31, 2007. However, the Investment Advisers voluntarily reimbursed expenses of the Northern Funds in the amounts shown below. The Investment Advisers waived their advisory fees for or reimbursed expenses of the Northern Institutional Funds portfolios in the amounts shown on page 28.

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NORTHERN FUNDS

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NORTHERN INSTITUTIONAL FUNDS

During the fiscal years ended March 31, 2007, and November 30, 2006, respectively, no commissions were paid to affiliated brokers by any Northern Funds or Northern Institutional Funds. During the fiscal years ended March 31, 2007, and November 30, 2006, NTI provided Co-Administration and TNTC provided Transfer Agency, Custodial and Foreign Custodial services to the Trusts and received the fees set forth in Appendix J. During this same period, TNTC acted as securities lending agent for Northern Institutional Funds and received fees for these services as set forth in Appendix J. It is anticipated that NTI and TNTC will continue to provide all of the foregoing services to the Funds after the date of approval of Proposal 2.

Each Board Evaluation and Recommendation

At the August 2-3, 2007, quarterly meeting of the Board of Trustees, and after careful consideration, the Trustees approved the Proposed Amended and Restated Advisory Agreements, subject to shareholder approval. The Trustees determined

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that it would be in the best interest of shareholders if the Renewal Date was changed from March 31 (for Northern Funds) and April 30 (for Northern Institutional Funds) to June 30. The Trustees considered that such a change would allow for more time for management to assemble calendar year-end information as part of the materials for their consideration of the continuation of the Advisory Agreements. They also determined that, although there were a number of changes to update the Proposed Amended and Restated Advisory Agreements, the only change of substance was the change of the Renewal Date to June 30. The Trustees considered that the Renewal Date change would not affect the compensation paid to the Investment Advisers nor the level and quality of services provided to the Funds.

The Trustees last approved the continuation of the Advisory Agreements of Northern Funds and Northern Institutional Funds at a meeting held on February 15, 2007 (the “Annual Contract Meeting”). In addition, the Advisory Agreements for the Bond Index Fund (which commenced operations on February 27, 2007) and the Short-Intermediate Tax-Exempt Fund (which commenced operations on August 22, 2007) were initially approved by the Trustees at the Annual Contract Meeting and on August 2, 2007 (the “August Meeting” and together with the November Meeting and Annual Contract Meeting, the “Meetings”), respectively.

In preparation for the Trustees’ consideration of the Advisory Agreements at the Annual Contract Meeting, the Trustees reviewed information on the following topics for all of the Funds (except the Short-Intermediate Tax-Exempt Fund) at a meeting held on November 3, 2006 (the “November Meeting”): the Investment Advisers’ profitability; the qualifications of the Investment Advisers and their affiliates to provide services to the Funds; and policies adopted by the Investment Advisers regarding brokerage, trade allocations and other matters. The Trustees reviewed the matters for the Short-Intermediate Tax-Exempt Fund at the August Meeting.

In connection with the Meetings, the Trustees received written materials and oral presentations relating to the Trustees’ consideration of the Advisory Agreements, and at those meetings the Trustees also considered the Investment Advisers’ oral presentations and discussed the information that had been provided. In connection with their deliberations, the Trustees were advised by their independent legal counsel regarding their responsibilities under applicable law, and met in executive sessions at the Meetings without employees of the Investment Advisers present.

In evaluating the Advisory Agreements, the Trustees relied upon their knowledge, resulting from their meetings and other interactions throughout the year, of the Investment Advisers, their services and the Funds. Both in meetings specifically dedicated to the review of the Advisory Agreements and meetings held during the year, the Trustees received materials relating to the Investment

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Advisers’ investment management services. These materials included: (i) information on the investment performance of the Funds in comparison to other mutual funds and benchmark performance indices; (ii) general investment outlooks in the markets in which the Funds invest; (iii) compliance reports; and (iv) expenses borne by the Funds.

Specifically in connection with the Trustees’ approval of the Advisory Agreements, the Trustees reviewed, among other things, information relating to: (i) the terms of the Advisory Agreements; (ii) the Funds’ investment performance over different time periods in comparison to the investment performance of mutual fund peer groups and categories selected by Lipper Inc. (“Lipper”), a third-party provider of mutual fund data, except for the Bond Index and Short-Intermediate Tax-Exempt Funds (which had no performance history); (iii) the contractual investment advisory fees, the actual investment advisory fees (after voluntary waivers) and the total expenses borne by the Funds in comparison to those borne by mutual fund peer groups and categories selected by Lipper; (iv) the investment advisory fees charged by the Investment Advisers to certain of the Investment Advisers’ other accounts; (v) the scope and depth of the Investment Advisers’ resources; (vi) the Investment Advisers’ staffing for the Funds and the experience of the portfolio managers; (vii) the Investment Advisers’ financial resources and their ability to attract and retain portfolio management talent; (viii) the fees paid by the Funds to the Investment Advisers and their affiliates for services, and the expenses incurred by them in connection with the provision of those services; (ix) the benefits received by the Investment Advisers and their affiliates from their relationships with the Funds; and (x) potential economies of scale at various Fund asset levels. In addition, the Trustees considered the Investment Advisers’ willingness to meet separately with representatives of the Boards in preparation for the Meetings and to provide information requested by the Trustees.

In connection with their approval of the Advisory Agreements for each of the Funds, the Trustees gave weight to various factors, but did not identify any single factor as controlling their decision. As part of their review, the Trustees considered the nature, extent and quality of the services provided by the Investment Advisers. In this regard, the Trustees considered both the investment advisory services, and the other non-advisory services, that are provided to the Funds by the Investment Advisers and their affiliates. These services include services as the Funds’ custodian, transfer agent, co-administrator and securities lending agent. The Trustees also considered that many of the Funds’ shareholders had other client relationships with TNTC. The Trustees concluded that the Investment Advisers were both able to commit, and had committed, substantial financial and other resources to the operations of the Funds and were able to provide quality services to the Funds. In connection with the Bond Index and Short-Intermediate Tax-Exempt Funds, they also considered the experience of the proposed portfolio managers and the Investment Adviser’s depth of experience. The Trustees also

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discussed the Investment Advisers’ continued commitments to address the regulatory compliance requirements that were applicable to the Funds and the continued involvement of internal audit in reviewing operations related to the Funds. In connection with compliance, the Trustees noted the frequent and substantial reports made by the Trusts’ Chief Compliance Officer at Board meetings throughout the year. Finally, the Trustees considered the Investment Advisers’ responsiveness to their requests for information, including, but not limited to, in connection with the in-depth performance reports discussed below.

The Trustees also considered the investment performance of the Funds (except for the Bond Index and Short-Intermediate Tax-Exempt Funds, which, as noted, had no performance history). In this regard, the Trustees considered whether the Funds had operated within their respective investment objectives, as well as their compliance with their investment restrictions. They also compared the investment performance of the Funds to the performance of other SEC-registered funds and to rankings and ratings issued by third-parties. The Trustees also reviewed the Funds’ investment performance relative to their respective performance benchmarks. For Funds that had been in existence for the applicable periods, information on the Funds’ investment performance was provided for one, two, three, four, five and ten years. In addition, where applicable, the Trustees reviewed information prepared by a third-party analyzing the risk-adjusted returns of the Funds. The Trustees also reviewed each Fund’s excess returns, if applicable, versus targeted returns. The Trustees considered the Funds’ investment performance in light of the investment benchmarks, objectives and credit parameters applicable to the Funds and the investor base the Funds are intended to serve. In this regard, it was noted that the Liquid Assets Portfolio holds securities lending collateral of other Northern Institutional Fund portfolios as well as of certain unaffiliated mutual funds. They also considered all of the money market funds’ compliance with regulations of the Securities and Exchange Commission applicable to money market mutual funds and the stability of the money market funds’ net asset values. In addition, the Trustees reviewed the consistency of the Investment Advisers’ investment approach for the Funds and changes made throughout the year to investment personnel to address performance issues. In this regard, the Trustees believed that the in-depth performance reviews on certain Funds requested by the Trustees and provided by the Investment Advisers had assisted them in evaluating performance issues and that these reviews had also resulted in improved performance in most of the Funds that were subject to the reviews.

Based on the information provided, the Trustees believed that with respect to the Northern Funds, the Enhanced Large Cap, Income Equity, Small Cap Growth, and Technology Funds had all outperformed their respective benchmarks and beat or were competitive with their peers for various time periods; the Small Cap Value Fund had good long-term performance; the Emerging Markets Equity Fund was competitive with its peers and benchmark; the Growth Equity, International

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Growth, Large Cap Value, Mid Cap Growth and Select Equity Funds all had improving performance in recent time periods; and the Global Real Estate Index, International Equity Index, Mid Cap Index, Small Cap Index and Stock Index Funds were tracking their respective benchmarks. In addition, they believed that the investment performance of the Bond Index, Fixed Income, Global Fixed Income, High Yield Fixed Income, Short-Intermediate U.S. Government and U.S. Government Funds were, in general, competitive in light of the factors mentioned above, including the Funds’ investment policies and the nature of their shareholder base, and that performance had been generally improving, especially in the one-year period. The Trustees evaluated this performance information in light of the relative risk, credit parameters and investor base of the Funds. Overall, the Trustees concluded that the Investment Advisers were devoting appropriate resources to improve the investment performance of the Funds.

With respect to the Northern tax-exempt fixed income funds, the Trustees believed that the investment performance of the Arizona Tax-Exempt, California Intermediate Tax-Exempt, California Tax-Exempt, High Yield Municipal, Intermediate Tax-Exempt and Tax-Exempt Funds were, in general, competitive in light of the factors mentioned above, including the Funds’ investment policies and the nature of their shareholder base, and that performance had been generally improving. In this regard, the Trustees considered that the High Yield Municipal Fund had improving performance over the recent one-year period; and that the remaining Funds had good relative performance for all time periods, except for the California Tax-Exempt and Arizona Tax-Exempt Funds. The Trustees evaluated this performance information in light of the relative risk, credit parameters and investor base of the Funds. Overall, the Trustees concluded that the Investment Adviser was devoting appropriate resources to improving the investment performance of the Funds.

With respect to the Northern money market funds, the Trustees believed that the California Municipal Money Market, Money Market, Municipal Money Market, U.S. Government Money Market and U.S. Government Select Money Market Funds had provided competitive yields in light of their respective investments objectives and policies.

With respect to the Northern Institutional Funds, the Trustees believed that the Equity Index, International Equity Index and Small Company Index Portfolios were tracking their respective benchmarks. The Trustees also considered that most of the other equity portfolios had outperformed or were competitive with their benchmarks and peers for various time periods. In particular, the Trustees believed that the performance of the Focused Growth, International Growth and Small Company Growth Portfolios had been comparatively stronger versus their peers and benchmarks during the recent period. The performance results of the Diversified Growth, Balanced and Mid Cap Growth Portfolios had lagged their

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mutual fund peer groups and benchmarks. However, the Trustees concluded that the Investment Advisers were addressing the investment performance of those portfolios through the retention of new investment personnel and changes in the investment processes and discipline used for those portfolios. The Boards concluded that the Investment Advisers’ performance record and their continuing efforts to provide favorable performance results indicated that their continued management would benefit the portfolios and their shareholders.

With respect to Northern Institutional fixed income portfolios, the Trustees believed that the investment performance of the U.S. Treasury Index Portfolio was generally tracking its index and that the investment performance of the Bond, Core Bond, Intermediate Bond and Short Bond Portfolios were, in general, competitive in light of the factors mentioned above, including the portfolios’ investment policies and the nature of their shareholder base and that performance had been generally improving especially in the one-year period. In particular, the Trustees believed that the Bond, Core Bond, Intermediate Bond, Short Bond and U.S. Government Securities Portfolios all were competitive with or exceeded the performance of their respective peers and benchmarks for the one-and three-year periods, and in some cases for longer periods. In reaching conclusions about the Funds’ investment performance, the Trustees also reviewed, among other things, the relative performance of the respective portfolios as compared to the mutual fund categories established by third-parties and their benchmarks for different time periods. They also noted again the potential impact of the relative risk parameters of the different Funds. For example, the U.S. Government Securities Portfolio did not invest in any corporate debt. Overall, the Trustees concluded that the Investment Advisers were devoting appropriate resources in their efforts to provide favorable investment results for the Funds.

With respect to the Northern Institutional money market portfolios, the Trustees concluded that the Diversified Assets, Government, Government Select, Liquid Assets, Municipal, Prime Obligations and Tax-Exempt Portfolios had provided competitive yields in light of their respective investment objectives and policies. In addition, the Trustees also considered the Funds’ contractual advisory fee rates; the Funds’ total operating expense ratios; the Investment Advisers’ voluntary fee waivers and expense reimbursements with respect to the Funds; and whether a consistent methodology was in place in determining the fees and expenses of the respective Funds.

The Trustees considered the fees paid by the Funds to the Investment Advisers and their affiliates for custodial, transfer agency, co-administration (including any contractual reimbursements made by affiliates performing co-administration services) and securities lending services, and reviewed information regarding economies of scale. In this regard, the Trustees considered the Investment Advisers’ view that the Funds may be sharing in economies of scale through the

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level at which the Funds’ advisory fees are set and through the Investment Advisers’ voluntary fees waivers and certain affiliate’s contractual expense reimbursement that limit the expense caps for the Funds. In addition, the Trustees considered the amount of assets (or, in the case of the Bond Index and Short-Intermediate Tax-Exempt Funds, projected assets) in the Funds; the information provided by the Investment Advisers relating to the costs of the services provided by the Investment Advisers and their affiliates and the profits (or, in the case of the Bond Index and Short-Intermediate Tax-Exempt Funds, projected profits) realized by them; and information comparing the fee rates charged by the Investment Advisers (which do not include fee breakpoints) with the fee rates charged by other, unaffiliated investment managers to their clients. The Trustees also considered the reductions in the contractual advisory fee rates for the Funds that were approved in recent years, including 2006.

Information on the services rendered by the Investment Advisers to the Funds, the recently reduced fee rates paid by certain of the Funds under the Advisory Agreements and the Funds’ total operating expense ratios were compared to similar information for other mutual funds advised by the Investment Advisers and other, unaffiliated investment management firms. Many of the comparisons of the Funds’ fee rates and total operating expense ratios were prepared by Lipper. These comparisons assisted the Trustees in evaluating the reasonableness of the investment advisory fees paid by the Funds. Information was also provided on the fee rates charged by the Investment Advisers to private accounts managed by them, and on the brokerage and research services received by the Investment Advisers in connection with the placement of brokerage transactions for certain Funds. In addition, the Trustees noted the Investment Advisers’ voluntary undertaking to limit the Funds’ total expense ratios to specified levels.

After deliberation, the Trustees concluded at the Annual Contract Meeting with respect to all of the Funds, and at the August 2, 2007 Board meeting with respect to the Short-Intermediate Tax-Exempt Fund, that the fees paid by Funds were reasonable in light of the services provided by the Investment Advisers, their actual or projected costs and the Funds’ current and reasonably foreseeable asset levels, and that the Advisory Agreements should be approved and continued.

THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE “FOR” THE AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENTS.

Required Vote

Approval of the Proposed Amended and Restated Advisory Agreements as to each Fund requires the affirmative vote of a majority of the outstanding shares (as defined with respect to voting securities by the 1940 Act) of each Fund. For this

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purpose, a majority of the outstanding shares of a Fund means the vote of the lesser of (1) 67% or more of the shares of the Fund present at the Meeting, if the holders of more than 50% of the shares of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding shares of the Fund.

ADDITIONAL INFORMATION

Other Business

As of the date of this Proxy Statement, the Trustees are not aware of any matters to be presented for action at the Meeting other than those described above. Should other business properly be brought before the Meeting, it is intended that the accompanying Proxy will be voted thereon in accordance with the judgment of the persons named as proxies.

Proxies and Voting at the Meeting

A Proxy is revocable by a shareholder at any time before it is exercised by written notice to the Trust (addressed to the Secretary at the Trust’s principal office), by executing a superseding Proxy or by attending the Meeting and voting in person. All valid Proxies received prior to the Meeting (including any adjournment thereof) will be voted at the Meeting. Matters on which a choice has been provided will be voted as indicated on a Proxy and, if no instruction is given, the persons named as proxies will vote the shares represented thereby in favor of the matters set forth in each proposal and will use their best judgment in connection with the transaction of such other business as may properly come before the Meeting.

In the event that at the time any session of the Meeting is called to order a quorum is not present in person or by proxy, the persons named as proxies may vote those Proxies that have been received to adjourn the Meeting to a later date. In the event that a quorum is present but sufficient votes in favor of any of the proposals have not been received, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of Proxies with respect to such proposals. Any such adjournment will require the affirmative vote of a majority of the shares of a Trust (or the affected Fund) present and voting in person or by proxy at the session of the Meeting to be adjourned. The persons named as proxies will vote those Proxies that they are entitled to vote in favor of any such proposal in favor of such an adjournment, and will vote those Proxies required to be voted against any such proposal against any such adjournment. A shareholder vote may be taken on one or more of the proposals in this Proxy Statement for one or more Funds prior to such adjournment if sufficient votes for their approval have been received and it is otherwise appropriate.

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A majority of the shares entitled to vote with respect to a proposal will be a quorum for the transaction of business with respect to that proposal at the Meeting, but any lesser number will be sufficient for adjournments. Abstentions will be treated as shares that are present at the Meeting, but will not be counted as a vote at the Meeting. Accordingly, an abstention from voting on a proposal will have no effect on Proposal 1 but will have the same effect as a vote against Proposal 2. If a broker or nominee holding shares in “street name” indicates on the Proxy that it does not have discretionary authority to vote as to a particular proposal, those shares will be considered as present at the Meeting with respect to the proposal. Accordingly, a “broker nonvote” will not affect the Trust’s ability to achieve a quorum at the Meeting, but will have the same effect as a vote against Proposal 2.

Share Ownership Information

Appendix B sets forth the persons who owned beneficially more than 5% of the shares of any Fund as of the Record Date for the Meeting. For purposes of the 1940 Act, any person who owns directly or through one or more controlled companies more than 25% of the voting securities of a company is presumed to “control” such company.

As of the Record Date, Northern Trust and/or certain of its affiliates have discretionary authority over the voting of more than 25% of each Northern Fund’s shares, except for the Select Equity, Small Cap Value and U.S. Government Select Money Market Funds, through Northern Trust customer accounts. As of the Record Date, Northern Trust and/or certain of its affiliates have discretionary authority over the voting of more than 25% of each of Northern Institutional Funds’ shares, except for the Diversified Assets, Equity Index, Government, Government Select, Liquid Assets, Municipal, Prime Obligations, Small Company Index and U.S. Government Securities Portfolios. The approximate percentage of outstanding shares of Northern Funds (including the Multi-Manager Funds) and Northern Institutional Funds over which Northern Trust has discretionary voting and/or investment power is set forth in Appendix C. Northern Trust has advised the Funds that it intends to vote the shares over which it has voting power “FOR” and “WITHHOLD ALL” in the election of each Nominee named in Proposal 1 in the same proportions as the total votes that are cast “FOR” and “WITHHOLD ALL” in such election by the other shareholders of a Trust. Northern Trust has further advised the Trusts that it intends to vote the shares over which it has voting power with respect to Proposal 2 according to a recommendation of Institutional Shareholder Services (“ISS”) consistent with Northern Trust’s Proxy Voting Policies. ISS, in its sole discretion, will determine how a large portion of Fund shares will be voted on Proposal 2, without any solicitation of voting instructions from the beneficial owner. The approximate percentage of outstanding shares of each Fund that is subject to this ISS arrangement is set forth in the table in Appendix C. In the case of a number of Funds, the shares that will be voted per the

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ISS determination constitutes an outright majority of that Fund’s shares and, therefore, the ISS determination will be dispositive for that Fund’s approval or disapproval of Proposal 2.

Manner and Cost of Proxy Solicitation

Proxies will be solicited by mail and may also be solicited in person or by telephone, fax, Internet or personal interview by officers of Northern Trust. In addition, employees of Northern Trust, its affiliates, correspondent banks, brokers and similar record holders may solicit proxies by these means, and may forward proxy materials and printed direction forms to the customers on whose behalf they hold record ownership of shares of the Funds.

Each Fund will bear its allocable portion of proxy solicitation expenses, including the cost of preparing and assembling materials used in connection with the solicitation of proxies and holding the shareholder meeting. Northern Trust and other financial intermediaries that have entered into shareholder servicing agreements with the Funds will bear all other mailing expenses associated with the solicitation of proxies. Northern Trust will reimburse correspondent banks, brokers and other similar record holders who have not entered into shareholder servicing agreements for their reasonable expenses incurred in forwarding proxy materials to beneficial owners.

Multiple Shareholders in a Household

If you are a member of a household in which multiple shareholders of a Fund share the same address, and the Fund or your broker or bank (for “street name” accounts) has received consent to household material, then the Fund or your broker or bank may have sent to your household only one copy of this Proxy Statement or the Notice of Internet Availability of Proxy Materials (“Proxy Materials”), unless the Fund or your broker or bank previously received contrary instructions from a shareholder in your household. If you are part of a household that has received only one copy of the Proxy Materials, the Fund will deliver promptly a separate copy of the Proxy Materials to you upon written or oral request.

To receive a separate copy of the Proxy Materials, or if you would like to receive a separate copy of future proxy statements, prospectuses or annual reports, please contact Northern Funds or Northern Institutional Funds by calling 800-595-9111, by mail at Northern Funds or Northern Institutional Funds, P.O. Box 75986, Chicago, Illinois 60675-5986 or by e-mail at northern-funds@ntrs.com. On the other hand, if you are now receiving multiple copies of these documents and would like to receive a single copy in the future, please contact Northern Funds at the telephone number or address stated above. If your shares are held in street name, please contact your broker or bank.

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Shareholder Proposals

Neither Trust is required, nor does it intend, to hold annual meetings of shareholders each year for the election of Trustees and other business. Instead, meetings will be held only when and if required (for example, whenever less than a majority of the Board of Trustees holding office has been elected by the shareholders or when the Trustees have received a written request to call a meeting for the purpose of voting on the question of the removal of any Trustee from the holders of record of at least 10% of the outstanding shares). Any shareholders desiring to present a proposal for consideration at the next meeting for shareholders of their Fund must submit the proposal in writing so that it is received by the appropriate Fund within a reasonable time before any meeting. These proposals should be sent to the Trust at its address stated below under “Information About the Trusts.”

Information About Distributor and Co-Administrator

Northern Funds Distributors, LLC, with principal offices at 301 Bellevue Parkway, Wilmington, DE 19809, serves as the Funds’ distributor.

NTI, located at 50 South LaSalle Street, Chicago, Illinois 60603, and PFPC, located at 99 High Street, Boston, Massachusetts 02110, act as co-administrators for the Funds.

Information About the Trusts

Each Trust currently has its principal office at 50 South LaSalle Street, Chicago, Illinois 60603.

* * *

Even if you expect to attend the Meeting in person, please promptly follow the enclosed directions to submit voting instructions by telephone or over the Internet. Alternatively, you may submit voting instructions by signing and dating each proxy card that you receive, and if received by mail, returning it in the accompanying postage paid return envelope.

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.

October 31, 2007

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APPENDIX A

OUTSTANDING SHARES

NORTHERN FUNDS

As of October 3, 2007, each Northern Fund had the following number of shares outstanding:

A-1

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OUTSTANDING SHARES

NORTHERN INSTITUTIONAL FUNDS

As of October 3, 2007, each Northern Institutional Fund had the following number of shares outstanding:

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APPENDIX B

5% SHARE OWNERSHIP

In addition, as of October 3, 2007, the following persons or entities, with an address of 50 South LaSalle Street, Chicago, IL 60603, owned beneficially more than 5% of the outstanding shares of the following Funds:

NORTHERN FUNDS

B-1

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NORTHERN FUNDS (cont.)

NORTHERN INSTITUTIONAL FUNDS

B-2

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NORTHERN INSTITUTIONAL FUNDS (cont.)

B-3

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NORTHERN INSTITUTIONAL FUNDS (cont.)

B-4

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NORTHERN INSTITUTIONAL FUNDS (cont.)