In November 2011, after months of debate, Congress was unable to arrive at an agreement to gradually reduce the U.S. deficit. As a result, they deferred any decision by implementing a process called sequestration, scheduled to take effect in January 2013. This draconian option was thought sufficient to motivate both political parties to focus on resolving their differences. It was never intended to actually take effect, as it will trigger across- the- board spending cuts of $1.2 trillion over 10 years to both domestic and defense programs. For more info: www.nafcu.org/nifcus

1. The Upcoming U.S. Presidential Election
and the Fiscal Cliff
September 2012
In November 2011, after months of debate, Congress was unable to arrive at an agreement to gradually reduce
the U.S. deficit. As a result, they deferred any decision by implementing a process called sequestration, scheduled
to take effect in January 2013. This draconian option was thought sufficient to motivate both political parties to
focus on resolving their differences. It was never intended to actually take effect, as it will trigger across- the- board
spending cuts of $1.2 trillion over 10 years to both domestic and defense programs.
Since that time, there has been no progress on dealing with the nation’s long term budget problems as partisanship
and electioneering have prolonged the stalemate. The hope is that following next month’s election lawmakers will
refocus to tackle this issue. There is also the expectation that discussions will need to be held as soon as February
2013 regarding once again raising the statutory debt ceiling from the current $14.7 trillion. Last month, before
leaving to campaign, Congress passed a six month continuing resolution to fund the U.S. government through
March 2013.
There has been some posturing about allowing the economy to go over the fiscal cliff; thereby allowing the Bush
tax cuts to sunset and setting the stage to extract revenue concessions. There has also been talk about the political
parties negotiating a compromise that effectively amounts to finding a way to kick the can down the road once
again. Both would be viewed extremely negatively by the major rating agencies. Three of the Nationally Recognized
Statistical Rating Organizations have already weighed in with strong words as to the likely impact on the country’s
credit rating should a credible plan not be forthcoming. Recall that in August 2011, after an acrimonious battle over
raising the U.S. debt limit, Standard and Poor’s Corporation downgraded the U.S. long-term credit rating from AAA
to AA+. To date they have been the only agency to take this action.
At HighMark Capital Management we believe that there will be an agreement reached to delay the sequester,
either in the lame duck session immediately following the election or as soon as the next Administration is sworn in.
Voters are keenly focused on this issue and are likely to be unforgiving of failure to show progress in this area. Our
view is that this will likely entail a one year phase out of the reduction in payroll taxes, extension of the Bush tax cuts
for middle income taxpayers and continuation of long term unemployment insurance benefits. Fixes to Medicare
reimbursement amounts for physicians, and inflation indexing of the Alternative Minimum Tax (AMT) are also
pressing issues that we think will be addressed in the first deal.
On the larger issues, such as the future of Social Security and Medicare, the political parties are deeply divided,
making reform very difficult to predict.

2. Neither party wants to be seen as responsible for precipitating a downgrade of the U.S. debt rating or for pushing the
economy into recession once again, so there will likely be cooperation sufficient to reduce the risk of a fiscal crisis,
and inject a measure of certainty into tax policy. The hope is that businesses and consumers will then invest and
spend to spur economic growth.
The Federal Reserve has held short-term interest rates at or near zero since December 2008, and implemented
several rounds of quantitative easing. At the conclusion of their Sept 13th meeting Chairman Bernanke used his
statement to stress the Board’s commitment to promoting stronger economic growth, stating that they would likely
keep interest rates low through mid 2015 and would not tighten monetary policy until the unemployment rate falls
below 7%. This change in tone implies that the Fed would tolerate a slightly higher rate of inflation to promote job
growth.
We do not expect another rating downgrade, but it is important to note that such a development does not pre-
clude a short term fund such as NIFCU$ from investing in or retaining securities issued or guaranteed by the U.S.
Treasury, and therefore would not change our strategy. Moreover, our belief is that another one notch downgrade
would likely not impact funding costs given the low interest rate environment, and U.S. Government securities
continue to be valued as safe, liquid investment alternatives in light of the continuing economic challenges in the
Euro-zone.
We will continue to monitor events in the global markets, adjust strategy accordingly, and will keep you updated.
Thank you for continued investment in the National Investment Fund for Credit Unions.
Hillary Elder, Team Leader
Union Bank®, N.A., (Union Bank) is the Investment Manager of the Fund. HighMark® Capital Management, Inc. (Adviser), a registered
investment adviser and a wholly owned subsidiary of Union Bank, has been appointed as the Investment Adviser to manage the assets of the Fund.
Union Bank, N.A., is also the Fund’s Trustee and Custodian.
This publication is for general information only and is not intended to provide specific advice to any individual. Some information provided
herein was obtained from third party sources deemed to be reliable. HighMark Capital Management, Inc. and its affiliates make no representations or
warranties with respect to the timeliness, accuracy, or completeness of this publication and bear no liability for any loss arising from its use. All
forward looking information and forecasts contained in this publication, unless otherwise noted, are the opinion of HighMark Capital
Management, Inc. and future market movements may differ significantly from our expectations. HighMark Capital Management, Inc., a registered investment
adviser and subsidiary of Union Bank, N.A., serves as the investment adviser for HighMark Funds. HighMark Funds Distributors, LLC, an
affiliate of Foreside Funds Distributors LLC, is the principal underwriter of the HighMark Funds. Union Bank, N.A., a subsidiary of UnionBanCal
Corporation, performs certain services for the HighMark Funds and other investment products managed by HighMark and is compensated for
these services. Shares in the HighMark Funds and investments in HighMark Capital Management, Inc. strategies are not deposits, obligations of or
guaranteed by the adviser, its parent, or any affiliates. Index performance or any index related data is given for illustrative purposes only and is not
indicative of the performance of any portfolio. Note that an investment cannot be made directly in an index. Any performance data shown herein
represents returns, and is no guarantee of future results. Investment return and principal value will fluctuate, so that investors’ shares, when sold, may be
worth more or less than their original cost. Current performance may be higher or lower than the performance quoted. Investments involve risk, including
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