Governance

TABLE OF CONTENTS

1. Executive Summary
2. Purpose
3. Statement of Objectives
4. Spending Policy
5. Duties and Responsibilities
6. Investment Policy and Guidelines
7. Guidelines for Portfolio Holdings
8. Control Procedures
9. Adoption Statement

EXECUTIVE SUMMARY

American Association of Physicists in Medicine
Fund Name: Education and Research Fund
Fund Type: Exempt Operating Foundation
Date Established: November 10, 1989
Federal Tax ID#: 23-7057224
Investment Time Horizon: 10 to 20 years
Risk Tolerance: Moderate Volatility Consistent with Portfolio Benchmark
Portfolio: Asset Allocation Strategy

PURPOSE

This document establishes the Investment Policy Statement for American Association of Physicists in Medicine (AAPM) and is designed to assist in effectively supervising, monitoring and evaluating the investment performance of the AAPM Education and Research Fund's (Fund) investment assets. A thorough investment program is defined throughout this document to achieve the following:

• Document the American Association of Physicists in Medicine's investment objectives, performance expectations and investment guidelines for Fund assets.
• Establish an appropriate investment strategy for managing all Fund assets, including an investment time horizon, risk tolerance ranges and asset allocation. The goal of this strategy is to provide sufficient diversification and overall return over the long-term time horizon of the Fund.
• Establish investment guidelines to control overall risk and liquidity, within the agreed upon investment strategy.
• Establish periodic performance reporting requirements that will effectively monitor investment results and ensure that the investment policy is being followed.
• Comply with fiduciary, prudence, due diligence and legal requirements for Fund assets.

The Board of Directors of the AAPM maintains responsibility for approving this Investment Policy Statement and for any changes made to the Statement. The Board of Directors maintains the ultimate oversight of the Fund but does grant the AAPM Investment Committee the authority to maintain the Fund's operations, including the approval of transactions. The Board of Directors of the AAPM, with the assistance of the AAPM Investment Committee, has arrived at this Investment Policy through careful study of the returns and risks associated with alternative investment strategies in relation to the current and projected spending policies and fund raising requirements of the Fund. This policy has been chosen as the most appropriate policy for achieving the objectives of the Fund, which are described in the Objectives section of this document.

STATEMENT OF OBJECTIVE

The objective of the Fund shall be defined as:

• To preserve and enhance the purchasing and earning value of the funds held in the Fund.
• To seek an average annual real rate of return of 4%, or total return of CPI plus 4%. This objective shall be measured over a 10-20 year time frame, with the intent of this objective to preserve, over time, the principal value of the assets as measured in real, inflation adjusted terms.
• To seek competitive investment performance versus appropriate or relative benchmarks. This objective shall be measured primarily by comparing investment results, over a 10-20 year time period.

SPENDING POLICY

The Board of Directors will approve, at its discretion, expenditure of assets from the Fund. Expenditures are typically reserved for annual fellowship and residency positions as well as periodic, variable grants. It shall be the Board's responsibility to periodically review the spending policy of the Fund to make adjustments necessary to preserve the purchasing power of the Fund. The Board shall promptly communicate any changes in the spending policy to the Investment Committee.

Protection and growth of the corpus - assets contributed as donations - of the Fund is expected. A maximum of 5% of the fund may be withdrawn annually. Care will be taken so that the spending policy will not result in a withdrawal rate that will eventually invade the corpus of the Fund unless it becomes the desire of the Board of Directors to allow the corpus to be invaded. Only the Board has the ability to approve invasions of the corpus of the Fund.

DUTIES AND RESPONSIBILITIES

The AAPM Board of Directors grants authority to the AAPM Investment Committee to maintain the operation of the Fund. Specifically, the Investment Committee is responsible for managing the investment process in a prudent manner with regard to preserving principal while providing reasonable returns. In carrying out these duties, the AAPM Investment Committee may retain an Investment Adviser to assist in managing the assets of the Fund. The Investment Adviser's role is to provide guidance to the Board on matters pertaining to the investment of Fund assets including investment policy, investment selection, monitoring Fund performance and compliance with the Investment Policy. All decisions pertaining to the implementation of the Board approved investment policy and guidelines for the Fund shall be made by AAPM Investment Committee. Individual duties and responsibilities are detailed below.

Duties of the AAPM Investment Committee:
• Retain a qualified Investment Adviser to assist in the development and implementation of the investment policy, (e.g., goals, objectives, and guidelines).
• Make recommendations to the AAPM Board of Directors regarding the operations of the Fund including allocation between equity and fixed income assets, selection of acceptable asset classes and investment performance expectations.
• Regularly review investment performance of the Fund including the performance of the Investment Adviser to assure the policy is being followed and progress is being made toward achieving objectives.

• Report investment results to the Board of Directors on an annual basis.

• Every five years, submit a written review to the Board of Directors whereby the committee has performed a systematic and comprehensive review of the fund's objectives, management experience and investment policies.

• Work with the Board of Directors with respect to the process of awarding scholarships and grants to individuals or institutions in furtherance of the AAPM's tax-exempt purposes, from the assets of the Fund.

Duties of the Investment Adviser:

• Assist the AAPM to establish the investment policy and guidelines contained in this Investment Policy Statement.
• Determine an investment strategy and coordinate the asset allocation process. This strategy shall be within investment policy guidelines as set forth in this statement.

• Monitor asset allocation among all asset classes and verify on a monthly basis that allocations are within targets defined by this investment policy statement and realign the Fund's investments to ensure that the target asset allocation described in this Statement is maintained.

• Monitor the investment performance of the Fund and provide quarterly performance advisory reports to the AAPM Investment Committee and the AAPM Board of Directors.
• Report in a timely manner substantive developments that may affect the management of Fund assets.

INVESTMENT POLICY AND GUIDELINES

Fund assets will be held in an investment portfolio with an active strategic asset allocation strategy. This portfolio will be invested exclusively in mutual funds and/or similarly structured pooled funds (pooled investment vehicles) including exchange traded funds. As a result, assets held in this portfolio will be well diversified and highly liquid.

The Investment Adviser for each pooled investment vehicle is responsible for managing the assets of each fund in accordance with the stated objectives and policies of that fund as set forth in each vehicle's prospectus and/or statement of investment policy.

Time Horizon

Fund objectives are based on a 10-20 year investment horizon, so that interim fluctuations should be viewed with the appropriate perspective. The American Association of Physicists in Medicine has adopted this investment horizon such that the chances and duration of investment losses are carefully weighed against the potential for appreciation of assets.

Diversification

Investments shall be diversified with the intent to minimize the risk of large losses to the Fund. Consequently, the total portfolio will be constructed and maintained to provide prudent diversification with regard to the concentration of holdings in individual issues, corporations, or industries. Diversification occurs at several levels. The AAPM Board of Directors realizes a significant portion of the pooled investment vehicles comprising the Fund is allocated to U.S. equity securities, including allocations to both large and small cap equities. An allocation to developed international equities provides greater diversification, which over the longer term is expected to generate higher returns with lower volatility. Pooled investment vehicles comprising the fixed income portion of the Fund are allocated to bonds, including high quality U.S. and non-U.S. issues. Financial research has demonstrated that price volatility can be further reduced by lengthening the investment time horizon.

The Fund's investments are managed in accordance with the diversification and industry concentration restrictions set forth in the Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to the provisions of the 1940 Act, diversified mutual funds may not, with respect to 75% of their assets, (i) purchase securities of any issuer (except securities issued or guaranteed by the United States Government, its agencies or instrumentalities) if, as a result, more than 5% of its total assets would be invested in the securities of such issuer; or (ii) acquire more than 10% of the outstanding voting securities of any one issuer. Certain mutual funds in which the Fund may be invested are considered non-diversified for 1940 Act purposes. These non-diversified funds are not required to follow this procedure.

In addition, no mutual fund may purchase any securities which would cause more than 25% of its total assets to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in securities issued or guaranteed by the United States Government, its agencies or instrumentalities.

Asset Allocation

Academic research indicates that the decision how to allocate total account assets among various asset classes will far outweigh security selection and other decisions that impact portfolio performance variability.

An asset allocation strategy should include strategic (long-term) target levels, as well as allocation ranges to allow for tactical adjustments. The strategic target levels and allocation ranges should be determined by the Board of Directors based upon recommendations from the Investment Committee and the Investment Advisor.

The strategic (long-term) asset allocation strategy of the Fund is to maximize total return within acceptable risk parameters. The strategic asset allocation targets and the accompanying tolerance ranges are set by the AAPM Board of Directors. The Board believes that to achieve the greatest likelihood of meeting fund objectives and the best balance between risk and return for optimal diversification, the Fund should allocate assets in accordance with the ranges and targets stated in Appendix A.

The Investment Committee is charged with applying the strategic ranges and targets to the various sub-asset classes utilized by the Fund. The sub asset classes to be invested in by the Fund, and the allocations to those sub asset classes will be determined by the Investment Committee using the Guidelines for Portfolio Holdings detailed in this Statement. The sub-asset class allocation ranges and targets are found in Appendix A of this Statement (the sub-asset class ranges and targets will be reviewed and monitored periodically by the Investment Advisory Committee).

The allocation of assets between equity and fixed income/cash may deviate from the strategic target within the permitted range when market conditions warrant. Any such deviations are designed primarily to reduce overall investment risk in the long term.

Risk Tolerances

The AAPM Board of Directors recognizes that the objectives of the Portfolio cannot be achieved without incurring a certain amount of principal volatility. The Portfolio will be managed in a manner that seeks to minimize principal fluctuations over the established time horizon and that is consistent with the Portfolio's stated objectives.

Performance Expectations

Over the long-term, the investment objectives for this portfolio shall be to achieve an average total annual rate of return, which consists of the Consumer Price Index (CPI) plus 4% for the aggregate investments under this Investment Policy Statement. Returns may vary significantly from this target year to year.

Returns may vary significantly from this target from one reporting period to another. The criteria used for investment manager or mutual fund retention includes, among other factors, performance consistency relative to the manager's or mutual fund's specific benchmark over 1,3 and 5 year periods and performance relative to the manager's or mutual fund's investment peer group. Managers and mutual funds are expected to remain above median relative to their peer group and meet or exceed their respective style benchmarks upon review.

GUIDELINES FOR PORTFOLIO HOLDINGS

The Investment Adviser assists the Investment Committee in implementing this Investment Policy through investments in mutual funds and other pooled asset portfolios. Such investments are acceptable investments provided they conform to the diversification restrictions set forth below.

Domestic Equity

The Domestic Equity asset class may be comprised of mutual funds and other pooled asset portfolios that are invested principally in equity securities of U.S. companies. These securities may be listed on registered exchanges, or actively traded in the over-the-counter market, or considered to be restricted securities (provided that the percentage of the fund's assets invested in such securities conform to the Fund's prospectus).

International Equity
Non-U.S. Equity asset class may be comprised of mutual funds and other pooled asset portfolios that are invested principally in equity securities (common stocks, securities that are convertible into common stocks, preferred stocks, warrants and rights to subscribe to common stocks) of non-US issuers purchased in foreign markets, on U.S. or foreign registered exchanges, or the over-the-counter markets.

U.S. Fixed Income
The Domestic Fixed Income asset class may be comprised of mutual funds and other pooled asset portfolios that are invested principally in fixed income securities that are rated investment grade or better, i.e., rated in one of the four highest rating categories by a Nationally Recognized Statistical Rating Organization at the time of purchase, or if not rated, are determined to be of comparable quality by the Investment Advisor or a mutual fund sub-Advisor.

International Fixed Income
The non-U.S. fixed income asset class may be comprised of mutual funds and other pooled asset portfolios that are invested principally in investment grade fixed income securities (or securities deemed of comparable quality by the Fund's Advisor) of issuers located in other than the United States.

Cash Equivalent Reserves
Cash equivalent reserves shall consist of money market mutual funds that comply with Rule 2a-7 under the 1940 Act.

CONTROL PROCEDURES

Review of Liabilities
The AAPM Board of Directors, with assistance from the Investment Committee will review all policies, objectives and guidelines annually. This review will focus on an analysis of major differences between the Fund's assumptions and actual experience.

Review of Investment Objectives
Investment performance will be reviewed annually by the Investment Advisor to determine the continued feasibility of achieving the investment objectives and the appropriateness of the investment policy for achieving these objectives. In addition, the validity of the stated objective will be reviewed annually. It is not expected that the investment policy will change frequently. In particular, short-term changes in the financial markets should not require an adjustment in the investment policy.

Review of Investment Adviser
The Investment Adviser will report on a quarterly basis the total Fund investment performance. In addition, the Investment Adviser will be responsible for keeping the AAPM Investment Committee advised of the impact of any material change to spending policy, investment strategy, or other pertinent information potentially affecting performance of all investments.

Review of Investment Performance
Regular performance reviews will provide the following information:
• Comparison of investment results to appropriate benchmarks

• Verify adherence to Investment Policy and guidelines

Proxy Statements
Proxy statements will be voted by the investment advisers managing the particular pooled investment vehicles used to implement the Fund's investment strategy.

Appendix A