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MANAGEMENT POLICIES AND PROCEDURES

A. INTRODUCTION: In 1963 the Army Aviation Association of America (AAAA) created a scholarship program to secure contributions with which to fund college entrance level scholarships for children of AAAA members and deceased members. To administer the program and encourage members and others to make tax-free donations to it, AAAA created the AAAA Scholarship Foundation Inc. (Foundation) CERTIFICATE OF INCORPORATION, a non-profit, tax-exempt corporation under Section 501(C)(3) of the US Internal Revenue Service Code, IRS DETERMINATION LETTER, with a volunteer Board of Governors, supported by the AAAA National Office Staff. Thus, the Foundation is, effectively, the manager of the AAAA Scholarship Program.

As the Scholarship Program grew in both capitalization and diversity of scholarships to be managed, AAAA created an ad hoc Scholarship Committee within its National Executive Board to examine the manner in which the Foundation managed the Scholarship Program and to report on how the Program was serving the AAAA membership. In addition, AAAA agreed to absorb the expenses of administering the Program and, thus, enable the Foundation to assure its current and prospective donors that 100% of every dollar received goes directly to a scholarship's principal, or was paid out in scholarship grants or interest-free loans.

The purpose of this document is to delineate the policies and procedures to be followed in managing scholarships and accounting for funds entrusted to the Foundation in a manner to insure achievement of the purposes of the Scholarship Program. The purposes and persons in the AAAA membership to be served are found in the Preamble to the Foundation By-Laws.

B. GENERAL POLICIES AND PROCEDURES. The general policies and procedures gleaned from the Foundation Charter and By-Laws, governing Board decisions and AAAA guidance are listed below. They shall govern management of the Scholarship Program and funds entrusted to the Foundation.

1. The AAAA member to whom an applicant is related must have an effective date of membership on or before 1 May of the year prior to the year in which the applicant is seeking a scholarship, unless the member is deceased. This requirement is waived for all uniformed members of the Active Army, Army National Guard and U.S. Army Reserve.

2. The principal aim of the Foundation is to provide as much funding as is reasonably possible to student applicants in the population to be served.

3. All funds entrusted to the Foundation shall be held as fund principal or disbursed as scholarship grants or loans.

4. All funds received by the Foundation and not immediately needed for awards shall be invested to earn income.

5. All investments shall be in accord with the INVESTMENT MANAGEMENT POLICY.

6. The minimum scholarship grant or loan shall be $1000.

7. All funds donated to specific scholarships shall be referred to as designated funds and accounted for in an "Endowment Fund". All donations to designated funds that are "Permanently Restricted" are subject to the provisions of the Uniform Prudent Management of Institutional Funds Act, (UPMIFA). Scholarship donations to these designated funds are considered part of Fund principal and may not be used for the awarding of scholarships without the permission of the original donors. In Accordance With (IAW), UPMIFA, the AAAASFI Board of Governors (BOG) has established a "Spending Rate" which is not based on the actual portfolio returns each year, to allow for scholarships to be granted each year based upon the Designated Fund earnings before the actual Investment returns for the year are known. The BOG has established a Spending Rate of 3.5%. That means, for each multiple of $30,000 of Fund principal, a $1,000 scholarship can be awarded. Any Investment earnings on the Fund principal in excess of the Spending rate are held aside for the following year to allow for 3.5% awards to the extent available, when the actual Investment return is less than 3.5% and/or to provide for the loss of purchasing power due to inflation. UPMIFA anticipates that such a conservative "Spending Rate" will be exceeded by the average actual portfolio return over time and result in preservation of principal and possibly even an increase in fund total. A fund is considered "Permanently Restricted" when it reaches a minimum of $30,000. Only the donor has the right to allow the AAAASFI BOG to use a portion of the Fund principal or can make an additional current contribution if the 3.5% of the original Fund principal does not equal $1,000 or a multiple of a $1,000 and the donor nevertheless wants to make a $1,000 or a multiple of a $1,000 scholarship award. Donor instructions to invade principal must be in writing. Other "designated" funds include "Temporarily Restricted", which is they are in the process of funding and have not yet reached the $30,000 threshold, or "Unrestricted Funds" such as Memorial or Chapter Annual Scholarships.

8. The purpose of the General Fund is first to meet the requirements of UPMIFA to make a provision for preserving purchasing power against inflation for permanently restricted funds. The second purpose for the General Fund is to provide a source of matching funds for those authorized by the Board of Governors.

The Board of Governors has a fiduciary responsibility to maintain an adequately funded organization. To that end the Board of Governors has established a trigger/floor for the General Fund to insure it can meet the two above mentioned purposes. The General Fund is managed by an approved Investment Manager with oversight by the Finance Committee and guidance approved by the full Board of Governors. All funds not designated for permanently restricted or temporarily restricted funds shall be referred to as "undesignated" funds and accounted for in a "General Fund".

a. The General Fund trigger/floor is dynamic in nature and is based on UPMIFA inflation requirements plus the sum of the matching dollars that were actually expended from the General Fund in the three immediately preceding years in which the SFI Standard Operating Procedures for all matching grants were implemented based on the financial audits of those years.

b. The Calendar Year annual audit is completed prior to the spring meeting of the BOG held in conjunction with the AAAA Annual Forum. At the spring meeting the Treasurer reports out to the BOG on whether the General Fund has achieved the annual trigger/floor based on the preceding year's audit. If so, it triggers a full execution of the stated matching programs in paragraphs C & D of this document. If the trigger/floor is not met, the Treasurer along with the Finance Committee will provide a recommendation to the BOG for the current year's matching program. At the fall meeting of the BOG, the Treasurer will report out on the current year's just executed matching program and provide an estimate of the General Fund floor for the following year. The final trigger/floor for the following year will be based on the actual December 31 numbers in each annual audit.

9. All scholarships shall be awarded on the basis of merit and the applicants with the highest merit standings shall receive the highest dollar awards.

10. An order of merit list (OML) showing the relative standings of all scholarship applicants shall be prepared and used in the annual selection process. There shall be three separate OML lists: a) Entering Freshmen; b) Upperclassmen; and c) Graduate Students.

11. For "Open" scholarship classifications, as described herein, and other scholarships for which application restrictions are imposed by donors/proponents, the above OML's shall be used in such a way as to insure that only applicants meeting these restrictions and having not won a scholarship of higher value are selected.

12. Grants shall take precedence over loans in awards to scholarship applicants.

13. Any applicant whose OML standing merits selection for a higher dollar award than the one for which application was made shall be awarded the higher award.

14. Subsequent year awards of a multi-year grant or loan shall be dependent upon completion of the prior year academic course work and explicit intent to continue schooling under the terms of the scholarship awarded.

15. No recipient shall hold concurrent AAAASFI scholarships.

16. All scholarship disbursements must be claimed by December 1 within the academic school year in which the increment is due or be forfeited and the award made to the next most meritorious student on the OML unless the original awardee has applied for and been granted an exception to policy by the National Office.

C. THE ENDOWMENT FUND. Each scholarship funded from the Endowment Fund shall have on record a current signed agreement between the Foundation and the scholarship donor/proponent or, if a signed agreement is not available, a written statement by the Board of Governors, describing how the scholarship shall be managed and attesting to the conditions under which it will continue in effect. Scholarship grants funded from this fund shall be further classified as prescribed below.

1. The Perpetual Grants.

a. These "Permanently Restricted" grants are endowed by or in behalf of individuals, living or deceased or institutional entities and shall be awarded in perpetuity according to the wishes of the donor/proponent, consistent with Foundation policy.

b. Each of these scholarships shall receive a pro-rata share of Foundation investment earnings.

c. These grants shall be funded only from endowment earnings and donations received in the current year without invasion of principal.

d. The minimum increase in a perpetual scholarship grant shall be $500 but no grant shall be increased unless the increase can be sustained by further donations or earnings or a combination thereof.

2. The Matched Chapter Grants. These scholarships are matched dollar for dollar up to $5000 per year based on the chapter size, from the General Fund, subject to General Fund asset availability above a BOG established minimum General Fund floor, and shall be awarded in accord with the wishes of the donor chapter, consistent with Foundation policy, unless otherwise stipulated, whereby scholarships are awarded first to the top one-third freshmen, upperclassmen, and graduate students, then the middle third freshmen, upperclassmen, and graduate students, and lastly the bottom third freshmen, upperclassmen, and graduate students. The tiered categories for award matching are based on membership numbers established at the beginning of each calendar year. Super Chapters (751 members and larger) will be matched up to $3,000, Master Chapters (301-750 members) will be matched up to $4,000 while both Senior and AAAA Chapters (300 and less members) will be matched up to $5,000.

a. There are two types of Matched Chapter Grants: Perpetual Matched, and Annual Matched.

i. Perpetual Matched Chapter Grants are those designated Endowed Funds established by a chapter that are in the process of funding to, or have reached their minimum $30,000 threshold to yield a perpetual $1,000 per year award at the 3.5% "Spending Rate".

ii. Annual Matched Chapter Grants are those designated funds that have no endowed principal and are donated, matched and disbursed in the year received.

b. Matched funds may be used for either or a mix of both types subject to the individual chapter's written instructions. For example, a Super chapter may donate $3,000. That will be matched by the SFI with $3,000. This will result in a total donation of $6,000. That chapter may decide to place $2,000 in its Perpetual Grant(s) and place the remaining $4,000 in four separate $1,000 Annual Matched grants to be awarded that year.

c. Matched Chapter Grants will first be offered only to an applicant from the chapter subject to two chapter-chosen options that they select on the Matched Chapter Grant form setting up the fund.

i. Option #1. If there are no remaining applicants from the chapter because all chapter applicants have received other higher dollar amount awards, the Matched Chapter Grant will be awarded to the next most meritorious applicant on the general OML.

ii. Option #2. If there are no applicants whomsoever from the chapter, the chapter donation will be held for an award the following year to an applicant from the chapter and the amount of the match will be returned to the General Fund. If any applicant from the chapter receives any other award of a same or higher dollar amount before the Chapter award is assigned, the chapter matching fund scholarship must be awarded to the next most meritorious candidate on the general OML.

d. Chapters with less than 100 members as of January 1st of the year in which the grant is to be awarded, may donate $500 to be matched from the General Fund for a grant of $1000, subject to General Fund availability.

e. If the recipient of a matched grant is an entering freshman and the grant is less than $2000 it shall be awarded as a 1-year grant; if $2000 or more but less than $4000 it shall be awarded as a 2-year grant; if equal to or more than $4000 it shall be awarded as a 4-year grant.

f. If the recipient of a matched grant is an upperclassman or a graduate student, the grant shall be paid out at $1000 per year.

g. The provisions of paragraphs C.1.b through C.1.d above are applicable to these grants.

3. The Matched Corporate Perpetual Grants.

a. These scholarships are endowed by corporate donations, matched dollar for dollar based on gross revenue for our industry partners. For those corporations with gross earnings less than ten million dollars the match is up to $15,000 and for those corporations with gross earnings of ten million dollars or greater the match is up to $10,000. Each type of corporate grant must be matched within a five-year period from the General Fund, and is subject to General Fund availability and shall be awarded in perpetuity in accord with the wishes of the donor corporation, consistent with Foundation policy, unless otherwise stipulated, whereby scholarships are awarded first to the top one-third freshmen, upperclassmen, and graduate students, then the middle third freshmen, upperclassmen, and graduate students, and lastly the bottom third freshmen, upperclassmen, and graduate students. While all donations to a corporate fund are accepted, only those received directly from the corporate sponsor will be matched. It should be noted that in all cases a total principal of $30,000 must be reached in order to become "permanently restricted" and complete the company's pledge. For example an over $10M class of company must pledge $20,000 and only its first $10,000 will be matched by the AAAASFI for a total of $30,000.

b. The provisions of paragraphs C.1.b through C.1.d above are applicable to these grants.

4. The Matched Heritage Perpetual Grants.

a. The purpose of the Heritage Grants is to keep the sponsoring unit/organization's name alive in perpetuity.

b. These scholarships are endowed by grants from sponsoring Unit and/or Veteran associations, subject to General Fund availability and matched dollar for dollar up to $10,000 within a ten-year period from the General Fund and shall be awarded in perpetuity in accord with the wishes of the donor association, consistent with Foundation policy, unless otherwise stipulated, whereby scholarships are awarded first to the top one-third freshmen, upperclassmen, and graduate students, then the middle third freshmen, upperclassmen, and graduate students, and lastly the bottom third freshmen, upperclassmen, and graduate students. While all donations to a Heritage Fund are accepted, only the first $10,000 received directly from the sponsoring association will be matched. It should be noted that in all cases a total principal of $30,000 must be reached in order to become "permanently restricted" and complete the organization's pledge. For example an organization must pledge $20,000 and only its first $10,000 will be matched by the AAAASFI for a total of $30,000.

c. The provisions of paragraphs C.1.b through C.1.d above are applicable to these grants.

5. The Matched Individual Perpetual Grants.

a. In 2007 the AAAA Scholarship Foundation, Inc. established a pilot program to expand the then existing Corporate Matching, and Heritage Matching Fund Programs to offer a similar opportunity to Individuals. The purpose of the Individual Grants is to honor an individual(s) in perpetuity.

b. The pilot Individual Matching Fund Program was announced to the AAAA Membership and eight individuals responded. The SFI Board of Governors set a maximum of three matches per annum for a total potential exposure to the General Fund of $45,000 per year. Specifically, each donor pledged $15,000 over a maximum of 10 years. Each donation was matched up to $15,000 as donations were received. The names of the initial eight donors who came forward were placed in a hat and drawn one at a time to establish an order of merit list. The first three were accepted the first year. The second three were accepted the next year. The last two were accepted in year three. The program was deemed a success.

c. In Spring 2012, the SFI BOG voted to make the pilot program a new Standing Program along with the existing Heritage and Corporate Matching Fund Programs. In order to make sure all AAAA members have an equal opportunity to participate in this new program, the Individual Matching Fund program will be announced on January 1, 2013 and remain open for 90 days. Mirroring the original pilot program, all names of those who asked to participate will be again placed in a drawing and selected one at a time to establish an OML. Again as in the pilot program, and subject to funds available, the first three will be accepted the first year, second three the second year and so on until the list is exhausted. When the OML is exhausted, the program will again be opened for a 90 day window on January 1 of that year to establish a new OML with subsequent random drawing assignments of three donors per year. Donors will have a maximum of 10 years to complete their pledge.

d. Each year the SFI BOG will review the program with a view to matching more than three a year if the General Fund allows.

e. In all events, the SFI will allow each donor to donate funds prior to their drawn year of acceptance with the understanding that the matching funds from the SFI General Fund will not be available until the designated year of acceptance.

f. Bottom line is that this new program will be open to all AAAA members on an equal basis of opportunity, and maximum annual exposure to the SFI General Fund will be three times the maximum individual match of $15,000 for a total of $45,000.

g. The provisions of paragraphs C.1.b through C.1.d above are applicable to these grants.

6. All matching grants are subject to General Fund availability and should be prioritized for distribution based on the total amount of dollars the General Fund is over or under the approved floor. The Finance Committee will submit a recommendation at the spring meeting to the full board of Governors after a review of the formal audit for approval.

D. SPECIFIED GRANTS. These Scholarships funded from the General Fund shall be established by the Foundation in consultation with AAAA as to impacts they may have on the AAAA membership. Pertinent AAAA guidance and Foundation implementing information shall be kept in an active Foundation file on each scholarship classification accounted for in the General Fund. The investment earnings not pro-rated to the Endowment Fund Scholarships shall be accounted for in the General Fund but shall not accrue to any specific scholarship. Scholarship grants and loans shall be further classified as "Open Grants" and "Open Loans", as indicated below.

1. The AAAA Open Grants. Grants in this classification shall be open to all applicants from all segments of the population to be served. They shall be further classified as indicated below.

a. The AAAA Aeronautical Sciences Grant. This shall be a 4-year, $4000 grant to an entering freshman, dispersed at $1,000 per year, who is a candidate for an undergraduate's degree in the aeronautical sciences.

b. The AAAA Past President Memorial Grants. These are 4-year $5000 entering freshman grants, dispersed at $1,250 per year, and named for AAAA Past Presidents who, as founding members rendered extraordinary service to AAAA and the Foundation.

c. The AAAA Life-Member Memorial Grants. These 1-year, $1000 grants shall be awarded to entering freshmen from an escrow of funds in the General Fund to memorialize members of a past AAAA life member program who opted for a memorial grant as a condition of their contribution to the Foundation.

2. The AAAA Open Loans. These shall be 4-year, $4000, interest-free loans, open to any entering freshman who agrees in writing to repay the loan, beginning in the fourth month following graduation or, absent other arrangements with the Foundation, upon failure to abide by the conditions of the loan. Current and future loans shall be accounted for in a "Revolving Loan Account" within the General Fund.

E. PROGRAM PLANNING AND GOAL PROJECTION. During its Spring Meeting, the Governors shall receive Executive Committee recommendations for upcoming annual scholarship programs. Review and further guidance on programs thus established shall be conducted by the board at its October meeting.

F. REVIEW AND UPDATE. This document shall be reviewed every two years.

G. DISTRIBUTION. Each member of the Board of Governors shall receive a copy of this document and its updated versions. A current copy of this document shall be included in the AAAA Information File, which is distributed annually to the AAAA National Executive Board and AAAA Chapter Presidents and Secretaries.