1. ICANN Confidential Page 0 V. Approve Reserve Fund Level Policy Direction What is the ideal level for ICANN’s Reserve Fund? Intuitive Approach 3 mo - $10 mil6 mo - $20 mil 1 year - $40 mil EndowmentNo reserves Healthy Reserve Earnings covers operations

2. ICANN Confidential Page 1 V. Approve Reserve Fund Level Policy Direction What is the ideal level for ICANN’s Reserve Fund? Market Research Approach –ICANN has no comparison, but… –Surveyed governmental agencies, NGO’s, trade associations, utilities, foundations, universities, other not for profits, etc. –Findings: Not profits reserve funds range from zero to 18 years of operations Watchdog group suggests that six months to one year or more is optimal. Over three years hurts mission. Under six months could create financial stress on mission. Utilities average 6 months. Governmental agencies average 10% or less. Moody’s, Fitch, S&P, and other rating agencies emphasize reserve fund size and policy in their rating criteria. Lower reserve funds are largely due to financial stress rather than sound reserve fund policy Lower reserve funds is sometimes due to fund raising strategy

3. ICANN Confidential Page 2 V. Approve Reserve Fund Level Policy Direction What is the ideal level for ICANN’s Reserve Fund? Academic Research Approach –Reserve fund is needed to survive a crisis –Healthy reserve fund is a strong indicator of financial strength –Financial strength allows mission to be realized more efficiently and effectively Powerful contributors are attracted to organization. (e.g., board members, employees, consultants, vendors, and other stakeholders need to trust organization’s financial strength) Strong credit rating allows effective purchasing –Reserve fund to be tailored to organization’s operations Stability and diversity of revenue streams Potential for need for emergency funds –Raising rates when revenue is down is problematic.

4. ICANN Confidential Page 3 V. Approve Reserve Fund Level Policy Direction What is the ideal level for ICANN’s Reserve Fund? ICANN’s emergency expense analysis approach –To respond to urgent infrastructure investment required to address a new threat to the DNS (BT) –To bring forward a major investment that might come out of identifying an upcoming security threat again related to strengthening the infrastructure from a security point of view - in advance of increasing the revenue collection in the following financial year to pay for that investment. (BT) –Loss (or slow payment) of revenue stream from a major customer or a number of other customers –Major unexpected expense. (e.g., lawsuit or claim)

5. ICANN Confidential Page 4 V. Approve Reserve Fund Level Policy Direction Move to approve the policy direction that: Reserve Fund target level to be equal to one year of ICANN’s operating expenses Reserve Fund is Separate from Operating Fund Reserve Fund is Restricted by Board of Directors To be discussed with constituencies and stakeholders as part of budget process Second the motion: __________ Any discussion? All those in favor say “Aye”, all those opposed say “No”