D.1. Securities Spring 1992 Development Policy and Administration Manual Chapter IV. Gift Administration Procedures Section D. Special Procedures for Various Types of Noncash Gifts ************************************************************* SECURITIES Securities include primarily stocks and bonds. For reporting purposes, promissory notes and life insurance policies that are surrendered for cash are also considered to be securities. The Treasurer is the official custodian of all securities belonging to The Regents. Therefore, all such securities must be trans- mitted to the Treasurer directly by the donor or immediately on receipt by the campus. In July 1986, The Regents approved a three-year phased program, beginning January 1, 1988, to divest itself of securities invest- ed in companies doing business in South Africa. Athough the program includes ongoing restrictions against acquiring new investments in such companies, such securities may be accepted as gifts. The Treasurer's Office is to be contacted about any technical questions regarding the transfer of securities to The Regents. More general questions about securities as gifts or their processing through the system are to be addressed to Development Policy and Administration, Office of the President. Before accepting securities, a campus must ascertain whether they are marketable by calling the Treasurer's Office or a broker. Although unmarketable securities may be accepted by The Regents, the campus should be aware that they will provide no immediate benefit and their future benefit is a calculated risk (see "Accounting for Securities," below). Transferring Securities to the University Securities may be transferred to the University in one of two ways. (1) Securities eligible for Depository Trust Company (DTC) tranfers should be transferred to The Regents' custodian bank through the donor's bank trust department or a securities broker. These agents should be instructed to contact the Treasurer's Office immediately for instructions regarding the disposition of the securities. [Note: Only the Treasurer may authorize the sale of securities on behalf of The Regents.] (2) Alternatively, certificates bearing the name of the donor may be endorsed to RUCAL & CO. and transmitted to the Treasurer directly by the donor or by the campus. Donors may mail to the Treasurer's Office either: (a) an unendorsed stock certificate and a signed stock power naming RUCAL & CO., each mailed in a separate envelope, or (b) a dated stock certificate endorsed to RUCAL & CO. In either case, the Treasurer's Office must be informed of the donor's intended purpose for the gift, so that the correct campus and account may be credited. THE TREASURER'S OFFICE GIFT COORDINATOR MAY BE CONTACTED BY CALLING THE TREASURER'S OFFICE AT (510) 987-9600. Valuation of Securities Publicly traded securities. Internal Revenue Service (IRS) regulations define publicly traded securities to mean securities, including mutual funds, for which market quotations are readily available on an established securities market. Securities, however, that otherwise would be considered to be publicly traded securities are excluded from this definition if they are subject to restrictions, or if the amount claimed as a deduction for the contribution of such securities differs from the amount listed in market quotations (e.g., when selling large blocks of stock at once would depress their price). In conformance with IRS rules, publicly traded securities are valued at the mean selling price on the valuation date. For unlisted securities (e.g., over-the-counter stock), the value is determined by using the mean selling price on the date of valuation or, if there were no sales on that date, by using a weighted average of the means of sales on the nearest dates before and after the date of valuation. The valuation dates used for all securities are: a. if hand-delivered, the date when a properly endorsed stock certificate is surrendered to a University repre- sentative in the Treasurer's Office; b. if sent by mail or fax machine, the date of mailing or faxing, provided the securities and the Stock Power form are received in a form negotiable by the University; and c. if transferred through the donor's agent, the date the security is transferred into the Regents' name (or RUCAL) on the books of the issuing corporation. Nonpublicly traded securities. Donors are required to obtain a qualified appraisal of the value of nonpublicly traded stock valued at $10,000 or more (see Sections IV: C.2 and IV: C.3). Tax Deduction for Securities Securities are deductible at their full fair market value if they have been owned for the required holding period for long-term capital-gain treatment, subject to the applicable Internal Revenue Code percentage of adjusted gross income limitations and carryover rules. Documenting Gifts of Securities When securities are received in the Treasurer's Office, they are valued as explained above. The Treasurer's Office enters the gross valuation on the Treasurer's Gift Notice (TRS) form (see end of section). These forms are then sent to Development Policy and Administration, Office of the President, to be coordinated with any background on the gift that is available there. Devel- opment Policy and Administration then forwards the TRS form and other documentation of the gift to the campus Private Support Management Office as background for preparation of the gift form. After completion at the campus, the gift form is distributed in accordance with usual procedures. Gifts received in the form of securities should be reported as securities even if they are converted into cash by the Univer- sity. See Section V: B.6, Type of Asset, for additional informa- tion about reporting securities. Acknowledging Gifts of Securities There is no legal requirement to provide donors with a valuation of securities when acknowledging such gifts. Although the University must provide the donor with a description of the gift sufficient to link it to the donor's records, it is suggested that quotations of value for gifts of securities be avoided whenever possible. The University's valuation may taint the valuation process from the IRS's viewpoint; at best it is an added and irrelevant piece of information, and at worst the University may inadvertently provide erroneous information that the donor relies on to his or her disadvantage. In addition, providing values to donors may be bad rather than good for the University's relations with them, since it could lead to dis- agreements. It is therefore suggested that gifts of securities be documented by a description of the gift that clearly ties it to the donor's records (e.g., 100 shares of ABC common stock), leaving documen- tation of the exact date and amount of the gift to the donor. If, however, a donor requests that the University quote an amount, it is appropriate to list the high and low selling prices on the date of valuation or enclose a copy of a newspaper quota- tion for that date. Accounting for Securities If the proceeds from the sale of securities are designated for current use, the net proceeds are transferred to the campus Accounting Office through a journal entry to the campus finan- cial-control account. Information on the net proceeds may be obtained from the campus Accounting Office. The net proceeds will differ from the amount on the Treasurer's Gift Notice (TRS) by the amount of the broker's commission, Securities Exchange Commission charges, and the gain or loss on the sale of the securities (see "Documenting Gifts of Securities" above). When securities are held rather than sold, the campus is informed of the value assigned to the securities through the TRS form initiated by the Treasurer's Office (see "Documenting Gifts of Securities" above). If the Treasurer is unable to sell a gift of securities because no market exists for the item, no entry is made into the campus accounting records and no expenditures may be made against the gift. If securities are for an endowment, their value will be recorded in an endowment fund at Corporate Accounting, but not in the campus financial-control account. Identification of the gift with the campus is accomplished by a campus location code in the title of the General Ledger account.