Capital Construction Fund Application Instructions

SUBCHAPTER K—REGULATIONS UNDER PUBLIC LAW 91–469
PART 390—CAPITAL
CONSTRUCTION FUND
Sec.
390.1 Scope of the regulations.
390.2 Application for an agreement.
390.3 Policy considerations.
390.4 Description of the agreement.
390.5 Agreement vessels.
390.6 Administration of the agreement.
390.7 Deposits into the fund.
390.8 Investment of the fund.
390.9 Qualified withdrawals.
390.10 Nonqualified withdrawals.
390.11 Sale or other disposition of agreement vessels.
390.12 Liquidated damages.
390.13 Failure to fulfill a substantial obligation under the agreement.
390.14 Departmental reports and certification.
APPENDIX I TO PART 390—U.S. DEPARTMENT
OF TRANSPORTATION, MARITIME ADMINISTRATION—APPLICATION INSTRUCTIONS
APPENDIX II TO PART 390—SAMPLE CAPITAL
CONSTRUCTION FUND AGREEMENT
APPENDIX III TO PART 390—U.S. DEPARTMENT
OF TRANSPORTATION, MARITIME ADMINISTRATION—SAMPLE SEMIANNUAL REPORT
APPENDIX IV TO PART 390—SAMPLE ADDENDUM TO MARITIME ADMINISTRATION CAPITAL CONSTRUCTION FUND AGREEMENT
APPENDIX V TO PART 390—SAMPLE QUALIFIED
TRADE AFFIDAVIT
AUTHORITY: Sections 204(b) and 607, Merchant Marine Act, 1936, as amended (46 App.
U.S.C. 1114(b) and 1177); 49 CFR 1.66.

yshivers on PROD1PC62 with CFR

SOURCE: 41 FR 4265, Jan. 29, 1976, unless
otherwise noted.

§ 390.1 Scope of the regulations.
(a) In general—(1) Scope. The regulations prescribed in this part govern the
capital construction fund (‘‘fund’’) authorized by section 607, Merchant Marine Act, 1936, as amended (46 U.S.C.
1177).
(2) Establishment of a fund. A fund is
established by an agreement (‘‘agreement’’), which is a contract between
the party (‘‘party’’) and the United
States.
(3) Purpose of the fund. Section 607
provides that any agreement entered
into with the Secretary of Transportation must be for the purpose of providing replacement vessels, additional
vessels or reconstructed vessels to be

built and documented in the United
States and operated in the United
States foreign, Great Lakes or noncontiguous domestic trade.
(4) Benefits of a fund. Section 607 provides for the nontaxability of certain
deposits of money or other property
placed into a fund established pursuant
to an agreement within certain ceilings. These ceilings are equal to:
(i) Earnings or gains realized from
the operation of an agreement vessel;
(ii) Net proceeds realized from the
sale or other disposition of an agreement vessel or from insurance or indemnification from the loss of an
agreement vessel; and
(iii) Earnings from the investment or
reinvestment of amounts on deposit in
the fund.
(5) Delegation. The Secretary of
Transportation has delegated the authority for matters relating to the
United States Merchant Marine to the
Maritime Administrator, Department
of Transportation (‘‘Maritime Administrator’’).
(b) Act. For purposes of this part, the
term Act shall mean the Merchant Marine Act, 1936, as amended (46 U.S.C.
1101 through 1249).
(c) Joint regulations. For purposes of
this part, the term joint regulations
shall mean the regulations prescribed
by the Secretary of Transportation and
the Secretary of the Treasury under
section 607 of the Act and published in
title 26, part 3 of the Code of Federal
Regulations (reprinted in part 391 of
this chapter).
(d) Cross references. For rules relating
to the Federal Income Tax aspects of a
fund, see the joint regulations. For
rules governing agreements relating to
the fisheries of the United States, see
the separate Secretary of Commerce
regulations published in title 50, part
259 of the Code of Federal Regulations.
§ 390.2

Application for an agreement.

(a) In general—(1) Application instructions. The Maritime Administrator has
adopted instructions for making application for an agreement. These instructions are contained in appendix I to

390

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00400

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

Maritime Administration, DOT

§ 390.3

yshivers on PROD1PC62 with CFR

this part. MARAD will accept electronic options (such as facsimile and
Internet) for transmission of required
information to MARAD, if practicable.
(2) General eligibility requirements. Section 607 of the Act specifies who is eligible for a fund and the application instructions specify what information is
required to establish such eligibility.
An applicant must:
(i) Be a citizen of the United States
within the meaning of section 2 of the
Shipping Act, 1916, as amended (46
U.S.C. 802, 803). See part 355 of this
title for requirements for establishing
United States citizenship;
(ii) Own or be the lessee of one or
more eligible vessels or share thereof
as defined in section 607(k)(1) of the
Act, or be party to a contract for the
construction of one or more eligible
vessels, or share thereof, as defined in
paragraph (b) of § 390.5;
(iii) Have a program which furthers
the purposes of the Act (see § 390.3 relating to policy considerations) and
provides for the acquisition, construction or reconstruction of a qualified
vessel, as defined in section 607(k)(2) of
the Act. Such provisions state that the
vessel will be operated in the United
States foreign, Great Lakes or noncontiguous domestic trade as defined in
sections 607(k) and 905(a) of the Act;
and
(iv) Demonstrate the financial capabilities to accomplish the program.
(b) Information which may be required
in conjunction with the application. An
applicant must provide such facts, documents and materials as the Maritime
Administrator may require in considering whether to enter into an agreement. An applicant should be ready to
make available such applicable materials, including, but not limited to: Design plans, data concerning the reasonableness of the cost of the program,
construction contracts, financial statements, certificates of incorporation,
bylaws, articles of partnership, stock
ownership data and other information
including judgments and pending litigation which would affect the proposed

program. The specific information required is set forth in the instructions.
(Approved by the Office of Management and
Budget under control number 2133–0027)
[41 FR 4265, Jan. 29, 1976, as amended at 47
FR 25530, June 14, 1982; 68 FR 62539, Nov. 5,
2003; 69 FR 61452, Oct. 19, 2004]

§ 390.3

Policy considerations.

(a) In general. It is the policy of the
United States, as set forth in section
101 of the Act, that for the national defense and the development of its foreign and domestic commerce, the
United States shall have a merchant
marine: sufficient to carry a substantial portion of its water-borne export
and import foreign commerce and to
provide shipping service essential for
maintaining the flow of such commerce
at all times; capable of serving as auxiliaries in time of war or national
emergency; owned and operated by
United States citizens insofar as practicable and composed of the best
equipped, safest and most suitable
types of vessels, constructed and documented in the United States and
manned with United States citizens.
(b) Unacceptable programs—(1) In general. The Maritime Administrator will
not enter into an agreement where the
proposed program is not, in his opinion, in consonance with the policies of
the Act.
(2) Specific unacceptable programs. The
Maritime Administrator will not enter
into an agreement where the proposed
program is merely to accomplish the
following:
(i) Reconstruction of an existing vessel, unless such reconstruction will exceed $1,000,000 in cost, will be capitalized under the Internal Revenue Code
of 1954, as amended, and the regulations thereunder and will result in a
vessel which is significantly more competitive;
(ii) Acquisition of an existing vessel;
or
(iii) Payment of the principal on existing indebtedness.
(3) Waiver. The Maritime Administrator may, for good cause shown,
waive the provisions of paragraph (b)(2)
of this section. For example, the Maritime Administrator may waive the
monetary limit in paragraph (b)(2)(i) of

391

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00401

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

§ 390.4

46 CFR Ch. II (10–1–07 Edition)

yshivers on PROD1PC62 with CFR

this section where the applicant proposes to reconstruct a small vessel.
§ 390.4 Description of the agreement.
(a) In general. The agreement consists
of a standard part and appended schedules. The standard part of the agreement contains recitals, covenants and
warranties which apply to all parties.
The appended schedules set forth the
particular program of the party and
contain other information unique to
each agreement. See § 390.6 (relating to
administration of the agreement) for
procedures and criteria for the modification of schedules.
(b) Schedule A—Eligible agreement vessels. Schedule A lists the names of eligible agreement vessels (as defined in
§ 390.5), whether owned or leased, and
the allowable percentage of the depreciation ceiling, if any, available for deposit purposes by the party. See § 390.7
(relating to deposits) for allowable depreciation in the case of leased vessels.
(c) Schedule B—Program—(1) In general. Schedule B sets forth the program
of the party including the cost of the
program and the time in which the program shall be accomplished.
(2) Items in Schedule B. Schedule B
shall contain:
(i) A statement describing each
qualified agreement vessel (as defined
in § 390.5) to be acquired, constructed or
reconstructed. In the case of reconstruction, the statement will include a
general description of the work to be
performed;
(ii) The anticipated date on which
the acquisition, construction or reconstruction of each qualified agreement
vessel will commence;
(iii) The anticipated total cost, including any costs which will not be
paid from the fund, of the acquisition,
construction or reconstruction of each
qualified agreement vessel; and
(iv) The amount to be withdrawn
from the fund with respect to the acquisition, construction or reconstruction of each qualified agreement vessel.
(3) Submission of contracts. When a
contract is executed for any acquisition, construction or reconstruction relating to the agreement, such contract
shall be submitted within 30 days after
execution to the Maritime Administrator who shall then determine wheth-

er such undertaking is in accordance
with the program set forth in Schedule
B.
(d) Schedule C—Depositories. Schedule
C lists, by name and address, the depositories of the fund. See § 390.7 (relating to deposits).
(e) Schedule D—Minimum deposits.
Schedule D sets forth the minimum deposits which must be made into the
fund. See § 390.7 (relating to deposits)
for the procedure in setting minimum
deposits.
(f) Submission of proposed schedules.
An applicant shall submit proposed
schedules with his application. The
specific information required in such
schedules is set forth in the application
instructions referred to in paragraph
(a)(1) of § 390.2. A sample agreement
(standard part and appended schedules)
is contained in appendix II to this part.
§ 390.5

Agreement vessels.

(a) In general. Section 607(k) of the
Act states the requirements for eligible, qualified and agreement vessels.
The rules in this section further define
such terms and state how vessels must
be listed on Schedules A and B in the
agreement.
(b) Eligible agreement vessels—(1) Definition. An eligible agreement vessel,
which may be used to establish ceilings
for deposit purposes, is any vessel:
(i) Constructed in the United States,
and if reconstructed, reconstructed in
the United States; the term constructed
or reconstructed in the United States includes any vessel which was constructed or reconstructed outside of
the United States but documented
under the laws of the United States on
April 15, 1970, or constructed or reconstructed outside of the United States
for use in the United States foreign
commerce pursuant to a contract entered into before April 15, 1970;
(ii) Documented under the laws of the
United States;
(iii) Operated in the foreign or domestic commerce of the United States;
(iv) Engaged primarily in the waterborne carriage of men, materials, goods
or wares; and
(v) Designated in the agreement as
an ‘‘eligible agreement vessel.’’

392

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00402

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Maritime Administration, DOT

§ 390.5

(2) Scope of the term ‘‘eligible agreement
vessel.’’ For purposes of generating ceilings for deposits under section 607(b) of
the Act and the joint regulations the
term eligible agreement vessel includes
any:
(i) Tug or barge;
(ii) Vessels which have been contracted for or are in the process of construction; and
(iii) Share interest in a vessel; the
party is considered to have a share interest in an eligible agreement vessel if
the party has the right to use the vessel to generate income or a right to the
proceeds or a portion of the proceeds
from its use even if the party does not
have a proprietary interest in the vessel for purposes of State or Federal
law.
(3) Foreign or domestic commerce. For
the purpose of paragraph (b)(1)(iii) of
this section the term foreign or domestic
commerce means the water-borne carriage of men, materials, goods or wares
between:
(i) Two points in the United States;
(ii) A point in the United States and
a point in a foreign country; or
(iii) Two points in the same foreign
country or points in two different foreign countries.
(c) Qualified agreement vessels—(1) Definition. A qualified agreement vessel
which may be acquired, constructed or
reconstructed with the aid of qualified
withdrawals, is any vessel:
(i) Constructed in the United States,
and if reconstructed, reconstructed in
the United States; the term constructed
or reconstructed in the United States includes any vessel which was constructed or reconstructed outside of
the United States but documented
under the laws of the United States on
April 15, 1970, or constructed or reconstructed outside of the United States
for use in the United States foreign
commerce pursuant to a contract entered into before April 15, 1970;
(ii) Documented under the laws of the
United States;
(iii) Operated in the United States
foreign, Great Lakes or noncontiguous
domestic trade;
(iv) Engaged primarily in the waterborne carriage of men, materials, goods
or wares; and

(v) Designated in the agreement as a
‘‘qualified agreement vessel.’’
(2) Scope of the term ‘‘qualified agreement vessel.’’ For purposes of making
qualified withdrawals under section
607(f) of the Act and the joint regulations the term qualified agreement vessel
includes any:
(i) Cargo handling equipment which
the Maritime Administrator determines will be used primarily on a
qualified agreement vessel. Normally
any auxiliary equipment which is ordinarily carried from port to port, excluding equipment that needs frequent
replacement due to normal wear and
tear, and is used in conjunction with
the loading or unloading of the vessel
is deemed to be cargo handling equipment;
(ii) Ocean-going towing vessel or
barge which the Maritime Administrator determines is suitable for the
trade in which the party intends to operate such vessel or barge, or any comparable vessel or barge operated on the
Great Lakes which is suitable for its
intended trade; and
(iii) Proprietary interest in a qualified agreement vessel as, for example,
that which may result from a joint
venture or partnership.
(3) Foreign trade. Foreign trade shall
mean the water-borne carriage of men,
materials, goods or wares between:
(i) A point in the United States and a
point in a foreign country;
(ii) Two points in the domestic trade
permitted under the first sentence of
section 506 of the Act; or
(iii) Two points in the same foreign
country or points in two different foreign countries in the case of liquid and
dry bulk cargo carrying services provided the party demonstrates that such
operating flexibility is needed to compete with foreign flag vessels in its operations or in competing for charters.
(4) Great Lakes trade. Great Lakes
trade shall mean the waterborne carriage of men, materials, goods or wares
between points on the Great Lakes and
their connecting and tributary waterways in the immediate environs of the
Great Lakes.
(5) Noncontiguous domestic trade.
Noncontinguous domestic trade shall
mean the water-borne carriage of men,
materials, goods or wares between:

393

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00403

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

§ 390.6

46 CFR Ch. II (10–1–07 Edition)

(i) The contiguous 48 States on the
one hand and Alaska, Hawaii, Puerto
Rico and the insular territories and
possessions of the United States on the
other hand; and
(ii) Any point in Alaska, Hawaii,
Puerto Rico and the insular territories
and possessions of the United States,
and any other point in Alaska, Hawaii,
Puerto Rico and such territories and
possessions.
(6) Nonqualified operations. Nonqualified operations for qualified agreement vessels include:
(i) Positioning vessels in support of
domestic operations prohibited by section 607 of the Act;
(ii) Use of barges as docks and ramps;
(iii) Except as provided in paragraphs
(c)(7) (i) and (ii) of this section:
(A) Foreign-to-foreign trade, consisting of voyages originating and ending in foreign ports, with no intermediate domestic cargo operation, and
(B) Trade from foreign ports to and
form U.S. oil rigs in international waters; and
(iv) Ship assist work, including bunkering, in support of contiguous domestic, foreign-flag or U.S.-flag foreign-to-foreign operations.
(7) Permissible operations. Permissible
operations for qualified agreement vessels include:
(i) Foreign-to-foreign trade in the
case of vessels operating as part of
U.S.-flag service and carrying cargo
originating in or destined for U.S.
ports, i.e., U.S.-flag feeder vessels;
(ii) Foreign-to-foreign trade, including the lightering of foreign-flag vessels, in the case of vessels carrying liquid or dry bulk cargoes when the carrier has demonstrated to the Administrator:
(A) The need for such foreign-to-foreign shipments (as required by section
905 of the Act and paragraph (c)(iii) of
this section), and
(B) That the proposed cargo would
qualify as liquid or dry bulk cargo;
(iii) Ship assist work, including
lightering or shifting of a vessel at the
end or beginning of a noncontiguous
domestic or U.S. foreign trade voyage.
In addition, the lightering of foreignflag vessels in U.S. ports is permitted.

(8) United States construction. An
agreement vessel is considered to be of
United States construction if:
(i) It is built entirely in a shipyard or
shipyards within any of the United
States and the Commonwealth of Puerto Rico;
(ii) All components of the hull and
superstructure are fabricated in the
United States; and
(iii) The vessel is assembled entirely
in the United States.
(d) Agreement vessels—(1) Definition.
The term agreement vessel means any
eligible or qualified vessel which is
subject to an agreement.
(2) Scope of the term ‘‘agreement vessel.’’ For purposes of generating ceilings and making qualified withdrawals
the term agreement vessel includes containers, trailers or barges which are
part of the complement of an agreement vessel. The complement is limited to three times the container, trailer or barge capacity of the vessel, unless the Maritime Administrator shall
agree to a different complement.
[41 FR 4265, Jan. 29, 1976, as amended at 55
FR 34928, Aug. 27, 1990]

§ 390.6 Administration of the agreement.
(a) In general. The Maritime Administrator will administer and enforce the
agreement in a manner which will insure that the fund is properly established, that the assets in the fund are
used to accomplish the program and
that the party fully complies with all
obligations and responsibilities. This
section specifies the reports which
must be submitted to the Maritime Administrator and sets forth the procedures for administering the agreement.
(b) Reporting requirements—(1) In general. This paragraph describes the reports required to be submitted to the
Maritime Administrator by the party.
(2) Submission dates. Reports must be
submitted annually, in triplicate, for
the party’s taxable year not later than
90 days after the close of each reporting period. An affidavit regarding the
operation of qualified agreement vessels as required by paragraph (b)(7) of
this section shall be submitted concurrently with each annual report.
(3) Cumulation. The annual report
submitted following the close of the

394

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00404

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Maritime Administration, DOT

§ 390.6

party’s taxable year shall be cumulative for the party’s entire taxable
year.
(4) Certification. The annual report
shall be accompanied by an opinion of
an independent certified public accountant to the effect that exhibits
(see paragraph (b)(5) of this section)
composing the accounting have been
prepared in accordance with all published orders, rules, regulations and instructions issued or adopted by the
Maritime Administrator.
(5) Format. The reports shall consist
of the following exhibits:
(i) ‘‘Exhibit A’’—a summary of cash,
securities and stock on deposit (showing the adjusted basis for securities
and stock), including a subtotal of
cash, securities and stock on deposit,
net amount of accrued deposits to and
accrued withdrawals from the fund and
the fund total at the end of the period,
and if applicable, a summary of the
portion of the fund which represents a
‘‘CCF: Security Amount’’ pursuant to
an Agreement Covering the Dual Use of
a Capital Construction Fund;
(ii) ‘‘Exhibit A–1’’—a summary of balances in all cash accounts within the
fund at the end of the period;
(iii) ‘‘Exhibit A–2’’—a summary of
the securities and stock within the
fund at the end of the period (showing
both the adjusted basis and fair market
value of each item);
(iv) ‘‘Exhibit A–3’’—a summary of the
accrued deposits to and accrued withdrawals from the fund at the end of the
period;
(v) ‘‘Exhibit B’’—a transcript of
transactions occurring within the fund
during the period by date;
(vi) ‘‘Exhibit C’’—a summary showing the opening balance, additions
thereto due to deposits to the fund,
subtractions therefrom due to withdrawals from the fund, and the closing
balance for the period for each of the
three separate accounts: ordinary income account, capital gains account
and capital account; and
(vii) ‘‘Exhibit D’’—a summary, by
vessel, of the qualified withdrawals
made from the fund during the period.
(6) Sample report. A sample report is
contained in appendix III of this part.
(7) Affidavit. An official of the party
who is knowledgeable about the oper-

ation of the party’s qualified agreement vessels shall submit an affidavit
for each taxable year indicating that
the party’s qualified agreement vessels
operated only in qualified trades during such taxable year, or if any such
vessel operated in a trade other than a
qualified trade, the details of such operation. See § 390.5(c) of this part for a
description of what constitutes a qualified trade. A sample affidavit is contained in appendix V of this part.
(8) Failure to submit reports. The failure by a party to make the timely submission of any report or affidavit required by this section shall constitute
a material breach of the agreement unless the Maritime Administrator shall
determine that such failure was excusable. See § 390.13 (relating to the failure
to fulfill a substantial obligation under
the agreement).
(c) Review in the event of changed circumstances. Each agreement provides
that the party shall promptly inform
the Maritime Administrator of any
change in circumstances which affects
its agreement. Such changes may be
mere form, such as a change of the party’s name, or substantive such as the
sale of an eligible agreement vessel.
The Maritime Administrator may require a full review of the agreement if
in his opinion the changed circumstances materially affect the
agreement.
(d) Modification of agreement—(1) In
general. The agreement is subject to
modification and amendment by mutual consent. However, except in special circumstances, the Maritime Administrator will not consent to modification or amendment of the standard
part of the agreement unless such
modification or amendment is of uniform application to similarly situated
parties. The Maritime Administrator
will normally agree to modification or
amendment of the schedules subject to
the restriction in paragraph (d)(2) of
this section.
(2) Limitations on modification of
schedules. The Maritime Administrator
will not agree to modification or
amendment of the schedules (as described in § 390.4) when, in his opinion,
such modification or amendment
delays imposition of Federal Income
Tax in a manner not contemplated or

395

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00405

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

§ 390.7

46 CFR Ch. II (10–1–07 Edition)

authorized by the Act, or if the proposed modification or amendment
would not be in consonance with the
policies of the Act, these rules and regulations or the joint regulations.
(e) Fund adjustment upon modification.
Upon application by a party for modification or amendment of the agreement, the Maritime Administrator will
determine whether the requested modification or amendment would result in
an amount held in the fund in excess of
an amount determined to be necessary
or appropriate to carry out the program. If such an excess is created in
the fund by such modification or
amendment, the Maritime Administrator will require a nonqualified withdrawal (as defined in § 390.10) of such
excess as a condition to the modification or amendment.

yshivers on PROD1PC62 with CFR

[41 FR 4265, Jan. 29, 1976, as amended at 41
FR 39751, Sept. 16, 1976; 55 FR 34928, Aug. 27,
1990]

§ 390.7 Deposits into the fund.
(a) In general—(1) Source of deposits.
Section 607(b) of the Act provides ceilings within which fund deposits may be
made. This section provides rules for
the qualification of depositories, timing of deposits, the type of property
which may be deposited and the level
of deposits.
(2) Tax aspects of deposits. For the
Federal Income Tax aspects of deposits
into a fund, see section 607(d) of the
Act and § 3.3 of the joint regulations
(§ 391.3 of this chapter).
(b) Depositories—(1) In general. Section 607(c) of the Act provides that
amounts in a fund must be kept in the
depository or depositories specified in
the agreement and be subject to such
trustee or other fiduciary requirements
as the Maritime Administrator may
specify.
(2) Qualifications. The Maritime Administrator has established general
qualifications for depositories for all
maritime programs authorized under
the Act, including the capital construction fund program. The general qualifications are published in Part 351 of
this title.
(3) Fiduciary requirements. Except in
unusual circumstances, the Maritime
Administrator will not impose special
trustee or other fiduciary requirements

upon depositories of a fund. For rules
relating to a fund held in trust for investment purposes, see paragraph (h) of
this section.
(4) Type and name of accounts. Unless
otherwise specified in the agreement,
the party may select the type or types
of accounts in which assets of the fund
may be deposited. For example, the
party may select a savings account for
cash and a trust account for intangible
property which is held in the fund.
Each account shall be in the name of
the party and identified as a capital
construction fund account.
(5) Compensating balances. The obligation of the assets in the fund as a compensating balance shall constitute a
material breach of the agreement.
(c) Timing of deposits—(1) In general.
Section 607(d)(2) of the Act provides
that deposits shall not be taxable only
when they are made in accordance with
the agreement and not later than the
time provided in the joint regulations.
(2) Deposits prior to the time provided in
joint regulations. The party may make
deposits for any taxable year prior to
the time provided in joint regulations
in accordance with the following rules:
(i) Amounts representing taxable income attributable to the operation of
agreement vessels for a taxable year
may be deposited at any time during
such taxable year, and thereafter within the time provided for in the joint
regulations, based upon the party’s estimated Federal taxable income for
such vessels for the entire taxable
year;
(ii) Amounts representing net proceeds from the sale or other disposition
(including mortgaging) with respect to
agreement vessels may be deposited
when accrued and thereafter within the
time provided for in the joint regulations;
(iii) Amounts representing receipts
from the investment or reinvestment
of amounts held in a fund may be deposited when accrued and thereafter
within the time provided for in the
joint regulations; and
(iv) Amounts representing depreciation with respect to agreement vessels
for a taxable year may be deposited at
any time during such taxable year, and
thereafter within the time provided for
in the joint regulations.

396

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00406

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Maritime Administration, DOT

§ 390.7

(3) Deposits required prior to the time
provided in joint regulations. The Maritime Administrator may require that
deposits be made earlier than the latest time provided for in the joint regulations. Generally, the Maritime Administrator will require early deposits
only when necessary for the party to
meet its agreed upon obligations.
(d) Types of property which may be deposited into a fund—(1) Form of deposits.
Deposits may be made into a fund only
in the form of money or intangible
property of the type in which assets of
the fund may be invested pursuant to
section 607(c) of the Act, the Agreement, and these regulations, other
than the securities or common and preferred stock of the party or a company
related to the party within the meaning of paragraph (d)(2) of this section,
except that in the case of deposits representing net proceeds from the sale or
other disposition of any agreement vessel to other than a purchaser or transferee related to the party (within the
meaning of paragraph (d)(2) of this section) or deposits representing receipts
from the investment or reinvestment
of amounts held in a fund, any intangible property received may be deposited.
(2) Related purchaser. For purposes of
this paragraph a purchaser or transferee is a related person to the party
if—
(i) The relationship between purchaser or transferee and the party
would result in disallowance of losses
under section 267 or 707 of the Code, or
(ii) The purchaser or transferee and
the party are members of the same
controlled group of corporations (as defined in section 1563(a) of the Code, except that ‘‘more than 50 percent’’ shall
be substituted for ‘‘at least 80 percent’’
each place it appears therein).
(e) Level of deposits—(1) In general.
Section 607(a) of the Act states that
the agreement must provide for the deposit in the fund of amounts agreed
upon but only to the extent necessary
or appropriate to provide for qualified
withdrawals to accomplish the program set forth in the agreement.
(2) Maximum level of deposits. The
party shall not be permitted to deposit
more than is necessary to complete its

program. See § 390.4 (relating to description of the agreement).
(3) Minimum level of deposits. Each
agreement shall contain an agreed
upon minimum deposit schedule applicable to each three-year period under
the agreement. The minimum deposit
shall be calculated taking into consideration the scheduling of the anticipated qualified withdrawals. The purpose of the minimum deposit is to insure that the party has made a sufficient commitment to accomplish its
program. See § 390.13 (relating to failure to fulfill a substantial obligation
under the agreement).
(4) Determination of minimum deposits.
The minimum deposit shall be set by
the Maritime Administrator. In determining the minimum deposit, the Maritime Administrator shall give consideration to the anticipated ceilings, financial history, current conditions and
future business expectations of the
party.
(5) Waiver of minimum deposit. The
Maritime Administrator shall waive a
failure to meet the minimum deposit
schedule when the party has deposited
all allowable taxable income as specified in Article 5(c) of this agreement
attributable to the operation of agreement vessels, net proceeds from all
sales or other dispositions of agreement vessels, all receipts from the investment or reinvestment of amounts
held in the fund and all earned depreciation on agreement vessels. The Maritime Administrator may also waive
the minimum deposit schedule in any
case where the party can demonstrate
that such deposits will adversely affect
its ability to operate its agreement
vessels. In the event of a waiver, the
Maritime Administrator may require
modification of the schedules. See
§ 390.6 (relating to administration of
the agreement).
(6) Selection of ceiling. Except as may
be otherwise provided in the agreement
or these rules and regulations, the
party may choose the ceilings with respect to which deposits are made.
(f) Allocation of depreciation deposits—
(1) In general. Section 607(b)(2) of the
Act provides that in the case of a lessee
of an eligible agreement vessel the
maximum amount which may be deposited with respect to such vessel, under

397

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00407

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

§ 390.8

46 CFR Ch. II (10–1–07 Edition)

the depreciation ceiling, shall be reduced by any amount which the owner
is required or permitted to deposit with
respect to such vessel under its depreciation ceiling.
(2) Method of allocation. When an
agreement vessel is leased, the party’s
agreement shall fix a percentage of the
annual depreciation which the party
may deposit. The percentage shall be
that agreed upon between the lessors
and the lessees unless the Maritime
Administrator determines that the
agreed upon percentage will result in
an accumulation of assets in the fund
or funds which is greater than or less
than an amount necessary or appropriate to carry out the party’s program. See paragraph (e) of this section
(relating to level of deposits).
(g) [Reserved]
(h) Funds held in trust for investment
purposes. A fund may be transferred in
whole or in part to the control of an
unrelated trustee for investment purposes with the prior written permission
of the Maritime Administrator. The
Maritime Administrator shall approve
such a transfer when:
(1) The trustee meets the requirements for a depository under paragraph
(b) of this section;
(2) The trust instrument provides
that all investment restrictions stated
in section 607(c) of the Act and § 390.8 of
these regulations will be observed;
(3) The trust instrument provides
that the trustee will give consideration
to the party’s withdrawal requirements
under the agreement when investing
the fund;
(4) The trustee agrees to be bound by
all rules and regulations which have
been or will be promulgated governing
the investment or management of the
fund.
(i) Federal ship mortgage guarantee or
insurance. A fund may serve in lieu of a
Restricted Fund required in connection
with Federal Ship Mortgage Guarantee
or Insurance under Title XI of the Act
and the regulations thereunder upon
approval by the Maritime Administrator. Approval by the Maritime Administrator shall be conditioned upon
the execution by the party of an agreement, satisfactory in form and substance to the Maritime Administrator,
governing the dual use of the fund. Ap-

plications for permission to use the
fund in this dual capacity should be
made in writing to the Secretary, Maritime Administration.
§ 390.8

Investment of the fund.

(a) In general. Section 607(c) of the
Act provides that assets in the fund
must be invested in accordance with
certain restrictions. The rules in this
section provide for the quality of securities, restrictions on the type of stock
in which a fund may invest, related
company investments and miscellaneous prohibited activities.
(b) Permissible investments—(1) In general. The party, at its discretion, or the
party’s trustee, if established pursuant
to paragraph (h) of § 390.7, may invest
in the types of securities specified in
this paragraph.
(2) Interest bearing securities. The
party or the party’s trustee may invest
in any obligation of the United States
Government, including any agency or
instrumentality thereof, and in the interest bearing securities listed below:
(i) Any obligation of a state or local
government, including any agency or
instrumentality thereof, or any domestic obligation, which is rated by
Moody’s Investors Service, Inc., as
‘‘Baa’’ or better or by Standard and
Poor’s Corporations as ‘‘BBB’’ or better;
(ii) Bankers’ acceptances, certificates
of deposit, repurchase agreements, and
short-term commercial obligations,
provided that the latter must be readily marketable and rated not lower
than ‘‘Prime’’ by Moody’s Investors
Services, Inc. or ‘‘B’’ by Standard &
Poor’s Corp.; and
(iii) Any unsubordinated obligation
of an issuer that has any unsecured securities with a credit rating of ‘‘Baa’’
or better if rated by Moddy’s Investors
Services, Inc., or ‘‘BBB’’ or better if
rated by Standard and Poor’s Corporation, or by an issuer that has a commercial paper rating not lower than
‘‘Prime’’ by Moody’s Investors Service,
Inc. or ‘‘B’’ by Standard and Poor’s
Corporation.
(3) Guaranteed interest bearing securities. The party or the party’s trustee
may invest in interest bearing securities which do not meet the investment

398

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00408

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Maritime Administration, DOT

§ 390.9

criteria set forth in this paragraph (b)
Provided, That:
(i) The types of interest bearing securities and their terms and conditions
are acceptable to the Maritime Administration;
(ii) All principal and interest of the
interest bearing securities are unconditionally guaranteed in a form satisfactory to the Maritime Administration
and neither the securities nor the obligation to pay interest on the securities
is that of a party or a company related
to the party within the meaning of section 482 of the Internal Revenue Code
of 1954, as amended, and the regulations thereunder; and
(iii) The guarantor, which may be an
affiliate of the party, must be either a
person that has any unsecured securities with a credit rating of ‘‘Baa’’ or
better if rated by Moody’s Investors
Services, Inc., or ‘‘BBB’’ or better if
rated by Standard & Poor’s Corporations, or a person whose commercial
paper rated not lower than ‘‘Prime’’ by
Moody’s Investors Services, Inc. or ‘‘B’’
junior securities are rated in the highest grade by Moody’s Commercial
Paper Service or in one of the two
highest grades by Standard & Poor’s
Corporations, and is otherwise acceptable to the Maritime Administration.
(4) Common and preferred stocks. The
party or the party’s trustee may invest
in the following common and preferred
stocks:
(i) Stock of domestic corporations
which is fully listed and registered at
the time of purchase on an exchange
registered with the Securities and Exchange Commission as a national securities exchange and which would be acquired by prudent men of discretion
and intelligence in such matters who
are seeking a reasonable income and
the preservation of their capital; and
(ii) Preferred stock of a corporation
if the common stock of that corporation meets the requirements of this
paragraph and if the preferred stock of
such corporation would meet such requirements but for the fact that such
preferred stock cannot be listed and
registered as required because it is
nonvoting stock.
(c) Limitations on investments—(1) Interest bearing securities. The value of securities of any one issuer held in the

Fund compared to the value of the
total assets of the fund shall not exceed 10 percent in the case of nongovernmental securities referred to in
paragraph (b)(2)(i) of this section.
(2) Common and preferred stock. The
value of common and preferred stock of
any one issuer held in the fund shall
not exceed 25 percent of the value of
the total assets of the fund. In no case
may more than 60 percent of the value
of the total assets of the fund be invested in common or preferred stock.
(3) Margin or short sale. No interest
bearing securities or common and preferred stock shall be purchased on margin or be sold short for the account of
a fund.
(4) Related company investments.
Funds shall not be invested in the interest bearing securities or common
and preferred stock of the party or of a
company related to the party within
the meaning of section 482 of the Internal Revenue Code of 1954, as amended,
and the regulations thereunder.
(5) Subsequent investments. If at any
time the fair market value of the interest bearing securities or common and
preferred stock in the fund is more
than the limitations stated in this
paragraph (c), any subsequent deposit
to or withdrawal from the fund or investment made within the fund shall be
made in such a way as tends to restore
the fund to a posture in which the fair
market values of such securities or
stock do not exceed such limitations.
Values of such securities and stocks
shall be the fair market values as determined by the party on the last day
of each semi-annual and annual reporting period.
[41 FR 4265, Jan. 29, 1976, as amended at 42
FR 34882, July 7, 1977; 43 FR 51636, Nov. 6,
1978; 55 FR 34928, Aug. 27, 1990]

§ 390.9

Qualified withdrawals.

(a) In general—(1) Defined. In accordance with section 607(f) of the Act,
qualified withdrawals are those made
from a fund in accordance with the
agreement, but only if they are for:
(i) The acquisition, construction or
reconstruction of a qualified agreement vessel;
(ii) The acquisition, construction or
reconstruction of barges or containers

399

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00409

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

§ 390.9

46 CFR Ch. II (10–1–07 Edition)

which are part of the complement of a
qualified agreement vessel; or
(iii) The payment of the principal on
indebtedness incurred in connection
with the acquisition, construction or
reconstruction of a qualified agreement vessel or a barge or container
which is part of the complement of a
qualified agreement vessel.
(2) Tax aspects of a qualified withdrawal. For the tax aspects of a qualified withdrawal, see section 607(g) of
the Act and § 3.6 of the joint regulations (§ 391.6 of this chapter).
(b) Purpose of qualified withdrawals—
(1) Acquisition of qualified agreement vessels. (i) The term acquisition of a qualified agreement vessel shall mean any
transaction, including a corporate
merger, where the party obtains a proprietary interest in an existing vessel
and such a proprietary interest will, in
the opinion of the Maritime Administrator, further the purposes and policies of the Act. See § 390.3 (relating to
policy considerations).
(ii) Qualified withdrawals for the acquisition of a qualified agreement vessel shall only be allowed for amounts
determined by independent appraisal to
be the fair market value of the vessel,
at the time of the acquisition, or the
actual cost directly allocable to acquiring only the vessel, whichever is
less.
(2) Construction of qualified agreement
vessels. The term construction of a qualified agreement vessel shall mean the
construction of a vessel with the aid of
qualified withdrawals.
(3) Reconstruction of qualified agreement vessels. Once an agreement has
been entered into, the term reconstruction of a qualified agreement vessel shall
mean any improvement to an existing
vessel which increases the vessel’s
competitiveness and involves an aggregate sum in excess of $100,000. The Maritime Administrator may waive the
monetary limit in this subparagraph in
the case of small vessels.
(4) Payment of principal on indebtedness. Section 607(f)(1)(C) provides that
any indebtedness which the party proposes to pay through qualified withdrawals must be shown to the satisfaction of the Maritime Administrator to
have been incurred in direct connection
with the acquisition, construction or

reconstruction of a qualified agreement vessel. The fact that indebtedness
is secured by an interest in a qualified
agreement vessel is insufficient by
itself to demonstrate the direct connection. It is not necessary that the
lien or mortgage securing the indebtedness be on the vessel. For example, if
the party mortgages an office building
in order to finance the construction of
a vessel, payments of principal on the
mortgage may be made with qualified
withdrawals.
(c) Limitations on qualified withdrawals—(1) Capitalized costs requirement. All qualified withdrawals must be
for costs which are capitalized under
the Internal Revenue Code of 1954, as
amended, and the regulations thereunder and so reported on the party’s
Federal Income Tax return.
(2) Executed contract requirement and
reimbursement of general funds. Qualified
withdrawals may be made for the purpose of reimbursing general funds subject to the following limitations:
(i) Qualified withdrawals may not be
made until a construction, reconstruction or acquisition contract is executed. However, the party may reimburse its general funds for expenditures
applicable to the construction, reconstruction or acquisition contract which
occurred prior to the date of contracting if such reimbursements are
made within 120 days from the date of
such contracting.
(ii) The party may also reimburse its
general funds for expenditures which
could have been paid initially by a
qualified withdrawal, if such reimbursements are made within 120 days of
such expenditure.
(iii) The party may reimburse its
general funds for expenditures made
prior to the time an agreement or
amendment is entered into, but after
the party has made application therefor, if such expenditures would otherwise qualify for reimbursement pursuant to paragraphs (c)(3) (i) and (ii) of
this section but for the fact that an
agreement or amendment has not been
executed, and if such reimbursement is
effected within 120 days of the execution of an agreement or amendment.
(3) Prepayment of indebtedness. The
party shall not prepay principal on indebtedness with qualified withdrawals

400

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00410

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

Maritime Administration, DOT

§ 390.11

without the prior written consent of
the Maritime Administrator.
(4) Qualified withdrawals paid to related persons. A withdrawal, including
payments for indebtedness, paid to a
related person, within the meaning of
section 482 of the Internal Revenue
Code of 1954, as amended, and the regulations thereunder, shall not constitute
a qualified withdrawal unless the Maritime Administrator determines that no
portion of such payment constitutes a
dividend, a return of capital or a contribution of capital under the Internal
Revenue Code. Transactions which include payments to a related person,
will be approved if the cost of the item
to be acquired, constructed or reconstructed through qualified withdrawals
is or was at the time of the acquisition,
construction or reconstruction its fair
market value. The party must obtain
the prior written permission of the
Maritime Administrator before any
qualified withdrawals may be paid to a
related person. Any such withdrawal
prior to approval shall be a nonqualified withdrawal.
(d) Permission to make qualified withdrawals. Once a program has been approved, prior approval of the Maritime
Administrator is not required for specific qualified withdrawals except as
provided in paragraphs (c)(4) and (c)(5)
of this section. However, the Maritime
Administrator will give prior approval
to qualified withdrawals upon written
request.

yshivers on PROD1PC62 with CFR

[41 FR 4265, Jan. 29, 1976, as amended at 55
FR 34929, Aug. 27, 1990]

§ 390.10 Nonqualified withdrawals.
(a) In general—(1) Defined. Any withdrawal from a fund which is not a
qualified withdrawal is a nonqualified
withdrawal.
(2) Tax aspects of a nonqualified withdrawal. For the tax aspects of a nonqualified withdrawal, see section 607(h)
of the Act and § 3.7 of the joint regulations (§ 391.7 of this chapter).
(b) Permission required—(1) In general.
The prior written permission of the
Maritime Administrator is required before a nonqualified withdrawal may be
made.
(2) Failure to secure permission. A nonqualified withdrawal made without the
prior written permission of the Mari-

time Administrator shall constitute a
material breach of the agreement unless the Maritime Administrator shall
determine that failure to obtain prior
written consent was excusable. See
§ 390.13 (relating to failure to fulfill a
substantial obligation under the agreement).
(3) Types of nonqualified withdrawals
which will be permitted. Generally, the
Maritime Administrator will give permission to make nonqualified withdrawals when:
(i) The party has incurred operating
losses from the operations of agreement vessels which have impaired his
working capital and it becomes necessary to reimburse its general funds
to the extent of such losses;
(ii) The party desires to make an expenditure for research, development or
design and such an expenditure is incident to new and advanced ship design,
machinery and equipment;
(iii) The withdrawal would be a qualified withdrawal except for the fact that
there is no tax basis left that can be reduced; or
(iv) The party demonstrates, to the
satisfaction of the Maritime Administrator, that it cannot fulfill its program due to circumstances beyond its
control or due to a change in circumstances which makes the completion of its program economically
unfeasible.
§ 390.11 Sale or other disposition of
agreement vessels.
(a) Eligible agreement vessels. The sale
or other disposition (including mortgages) of eligible agreement vessels
shall not require prior approval of the
Maritime Administrator, but shall require written notification within 10
days after the sale or other disposition.
Such notification shall include a description of the transaction, the identity of the transferee, the proceeds to
be realized, the date of the transaction
and whether the proceeds will be deposited into the fund.
(b) Qualified agreement vessels—(1) In
general. If a qualified agreement vessel
whose basis has been reduced through
the application of qualified withdrawals is sold or disposed of (including
mortgaged) within one year, interest
on the amount of gain attributable to

401

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00411

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

§ 390.12

46 CFR Ch. II (10–1–07 Edition)

the basis reduction shall attach if the
Maritime Administrator determines
that the disposition was contrary to
the policies of the Act, the joint regulations or these regulations. See § 390.13
(relating to failure to fulfill a substantial obligation under the agreement).
(2) Period of one year defined. The oneyear period shall mean 365 days from
the date of final delivery from the shipyard in the case of construction or reconstruction and 365 days from the
date of first loading of the vessel in the
case of an acquisition.
(3) Prior approval. The party shall obtain the written approval of the Maritime Administrator prior to the sale or
other disposition (including mortgage)
of a qualified agreement vessel.
(4) Deposit requirement. The Maritime
Administrator will not normally require the deposit of the net proceeds
from the sale of a qualified agreement
vessel but shall require the deposit of
the net proceeds from the mortgage of
a qualified agreement vessel for which
qualified withdrawals from the fund
have been made.
(c) Sale or other disposition of agreement vessels to related persons—(1) In
general. Section 3.2(c)(4) of the joint
regulations (§ 391.2(c)(4) of this chapter)
requires that the net proceeds from the
sale or other disposition of an agreement vessel shall be the fair market
value of the vessel when the party and
the purchaser are owned or controlled
directly or indirectly by the same interests within the meaning of section
482 of the Internal Revenue Code of
1954, as amended, and the regulations
thereunder. In such case, the party
shall furnish data to establish that the
amount realized or to be realized is the
fair market value.
(2) Data to be submitted. Sufficient
data must be submitted to support a
determination by the Maritime Administrator of the fair market value including the original cost of the vessel,
dates of original delivery, acquisition
and reconstruction, as applicable, cost
of improvements, sales price, costs of
sale and any other information which
would assist in making such determination.

§ 390.12

Liquidated damages.

(a) Liquidated damages—(1) In general.
Each agreement entered into under
section 607 of the Act shall contain a
liquidated damages provision for the
purpose of placing the party into its
prefund position for each day a qualified agreement vessel is operated in
violation of the geographic trading restrictions contained in the Act and
§ 390.5. The liquidated damages provision requires that the party repay the
time value of the deferral of Federal
Income Tax which the party has received.
(2) Calculation of liquidated damages.
The liquidated damages specified in
this paragraph shall be calculated as
follows:
(i) With respect to each vessel operated in violation of the applicable trading restrictions, add (A) the sum of
qualified withdrawals for the vessel
which have been made from the ordinary income and capital gain accounts
to the date of breach, and (B) the
amount of any unpaid principal on indebtedness for the vessel which may be
paid from the fund less any portion of
such amount which by operation of law
must be withdrawn from the capital account balance on deposit in the fund on
the date of the breach.
(ii) Multiply the total derived in
paragraph (a)(2)(i) of this section by an
assumed effective Federal Income Tax
rate of 30 percent;
(iii) Compound the product derived in
paragraph (a)(2)(ii) of this section at 8
percent annually (A) for 20 years, if the
duration of the trading restrictions applicable to the vessel is 20 years in accordance with paragraph (b)(1)(i) of
this section; (B) for 10 years, if the duration of the trading restrictions applicable to the vessel is 10 years in accordance with paragraphs (b)(1) (ii),
(iii) or (iv) of this section; or (C) for 5
years, if the duration of the trading restrictions applicable to the vessel is 5
years in accordance with paragraph
(b)(1)(iv) of this section.
(iv) Subtract the amount calculated
in paragraph (a)(2)(ii) of this section
from the product derived in paragraph
(a)(2)(iii) of this section;
(v) Divide the result derived in paragraph (a)(2)(iv) of this section by 2; and

402

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00412

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

Maritime Administration, DOT

§ 390.12

(vi) Divide the result derived in paragraph (a)(2)(v) of this section (A) by
7300 (days) if the duration of the trading restrictions applicable to the vessel
is 20 years; (B) by 3650 (days) if the duration of the trading restrictions applicable to the vessel is 10 years; or (C) by
1825 (days) if the duration of the trading restrictions applicable to the vessel
is 5 years.
(3) Formula. The calculation of the
daily rate of liquidated damages may
be reduced to the following formula:
X = [I(QT)¥S]/2D
Where:
X = Daily rate in dollars.
Q = Summation of qualified withdrawals,
other than withdrawals from the capital
account, permitted from the fund.
T = Assumed effective tax rate of 30 pct.
S = Tax savings=(Q)(T).
I = Discount factor to be applied for vessels
subject to 20-yr trading restriction =
4.660957; for vessels subject to 10-yr trading
restriction = 2.158925; for vessels subject to
5-yr trading restriction = 1.469328 (value of
$1 compounded at 8 pct for 20, 10, and 5 yr
respectively).
D = 7,300 d for vessels subject to 20-yr trading
restriction; 3,650 d for vessels subject to 10yr trading restriction; 1,825 d for vessel
subject to 5-yr trading restriction.

The formula may be further reduced
to:
X = 0.5491436Q/7,300
for vessels subject to 20 year trading
restriction,
X = 0.1738388Q/3,650
for vessels subject to 10 year trading
restriction,
X = 0.0703992Q/1,825

yshivers on PROD1PC62 with CFR

for vessels subject to 5 year trading restriction.
(4) Example. The provisions of paragraphs (c)(2) and (c)(3) of this section
may be illustrated by the following example:
Assume that a qualified agreement vessel
has been constructed with qualified withdrawals from a fund. The total cost was $20
million of which $6 million was withdrawn
from the fund for a downpayment. Pursuant
to the agreement, an additional $4 million
may be withdrawn from the fund to pay principal on indebtedness. Thus, $10 million has
been or may be withdrawn from the fund

with respect to this vessel. The daily rate of
liquidated damages would be:
X = 0.5491436 (10,000,000)/7300 or X = $752.25

(5) Payment of liquidated damages. The
amount derived in paragraph (a)(2) of
this section shall be the daily rate of
liquidated damages and shall be paid to
the Maritime Administrator, for deposit in the Treasury of the United
States, within 30 days from the date
the qualified agreement vessel first entered the prohibited geographic trade
and shall be for all amounts owing
from such date thereafter until the
date payment is due. Payments, for
continuing breaches, shall be made at
30 day intervals.
(6) Other remedies. Nothing in this
paragraph shall diminish the Maritime
Administrator’s other remedies for
breach under the Act, the rules and
regulations or the agreement.
(b) Duration of restrictions—(1) In general. The geographic trading restrictions in the Act and § 390.5 and the liquidated damages provision shall apply
for:
(i) 20 years from the date of final delivery on qualified agreement vessels
constructed or acquired within one
year of final delivery from the shipyard
with the aid of qualified withdrawals;
(ii) 10 years from the date of completion of reconstruction for qualified
agreement vessels reconstructed with
the aid of qualified withdrawals;
(iii) 10 years from the date of acquisition of qualified agreement vessels acquired with the aid of qualified withdrawals more than one year after final
delivery of the vessel from the shipyard;
(iv) 10 years from the date of the first
qualified withdrawal from the fund to
pay the existing indebtedness on a
qualified agreement vessel which was
included in Schedule B for that purpose
unless the qualified vessel was more
than fifteen years old on the date of
the first qualified withdrawal in which
case the period shall be five years.
(2) Transfer of qualified agreement vessel. In the event a qualified agreement
vessel is sold or transferred to another
person (see paragraph (b)(3) of § 390.11
requiring prior permission), the transferor shall require in the bill of sale
that the transferee agree with the Maritime Administrator to comply with

403

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00413

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

§ 390.13

46 CFR Ch. II (10–1–07 Edition)

the geographic trading restrictions and
to pay liquidated damages for any
breach of such agreement that occurs
after the transfer. The transferor shall
remain liable for any violations that
occurred prior to the approved transfer. However, in the case of a like kind
exchange which is governed by section
1031 of the Internal Revenue Code of
1954, as amended, if the vessel acquired
by the party has an economic life equal
to or greater than the length of the geographic trading restrictions that remain applicable to the transferred vessel, the acquired vessel shall be deemed
to be a qualified agreement vessel and
the geographic trading restrictions of
the transferred vessel shall attach to
the acquired vessel.

yshivers on PROD1PC62 with CFR

[41 FR 4265, Jan. 29, 1976 as amended at 42 FR
34283, July 5, 1977]

§ 390.13 Failure to fulfill a substantial
obligation under the agreement.
(a) In general. Section 607(f)(2) of the
Act requires the Maritime Administrator to determine whether there has
been a failure to fulfill a substantial
obligation under an agreement.
(b) Contracting Officer’s tentative conclusion—(1) Notice. If the Contracting
Officer tentatively concludes that any
substantial obligation under the agreement, the joint regulations or these
regulations is not being fulfilled by the
party he shall serve written notice of
his tentative conclusion upon the party
by certified mail with return receipt
requested. The notice shall contain the
following information:
(i) A statement of the grounds upon
which the tentative conclusion is
based;
(ii) The amount the Contracting Officer tentatively concludes should be
withdrawn as a nonqualified withdrawal; and
(iii) A statement that the tentative
conclusion shall become a final decision unless the party requests, within
30 days, an opportunity either to cure
its breach or to be heard and offer evidence in opposition to the tentative
conclusion.
(2) Effect of notice. The notice of the
tentative conclusion shall become a
final decision as described in paragraph
(d)(1) of this section, unless within 30
days of receipt of such a written notice

the party by personal delivery or by
certified mail, requests the opportunity either to cure its breach or to be
heard and offer evidence in opposition
to the tentative conclusion, in which
case no further withdrawals from the
fund, without the written prior approval of the Contracting Officer, shall
be made by the party until a binding
final decision is reached by the Maritime Administration.
(c) Basis for Contracting Officer’s tentative conclusion. In determining whether a party has not fulfilled a substantial obligation under its agreement,
the Contracting Officer shall consider
among other things:
(1) The effect of the party’s action or
omission upon its ability to either
carry out the purpose of the fund, accomplish its Schedule B program (see
§ 390.4(c)) or satisfy its minimum level
of deposits in Schedule D (see
§ 390.4(e)).
(2) Whether the party has made material misrepresentations in connection with its application, agreement or
any modification or amendment thereto or has failed to disclose material information that may affect its agreement or the purpose of the fund.
(d) Contracting Officer’s decision and
appeals to the Maritime Administrator—
(1) Where there has not been a request to
cure or to be heard. If the Contracting
Officer issues a written notice under
paragraph (b) of this section and the
party does not request within 30 days
an opportunity either to cure its
breach or to be heard and offer evidence in opposition to the tentative
conclusion, the Contracting Officer’s
tentative conclusion shall become the
final decision, which decision shall be
final, conclusive and binding upon the
party, and no appeal therefrom shall be
taken to the Maritime Administrator.
(2) Where there has been a request to
cure or to be heard. If the Contracting
Officer issues a written notice under
paragraph (b) of this section and the
party requests within 30 days an opportunity either to cure its breach or to be
heard and offer evidence in opposition
to the tentative conclusion, the party
shall be offered such an opportunity.
Request to cure must include a proposal to cure the breach. If the Contracting Officer accepts the party’s

404

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00414

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195

Maritime Administration, DOT

Pt. 390, App. I

proposal to cure its breach, then such
determination shall be final. A party
requesting to be heard and offer evidence in opposition to the Contracting
Officer’s tentative conclusion shall be
permitted to submit, in writing, any
information, evidence or argument
within a period set by the Contracting
Officer after considering the wishes of
the party. The Contracting Officer
shall reduce his final decision to writing and furnish the party a copy, by
certified
mail—return
receipt
requested, which decision shall be final
and conclusive and shall bind the party
unless within 30 days of receipt of the
decision the party appeals from said
decision by personal delivery or by certified mail to the Maritime Administrator with notice to the Contracting
Officer.
(e) Appeals to the Maritime Administrator. Appeals with a request for a
hearing on the record, if desired, are to
be transmitted pursuant to paragraph
(d) of this section and are to be addressed to the Maritime Administrator.
Upon the filing of an appeal, the Contracting Officer shall transmit the entire record and a copy of his final decision to the Maritime Administrator. If
a request for a hearing on the record is
granted, the Maritime Administrator
shall proceed pursuant to the Rules of
Practice and Procedure in Part 201 of
this title. The decision of the Maritime
Administrator on any question of fact
shall be final, conclusive and binding
upon the party unless determined by a
court of competent jurisdiction to be
fraudulent, capricious, or arbitrary, or
so grossly erroneous as necessarily to
imply bad faith or is not supported by
substantial evidence.

yshivers on PROD1PC62 with CFR

§ 390.14 Departmental reports and certification.
(a) In general. For each calendar year,
the Secretary of Transportation shall
provide the Secretary of the Treasury,
within 120 days after the close of such
calendar year, a written report with respect to those capital construction
funds under the Secretary of Transportation’s jurisdiction.
(b) Content of reports. Each report
shall set forth the name and taxpayer
identification number of each person:

(1) Establishing a capital construction fund during such calendar year;
(2) Maintaining a capital construction fund as of the last day of such calendar year;
(3) Terminating a capital construction fund during such calendar year;
(4) Making any withdrawal from or
deposit into (and the amounts thereof)
a capital construction fund during such
calendar year; or
(5) With respect to which a determination has been made during such
calendar year that such person has
failed to fulfill a substantial obligation
under any capital construction fund
agreement to which such person is a
party.
[55 FR 34929, Aug. 27, 1990]

APPENDIX I TO PART 390—U.S. DEPARTMENT OF TRANSPORTATION, MARITIME ADMINISTRATION—APPLICATION
INSTRUCTIONS
INSTRUCTION REGARDING APPLICATION FOR A
CAPITAL CONSTRUCTION FUND

An application for a capital construction
fund under section 607 of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1177),
the Rules and Regulations prescribed jointly
by the Secretary of the Treasury and the
Secretary of Transportation (26 CFR Part 3
and reprinted in 46 CFR Part 391, the ‘‘Joint
Regulations’’) and individually by the Secretary of Transportation (46 CFR Part 390,
the ‘‘SOC Regulations’’) shall be prepared
and submitted in the form specified by these
instructions.
The application must be legible and shall
be submitted in six (6) complete sets, including the required Schedules and Exhibits. The
application shall be filed with the Secretary,
Maritime Administration, Washington, DC
20590. Three of these sets must be duly executed and certified by the Applicant. The
name of the Applicant shall be shown on all
accompanying papers for identification.
All questions contained in the application
must be responded to; if a question is not applicable the respondent should so state. Additional information may be requested if
such information is necessary to aid the Contracting Officer in making a determination
to enter into a Capital Construction Fund
Agreement.

405

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00415

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

Pt. 390, App. I

46 CFR Ch. II (10–1–07 Edition)

U.S. DEPARTMENT OF TRANSPORTATION,
MARITIME ADMINISTRATION

yshivers on PROD1PC62 with CFR

APPLICATION FOR ESTABLISHMENT OF A CAPITAL CONSTRUCTION FUND UNDER SECTION 607,
MERCHANT MARINE ACT, 1936, AS AMENDED

The undersigned lll (‘‘Applicant’’), a
citizen of the United States within the
meaning of section 2 of the Shipping Act,
1916, as amended, hereby applies under section 607 of the Merchant Marine Act, 1936, as
amended (‘‘Act’’), the Rules and Regulations
jointly prescribed by the Secretary of the
Treasury and the Secretary of Transportation (‘‘Joint Regulations’’) and individually by the Secretary of Transportation
(‘‘SOC Regulations’’) to establish a Capital
Construction Fund to aid in the acquisition,
construction or reconstruction of a qualified
vessel, the acquisition, construction or reconstruction of barges, containers or trailers
which are part of the complement of a qualified vessel and the payment of the principal
on indebtedness incurred in connection with
the acquisition, construction or reconstruction of a qualified vessel or a barge, container or trailer which is part of the complement of a qualified vessel. The fund hereby applied for will be effective for deposits
relating to the taxable year beginning
lllllllll,
19ll
and
ending
llllllll, 19ll, and for subsequent
taxable years. In support of this application,
the Applicant submits the following information:
I. As to the identity of and other General Information of the Applicant (the following data
is required to prove the Applicant’s citizenship to the satisfaction of the Secretary; also
see 46 CFR Part 355):
A. Natural Persons. If the Applicant is a
natural person, the following identifying information should be submitted:
1. Name.
2. Address.
3. Date of birth.
4. Place of birth.
5. Citizenship.
6. Principal place of business.
7. Trade name under which business is conducted.
B. Partnerships, Associations, Unincorporated
Companies. If the Applicant is a partnership,
association, or unincorporated company, the
following identifying information should be
submitted:
1. Name of partnership, association, or unincorporated company.
2. Business address.
3. Date and place of organization.
4. Name of all partners (general, limited
and special) of the partnership or trustees
and holders of beneficial interests in the association or company.
5. Share owned by each partner, trustee, or
beneficial owner.
6. Date of birth of each.

7. Place of birth of each.
8. Citizenship of each.
C. Incorporated Companies. If the Applicant
is an incorporated company, the following
identifying information should be submitted:
1. Exact name of Applicant.
2. State in which incorporated and date of
incorporation.
3. Address of principal executive offices,
and of important branch offices, if any.
4. The following information with respect
to each officer and director of the corporation:
a. Name and address.
b. Office.
c. Citizenship.
d. Capital shares owned (specify type,
whether voting or non-voting and percentage
of total of each type issued if five percent
(5%) or more).
5. The name, address and citizenship of and
number of capital shares owned by each person not named in answer to item 4, owning of
record, or beneficially if known, five percent
(5%) or more of the issued capital shares of
any class stock of the Applicant.
6. A brief statement of the general effect of
each voting agreement, voting trust, or
other arrangement whereby the voting
rights in any shares of the Applicant are
owned, controlled, or exercised, or whereby
the control of the Applicant is in any way
held or exercised by any person not the holder of legal title to such shares. (Give the
name, address, citizenship, and business of
any such person, and, if not an individual,
include the form of organization.)
II. As to the Business and Affiliations of the
Applicant. A. A brief description of the principal business activities during the past five
years of the Applicant and of any predecessor or predecessors of the Applicant; if
any change is presently contemplated, a
brief statement of the nature and circumstances thereof.
B. A list of all companies or persons that
are related within the meaning of section 482
of the Internal Revenue Code of 1954, as
amended, and the regulations thereunder
(‘‘related companies’’) or that directly or indirectly through one or more intermediaries,
control, are controlled by, or are under common control with the Applicant, together
with an indication of the nature of the business transacted by each, the relationships
between the companies named, and the nature and extent of the control. This information may be furnished in the form of a chart.
C. A statement whether during the past 5
years the Applicant or any predecessor or related company has been in bankruptcy or in
reorganization under II-B of the Bankruptcy
Act or in any other insolvency or reorganization proceedings, and whether any substantial property of the Applicant or any predecessor or related company has been acquired
in any such proceeding or has been subject to

406

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00416

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Maritime Administration, DOT

Pt. 390, App. I

foreclosure or receivership during such period. If so, give details.
D. A statement of whether the Applicant
or any predecessor or related company is
now or during the past 5 years was involved
in any litigation or subject to any outstanding judgments. If so, give details.
E. Describe any contemplated plan of reorganization or recapitalization involving new
capital, the consolidation or mergers of the
Applicant with related or other companies,
debt elimination, or other changes or modifications in the corporate or individual
structure, and indicate by appropriate financial statements the anticipated results
thereof.
III. As to the Management of the Applicant.
A. A brief description of the principal business activities during the past 5 years of
each director and each principal executive
officer of the Applicant.
B. The name and address of each other organization engaged in business activities related to those carried on or to be carried on
by the Applicant with which any person
named in the answer to the preceding item
has any present business connection; the
name of each such person, and briefly the nature of such connection.
IV. Description of Vessels, Barges, Containers
or Trailers which Applicant Proposes to be Incorporated in Capital Construction Fund Agreement for the Purpose of Making Deposits. Vessels must be eligible vessels as that term is
defined in section 607(k) of the Act and
§ 390.5(b) of the SOC Regulations. Undocumented barges, containers or trailers must
be part of the complement of an eligible vessel as that term is defined in section 607(b) of
the Act and § 390.5(d) of the SOC Regulations:
A. Vessels. Provide in a tabular form headed ‘‘Schedule A’’ (see prescribed format in
appendix II) the vessels owned or leased by
the Applicant which the Applicant proposes
to be designated as ‘‘Eligible Agreement Vessels’’ for the purposes of making deposits
into a Capital Construction Fund pursuant
to the provisions of section 607 of the Act,
giving:
a. Name and official number.
b. Specific type.
c. Capacity (tons of cargo, number of containers, barges, etc.).
d. Whether owned or leased, and if leased
the owner and the owner’s address.
e. Date and place of construction.
f. If reconstructed, date of redelivery and
place of reconstruction.
g. Date documented under laws of the
United States.
h. Area of operation.
i. Full details concerning the service in
which the Applicant operates or will operate
each vessel; if the vessel is used for multiple
purposes indicate the percentage of time in
which the vessel is engaged in each service.

B. Barges, Containers, and Trailers. Provide
in a tabular form headed ‘‘Schedule A’’ (see
prescribed format in appendix II) the barges,
containers, and trailers owned or leased by
the Applicant which the Applicant proposes
to be incorporated in an Agreement for purposes of making deposits into a Capital Construction Fund pursuant to the provisions of
section 607 of the Act, giving:
a. Number of barges, containers or trailers
which are part of the complement of an eligible vessel; name and official number of
barges which are not a part of the complement of an eligible vessel.
b. Specific type.
c. Size or capacity.
d. Whether owned or leased, and if leased
the owner and the owner’s address.
e. Date and place of construction.
f. If reconstructed, date of redelivery and
place of reconstruction.
g. Date documented under the laws of the
United States.
h. Area of operation.
i. The vessel or vessels for which the
barges, containers and trailers are part of
the complement; full details concerning the
service in which the Applicant operates or
will operate each barge which is not a part of
a complement.
V. Purposes for which Qualified Withdrawals
are Proposed. Applicant is advised that information furnished in response to sections A,
B, C and D of this item is for the purpose of
inducing the United States to enter into an
agreement to establish a Capital Construction Fund pursuant to section 607 of the Act.
In connection therewith attention is directed
to section 607(f)(2) of the Act which states,
‘‘Under joint regulations, if the Secretary of
Transportation determines that any substantial obligation under any agreement is not
being fulfilled, he may, after notice and opportunity for hearing to the person maintaining the fund, treat the entire fund or any
portion thereof as an amount withdrawn
from the fund in a nonqualified withdrawal.’’
Also see § 390.13 of the SOC Regulations.
A. Acquisition or Construction of Vessels.
Provide in form headed ‘‘Schedule B’’ (see
prescribed format in appendix II) the proposed program for the acquisition or construction of vessels, giving:
a. Number, type and commercial characteristics of vessels to be acquired or constructed.
b. Whether vessels will be replacements or
additions, and if replacements identify vessels to be replaced.
c. Projected date of acquisition or award of
construction contract.
d. Projected date of commencing operations.
e. Estimated total cost.
f. Method by which estimated total cost of
project was determined.

407

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00417

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Pt. 390, App. I

46 CFR Ch. II (10–1–07 Edition)

g. Estimated amount of Capital Construction Fund monies to be used as down payment by the Applicant.
h. Estimated amount of borrowings and
the amount of such borrowings to be retired
by qualified withdrawals from the Capital
Construction Fund, including anticipated
terms of such financing.
i. Intended area of operation.
j. Full details concerning the use of the
proposed vessel; if the vessel is to be used for
multiple purposes indicate the approximate
percentage of time in which the vessel will
be engaged in each service.
B. Acquisition or Construction of Barges,
Containers and Trailers. Provide in a form
headed ‘‘SCHEDULE B’’ (see prescribed format in appendix II) the proposed program for
acquisition or construction of barges, containers and trailers giving:
a. Number, type and size of barges, containers and trailers.
b. Whether barges, containers and trailers
will be replacements or additions, if replacements, identify barges, containers or trailers
to be replaced.
c. Projected date of acquisition or award of
construction contract.
d. Projected date of introduction into service.
e. Estimated total cost.
f. Method by which estimated total cost of
project was determined.
g. Estimated amount of Capital Construction Fund monies to be used as down payment by the Applicant.
h. Estimated amount of borrowings and
the amount of such borrowings to be retired
by qualified withdrawals from the Capital
Construction Fund including anticipated
terms of such financing.
i. Identification of vessels for which the
barges, containers and trailers will be part of
the complement, and the vessel’s area of operation. In the case of barges which are not
a part of the complement of a vessel provide
the barges’ intended area of operation.
j. Full details concerning the use of the
proposed barge; if the barge is to be used for
multiple purposes indicate the approximate
percentage of time in which the barge will be
engaged in each service.
C. Reconstruction of Vessels. Provide in a
form headed ‘‘SCHEDULE B’’ (see prescribed
format in appendix II) the proposed program
for reconstruction of vessels, giving:
a. Identification of vessels to be reconstructed.
b. Nature and extent of proposed reconstruction.
c. Projected date of award of reconstruction contract.
d. Projected date of commencing operations with reconstructed vessels.
e. Estimated total cost.
f. Method by which estimated total cost of
project was determined.

g. Estimated amount of Capital Construction Fund monies to be used as down payment by the Applicant.
h. Estimated amount of borrowings and
amount of such borrowings to be retired by
qualified withdrawals from the Capital Construction Fund, including anticipated terms
of such financing.
i. Intended area of operation.
j. Full details concerning the use of the
proposed vessel; if the vessel is to be used for
multiple purposes indicate the approximate
percentage of time in which the vessel will
be engaged in each service.
D. Reconstruction of Barges, Containers and
Trailers. Provide in a form headed ‘‘SCHEDULE B’’ (see prescribed format in appendix
II) the proposed program for reconstruction
of barges, containers and trailers, giving:
a. Number, type and size of barges, containers and trailers.
b. Nature and extent of proposed reconstruction work.
c. Projected date of award of reconstruction contract.
d. Projected date of completion of reconstruction work.
e. Estimated total cost.
f. Method by which estimated total cost of
project was determined.
g. Estimated amount of Capital Construction Fund monies to be used as down payment by the Applicant.
h. Estimated amount of borrowings and
amount of such borrowings to be retired by
qualified withdrawal from the Capital Construction Fund including anticipated terms
of such financing.
i. Identification of vessels for which the
barges, containers, and trailers will be part
of the complement, and the vessel’s area of
operations. In the case of barges which are
not a part of the complement of a vessel provide the barges’ area of operation.
j. Full details concerning the use of the
proposed barge; if the barge is to be used for
multiple purposes indicate approximate percentage of time in which the barge will be
engaged in each service.
E. Payment of Principal on Existing Indebtedness Incurred in Connection with the Acquisition, Construction or Reconstruction of a Qualified Vessel or a Barge, Container or Trailer
which is Part of the Complement of a Qualified
Vessel. Provide in a form headed ‘‘Schedule
B’’ (see prescribed format in appendix II) the
proposed program for payments of principal
on existing indebtedness incurred in connection with the acquisition, construction, or
reconstruction of qualified vessels, barges,
containers, or trailers, giving:
a. Name, official number or other identifying information for the vessel, barge, container, or trailer.
b. Whether the debt was incurred for acquisition, construction or reconstruction, demonstrating evidence of a direct connection

408

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00418

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Maritime Administration, DOT

Pt. 390, App. I

between the qualified vessel and the debt
which was incurred.
c. The aggregate principal balance of such
indebtedness as of the date of this application.
d. The dates and amounts of payments of
principal to liquidate the outstanding debt
in accordance with the applicable loan agreements or other documents.
VI. As to the Depository to be Used for the
Capital Construction Fund. Provide in a tabular form headed ‘‘Schedule C’’ (see prescribed format in appendix II) the full name
and complete address of the financial institution which will act as depository. Indicate
the type of account, i.e., checking, savings,
trust, in which the fund will be held.
VII. Proposed Schedule of Minimum Amounts
Available for Deposit into the Capital Construction Fund. Provide in a tabular form headed
‘‘Schedule D’’ (see prescribed format in appendix II) a proposed program for deposits
into the Capital Construction Fund commencing with the beginning of the first taxable year for which the Agreement applies.
The applicant is advised that the purpose of
Schedule D is to insure that a sufficient
commitment has been made to accomplish
the objectives contained in Schedule B. Minimum annual deposits are not required, but a
minimum amount must be deposited for each
3 year period under the Agreement. For each
such 3 year period of the proposed Schedule
D the Applicant will indicate not only the
minimum amount to be deposited, but also
the source of such deposit, giving amounts
expected to be derived from:
a. Ordinary income attributable to the operation of agreement vessels.
b. Net proceeds from the sale or other disposition of agreement vessels.
c. Receipts from the investment or reinvestment of amounts held in the fund.
d. Earned depreciation on agreement vessels.
VIII. Financial Statements and Reports of the
Applicant Including Predecessors. A. Financial
Statements. For each of the past three fiscal
years provide:
1. Statements of Financial Conditions.
2. Statements of Operations.
3. Statements of Retained Earnings.
B. Reports. If the books of the Applicant
were audited by an independent certified
public accountant copies of the public accountant’s reports shall be submitted for
each of the past three fiscal years.
IX. As to Exhibits Furnished. At the time of
original filing, the following exhibits, properly identified, shall be furnished:
Exhibit I—A copy of the Certificate of Incorporation of the Applicant or other organization papers including all amendments
thereto presently in effect.
Exhibit II—A copy of the By-Laws or other
governing instruments of the Applicant, in-

cluding all amendments thereto presently in
effect.
Exhibit III—Such other financial statements, copies of contracts, schedules and
other required data which the Applicant desires to incorporate by reference.
X. A statement of any additional information which, in the opinion of the Applicant,
is necessary to make the application and attached exhibits true and complete.
XI. A specific written request, pursuant to
5 U.S.C. 552(b)(4), must accompany the application if the Applicant wishes certain trade
secrets, financial and commercial information contained in this application to be withheld from disclosure. The Maritime Administrator, Department of Transportation will
endeavor to respect such a request, acting
within the limits of the applicable provisions
of the Freedom of Information Act.
State
of
lllllllll
County
of
lllllllll ss.:
Dated llllllllllll, 19ll
Name
of
Applicant
lllllllllllllllll
By lll Name and Title
I, lll, do certify that I am the (Title of
Office) of (Exact Name of Applicant), the Applicant on whose behalf I have executed the
foregoing application; that the Applicant is a
citizen of the United States within the
meaning of section 2 of the Shipping Act,
1916, as amended (46 U.S.C. 802); that this application is made for the purpose of inducing
the United States of America to permit the
Applicant, pursuant to section 607 of the
Merchant Marine Act, 1936, as amended, the
Joint Regulations and the SOC Regulations
to establish a Capital Construction Fund for
the purposes set forth in subsection 607(f) of
the Act; that I have carefully examined the
application and all documents submitted in
connection therewith and, to the best of my
knowledge, information and belief, the statements and representations contained in said
application and related documents are full,
complete, accurate, and true.
Subscribed and sworn to before me, a
lllllll in and for the State and County above named, this llllll day of
llllllll, 19ll.
My
Commission
expires
lllllllllll.
NOTE: The United States Criminal Code
makes it a criminal offense to knowingly
and willfully falsify, conceal or cover up by
any trick, scheme, or device, a material fact
from, or make any false, fictitious or fraudulent statements or representations or make
or use any false writing or document knowing the same to contain any false, fictitious
or fraudulent statement to, any department
or government agency of the United States

409

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00419

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

Pt. 390, App. II

46 CFR Ch. II (10–1–07 Edition)

as to any matter within its jurisdiction (18
U.S.C. 1001).

APPENDIX II TO PART 390—SAMPLE CAPITAL CONSTRUCTION FUND AGREEMENT

[Contract No. MA/CCF—]

yshivers on PROD1PC62 with CFR

CAPITAL CONSTRUCTION FUND AGREEMENT WITH

This Capital Construction Fund Agreement
(‘‘Agreement’’), made on the date hereinafter
set forth, by and between the United States
of America, represented by the Maritime Administrator, Department of Transportation
(‘‘Maritime Administrator’’), and lll, a
corporation organized and existing under the
laws of the State of lll (‘‘Party’’), a citizen of the United States of America.
Whereas: 1. The Party has applied for the
establishment of a Capital Construction
Fund (‘‘Fund’’) under section 607 of the Merchant Marine Act, 1936, as amended (‘‘Act’’);
2. The Party is the owner or lessee or has
contracted for the construction of one or
more eligible vessels as defined in section
607(k) of the Act, which vessels are listed in
Schedule A hereof;
3. The Party has a program for the construction or acquisition of qualified agreement vessels as defined in section 607(k) of
the Act, which program is described in
Schedule B hereof;
4. The Maritime Administrator and the
Party desire to enter into an Agreement for
the purpose of providing replacement vessels, additional vessels, or reconstruction
vessels, built in the United States and documented under the laws of the United States
for operation in the United States foreign,
Great Lakes, or noncontiguous domestic
trade;
5. The Maritime Administrator has determined that the Party qualifies for an Agreement under the Act; and
6. The Maritime Administrator has authorized the award of an Agreement upon the
terms and conditions set forth herein subject
to the Act, as it may be amended from time
to time, and such rules and regulations as
shall be prescribed by the Secretary of
Transportation or his delegate, either alone
or jointly with the Secretary of the Treasury, as necessary to carry out the powers,
duties, and functions vested in them by the
Act (‘‘rules and regulations’’).
Now, therefore in consideration of the
premises the Maritime Administrator and
the Party hereby agree as follows:
1. Establishment of a Fund: (A) A Fund is
hereby established for the purposes set forth
in Article 2 hereof, pursuant to such terms
and conditions as shall be prescribed in this
Agreement, the Act, or the rules and regulations.
(B) The Fund shall be established in the depositories listed in Schedule C hereof.

2. Purpose of the Fund: The Fund established hereunder shall be utilized to provide
for replacement vessels, additional vessels,
or reconstructed vessels, built in the United
States and documented under the laws of the
United States for operation in the United
States foreign, Great Lakes, or noncontiguous domestic trade, and to provide for
qualified withdrawals to achieve the program set forth in Schedule B hereof.
3. Term of the Agreement: This Agreement
shall be effective on the date of execution by
the Maritime Administrator and shall continue until terminated under Article 4.
4. Termination of Agreement: (A) This Agreement may be terminated at any time under
any of the following circumstances:
(1) Upon written mutual agreement by the
parties;
(2) Upon written notice by the Party that
a change has been made in the rules and regulations which would have a substantial effect upon the rights or obligations of the
Party.
(B) This Agreement shall terminate upon
completion of the program as set forth in
Schedule B hereof.
(C) Upon termination of this Agreement
pursuant to paragraphs (A) and/or (B) hereof
all amounts remaining in the Fund shall be
treated as if withdrawn in a nonqualified
withdrawal (as that term is defined in the
Act and the rules and regulations) on the
date of termination of this Agreement.
5. Deposits to be made into the Fund: (A)
Subject to any restrictions contained in the
Act, the rules and regulations, or this Agreement, the Party may deposit, for each taxable year to which this Agreement applies,
amounts representing:
(1) Taxable income attributable to the operation of the vessels listed in Schedule A or
B hereof;
(2) The depreciation allowable under section 167 of the Internal Revenue Code of 1954,
on the vessels listed in Schedule A or B hereof;
(3) The net proceeds from the sale or other
disposition of any of the vessels listed in
Schedule A or B hereof; and
(4) The net proceeds from insurance or indemnity attributable to the vessels listed in
Schedule A or B hereof.
(B) The Party shall deposit for each taxable year to which this Agreement applies:
(1) All receipts from the investment or reinvestment of amounts held in the Fund, except that the Party shall not be permitted to
deposit more than is necessary to complete
its program set out in Schedule B hereof; and
(2) The net proceeds from the mortgage of
any vessel listed in Schedule B hereof for
which qualified withdrawals from the Fund
have been made.
(C) Notwithstanding anything in paragraph
(A) or (B) hereof to the contrary, the Party
shall make the minimum deposits set forth

410

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00420

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Maritime Administration, DOT

Pt. 390, App. II

in Schedule D hereof at the time and in such
amounts as may be set forth therein. The
Party specifically agrees to deposit up to one
hundred percent of allowable taxable income
attributable to the operation of agreement
vessels in order to meet its obligations under
this paragraph.
(D) In the event that any leased vessel listed in Schedule A hereof is included in another capital construction fund agreement,
the maximum amount of depreciation which
the Party may deposit in respect to that vessel shall be calculated by using the allowable
percentage of the depreciation ceiling listed
for that vessel in Schedule A hereof.
6. Withdrawals from the Fund: (A) The Party
may make such qualified withdrawals (as
that term is defined in the Act and the rules
and regulations) as shall be necessary to fulfill the obligations set forth in Schedule B
hereof. Any such qualified withdrawal may
be made without the consent of the Maritime
Administrator, except as required by the
rules and regulations.
(B) Any other withdrawal from the Fund
shall be made only upon the prior written
consent of the Maritime Administrator, as
required by the rules and regulations.
7. Investment of the Fund: (A) The Party, at
its discretion, may invest assets held in the
Fund in accordance with the Act and the
rules and regulations.
(B) The Party agrees that when investing
assets held in the Fund to make such investments as will insure that sufficient cash is
available at the time qualified withdrawals
are required in accordance with the program
described in Schedule B hereof.
8. Pledges, Assignments and Transfers: (A)
The Party agrees not to assign, pledge or
otherwise encumber, either directly or indirectly or through any reorganization, merger, or consolidation, all or any part of this
Agreement, the Fund, or any assets in the
Fund without the prior written consent of
the Maritime Administrator; Provided, however, The Party may transfer the assets of
the Fund, in whole or in part, to an investment trustee, as provided in the rules and
regulations.
(B) The Party shall not obligate any assets
in the Fund as a compensating balance.
(C) The Party may not sell, transfer or
otherwise dispose of any vessel, or part
thereof, described in Schedule B hereof without the prior written consent of the Maritime Administrator.
9. Records and Reports: (A) The Party and
each affiliate, domestic agent, subsidiary or
holding company connected with, or directly
or indirectly controlling or controlled by the
Party shall keep its books, records, and accounts relating to the maintenance, operation, servicing of the vessel(s) and/or service(s) covered by this Agreement in such
form as may be prescribed by the Maritime

Administrator under the rules and regulations.
(B) The Maritime Administrator agrees not
to require the duplication of books, records
and accounts required to be kept in some
other form by the Interstate Commerce Commission or the Secretary of the Treasury, so
long as the information required in paragraph (A) hereof is made available to the
Maritime Administrator.
(C) The Party agrees to file, upon notice
from the Maritime Administrator, balance
sheets, profit and loss statements, and such
other statements of financial operations,
special reports, charters, ships’ logs, memoranda of facts and transactions, as in the
opinion of the Maritime Administrator may
affect the Party’s performance under this
Agreement.
(D) The Maritime Administrator may require by regulation that any of such statements, reports and memoranda shall be certified by independent certified public accountants acceptable to the Maritime Administrator.
(E) The Maritime Administrator may require the Party to establish and maintain
systems of control of expenses and revenues
in connection with the operation of the
agreement vessel(s).
(F) The Party agrees to submit promptly
to the Maritime Administrator any contract
executed in connection with the program described in Schedule B hereof.
(G) The Maritime Administrator is hereby
authorized to examine and audit the books,
records, and accounts of all persons referred
to in this Article whenever he may deem it
necessary or desirable.
10. Modification and Amendment: This
Agreement may be modified or amended at
any time by mutual written consent.
11. Incorporation of Schedules: The attached
Schedules A, B, C, and D are incorporated
into and made a part of this Agreement.
12. Liquidated Damages: (A) In the event
that the Party operates any qualified agreement vessel described in Schedule B hereof
in geographic trades other than those permitted by section 607 of the Act, this Agreement, and/or the rules and regulations, the
Party shall pay to the United States an
amount of liquidated damages for each day
of such impermissible geographic trading
which shall constitute the time value of the
deferral of Federal income tax which the
Party has received. The amount shall be calculated in accordance with the rules and regulations.
(B) The Party agrees to pay the daily rate
of liquidated damages to the Maritime Administrator, for deposit in the Treasury of
the United States, within the time limits
provided for in the rules and regulations.
(C) Nothing in this Article shall in any
way be construed to diminish or waive any of

411

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00421

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

yshivers on PROD1PC62 with CFR

Pt. 390, App. II

46 CFR Ch. II (10–1–07 Edition)

the Maritime Administrator’s other remedies for breach under the Act, the Agreement, or the rules and regulations.
(D) Notwithstanding the fact that the
Agreement may be terminated pursuant to
the provisions of Article 4 hereof, or otherwise, the provisions of this Article 12 shall
continue in effect as follows:
(1) In the case of a vessel constructed or
acquired within one year of final delivery
from the shipyard after construction with
the aid of qualified withdrawals, for a period
of twenty (20) years from the date of such
vessel’s final delivery;
(2) In the case of a vessel reconstructed or
acquired more than one year after final delivery from the shipyard after construction
with the aid of qualified withdrawals, for a
period of ten (10) years from the date of such
vessel’s final delivery from the shipyard
after reconstruction or the date of such vessel’s acquisition; and
(3) In the case of a vessel included in
Schedule B hereof as a qualified agreement
vessel in regard to which qualified withdrawals from the Fund have been made to
pay existing indebtedness, for a period of ten
(10) years from the date of the first qualified
withdrawal in regard to such vessel, Provided, however, That if such vessel was more
than fifteen (15) years old on the date of the
first qualified withdrawal in regard thereto,
such conditions shall continue for a period of
five (5) years in regard to such vessel.
13. Warranties and Representations by the
Party: The Party hereby warrants and represents that:
(A) The Party is a citizen of the United
States within the meaning of section 2 of the
Shipping Act, 1916, as amended, and will continue to be so for the term of this Agreement. The Party agrees that, each year,
within thirty (30) days after the annual
meeting of its stockholders, it shall file a
supplemental affidavit as evidence of its continuing United States citizenship, provided
that any changes in data last furnished with
respect to officers, directors, and stockholders holding five percent or more of the
issued and outstanding stock of each class or
series which would result in a loss of the
Party’s status as a United States citizen
shall be promptly reported to the Maritime
Administrator.
(B) The Party owns, is the lessee, or has
contracted for the construction of one or
more eligible vessels (within the meaning of
section 607(k) of the Act) as listed in Schedule A hereof.
(C) The qualified vessels described in
Schedule B hereof: (1) Were or will be constructed or reconstructed in the United
States, except as provided in the Act and the
rules and regulations;
(2) Are or will be documented under the
laws of the United States and will continue
to remain so documented; and

(3) Will be operated in the foreign, Great
Lakes or noncontiguous domestic trade of
the United States within the meaning of the
Act and the rules and regulations
(D) The Party will meet its deposit obligations as agreed upon in Article 5 of this
Agreement.
(E) The Party will promptly inform the
Maritime Administrator, in writing, of any
change in circumstances which would tend
to adversely affect the ability of the Party
to carry out its obligations under the Agreement.
(F) The Party will faithfully conform to all
rules and regulations governing the Agreement and the Fund.
(G) Nothing of monetary value has been
improperly given, promised, or implied for
entering into this Agreement. The Party further warrants that no improper personal, political or other activities have been used or
attempted in an effort to influence the outcome of the discussions or negotiations leading to the award of this Agreement. Breach
of this warranty shall constitute an event of
default for which the Maritime Administrator shall have the right, notwithstanding
Article 4, to terminate this Agreement without liability to the United States.
14. Default in Obligations: (A) If the Maritime Administrator determines that any
substantial obligation under this Agreement
is not being fulfilled by the Party, he may,
under the rules and regulations and after the
Party has been given notice and an opportunity to be heard, declare a breach and
treat the entire Fund, or any portion thereof, as an amount withdrawn in a nonqualified withdrawal.
(B) The Maritime Administrator shall provide an opportunity for the Party to cure a
breach declared pursuant to Paragraph (A) of
this Article 14.
(C) Events of breach by the Party shall include, but shall not be limited to: (1) Failure
in any respect to use due diligence in performing the program set forth in Schedule B
hereof;
(2) Obligating the assets in the Fund as a
compensating balance;
(3) Failure to make deposits required in
Schedule D hereof;
(4) Failure to secure written permission
from the Maritime Administrator when such
permission is required by the rules and regulations;
(5) Failure to submit reports and/or records
on a timely basis as provided in Article 9
hereof;
(6) Any material misrepresentation made
by the Party or any failure by the Party to
disclose material information in connection
with this Agreement whether before or after
execution hereof and whether made in an application, report, affidavit, or otherwise; or

412

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00422

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

Maritime Administration, DOT

Pt. 390, App. II

(7) Failure by the Party to comply with
any provisions of section 607 of the Act, the
rules and regulations, or this Agreement.
15. Extension of Federal Income Tax Benefits:
The Maritime Administrator agrees that the
Federal income tax benefits provided in the
Act and the rules and regulations shall be
available to the Party if the Party shall
carry out its obligations under this Agreement.

(Secretary)
(SEAL)
By lllll
(Secretary)
Attest:
By llllllllllllllllllllll
(Contracting Officer)
llllllllllllllllll
(Secretary)

UNITED STATES OF AMERICA, MARITIME ADMINISTRATOR, DEPARTMENT OF TRANSPOR-

Approved as to form:
lll By lll
(Assistant General
Counsel, Maritime
Administration)

TATION

(SEAL)
Attest:
By lllll

(Date of Execution)
(President)

XYZ CO.—SCHEDULE A—ELIGIBLE AGREEMENT VESSELS
(a)

(b)

(c)

(d)

(e)

Name of vessel

Specific type

Capacity

Owned or leased and
owner is leased

Date and place constructed

SS Smith, official No.
236425..

Tanker ..........................

56,000 dwt ...................

1962, American Steel,
San Francisco, Calif.

SS Brown, official No.
325111.
SS Jones, official No.
190528..
Hercules, official No.
256,125.

......do ...........................

265,000 dwt .................

Leased: ABC Ships,
Inc., San Diego,
Calif., 50 percent of
depreciation ceiling.
Owned ..........................

Container ship ..............

30,000 dwt, 500 400-ft
containers.
105 ft 2,000 hp ............

......do ...........................

Oceangoing tugboat ....

......do ...........................

XYZ–1, official No.
257,164.

Roll-on, roll-off barge ...

1,200 gr ton, 45 40-ft
containers.

......do ...........................

XYZ–2, official No.
260,138.

......do ...........................

......do ...........................

......do ...........................

OTC–35, official No.
262,170.

......do ...........................

1,500 gr ton, 60 40-ft
containers.

200 trailers, Nos.
111032–A–10677B–
1M through 11032–
A–10877B–1M.

Dry cargo .....................

40 ft ..............................

1,500 containers, Nos.
312 A through 1312
A..

Refrigerated dry cargo.

......do ...........................

Leased; Oregon Towing Co., Portland,
Oreg., 100 percent of
depreciation ceiling.
Leased; International
Leasing Co., New
York, N.Y. 0 percent
of depreciation ceiling.
Owned ..........................

1974, Southern Shipyards, Mobile, Ala.
1954, Bond Shipyard,
New York, N.Y.
1968, Washington Iron
Works, Seattle,
Wash.
1968, Washington Iron
Works, Seattle,
Wash.
1969, Washington Iron
Works, Seattle,
Wash.
1969, J. & J. Shipyard,
Portland, Oreg.

1968, Acme Container
Corp., New York,
N.Y.

1969, Aluminum Products, Inc., Dallas,
Tex.

yshivers on PROD1PC62 with CFR

XYZ CO.—SCHEDULE A—ELIGIBLE AGREEMENT VESSELS (CONTINUED)
(f)

(g)

(h)

(i)

Date and place reconstructed

Date documented

Area of operation

Details of service

SS Smith, official No.
236425.

Not available ..............

1962

Noncontiguous domestic trade.

SS Brown, official No.
325111.
SS Jones, official No.
190528.
Hercules, official No.
256,125.

......do .........................

1974

U.S. foreign trade ......

1970, Litton Systems,
Mississippi.
Not available ..............

1954

U.S. foreign and noncontiguous trade.
Domestic ....................

1968

Carriage of crude oil from Valdez, Alaska,
to west coast of the continental United
States.
Worldwide carriage of crude oil.
Container service between Japan and
California via Hawaii.
Towing roll-on, roll-off barges from Puget
Sound to San Francisco.

413

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00423

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

Pt. 390, App. II

46 CFR Ch. II (10–1–07 Edition)

XYZ CO.—SCHEDULE A—ELIGIBLE AGREEMENT VESSELS (CONTINUED)—Continued
(f)

(g)

(h)

(i)

Date and place reconstructed

Date documented

Area of operation

Details of service

XYZ–1, official No.
257,164.

......do .........................

1968

......do .........................

XYZ–2, official No.
260,138.
OTC–35, official No.
262,170.
200 trailers, Nos.
111032–A–10677B–
1M through 11032–
A–10877B–1M.
1,500 containers, Nos.
312 A through 1312
A..

......do .........................

1969

......do .........................

Carriage of trailer type containers between Puget Sound and San Francisco.
Do.

......do .........................

1969

......do .........................

......do .........................

NA

......do .........................

For use on Barges XYZ–1, XYZ–2, and
OTC–35.

......do .........................

NA

U.S. foreign noncontiguous domestic trade.

For use as complement of SS Jones.

Do.

XYZ CO., PROGRAM OBJECTIVES—I. ACQUISITION OR CONSTRUCTION OF VESSELS
Vessel name,
and official number

General characteristics

Approximate
cost

Amount to be
withdrawn from
fund

Approximate date of—
Contract

Anticipated area
of operation

Delivery

XYZ CO., PROGRAM OBJECTIVES—II. RECONSTRUCTION OF VESSELS
Vessel name,
and official number

General characteristics

Approximate
cost

Amount to be
withdrawn from
fund

Approximate date of—
Contract

Anticipated area
of operation

Delivery

XYZ CO., PROGRAM OBJECTIVES—III. PAYMENT OF PRINCIPAL ON EXISTING INDEBTEDNESS
Vessel name and official number

Purpose of indebtedness

Amount to be paid from fund

XYZ CO., SCHEDULE C—DEPOSITORIES FOR CAPITAL CONSTRUCTION FUND
Name

Address

1. First American Bank checking account .......................................................
2. Southern California National Bank investment trustee established pursuant to sec. 390.7 of the SOC regulations.

2001 Park Ave., San Francisco, Calif. 94109.
1 Waterfront Place, San Francisco, Calif. 94101.

XYZ CO. SCHEDULE D—MINIMUM DEPOSITS
[In thousands]
Ordinary income

yshivers on PROD1PC62 with CFR

Taxable year
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000

to 1975 .............................................
to 1978 .............................................
to 1981 .............................................
to 1984 .............................................
to 1987 .............................................
to 1990 .............................................
to 1993 .............................................
to 1996 .............................................
to 1999 .............................................
..........................................................

$3,150
2,900
3,000
2,800
2,850
2,900
3,000
3,100
3,250
3,200

Net proceeds
1 $2,400
2 1,500
........................
........................
........................
........................
........................
........................
........................
........................

Fund interest
$250
325
350
74
90
100
100
110
120
120

Depreciation
........................
........................
85
125
60
........................
........................
........................
........................
........................

414

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00424

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

Total
$5,800
4,725
3,435
3,000
3,000
3,000
3,100
3,210
3,370
3,320

Maritime Administration, DOT

Pt. 390, App. III

XYZ CO. SCHEDULE D—MINIMUM DEPOSITS—Continued
[In thousands]
Ordinary income

Net proceeds

Fund interest

Depreciation

........................

........................

........................

........................

Taxable year
Total ................................................

Total
35,960

1 Net

proceeds from sale of barges XYZ–1 and XYZ–2 for $1,200,000 each.
2 Net proceeds from sale of tug Hercules.

[41 FR 4265, Jan. 29, 1976, as amended at 42 FR 43632, Aug. 30, 1977]

EXHIBIT A—XYZ CO., SUMMARY OF CASH, SECURITIES, AND STOCK ON DEPOSIT AND NET
ACCRUED DEPOSITS TO AND ACCRUED WITH-

APPENDIX III TO PART 390—U.S. DEPARTMENT
OF
TRANSPORTATION,
MARITIME
ADMINISTRATION—SAMPLE SEMIANNUAL REPORT
[Illustrative sample of the report required by
the Maritime Administration pursuant to
46 CFR part 390 prescribing the capital construction fund reporting requirements to
be followed by those companies which are
party to a capital construction fund agreement]

EXHIBIT A—XYZ CO., SUMMARY OF CASH, SECURITIES, AND STOCK ON DEPOSIT AND NET
ACCRUED DEPOSITS TO AND ACCRUED WITHDRAWALS FROM THE CAPITAL CONSTRUCTION
FUND AS OF JUNE 30, 19ll

DRAWALS FROM THE CAPITAL CONSTRUCTION
FUND AS OF JUNE 30, 19ll—Continued
Thousands
Fund total (agrees with balance sheet submitted at this date) on deposit for book
purposes—June 30, 19ll .......................
Portion of fund total for tax purposes as of
June 30, 19ll, which represents a
‘‘CCF: Security amount’’ pursuant to an
agreement covering the dual use of a capital construction fund
Balance brought forward ...............................
Deposits .........................................................

Thousands
$403
82

Total ‘‘CCF: Security Amount’’ ............

485

Thousands
Cash (exhibit A–1 and B) ..............................
Securities and stock—adjusted basis (exhibit
A–2 and B) .................................................

4,035

EXHIBIT A–1—XYZ COMPANY

$1,025

SUMMARY OF CASH ON DEPOSIT IN CAPITAL CONSTRUCTION FUND
AS OF JUNE 30, 19ll

2,560
Thousands

Fund total for tax purposes on deposit (exhibit C) ........................................................
Net accrued deposits and withdrawals (exhibit A–3) ....................................................

3,585
450

First American Bank, San Francisco, Calif.,
checking account No. 654–0876–211 .......
Total cash in capital construction fund at
June 30, 19ll .........................................

$1,025
1,025

EXHIBIT A–2—XYZ CO., SUMMARY OF SECURITIES AND STOCK (ADJUSTED BASIS AND FAIR MARKET
VALUE) IN CAPITAL CONSTRUCTION FUND AS OF JUNE 30, 19ll(IN THOUSANDS)
Adjusted
basis
Treasury notes—due July 4, 19ll, $800,000 face value, 1st American Bank, San Francisco,
Calif., trust account No. 610–2135 ............................................................................................
Negotiable certificate of deposit—due July 31, 19ll, $500,000 at 8 percent, 1st American
Bank, San Francisco, Calif., CD No. 186007 ............................................................................
U.S.A. Motors, Inc.—class A common stock, 5,000 shares, Southern California National Bank,
trust account No. 358–21 ..........................................................................................................
Energy Co., Inc.—1st preferred, 4,100 shares, Southern California National Bank, trust account No. 358–21 ......................................................................................................................
Boon Corp.—class A common stock, 10,000 shares, Southern California National Bank, San
Francisco, Calif., trust account No. 358–21 ..............................................................................
Total securities and stock in capital construction fund at June 30, 19ll ......................

$760

Fair market
value

$760

500

500

625

725

205

255

470

520

2,560

2,760

EXHIBIT A–3—XYZ CO., SUMMARY OF NET ACCRUED DEPOSITS AND WITHDRAWALS IN CAPITAL
CONSTRUCTION FUND AS OF JUNE 19ll

yshivers on PROD1PC62 with CFR

Thousands
Accrued deposits:
19ll income (6 mos. ended June 30, 19lll ..............................................................................................

415

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00425

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

$500

Pt. 390, App. III

46 CFR Ch. II (10–1–07 Edition)

EXHIBIT A–3—XYZ CO., SUMMARY OF NET ACCRUED DEPOSITS AND WITHDRAWALS IN CAPITAL
CONSTRUCTION FUND AS OF JUNE 19ll—Continued
Thousands
Depreciation .......................................................................................................................................................

200

Total .........................................................................................................................................................
Accrued withdrawals: Progress payment made from general fund—hull 210 ..........................................................

700
250

Net accrued deposits and withdrawals in capital construction fund at June 30, 19ll ..............................

450

EXHIBIT B—XYZ CO., TRANSCRIPT OF TRANSACTIONS IN THE CAPITAL CONSTRUCTION FUND FOR
THE 6 MOS. ENDED JUNE 30, 19ll
Cash
Date

Jan.
Jan.
Jan.
Jan.

1,
1,
3,
4,

19ll
19ll
19ll
19ll

Feb. 29,
19ll
Mar. 15,
19ll
Apr. 4, 19ll
Apr. 4, 19ll
Apr. 15,
19ll
May 15,
19ll
June 15,
19ll

Securities and stock (at
adjusted basis)

Description of transaction

Detail

Debit

Credit

Balances brought forward ...........
Bond debt payment—SS Smith.
Deposit 19ll depreciation .......
Purchased Treasury notes—90
days at 6-percent discount..
Dividends earned ........................

$1,500,000
..................
300,000
..................

................
$250,000
752,000

752,000

................

4,500

................

....................

................

Progress payment No. 3 hull
210..
Sale of Treasury notes—cost .....
Income from sale ........................
Purchased Treasury notes 90
days at 5-percent discount.
Deposit from 19ll earnings ....

..................

172,500

752,000
48,000
..................

................

....................

752,000

760,000

760,000

................

Debit

Credit

$2,000,000

$800,000 at 6-percent
discount.
$0.45 per share on
10,000 shares
Boon Corp.

$800,000 at 5-percent
discount.

310,000

Progress payment No. 4—hull
210..
Sale of stock—cost .....................

..................

180,000

200,000

................

....................

200,000

Gain on sale of stock ..................

..................
25,000

................

....................

................

Balances carried forward ............

1,025,000

................

2,560,000

4,000 shares at
$56.25 per share.
Energy Co., Inc.

EXHIBIT C—XYZ CO., SUMMARY OF TOTAL TRANSACTION AFFECTING THE TAX ACCOUNT BALANCES
IN THE CAPITAL CONSTRUCTION FUND FOR THE 6 MOS. ENDED JUNE 30, 19ll
Ordinary income

Capital gain

Opening balance, Jan. 1, 19ll .........................................................
Deposits, income, transfers in, etc .......................................................

$1,000,000
362,500

$1,000,000
25,000

$1,500,000
300,000

$3,500,000
687,500

Total ............................................................................................
Withdrawals, losses, transfers out, etc .................................................

1,362,500
....................

1,025,000
....................

1,800,000
602,500

4,187,500

Balance at June 30, 19ll ..................................................................

1,362,500

1,025,000

1,197,500

3,585,000

Balance brought forward ...................................
Qualified withdrawals during period ..................

$700,000
352,500

Total qualified withdrawals to date ......

1,052,500

EXHIBIT D—XYZ COMPANY
SUMMARY BY VESSEL OF QUALIFIED WITHDRAWALS FROM THE FUND FOR THE SIX
MONTHS ENDING JUNE 30, 19ll

(1) 80,000 dwt tanker: No qualified withdrawals have been made to date; construction is presently scheduled to commence in mid-1977.
(2) 130-foot ocean tug hull No. 210:

416

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00426

Fmt 8010

Total

130-foot ocean tug hull No. 211: No
withdrawals have been made to date;
construction is presently scheduled to
commence in November 1975

A. Acquisition or Construction of Vessels

yshivers on PROD1PC62 with CFR

Capital

Sfmt 8002

Y:\SGML\211195.XXX

211195

Maritime Administration, DOT

Pt. 390, App. V

B. Acquisition or Construction of Barges,
Containers and Trailers
250-foot tank barge: No qualified withdrawals have been made to date; construction presently scheduled to commence in November 1975.

In witness whereof, the Secretary and the
Party have executed this addendum, in quadruplicate, effective as of the date indicated
below.
UNITED STATES OF AMERICA,
Secretary of Transportation,
Maritime Administrator,

C. Reconstruction of Vessels

Department of Transportation

None.
D. Reconstruction of Barges, Containers, and
Trailers
None.
E. Payment of Principal on Existing
Indebtedness
SS Smith—Official No. 236425:
Balance brought forward ...................................
Qualified withdrawals during period ...........

$500,000
250,000

Total qualified withdrawals to date ......

750,000

By ...........................................
(Contracting Officer)
Date .......................................
Attest:
By ...........................................
(Secretary)
...........................................
(SEAL)
Approved as to form:
................................................
(Assistant General Counsel
Maritime Administration)

yshivers on PROD1PC62 with CFR

Title.................
Attest:
By....................
Title................
(SEAL)

[G.O. 109, Rev., Amdt. 6, 42 FR 43634, Aug. 30,
1977]

APPENDIX IV TO PART 390—SAMPLE ADDENDUM TO MARITIME ADMINISTRATION CAPITAL CONSTRUCTION FUND
AGREEMENT
This Agreement, made by the Maritime
Administrator, Department of Transportation (‘‘Maritime Administrator’’) and
lll (‘‘Party’’), a citizen of the United
States of America, as an Addendum to that
certain agreement, Contract No. MA/CCF–
Whereas: 1. On lll, the parties hereto
entered into a Capital Construction Fund
Agreement (‘‘Agreement’’) under section 607
of the Merchant Marine Act, 1936, as amended (‘‘Act’’);
2. The parties hereto desire to modify that
Agreement in the manner hereinafter set
forth;
3. The parties hereto have agreed to said
amendment and desire to incorporate the
same into the Agreement.
Now, therefore, in consideration of the
premises the Maritime Administrator and
the Party agree as follows:
Notwithstanding the provisions of Article
4(A)(2) of the Agreement, the Party may,
within sixty (60) days after notice appears in
the FEDERAL REGISTER that the Regulations
jointly prescribed by the Secretary of the
Treasury and the Secretary of Transportation have been finalized, terminate the
Agreement, if such Regulations have a substantial effect on the rights or obligations of
the Party. Upon termination of the Agreement pursuant to this Addendum No. ll
the provisions of the Internal Revenue Code
of 1954, the Act, and the rules and regulations shall apply to all funds remaining in
the Fund as if such funds were withdrawn in
a non-qualified, withdrawal, as that term is
defined in the Act and the rules and regulations.

By.................

APPENDIX V TO PART 390—SAMPLE
QUALIFIED TRADE AFFIDAVIT
AFFIDAVIT

State of lllllllllllllllllll
County of llllllllllllllllll
I, lll, (Name) being duly sworn, depose
and say:
1. That I am the lll (Title) of lll.
(Name of party)
2. That I am fully acquainted with and
have knowledge of the operations of all
qualified agreement vessels owned or operated by my company and identified in Capital Construction Fund Agreement, MA/CCF
lll.
3. That I have full knowledge of the trading restrictions and liquidated damages provisions pertaining to qualified agreement
vessels, as stipulated in section 607 of the
Merchant Marine Act, 1936, as amended, and
in the rules and regulations of 46 CFR Part
390.
4. That based on my inspection of Company
records and to the best of my knowledge and
belief, except as noted below in statement 5
of this affidavit, during the period lllll
(Beginning
of
taxable
year)
through
lllll (End of taxable year) my company
operated its qualified agreement vessels only
in the United States, foreign, Great Lakes,
and noncontiguous domestic trade in accordance with Capital Construction Fund Agreement, MA/CCF lll.
5. Exceptions to statement 4 of this Affidavit are as follows (indicate exceptions
below or attach a supplemental statement if
additional space is needed; if there are no exceptions, write ‘‘none’’):
(Affiant)

417

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00427

Fmt 8010

Sfmt 8002

Y:\SGML\211195.XXX

211195

Pt. 391

46 CFR Ch. II (10–1–07 Edition)

Subscribed and sworn to before me, a Notary Public in and for the State, City and
County above named, this llllll day of
llllllll, 19ll.
(Notary Public)
My
commission
llllllllllll, 19ll

expires

[41 FR 39751, Sept. 16, 1976]

PART 391—FEDERAL INCOME TAX
ASPECTS OF THE CAPITAL CONSTRUCTION FUND
Sec.
391.0 Statutory provisions; section 607, Merchant Marine Act, 1936, as amended.
391.1 Scope of section 607 of the Act and the
regulations in this part.
391.2 Ceiling on deposits.
391.3 Nontaxability of deposits.
391.4 Establishment of accounts.
391.5 Qualified withdrawals.
391.6 Tax treatment of qualified withdrawals.
391.7 Tax treatment of nonqualified withdrawals.
391.8 Certain corporate reorganizations and
changes in partnerships, and certain
transfers on death. [Reserved]
391.9 Consolidated returns. [Reserved]
391.10 Transitional rules for existing funds.
391.11 Definitions.
AUTHORITY: Secs. 204(b) and 607(l), Merchant Marine Act, 1936, as amended (46
U.S.C. 1114, 1177), Reorganization Plans No.
21 of 1950 (64 Stat. 1273) and No. 7 of 1961 (75
Stat. 840) as amended by Pub. L. 91–469 (84
Stat. 1036), Dept. of Commerce Organization
Order 10–8 (38 FR 19707), July 23, 1973.
SOURCE: 41 FR 23960, June 14, 1976, unless
otherwise noted.

yshivers on PROD1PC62 with CFR

§ 391.0 Statutory provisions; section
607, Merchant Marine Act, 1936, as
amended.
SEC. 607 (a) Agreement Rules.
Any citizen of the United States owning or
leasing one or more eligible vessels (as defined in subsection (k)(1)) may enter into an
agreement with the Secretary of Transportation under, and as provided in, this section
to establish a capital construction fund
(hereinafter in this section referred to as the
‘‘fund’’) with respect to any or all of such
vessels. Any agreement entered into under
this section shall be for the purpose of providing replacement vessels, additional vessels, or reconstructed vessels, built in the
United States and documented under the
laws of the United States for operation in
the United States foreign, Great Lakes, or
noncontiguous domestic trade or in the fish-

eries of the United States and shall provide
for the deposit in the fund of the amounts
agreed upon as necessary or appropriate to
provide for qualified withdrawals under subsection (f). The deposits in the fund, and all
withdrawals from the fund, whether qualified
or nonqualified, shall be subject to such conditions and requirements as the Secretary of
Transportation may by regulations prescribe
or are set forth in such agreement; except
that the Secretary of Transportation may
not require any person to deposit in the fund
for any taxable year more than 50 percent of
that portion of such person’s taxable income
for such year (computed in the manner provided in subsection (b)(1)(A)) which is attributable to the operation of the agreement vessels.
(b) Ceiling on Deposits.
(1) The amount deposited under subsection
(a) in the fund for any taxable year shall not
exceed the sum of:
(A) That portion of the taxable income of
the owner or lessee for such year (computed
as provided in chapter 1 of the Internal Revenue Code of 1954 but without regard to the
carryback of any net operating loss or net
capital loss and without regard to this section) which is attributable to the operation
of the agreement vessels in the foreign or domestic commerce of the United States or in
the fisheries of the United States.
(B) The amount allowable as a deduction
under section 167 of the Internal Revenue
Code of 1954 for such year with respect to the
agreement vessels.
(C) If the transaction is not taken into account for purposes of subparagraph (A), the
net proceeds (as defined in joint regulations)
from (i) the sale or other disposition of any
agreement vessel, or (ii) insurance or indemnity attributable to any agreement vessel,
and
(D) The receipts from the investment or reinvestment of amounts held in such fund.
(2) In the case of a lessee, the maximum
amount which may be deposited with respect
to an agreement vessel by reason of paragraph (1)(B) for any period shall be reduced
by any amount which, under an agreement
entered into under this section, the owner is
required or permitted to deposit for such period with respect to such vessel by reason of
paragraph (1)(B).
(3) For purposes of paragraph (1), the term
agreement vessel includes barges and containers which are part of the complement of
such vessel and which are provided for in the
agreement.
(c) Requirements as to Investments.
Amounts in any fund established under
this section shall be kept in the depository
or depositories specified in the agreement
and shall be subject to such trustee and
other fiduciary requirements as may be specified by the Secretary of Transportation.

418

VerDate Aug<31>2005

15:00 Oct 24, 2007

Jkt 211195

PO 00000

Frm 00428

Fmt 8010

Sfmt 8010

Y:\SGML\211195.XXX

211195