46 CFR 390.8 – Investment of the fund
(a) In general. 46 U.S.C. § 53506 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.
Terms Used In 46 CFR 390.8
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Fair market value: The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
- Guarantor: A party who agrees to be responsible for the payment of another party's debts should that party default. Source: OCC
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Trustee: A person or institution holding and administering property in trust.
(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 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 1986, 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 1986, 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.