In the first level, go to the northernmost island, with the "HELP" sign on the beach that Decay found. Go to the eastern part of the island, and you should see a large spire of rock when looking east. Swim to it and continue until you are on the east side of the rock. Swim to the bottom of the water, then swim slightly farther to the east and you should find the sunken Titanic. In the Titanic are two assault rifles.
