[Federal Register Volume 77, Number 184 (Friday, September 21, 2012)]
[Notices]
[Pages 58593-58600]
[FR Doc No: 2012-23317]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30204; File No. 812-13934]

Factor Advisors, LLC, et al.; Notice of Application

September 17, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act, under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (a)(2) of the Act, and under
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act.

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Summary of Application: Applicants request an order that would permit
(a) Certain open-end management investment companies or series thereof
to issue shares (``Shares'') redeemable in large aggregations only
(``Creation Units''); (b) secondary market transactions in Shares to
occur at negotiated market prices; (c) certain series to pay redemption
proceeds, under certain circumstances, more than seven days after the
tender of Shares for redemption; (d) certain affiliated persons of the
series to deposit securities into, and receive securities from, the
series in connection with the purchase and redemption of Creation
Units; and (e) certain registered management investment companies and
unit investment trusts outside of the same group of investment
companies as the series to acquire Shares.

Applicants: FactorShares Trust (the ``Trust''), Factor Advisors, LLC
(``Factor Advisors''), and Quasar Distributors, LLC (the
``Distributor'').

DATES: Filing Dates: The application was filed on August 3, 2011, and
amended on January 27, 2012, June 26, 2012, and September 11, 2012.

Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 9, 2012, and should be accompanied by proof of
service on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090; Applicants, Factor Advisor and the
Trust, One Penn Plaza, 36th Floor, New York, NY 10019. Distributor, 615
East Michigan Street, 4th Floor, Milwaukee, Wisconsin 53202.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel
at<PHONE_NUMBER>, or Daniele Marchesani, Branch Chief, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling<PHONE_NUMBER>.

Applicants' Representations

    1. The Trust is registered under the Act as an open-end management
investment company and is organized as a Delaware statutory trust. The
Trust initially will offer three series identified in the application
(``Initial Funds'') whose performance will correspond to the price and
yield performance, before fees and expenses, of a specified securities
index (``Underlying Index'').
    2. Applicants request that the order apply to the Initial Funds and
any additional series of the Trust and any other existing or future
open-end

management investment companies or series thereof that seeks to track
an Underlying Index (``Future Funds,'' and together with the Initial
Funds, the ``Funds'').\1\ Any Fund will be (a) advised by Factor
Advisors or an entity controlling, controlled by or under common
control with Factor Advisors (each, an ``Adviser''), and (b) seek
investment returns that correspond to the price and yield performance,
before fees and expenses, of a specified securities index.
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    \1\ All entities that currently intend to rely on the order have
been named as applicants. Any other existing or future entity that
subsequently relies on the order will comply with the terms and
conditions of the application. An Acquiring Fund (as defined below)
my rely on the order only to invest in Funds and not in any other
registered investment company.
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    3. Underlying Indexes may include: any domestic equity, foreign
equity or fixed income index (respectively, a ``Domestic Index,''
``Foreign Index'' or ``Fixed Income Index'') or combination thereof
that is comprised solely of securities. Each Domestic Index is an index
comprised of equity securities issued by one or more of the following
categories of issuers: (i) Domestic issuers and (ii) non-domestic
issuers meeting the requirements for trading in U.S. markets. Each
Foreign Index is comprised of foreign equity securities. Each Fixed
Income Index is comprised of domestic or foreign fixed income
securities. Funds tracking Domestic, Foreign and Fixed Income Indexes
are, respectively, ``Domestic Funds,'' ``Foreign Funds'' and ``Fixed
Income Funds.'' Certain Funds may invest in both domestics and foreign
securities (``Global Funds''). Underlying Indexes that include both
long and short positions in securities are referred to as ``Long/Short
Indexes.'' Funds based on Long/Short Indexes are ``Long/Short Funds.''
Underlying Indexes that use a 130/30 investment strategy are referred
to as ``130/30 Indexes.'' Funds based on 130/30 Indexes are ``130/30
Funds.''
    4. An Adviser registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act'') will serve as
investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with one or more investment advisers each of which
will serve as a sub-adviser to a Fund (each, a ``Sub-adviser''). Each
Sub-adviser will be registered under the Advisers Act. The Distributor
is a broker-dealer registered under the Securities Exchange Act of 1934
(the ``Exchange Act'') and will act as the principal underwriter and
distributor for the Initial Funds.\2\
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    \2\ Applicants request that the order also apply to future
distributors that comply with the terms and conditions of the
application.
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    5. Each Fund will consist of a portfolio of securities and other
instruments including cash (``Portfolio Investments'') selected to
correspond to the performance of a specified Underlying Index.\3\ No
entity that creates, compiles, sponsors or maintains an Underlying
Index will be an affiliated person, as defined in section 2(a)(3) of
the Act, or an affiliated person of an affiliated person, of the Trust,
a Fund, the Adviser, any Sub-adviser, or promoter of a Fund, or of the
Distributor.
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    \3\ Applicants represent that each Fund will invest at least 80%
of its total assets in the component securities that comprise its
Underlying Index (``Component Securities'') or, as applicable,
depositary receipts or TBA Transactions (as defined below)
representing Component Securities. Each Fund also may invest up to
20% of its total assets (the ``Asset Basket``) in a broad variety of
other instruments, including securities not included in its
Underlying Index, which the Adviser believes will help the Fund in
tracking the performance of the Underlying Index.
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    6. A Fund will utilize either a replication or representative
sampling strategy to track its Underlying Index. A Fund using a
replication strategy will invest in substantially all of the Component
Securities in its Underlying Index in the same approximate proportions
as in the Underlying Index. A Fund using a representative sampling
strategy will hold some, but may not hold all, of the Component
Securities of its Underlying Index. Applicants state that use of the
representative sampling strategy may prevent a Fund from tracking the
performance of its Underlying Index with the same degree of accuracy as
would a Fund that invests in every Component Security of the Underlying
Index. Applicants expect that each Fund will have a tracking error
relative to the performance of its Underlying Index of less than 5
percent.
    7. Each Fund will issue, on a continuous basis, Creation Units,
which will typically consist of 25,000 to 100,000 Shares and have an
initial price of at least $1,000,000. All orders to purchase Creation
Units must be placed with the Distributor by or through a party that
has entered into an agreement with the Distributor (``Authorized
Participant''). The Distributor will be responsible for delivering the
Fund's prospectus to those persons acquiring Creation Units and for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it. In addition, the
Distributor will maintain a record of the instructions given to the
applicable Fund to implement the delivery of its Shares. An Authorized
Participant must be either (1) a ``Participating Party,'' (i.e., a
broker-dealer or other participant in the Continuous Net Settlement
System of the National Securities Clearing Corporation (``NSCC''), a
clearing house registered with the Commission, or (2) a participant in
the Depository Trust Company (``DTC,'' and such participant, ``DTC
Participant''), which, in either case, has signed a ``Participant
Agreement'' with the Distributor.
    8. The Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Except where the purchase or redemption
will include cash under the limited circumstances specified below,
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and
shareholders redeeming their Shares will receive an in-kind transfer of
specified instruments (``Redemption Instruments'').\4\ On any given
Business Day the names and quantities of the instruments that
constitute the Deposit Instruments and the names and quantities of the
instruments that constitute the Redemption Instruments will be
identical, unless the Fund is Rebalancing (as defined below). In
addition, the Deposit Instruments and the Redemption Instruments will
each correspond pro rata to the positions in a Fund's portfolio
(including cash positions),\5\ except: (a) In the case of bonds, for
minor differences when it is impossible to break up bonds beyond
certain minimum sizes needed for transfer and settlement; (b) for minor
differences when rounding is necessary to eliminate fractional shares
or lots that are not tradeable round lots; \6\ (c) ``to be announced''
transactions (``TBA Transactions''),\7\ short positions,

derivatives and other positions that cannot be transferred in kind \8\
will be excluded from the Deposit Instruments and the Redemption
Instruments; \9\ (d) to the extent the Fund determines, on a given
Business Day, to use a representative sampling of the Fund's portfolio;
\10\ or (e) for temporary periods, to effect changes in the Fund's
portfolio as a result of the rebalancing of its Underlying Index (any
such change, a ``Rebalancing''). If there is a difference between the
net asset value (``NAV'') attributable to a Creation Unit and the
aggregate market value of the Deposit Instruments or Redemption
Instruments exchanged for the Creation Unit, the party conveying
instruments with the lower value will also pay to the other an amount
in cash equal to that difference (the ``Cash Amount'').
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    \4\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the Securities Act of 1933 (``Securities
Act''). In accepting Deposit Instruments and satisfying redemptions
with Redemption Instruments that are restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act, the Funds
will comply with the conditions of Rule 144A.
    \5\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
    \6\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
    \7\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price. The actual pools delivered generally are determined two
days prior to the settlement date.
    \8\ This includes instruments that can be transferred in kind
only with the consent of the original counterparty to the extent the
Fund does not intend to seek such consents.
    \9\ Because these instruments will be excluded from the Deposit
Instruments and the Redemption Instruments, their value will be
reflected in the determination of the Cash Amount (defined below).
    \10\ A Fund may only use sampling for this purpose if the
sample: (i) Is designed to generate performance that is highly
correlated to the performance of the Fund's portfolio; (ii) consists
entirely of instruments that are already included in the Fund's
portfolio; and (iii) is the same for all Authorized Participants on
a given Business Day.
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    9. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Cash Amount, as
described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; \11\ (d) if, on
a given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC or
DTC; or (ii) in the case of Foreign Funds and Global Funds, such
instruments are not eligible for trading due to local trading
restrictions, local restrictions on securities transfers or other
similar circumstances; or (e) if a Fund permits an Authorized
Participant to deposit or receive (as applicable) cash in lieu of some
or all of the Deposit Instruments or Redemption Instruments,
respectively, solely because: (i) Such instruments are, in the case of
the purchase of a Creation Unit, not available in sufficient quantity;
(ii) such instruments are not eligible for trading by an Authorized
Participant or the investor on whose behalf the Authorized Participant
is acting; or (iii) a holder of Shares of a Foreign Fund or Global Fund
would be subject to unfavorable income tax treatment if the holder
receives redemption proceeds in kind.\12\
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    \11\ In determining whether a particular Fund will sell or
redeem Creation Units entirely on a cash or in kind basis (whether
for a given day or a given order), the key consideration will be the
benefit that would accrue to the Fund and its investors. For
instance, in bond transactions, the Adviser may be able to obtain
better execution than Share purchasers because of the Adviser's or
Sub-adviser's size, experience and potentially stronger
relationships in the fixed income markets. Purchases of Creation
Units either on an all cash basis or in kind are expected to be
neutral to the Funds from a tax perspective. In contrast, cash
redemptions typically require selling portfolio holdings, which may
result in adverse tax consequences for the remaining Fund
shareholders that would not occur with an in kind redemption. As a
result, tax considerations may warrant in kind redemptions.
    \12\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
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    10. Each Business Day, before the open of trading on a the primary
listing Exchange, each Fund will cause to be published through the NSCC
the names and quantities of the instruments comprising the Deposit
Instruments and the Redemption Instruments, as well as the estimated
Cash Amount (if any), for that day. The list of Deposit Instruments and
the list of Redemption Instruments will apply until new lists are
announced on the following Business Day, and there will be no intra-day
changes to the lists except to correct errors in the published lists.
    11. Shares will be listed and traded on an Exchange. It is expected
that one or more member firms of an Exchange will be designated to act
as a market maker and maintain a market for Shares trading on the
Exchange. Prices of Shares trading on an Exchange will be based on the
current bid/ask market. Shares sold in the secondary market will be
subject to customary brokerage commissions and charges.
    12. Applicants expect that purchasers of Creation Units will
include institutional investors, arbitrageurs, traders and other market
participants. Exchange specialists or market makers also may purchase
Creation Units for use in market-making activities. Applicants expect
that secondary market purchasers of Shares will include both
institutional investors and retail investors.\13\Applicants expect that
the price at which Shares trade will be disciplined by arbitrage
opportunities created by the option to continually purchase or redeem
Creation Units at their NAV, which should ensure that Shares will not
trade at a material discount or premium in relation to their NAV.
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    \13\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
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    13. Shares will not be individually redeemable. To redeem, an
investor must accumulate enough Shares to constitute a Creation Unit.
Redemption orders must be placed by or through an Authorized
Participant.
    14. For the Long/Short Funds and 130/30 Funds, the Adviser will
provide full portfolio holdings disclosure on a daily basis on the
Funds publicly available website (the ``Website'') and has developed an
``IIV File,'' which it will use to disclose the Funds'' full portfolio
holdings, including short positions. Before the opening of business on
each Business Day, the Trust, Adviser or index receipt agent, will make
the IIV File available by email upon request. Applicants state that
given either the IIV File or the Website disclosure,\14\ anyone will be
able to know in real time the intraday value of the Long/Short Funds
and 130/30 Funds.\15\ With respect to the Long/Short Funds and 130/30
Funds, the investment characteristics of any financial instruments and
short positions used to achieve short and long exposures will be
described in sufficient detail for market participants to understand
the principal investment strategies of the Funds and to permit informed
trading of their Shares.
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    \14\ The information on the Website will be the same as that
disclosed to Authorized Participants in the IIV File, except that
(1) the information provided on the Website will be formatted to be
reader-friendly and (2) the portfolio holdings data on the Website
will be calculated and displayed on a per Fund basis, while the
information in the IIV File will be calculated and displayed on a
per Creation Unit basis.
    \15\ The primary listing Exchange or another independent third
party will disseminate, every 15 seconds during its regular trading
hours, through the facilities of the Consolidated Tape Association,
the Indicative Intra-Day Value (``IIV'') for each Fund, on a per
Share basis.
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    15. Neither the Trust nor any Fund will be advertised, marketed or
otherwise held out as a traditional open-end investment company or a
mutual fund. Instead, each Fund will be

marketed as an ``ETF,'' an ``investment company,'' a ``fund,'' or a
``trust.'' All marketing materials that describe the features or method
of obtaining, buying or selling Creation Units or refer to
redeemability, will prominently disclose that (1) Shares are not
individually redeemable and that the owners of Shares may purchase or
redeem Shares from the Fund in Creation Units only, and (2) the
purchase and sale price of individual Shares trading on an Exchange may
be below, at, or above the most recently calculated NAV for such
Shares. The same approach will be followed in the shareholder reports
and other investor educational materials issued or circulated in
connection with the Shares. The Funds will provide copies of their
annual and semi-annual shareholder reports to DTC Participants for
distribution to shareholders.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provisions of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the owner, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Funds to register as
open-end management investment companies and issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase Shares in Creation Units and redeem Creation Units from each
Fund. Applicants further state that because the market price of Shares
will be disciplined by arbitrage opportunities, investors should be
able to buy and sell Shares in the secondary market at prices that do
not vary materially from their NAV.

Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming or repurchasing
a redeemable security do so only at a price based on its NAV.
Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in a Fund's prospectus, and not at a price based on NAV. Thus,
purchases and sales of Shares in the secondary market will not comply
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants
request an exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) Prevent dilution caused by
certain riskless trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers, and (c) ensure an orderly distribution system of
investment company shares by eliminating price competition from non-
contract dealers offering shares at less than the published sales price
and repurchasing shares at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve Trust assets and will not result in dilution of an
investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because competitive forces will ensure that the
difference between the market price of Shares and their NAV remains
narrow.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
observe that the settlement of redemptions for the Foreign Funds will
be contingent not only on the settlement cycle of the U.S. securities
markets, but also on the delivery cycles in local markets for the
underlying foreign securities held by the Foreign Funds. Applicants
believe that under certain circumstances, the delivery cycles for
transferring Portfolio Investments to redeeming investors, coupled with
local market holiday schedules, will require a delivery process of up
to 14 calendar days. Applicants therefore request relief from section
22(e) in order to provide for payment or satisfaction of redemptions
within the maximum number of calendar days required for such payment or
satisfaction in the principal local markets where transactions in the
Portfolio Investments of each Foreign Fund customarily clear and
settle, but in all cases no later than 14 calendar days following the
tender of a Creation Unit.\16\ With respect to

Future Funds that are Foreign Funds, applicants seek the same relief
from section 22(e) only to the extent that circumstances exist similar
to those described in the application.
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    \16\ Applicants acknowledge that relief obtained from the
requirements of section 22(e) will not affect any obligations
applicants may have under rule 15c6-1 under the Exchange Act. Rule
15c6-1 requires that most securities transactions be settled within
three business days of the trade date.
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    8. Applicants submit that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants state that allowing redemption
payments for Creation Units of a Foreign Fund to be made within 14
calendar days would not be inconsistent with the spirit and intent of
section 22(e). Applicants state that the SAI will disclose those local
holidays (over the period of at least one year following the date of
the SAI), if any, that are expected to prevent the delivery of
redemption proceeds in seven calendar days, and the maximum number of
days, up to 14 calendar days, needed to deliver the proceeds for each
affected Foreign Fund. Applicants are not seeking relief from section
22(e) with respect to Foreign Funds that do not effect creations and
redemptions of Creation Units in-kind.

Section 12(d)(1)

    9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring securities of an
investment company if such securities represent more than 3% of the
total outstanding voting stock of the acquired company, more than 5% of
the total assets of the acquiring company, or, together with the
securities of any other investment companies, more than 10% of the
total assets of the acquiring company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end investment company, its principal
underwriter or any other broker or dealer from selling the investment
company's shares to another investment company if the sale will cause
the acquiring company to own more than 3% of the acquired company's
voting stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies generally.
    10. Applicants request an exemption to permit management investment
companies (``Acquiring Management Companies'') and unit investment
trusts (``Acquiring Trusts'') registered under the Act that are not
sponsored or advised by the Adviser and are not part of the same
``group of investment companies,'' as defined in section
12(d)(1)(G)(ii) of the Act, as the Funds (collectively, ``Acquiring
Funds'') to acquire Shares beyond the limits of section 12(d)(1)(A). In
addition, applicants seek relief to permit the Funds, the Distributor,
and any broker-dealer that is registered under the Exchange Act to sell
Shares to Acquiring Funds in excess of the limits of section
12(d)(1)(B).
    11. Each Acquiring Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Acquiring Fund Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each an ``Acquiring Fund Sub-adviser''). Any Acquiring Fund
Adviser or Acquiring Fund Sub-adviser will be registered under the
Advisers Act. Each Acquiring Trust will be sponsored by a sponsor
(``Sponsor'').
    12. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in section
12(d)(1)(A) and (B), which include concerns about undue influence by a
fund of funds over underlying funds, excessive layering of fees and
overly complex fund structures. Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
    13. Applicants believe that neither the Acquiring Funds nor any
Acquiring Fund Affiliate would be able to exert undue influence over
the Funds or any Fund Affiliates.\17\ To limit the control that an
Acquiring Fund may have over a Fund, applicants propose a condition
prohibiting an Acquiring Fund Adviser or a Sponsor, any person
controlling, controlled by, or under common control with the Acquiring
Fund Adviser or Sponsor, and any investment company or issuer that
would be an investment company but for section 3(c)(1) or 3(c)(7) of
the Act that is advised or sponsored by the Acquiring Fund Adviser or
Sponsor, or any person controlling, controlled by, or under common
control with the Acquiring Fund Adviser or Sponsor (``Acquiring Fund's
Advisory Group'') from controlling (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. The same
prohibition would apply to any Acquiring Fund Sub-adviser, any person
controlling, controlled by or under common control with the Acquiring
Fund Sub-adviser, and any investment company or issuer that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised or sponsored by
the Acquiring Fund Sub-adviser or any person controlling, controlled by
or under common control with the Acquiring Fund Sub-adviser (``Sub-
adviser Group''). Applicants propose other conditions to limit the
potential for undue influence over the Funds, including that no
Acquiring Fund or Acquiring Fund Affiliate (except to the extent it is
acting in its capacity as an investment adviser to a Fund) will cause a
Fund to purchase a security in an offering of securities during the
existence of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Acquiring Fund Adviser, Acquiring Fund Sub-
adviser, Sponsor, or employee of the Acquiring Fund, or a person of
which any such officer, director, member of an advisory board,
Acquiring Fund Adviser, Acquiring Fund Sub-adviser, Sponsor, or
employee is an affiliated person (except that any person whose
relationship to the Fund is covered by section 10(f) of the Act is not
an Underwriting Affiliate).
---------------------------------------------------------------------------

    \17\ An ``Acquiring Fund Affiliate'' is the Acquiring Fund
Adviser, Acquiring Fund Sub-adviser, any Sponsor, promoter, or
principal underwriter of an Acquiring Fund, and any person
controlling, controlled by, or under common control with any of
those entities. A ``Fund Affiliate'' is the investment adviser,
promoter, or principal underwriter of a Fund and any person
controlling, controlled by or under common control with any of those
entities.
---------------------------------------------------------------------------

    14. Applicants do not believe that the proposed arrangement
involves excessive layering of fees. The board of directors or trustees
of any Acquiring Management Company, including a majority of the
disinterested directors or trustees, will find that the advisory fees
charged under the contract are based on services provided that will be
in addition to, rather than duplicative of, services provided under the
advisory contract of any Fund in which the Acquiring Management Company
may invest. In addition, except as provided in condition 9, an
Acquiring Fund Adviser or a trustee or Sponsor of an Acquiring Trust
will waive fees otherwise payable to it by the Acquiring Fund in an
amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund under rule 12b-1 under the Act)
received by the Acquiring Fund Adviser, trustee or Sponsor to the
Acquiring Trust or an affiliated person of the Acquiring Fund Adviser,
trustee

or Sponsor, from the Fund in connection with the investment by the
Acquiring Fund in the Fund. Applicants state that any sales loads or
service fees charged with respect to shares of an Acquiring Fund will
not exceed the limits applicable to a fund of funds set forth in NASD
Conduct Rule 2830.\18\
---------------------------------------------------------------------------

    \18\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule to NASD Conduct Rule 2830 that may be
adopted by the Financial Industry Regulatory Authority.
---------------------------------------------------------------------------

    15. Applicants submit condition 16 addresses concerns over
meaninglessly complex arrangements. Under condition 16, no Fund may
acquire securities of any investment company or company relying on
section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except to the extent permitted by
exemptive relief from the Commission permitting the Fund to purchase
shares of a money market fund for short-term cash management purposes.
To ensure that Acquiring Funds comply with the terms and conditions of
the requested relief from section 12(d)(1), any Acquiring Fund that
intends to invest in a Fund in reliance on the requested order will be
required to enter into an agreement (``Participation Agreement'')
between the Fund and the Acquiring Fund. The Participation Agreement
will require the Acquiring Fund to adhere to the terms and conditions
of the requested order and participate in the proposed transactions in
a manner that addresses concerns regarding the requested relief from
section 12(d)(1). The Participation Agreement also will include an
acknowledgement from the Acquiring Fund that it may rely on the
requested order only to invest in Funds and not in any other investment
company.
    16. Applicants also note that a Fund may choose to reject a direct
purchase of Shares by an Acquiring Fund. To the extent that an
Acquiring Fund purchases Shares in the secondary market, a Fund would
still retain its ability to reject initial purchases of Shares made in
reliance on the requested order by declining to enter into the
Participation Agreement prior to any investment by an Acquiring Fund in
excess of the limits of section 12(d)(1)(A).

Sections 17(a)(1) and (2) of the Act

    17. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second-tier affiliate''), from selling any security or
other property to or acquiring any security or other property from the
company. Section 2(a)(3) of the Act defines ``affiliated person'' of
another person to include (a) any person directly or indirectly owning,
controlling or holding with power to vote 5% or more of the outstanding
voting securities of the other person, and (c) any person directly or
indirectly controlling, controlled by or under common control with the
other person. Section 2(a)(9) of the Act defines control as the power
to exercise a controlling influence over the management of policies of
a company. It also provides that a control relationship will be
presumed where one person owns more than 25% of a company's voting
securities. The Funds may be deemed to be controlled by the Adviser and
hence affiliated persons of each other. In addition, the Funds may be
deemed to be under common control with any other registered investment
company (or series thereof) advised by the Adviser (an ``Affiliated
Fund'').
    18. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons to
effectuate in-kind purchases and redemptions with a Fund when they are
affiliated persons or second-tier affiliates of the Fund solely by
virtue of one or more of the following: (1) Holding 5% or more, or more
than 25%, of the outstanding Shares of one or more Funds; (2) having an
affiliation with a person with an ownership interest described in (1);
or (3) holding 5% or more, or more than 25%, of the shares of one or
more Affiliated Funds.
    19. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from acquiring or
redeeming Creation Units through in-kind transactions. Except for
permitted cash-in-lieu amounts, the Deposit Instruments and Redemption
Instruments will be the same for all purchasers and redeemers
regardless of their identity. The deposit procedures for both in-kind
purchases and in-kind redemptions of Creation Units will be the same
for all purchases and redemptions, regardless of size or number.
Deposit Instruments and Redemption Instruments will be valued in the
same manner as Portfolio Investments are valued for purposes of
calculating NAV. Applicants submit that, by using the same standards
for valuing Portfolio Investments as are used for calculating the value
of Deposit Instruments and Redemption Instruments, the Fund will ensure
that its NAV will not be adversely affected by such transactions.
Applicants also believe that in-kind purchases and redemptions will not
result in self-dealing or overreaching of the Fund.
    20. Applicants also seek relief from section 17(a) to permit a Fund
that is an affiliated person or second-tier affiliate of an Acquiring
Fund to sell its Shares to and redeem its Shares from an Acquiring
Fund, and to engage in the accompanying in-kind transactions with the
Acquiring Fund.\19\ Applicants state that the terms of the proposed
transactions will be fair and reasonable and will not involve
overreaching. Applicants note that any consideration paid by an
Acquiring Fund for the purchase or redemption of Shares directly from a
Fund will be based on the NAV of the Fund in accordance with policies
and procedures set forth in the Fund's registration statement.\20\
Further, absent the unusual circumstances discussed in the application,
the Deposit Instruments and Redemption Instruments available for a Fund
will be the same for all purchasers and redeemers, respectively and
will correspond pro rata to the Fund's Portfolio Investments, except as
described above. Applicants also state that the proposed transactions
are consistent with the general purposes of the Act and appropriate in
the public interest.
---------------------------------------------------------------------------

    \19\ To the extent that purchases and sales of Shares occur in
the secondary market and not through principal transactions directly
between an Acquiring Fund and a Fund, relief from section 17(a)
would not be necessary. However, the requested relief would apply to
direct sales of Shares in Creation Units by a Fund to an Acquiring
Fund and redemptions of those Shares. The requested relief also is
intended to cover the in-kind transactions that may accompany such
sales and redemptions. Applicants are not seeking relief from
section 17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an affiliated person or
second-tier affiliate of an Acquiring Fund because the Adviser
provides investment advisory services to the Acquiring Fund.
    \20\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of an Acquiring Fund, or an affiliated person
of such person, for the purchase by the Acquiring Fund of Shares or
(b) an affiliated person of a Fund, or an affiliated person of such
person, for the sale by the Fund of its Shares to an Acquiring Fund
may be prohibited by section 17(e)(1) of the Act. The Participation
Agreement also will include this acknowledgment.
---------------------------------------------------------------------------

Applicants' Conditions

    Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:

ETF Relief

    1. As long as the Funds operate in reliance on the requested order,
the Shares will be listed on an Exchange.
    2. Neither the Trust nor any Fund will be advertised or marketed as
an open-end fund or a mutual fund. Any advertising material that
describes the

purchase or sale of Creation Units or refers to redeemability will
prominently disclose that Shares are not individually redeemable and
that owners of Shares may acquire those Shares from a Fund and tender
those Shares for redemption to a Fund in Creation Units only.
    3. The website maintained for the Funds, which will be publicly
accessible at no charge, will contain on a per Share basis for each
Fund, the prior Business Day's NAV and the market closing price or the
midpoint of the bid/ask spread at the time of the calculation of such
NAV (``Bid/Ask Price''), and a calculation of the premium or discount
of the market closing price or Bid/Ask Price against such NAV.
    4. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.

Section 12(d)(1) Relief

    5. The members of an Acquiring Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of the Sub-adviser Group will
not control (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in
the outstanding voting securities of a Fund, an Acquiring Fund's
Advisory Group or Sub-adviser Group, each in the aggregate, becomes a
holder of more than 25% of the outstanding voting securities of a Fund,
it will vote its shares of the Fund in the same proportion as the vote
of all other holders of the Fund's shares. This condition does not
apply to the Sub-adviser Group with respect to a Fund for which the
Acquiring Fund Sub-adviser or a person controlling, controlled by, or
under common control with the Acquiring Fund Sub-adviser acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the
Act.
    6. No Acquiring Fund or Acquiring Fund Affiliate will cause any
existing or potential investment by the Acquiring Fund in a Fund to
influence the terms of any services or transactions between the
Acquiring Fund or Acquiring Fund Affiliate and the Fund or a Fund
Affiliate.
    7. The board of directors or trustees of an Acquiring Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to assure that the
Acquiring Fund Adviser and any Acquiring Fund Sub-adviser are
conducting the investment program of the Acquiring Management Company
without taking into account any consideration received by the Acquiring
Management Company or an Acquiring Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
    8. Once an investment by an Acquiring Fund in the Shares of a Fund
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board,
including a majority of the disinterested Board members, will determine
that any consideration paid by a Fund to the Acquiring Fund or an
Acquiring Fund Affiliate in connection with any services or
transactions: (i) Is fair and reasonable in relation to the nature and
quality of the services and benefits received by the Fund; (ii) is
within the range of consideration that the Fund would be required to
pay to another unaffiliated entity in connection with the same services
or transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s),
or any person controlling, controlled by, or under common control with
such investment adviser(s).
    9. An Acquiring Fund Adviser or a trustee or Sponsor of an
Acquiring Trust will waive fees otherwise payable to it by the
Acquiring Management Company or Acquiring Trust in an amount at least
equal to any compensation (including fees received pursuant to any plan
adopted by a Fund under rule 12b-l under the Act) received from a Fund
by the Acquiring Fund Adviser or trustee or Sponsor to the Acquiring
Trust or an affiliated person of the Acquiring Fund Adviser, trustee or
Sponsor, other than any advisory fees paid to the Acquiring Fund
Adviser or trustee or Sponsor, or an affiliated person of the Acquiring
Fund Adviser, trustee or Sponsor by the Fund, in connection with the
investment by the Acquiring Management Company or Acquiring Trust in
the Fund. Any Acquiring Fund Sub-adviser will waive fees otherwise
payable to the Acquiring Fund Sub-adviser, directly or indirectly, by
the Acquiring Management Company in an amount at least equal to any
compensation received from a Fund by the Acquiring Fund Sub-adviser, or
an affiliated person of the Acquiring Fund Sub-adviser, other than any
advisory fees paid to the Acquiring Fund Sub-adviser or its affiliated
person by the Fund, in connection with the investment by the Acquiring
Management Company in the Fund made at the direction of the Acquiring
Fund Sub-adviser. In the event that the Acquiring Fund Sub-adviser
waives fees, the benefit of the waiver will be passed through to the
Acquiring Management Company.
    10. No Acquiring Fund or Acquiring Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in any Affiliated
Underwriting.
    11. The Board, including a majority of the disinterested Board
members, will adopt procedures reasonably designed to monitor any
purchases of securities by a Fund in an Affiliated Underwriting once an
investment by the Acquiring Fund in the Shares of the Fund exceeds the
limit of section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Acquiring Fund in the Fund. The Board will consider, among other
things: (i) whether the purchases were consistent with the investment
objectives and policies of the Fund; (ii) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (iii) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interests of
shareholders.
    12. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings, once an investment by an Acquiring Fund in the Shares of
the Fund exceeds the limits of section 12(d)(l)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members,

the terms of the purchase, and the information or materials upon which
the Board's determinations were made.
    13. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), the Acquiring Fund and the Fund will execute a
Participation Agreement stating, without limitation, that their boards
of directors or trustees and their investment advisers, or the trustee
and Sponsor of an Acquiring Trust, as applicable, understand the terms
and conditions of the order, and agree to fulfill their
responsibilities under the order. At the time of its investment in
Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), an
Acquiring Fund will notify the Fund of the investment. At such time,
the Acquiring Fund will also transmit to the Fund a list of names of
each Acquiring Fund Affiliate and Underwriting Affiliate. The Acquiring
Fund will notify the Fund of any changes to the list of names as soon
as reasonably practicable after a change occurs. The Fund and the
Acquiring Fund will maintain and preserve a copy of the order, the
Participation Agreement, and the list with any updated information for
the duration of the investment and for a period of not less than six
years thereafter, the first two years in an easily accessible place.
    14. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Acquiring Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such advisory
contract are based on services provided that will be in addition to,
rather than duplicative of, the services provided under the advisory
contract(s) of any Fund in which the Acquiring Management Company may
invest. These findings and their basis will be recorded fully in the
minute books of the appropriate Acquiring Management Company.
    15. Any sales charges and/or service fees charged with respect to
shares of an Acquiring Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
    16. No Fund will acquire securities of any investment company or
company relying on sections 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission that allows
the Fund to purchase shares of a money market fund for short-term cash
management purposes.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
 [FR Doc. 2012-23317 Filed 9-20-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 125 (Monday, June 30, 2014)]
[Notices]
[Page 36849]
[FR Doc No: 2014-15206]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72458; File No. SR-NYSEArca-2014-56]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of
Designation of a Longer Period for Commission Action on Proposed Rule
Change Relating to the Listing and Trading of Shares of the PIMCO
Income Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600

June 24, 2014.
    On May 1, 2014, NYSE Arca, Inc. filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change relating to the listing and
trading of shares of the PIMCO Income Exchange-Traded Fund. The
proposed rule change was published for comment in the Federal Register
on May 21, 2014.\3\ The Commission received no comment letters on the
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72170 (May 15,
2014), 79 FR 29231.
---------------------------------------------------------------------------

    Section 19(b)(2) of the Act \4\ provides that, within 45 days of
the publication of notice of the filing of a proposed rule change, or
within such longer period up to 90 days as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or as to which the self-regulatory organization
consents, the Commission shall either approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether the proposed rule change should be disapproved. The
Commission is extending this 45-day time period. The Commission finds
that it is appropriate to designate a longer period within which to
take action on the proposed rule change so that it has sufficient time
to consider the proposed rule change.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    Accordingly, the Commission, pursuant to Section 19(b)(2) of the
Act,\5\ designates August 19, 2014, as the date by which the Commission
should either approve or disapprove or institute proceedings to
determine whether to disapprove the proposed rule change (File Number
SR-NYSEArca-2014-56).
---------------------------------------------------------------------------

    \5\ Id.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(31).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15206 Filed 6-27-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 19 (Thursday, January 29, 2015)]
[Rules and Regulations]
[Pages 4761-4762]
[FR Doc No: 2015-01205]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Parts 25

[Docket No. FAA-2013-0142; Amdt. No. 25-141]
RIN 2120-AK12

Harmonization of Airworthiness Standards--Gust and Maneuver Load
Requirements; Correction

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule; correction.

-----------------------------------------------------------------------

SUMMARY: The FAA is correcting the final rule, ``Harmonization of
Airworthiness Standards--Gust and Maneuver Load Requirements'' (79 FR
73462), published December 11, 2014. In the rule, the FAA amended
certain airworthiness regulations for transport category airplanes to
eliminate regulatory differences between the airworthiness standards of
the FAA and European Aviation Safety Agency (EASA). It does not add new
requirements beyond what manufacturers currently meet for EASA
certification and does not affect current industry design practices.
This final rule revises the pitch maneuver design loads criteria;
revises the gust and turbulence design loads criteria; revises the
application of gust loads to engine mounts, high lift devices, and
other control surfaces; adds a ``round-the-clock'' discrete gust
criterion and a multi-axis discrete gust criterion for airplanes
equipped with wing-mounted engines; revises the engine torque loads
criteria; adds an engine failure dynamic load condition; revises the
ground gust design loads criteria; revises the criteria used to
establish the rough air design speed; and requires the establishment of
a rough air Mach number. This document corrects errors in the rule by
ensuring that certain letters in the included equations have the right
formatting and therefore the correct meaning.

DATES: This correction is effective February 9, 2015.

FOR FURTHER INFORMATION CONTACT: For technical questions concerning
this action, contact Todd Martin, Airframe and Cabin Safety Branch,
ANM-115, Transport Airplane Directorate, Aircraft Certification
Service, Federal Aviation Administration, 1601 Lind Avenue SW., Renton,
WA 98057-3356; telephone<PHONE_NUMBER>; facsimile<PHONE_NUMBER>;
email<EMAIL_ADDRESS>    For legal questions concerning this action, contact Sean Howe,
Office of the Regional Counsel, ANM-7, Federal Aviation Administration,
1601 Lind Avenue SW., Renton, Washington 98057-3356; telephone (425)
227-2591; facsimile<PHONE_NUMBER>; email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Background

    On December 11, 2014, the FAA published the final rule entitled,
``Harmonization of Airworthiness Standards--Gust and Maneuver Load
Requirements'' (79 FR 73462).

    In the rule, the FAA amended certain airworthiness regulations for
transport category airplanes to eliminate regulatory differences
between the airworthiness standards of the FAA and European Aviation
Safety Agency (EASA). It does not add new requirements beyond what
manufacturers currently meet for EASA certification and does not affect
current industry design practices. This final rule revises the pitch
maneuver design loads criteria; revises the gust and turbulence design
loads criteria; revises the application of gust loads to engine mounts,
high lift devices, and other control surfaces; adds a ``round-the-
clock'' discrete gust criterion and a multi-axis discrete gust
criterion for airplanes equipped with wing-mounted engines; revises the
engine torque loads criteria; adds an engine failure dynamic load
condition; revises the ground gust design loads criteria; revises the
criteria used to establish the rough air design speed; and requires the
establishment of a rough air Mach number.
    This document corrects three errors in the Greek letters and
subscripts contained in various equations in the regulatory text. In
one case, the ``U'' in the equation is changed from subscript to
regular, uppercase text. In another case, instead of ``PL =
PL-1g  U[sigma]AA'', the
equation should be ``PL = PL-1g
U[sigma]AA''. In two cases, the three Greek letters
``[rho][egr][phis]'' after sigma ``[sigma]'' in the subscript of ``U''
are changed to ``ref''. In these cases,
``U[sigma][rho][egr][phis]'' should be
``U[sigma]ref''.
    This correction also corrects the statement in the rule's preamble
that the FAA received 33 comments to the Advisory Circulars, rather
than none.

Corrections

    In FR Doc. 2014-28938, beginning on page 73464, in the Federal
Register of December 11, 2014, make the following corrections:
    1. On Page 73464, second column, under the heading ``C. Advisory
Material'', the sentence, ``The FAA did not receive any comments on the
proposed ACs'' is corrected to read ``The FAA received 33 comments on
the proposed ACs. These comments did not have an impact on the
regulatory requirements''.
    2. On page 73467, second column, line 11, the equation
``PL = PL-1g
U[sigma]AA'' is corrected to read ``PL
= PL-1g  U[sigma]AA''.
    3. On page 73467, second column, fifth line from the bottom, the
equation ``U[sigma] =
U[sigma][rho][egr][phis]Fg'' is corrected to read
``U[sigma] = U[sigma]ref Fg''.
    4. On page 73467, second column, third line from the bottom, the
text ``U[sigma][rho][egr][phis]'' is corrected to read
``U[sigma]ref''.

    Issued in Washington, DC, on January 16, 2015.
Lirio Liu,
Director, Office of Rulemaking.
[FR Doc. 2015-01205 Filed 1-28-15; 8:45 am]
BILLING CODE 4910-13-P


UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON D. C., 20460 OFFICE OF PREVENTION, PESTICIDES AND TOXIC SUBSTANCES PC Code: 058001 DP Barcode: 307569 DATE: May 30, 2006 MEMORANDUM SUBJECT: Azinphos Methyl  EFED Response to Stakeholder Comments on the Ecological Risk Assessment for " Group 3" Uses FROM: Colleen Flaherty, Biologist ( ERB 3) R. David Jones, Chemist ( ERB 4) Environmental Fate and Effects Division ( 7507C)

THRU: Daniel Rieder, Branch Chief ( ERB 3) Elizabeth Behl, Branch Chief ( ERB 4) Environmental Fate and Effects Division ( 7507C)

TO: Diane Isbell, Risk Manager ( RRB 2) Special Review and Reregistration Division ( 7505C)

Attached please find the Office of Pesticide Program's ( OPP's) response to stakeholder comments on the ecological risk assessment for the use of azinphos methyl on apples, blueberries ( low and high bush), Brussels sprouts, cherries ( sweet and tart), grapes, nursery stock, parsley, pears, pistachios, and walnuts ( i. e. " Group 3 uses"). 2 Cherry Marketing Institute ( EPA HQ OPP 2005 0061 0071)

1. Comment ( Page 3): " Using tree row volume technology and spraying in the evening and at night when the winds are calm is a critical practice that most growers have used to minimize drift."

EFED Response: Tree row volume technology and spraying at night may indeed reduce spray drift. However, azinphos methyl is extremely toxic to aquatic animals, and aquatic exposures of azinphos methyl are predominantly runoff driven in the eastern United States. Thus, aquatic risks would remain even if these spray drift mitigation techniques were employed universally by cherry growers.

2. Comment ( Page 3): " CMI believes that the Agency has over estimated the ecological risk when AZM is used on cherries. Over the years, there have not been any adverse incidents resulting from the use of AZM reported in our industry."

EFED Response: This statement assumes that there is a rigorous ecological incident monitoring program in place. This is not the case. Based on laboratory toxicity data, projected environmental exposures for azinphos methyl use on cherries, and field studies in fruit orchards ( including one in Michigan), the risks to aquatic and terrestrial animals remain.

Mark Whalon ( EPA HQ OPP 2005 0061 0081)

1. Comment ( Page 4): " AZM did not produce detectable residues ( below LOD) in processed cherries in a 2 year independent study conducted in Michigan ( 1998 9)  these data did not find their way into any of USEPA's ecological or benefit analysis on AZM."

EFED Response: EFED does currently consider the residues on fruit at harvest for use in the ecological risk assessment, although it is an important part of the human health risk assessment. Ecological risks accrue between application and harvest, so post harvest data are not relevant for our assessments.

2. Comment ( Page 5 11): Acute & Chronic Toxicity Assessment: Inference to Ecological Sustainability; beneficial insect indices.

EFED Response: EFED agrees that chronic ( e. g. reproductive, growth) effects can have profound ecological consequences, such as alteration of the trophic cascade, reduction in biodiversity, etc. Chronic azinphos methyl toxicity studies were available for a number of aquatic and terrestrial animals, and these studies have been reviewed and incorporated into the ecological risk assessment.

Dr. Whalon's comments focus on the ecology of beneficial insects in agricultural settings. The EPA assessment took into consideration all aquatic and terrestrial animals ( including beneficial insects) and plants in the United States. The aquatic ecosystems potentially at risk include water bodies adjacent to or downstream from the treated field. These water bodies 3 include impounded bodies such as ponds, lakes, and reservoirs; and flowing waterways, such as streams and rivers; and marine ecosystems, including estuaries. The terrestrial ecosystems potentially at risk include the treated area and areas immediately adjacent to the treated area that might receive drift or runoff. These terrestrial ecosystems include other cultivated fields, fencerows, hedgerows, meadows, fallow fields, grasslands, woodlands, riparian habitats, other uncultivated areas.

EPA's ecological risk assessment concluded that all of the remaining azinphos methyl uses pose chronic ( and acute) risks to all aquatic and terrestrial animals ( including beneficial insects). These risk presumptions are supported by various field studies and adverse ecological incidents, including numerous beneficial insect kills.

Bayer CropScience ( EPA HQ OPP 2005 0061 0092)

1. Comment ( Page 4): " The modeled water concentrations that were used in the aquatic risk assessment ( Page 39, Table 3.12) were much higher than the actual concentrations observed in monitoring."

EFED Response: Comparisons between modeling and monitoring need to consider ( among other things) 1) differences in hydrologic setting between the modeled scenario and the monitoring data; 2) use patterns in the monitoring data; 3) the return frequency in the modeling versus the study duration for the monitoring; 4) sampling frequency in the monitoring.

The hydrologic setting for the aquatic modeling represents a pond that is located high in the watershed and is more vulnerable than most sites where the specific crop is grown. The watershed is assumed to be dominated by the production of a single crop. It is a surrogate for other small vulnerable water bodies near the tops of watersheds such as playa lakes, prairie pot holes, vernal pools, and first order streams. In contrast, most monitoring data are collected on larger creeks, rivers, and reservoirs where dilution by untreated water and dissipation processes have had some opportunity to reduce the concentration from that of water bodies close to the application site. For example, in the Pilot Reservoir Monitoring Study, the smallest watershed was Lake LeRoy in New York, with an area of 3.3 square miles.

In order to evaluate monitoring data, it is important to know the use intensity and application timing in the basin upstream of the sampling station. However, this information is usually not available. None of the studies listed in Bayer's comment ( Pilot Reservoir Monitoring Study, NAWQA, STORET, NAWQA phase pilot monitoring program, and the Washington State Surface Water Monitoring Program) were targeted to azinphos methyl usage or to crops on which azinphos methyl may be applied. In some cases, the usage or potential usage can be evaluated post hoc, as was done for the final EFED ecological risk assessment supporting the RED.

Monitoring data are collected from several sites, but only a few years in time. Simulation 4 modeling represents longer periods of time at each site. Currently, 30 years is usually simulated, and the 1 in 10 year concentration is used for screening risk assessment. The 1 in 10 year concentration will be greater than more frequent return periods. For example, for the Pennsylvania apple scenario, the 1 in 10 year return value with a 25 ft buffer was 15.0 µ g L 1, while the 1 in 2 year value is 9.7 µ g L 1.

Tier 2 simulation modeling estimates the concentration in the surrogate water body every day for 30 years, which results in over 10,000 daily concentration estimates. In contrast, monitoring data usually only have a few measurements at each location due the relatively large expense required to collect and analyze each sample. Studies with a high frequency of monitoring typically have 12 to 20 samples taken in a year, resulting in several hundred samples analyzed from all sites in the course of the study. Unless the monitoring study is correlated with pesticide application schedules, it is unlikely that the highest concentrations that occur during the study period will be captured. Consequently, using monitoring data alone to assess acute aquatic risks will usually underestimate the actual risks. Monitoring data tend to be more useful in establishing chronic exposure estimates for risk assessment purposes, provided that the sampling schedule adequately captures the pesticide's presence at the sampling site.

Based on the combination of all of these factors, in general, monitoring data underestimate the exposure of pesticides in the environment especially for pesticides where the short term or one time exposure elicits an effect of concern. Tier 2 modeling is used by EPA as a screening tool and may overestimate actual exposures. Real life exposures generally lie between the estimates from these two methods.

2. Comment ( Page 6): " The label specifies medium or coarser spray, applications when wind velocity favors on site product deposition, use during dormant season prohibited "

EFED Response: EFED's current model for spray drift from air blast is a regression model and is unable to account for spray quality ( e. g. medium or coarser spray). ( Note that the labels specify spray quality only for aerial and ground boom applications). Wind speed effects also cannot be directly accounted for as the original calculations on which the model is based could not separate wind speed effects from the background variability. Contrary to the comment, EFED did not simulate a dormant application. EFED simulated a sparse orchard to account for air blast spraying over the top of the orchard. The current labels indicate that this practice is, in fact, restricted on the label (" To minimize spray loss over the top in orchard applications, spray must be directed into the canopy.") and a new simulation has been prepared that uses the ` normal' rather than the sparse orchard. Additional modeling has been done using the standard orchard (" Orchard" in AgDrift), rather than the sparse orchard, and the risks to aquatic animals remain.

3. Comment ( page 6): " Increasing drift value by a factor of three was not necessary, since the value generated by AgDrift was already conservative."

EFED Response: As noted above, the spray blast model in AgDrift is a regression model, and as such, predicts the mean estimate across the trials that were used in the regression 5 calculation. Consequently, about half of the time, the spray drift deposition will be higher; the other half of the time, it will be lower. Multiplying the pond deposition accounts for this background variability and assures that the screening estimate will be conservative.

4. Comment ( Page 6): " Aerial application is prohibited on the label"

EFED Response: There is an SLN label for aerial application to apples in Idaho. The estimate with aerial application only applies to that label. The Oregon apples scenario was used as a surrogate for apples grown in Idaho. Ground spray application was also modeled for apples.

5. Comment ( Page 6): " The models do not take into account the dilution that can be attributed to the runoff water and sediment reaching the water body. Also, the models do not take into account the mass of pesticide removed from the pond by overflow."

EFED Response: The volume of the pond is several times the volume of runoff from a 10 hectare field even in the largest runoff events. For example, a large runoff event may generate 5 cm ( about 2 inches) of runoff per hectare, which is equivalent to 5 million liters. There are 20 million liters in the pond, so the dilution in the pond is larger than that for dilution in the runoff. The EXAMS model is a steady state model, and it cannot estimate storm by storm runoff. Setting a single steady state flow tends to underestimate potential exposure substantially, partly because the release from the pond is too great, and partly because real ponds also evaporate, which concentrates the pesticide between storm events. Consequently, the pond scenario is set so there is no flow out of the water body. This is equivalent to assuming that evaporation and runoff are equal, which is a reasonable assumption for many small static water bodies.

6. Comment ( Page 10 11): " For aquatic species, detailed field studies have been conducted by a number of researchers  Based on the results of these studies, Bayer CropScience believes that the No Observed Adverse Effects Concentration ( NOEAC) for azinphos methyl to aquatic organisms is near 1 ppb ( µ g a. i./ L)."

EFED Response: The studies that Bayer CropScience refers to suggest that a single exposure of azinphos methyl at a very low level ( i. e. 4 µ g a. i./ L) can elicit population level effects in aquatic ecosystems ( Sierszen and Lozano, 1997). At this level, taxon richness ( diversity) was significantly reduced, and recovery of zooplankton populations and communities took one month. Most of the remaining azinphos methyl uses allow more than one application per season, and we would expect that the magnitude of the population declines and the time to recover would increase with increasing applications.

In addition, chronic toxicity studies indicate that significant reproductive effects can occur at levels well below 1 µ g a. i./ L. In a 21 day Daphnia magna chronic toxicity study, significant effects on survivorship, length, and fecundity ( mean number of young per adult per reproductive day) were observed at a LOAEC of 0.40 µ g a. i./ L. For these reasons, a NOAEC of 1 µ g a. i./ L for aquatic organisms ( as suggested in the comment) would not be adequately protective for azinphos methyl. 6 7. Comment ( Page 11): "  significant reduction in both aquatic and terrestrial incidences reported in association to labeled uses "

EFED Response: Cancellation of the use of azinphos methyl on both sugar cane and cotton, in particular, undoubtedly reduced the ecological risks associated with this chemical. However, the risks associated with the remaining uses of azinphos methyl are still very high. Our assessment concluded that there are acute and chronic risks to all potentially exposed aquatic and terrestrial animals for all of the remaining labeled uses.

Further, the trend of decreasing adverse ecological incidents in the EIIS database is not unique to azinphos methyl. Reports of adverse ecological incidents have dropped dramatically since 1995. We suspect that this decline is more of a result of reduced reporting rather than to a drastic decrease in pesticide risk to fish and wildlife.

8. Comments ( Page 14): "  While model predictions indicate dietary exposure via residues in excess of mortality thresholds, no terrestrial incidence has appeared in the EIIS Pesticide Report since 1999. BCS feels this is indicative of the probability of effects likely elicited in the field with current use patterns."

( Page 14): " The reference to terrestrial incidents should be qualified with the fact that none have been reported since 1999. BCS believes this is related to current label uses and the reduced probability of effects."

( Page 18): " Former field incidences are not in line with current trends associated with current uses. No terrestrial incidence has appeared in the EIIS Pesticide Report since 1999."

( Page 18): " While LOCs are exceeded for these uses, terrestrial incidence reports have not occurred since 1999."

( Page 23): " The assumption that mitigation measures would not reduce risk potential is unsubstantiated. While the Agency's LOCs have been exceeded for terrestrial for many uses patterns the predicted effects have not been realized under true field exposure condition in recent years ( i. e. no terrestrial incidence reports since 1999)."

( Page 23): " No terrestrial incidence has been reported since 1999. BCS believes this to be a direct correlation to use mitigation and effective best management practices employed since that time."

EFED Response: These statements assume that there is a rigorous ecological incident monitoring program in place. Wildlife incidents from exposure to an environmental stressor may go unnoticed by humans because dead wildlife can be easily overlooked, even by experienced and highly motivated observers. Reasons for underreporting of wildlife incidents include: 7  Wildlife carcass detection is difficult in areas with sparse vegetative cover and nearly impossible where there is dense vegetative growth.  Birds may fly from the poisoning site, and intoxicated animals often seek cover before dying.  Scavengers may remove carcasses before they can be observed by humans. Balcomb et al. ( 1984) reported that the removal rate of songbird carcasses by scavengers ranged from 62 to 92 percent in the first 24 hours following placement.  The density of live birds in agricultural settings is typically low. Thus, even if all the birds in a field were killed and remained on the field, the probability of detecting carcasses, particularly when not systematically searching, is very low. Even when highly trained individuals conduct systematic searches for placed carcasses in agricultural environments, recovery rates rarely exceed 50 percent ( Madrigal et al., 1996).  If wildlife kills are observed, they are not always reported to the Agency. Those unfamiliar with the potential ecological effects of pesticides may fail to associate the dead wildlife with a pesticide application, especially if the two events are separated by several days or the kill magnitude is low. If the observer makes the connection, he must still be motivated enough to report the incident to the Agency.

Further, the trend of decreasing adverse ecological incidents in the EIIS database is not unique to azinphos methyl. Reports of adverse ecological incidents have dropped dramatically since 1995. We suspect that this decline is more of a result of reduced reporting rather than to a drastic decrease in pesticide risk to fish and wildlife.

9. Comment ( Page 15): " EFED presents no argument supporting the expected commensurate toxicity associated with azinphos methyl degradates. It is unreasonable to assume degradates would magnify potential risk to aquatic organisms without factual substance. This statement by EFED is later contradicted on page 20 of the EFED risk assessment as follows: " Furthermore, none of the degradates that are produced by metabolic pathways, which are the primary routes of degradation for azinphos methyl, are present at any time at concentrations greater than 10% of the nominal starting concentration of the parent, so they would not be expected to contribute substantially to total toxicity of azinphosmethyl in the environment."

EFED Response: The risks from the parent alone exceed the risk thresholds. There are some environmental degradates, particularly the azinphos methyl oxon, that are potentially toxic. Oxons of other organodithiophosphates are more toxic than the parent. OPP often makes a default assumption that degradates are of equal toxicity to the parent when data has not been provide to the contrary. However, azinphos methyl degradates have not been found in the significant quantities in the environment, and they were not considered quantitatively in the risk assessment. To the extent they are present they increase the risk above what has been estimated for parent, which is already above the Agency's levels of concern for nontarget species.

10. Comment ( Page 16): " No aerial use is included on the pending label in Idaho." 8 EFED Response: There is still an active 24( c) in Idaho for aerial application on apples. The SLN number is ID000006.

11. Comment ( Page 16): " The pending use label does not include grapes."

EFED Response: At the time the assessment was written, there was an active 24( c) for azinphos methyl use on California grapes.

12. Comment ( Page 16): " The pending Group 3 label for azinphos methyl states that a medium to coarse spray nozzle should be used ( according to ASAE 572 definition for standard nozzles) for ground boom and aerial applications. AgDrift inputs should have been made using a medium to coarse droplet size."

EFED Response: EFED agrees that the assessment of aerial application for Idaho should have used a medium spray. However, the risk conclusions would not change if medium spray was used for this use.

13. Comment ( Page 17): " The Guthion Solupack label ( 264 733) is pending for the current uses included in this assessment. Therefore, broadcast spray for Brussels sprouts should not be included. Incorporation or in furrow spraying should have been assessed thus reducing spray drift potential."

EFED Response: The current label allows broadcast spray on Brussels sprouts and that practice was the one used for the risk assessment. If Bayer has submitted alternative use language for Brussels sprouts, it can be evaluated as part of the continuing re evaluation process for azinphos methyl.

14. Comment ( Page 17): " The pending Group 3 label for azinphos methyl does not include aerial application to apples."

EFED Response: There is still an active 24( c) in Idaho for aerial application on apples. The SLN number is ID000006.

15. Comment ( Page 17): " The vast majority of these 130 reported adverse aquatic incidences come from the late 1980' s and early 1990' s on uses no longer labeled and are therefore not relevant to current label uses."

EFED Response: Cancellation of the use of azinphos methyl on both sugar cane and cotton, in particular, undoubtedly reduced the ecological risks associated with this chemical. However, the risks associated with the remaining uses of azinphos methyl are still very high. Our assessment concluded that there are acute and chronic risks to all potentially exposed aquatic and terrestrial animals for all of the remaining labeled uses.

16. Comment ( Page 22): " EFED concludes that risk quotients suggest expected mortality and/ or sub lethal effects, incident data and surface water monitoring data since 2001 ( since significant mitigating practices have been implemented) suggest a low probability 9 of such effects."

EFED Response: As discussed above, because monitoring data generally underestimate acute risk, it cannot be used to rule out risk above the level of concern. Further, the slope of the dose response curve for azinphos methyl is very steep, and small exceedance of effects thresholds can elicit profound ecological effects.

17. Comment ( Page 24): " The studies performed were level 1 field studies which are designed to provide only qualitative information about effects. They were not designed to quantify the magnitude of effects occurring."

EFED Response: These field studies were used in a qualitative manner and only to provide additional lines of evidence in the ecological risk assessment.

U. S. Apple Association ( EPA HQ OPP 2005 0061 0087.2)

1. Comment ( Page 2): "  spray drift model assumes that wind is always blowing in the direction of its hypothetical farm pond at the highest allowable wind velocity, the vegetation cover is sparse and the drift value is multiplied by three. The water model calculates loading of the pesticide in the pond assuming that all orchards are composed of soils with high runoff potential. Additionally, the water model counts pesticide runoff carried by water into the pond, counting only the pesticide deposition and not the water . This model compounds the pesticide loading scenario by restricting natural out flow of the pond. Also, it does not count the run off reduction from the 25 foot buffer which is required on the azinphos methyl label, and it does not include the run off reduction from a vegetative buffer between the pond and the hypothetical farm field. This assumption contradicts the real scenario in apple production. These assumptions reflect the most conservative scenario for azinphos methyl use, not a realistic scenario."

EFED Response: The U. S. apple association is correct that EFED modeling assumes that the wind is always blowing directly at the pond. Currently, available spray drift models do not have the capability to account for wind direction, so assuming that the wind always blows towards the pond allows the assessment of spray drift in the absence of such a capability. Sparse orchards can be used to represent dormant applications ( which are prohibited on the label) as well as applications to immature orchards and to address the drift from applications that go over the top of the canopy. For these simulations, it was this last case ( over the top of the canopy) which was the justification for using the sparse orchard. However, there is language on the label which indicates that practice is prohibited, so it was incorrect to use a sparse orchard on that basis. Additional modeling has been performed with a generic orchard rather than the sparse orchard to correct this error. Predicted exposures are somewhat lower; however, risks still exceed the Agency's level of concern.

The modeling considered spray drift buffers, but not run off buffers. A high runoff potential soil is used in the scenario so that the simulation will account for the most sensitive areas where there are apple orchards, in general. Vegetative buffers are not expected to meaningfully reduce azinphos methyl movement to water unless they are specifically 10 constructed and maintained for that purpose. Otherwise, water tends to flow along the buffer to a low point and cross the buffer as concentrated flow with little or no mitigation effect. EFED does believe that the use of constructed and maintained Vegetated Filter Strips ( USDA NRCS 2000) can reduce the potential for runoff. However, tools are not currently available to quantify the expected reduction in runoff when this mitigation practice is used.

An explanation for dilution effects in pond is provided in the response to comment # 1 from Bayer CropScience.

2. Comment ( Page 2): " EPA's modeling scenario utilizes data that are inconsistent with monitoring data measuring real azinphos methyl concentrations in water bodies across the United States. In its Pennsylvania air blast modeling scenario EPA generates a concentration of 15.1 parts per billion ( ppb) and 9.9 ppb for its Oregon air blast scenario. However, STORET and U. S. Geological Survey ( USGS) monitoring data indicate azinphos methyl concentrations are mostly 1 ppb or less, with two peak values of less than 4 ppb between 1990 and 2005. After 2001, the highest concentrations from actual monitoring data were 0.75 ppb in Oregon and less than 0.05 ppb in Pennsylvania."

EFED Response: Explanation for differences in modeling and monitoring are discussed in the response to comment # 1 from Bayer CropScience.

3. Comment ( Page 2): "  EPA's ecological risk assessment fails to provide the full context when discussing azinphos methyl detections in Washington state. While stating on pages 39 40 that azinphos methyl was detected in a high percentage of samples collected by USGS in 1999 and 2000, the agency does not mention that more than 95 percent of the detections were below 0.1 ppb. The assessment also omits USGS data that would reflect significant usage changes resulting from azinphos methyl label changes in 2002 and 2003. USGS data indicate that between 2001 and 2004 in Washington state there were 408 azinphos methyl samples with a maximum value of 0.18 ppb with only 7 samples with concentrations above 0.05 ppb."

EFED Response: EFED agrees that azinphos methyl was detected in a large number of samples at relatively low concentrations. EPA did not re evaluate all available monitoring data for this assessment; however, monitoring data evaluated for one site, Granger Drain, indicated a similar trend, with a high percentage of azinphos methyl detections at low concentrations during the application season ( May 20 August 31). The maximum concentration, 0.18 µ g/ L, was reported in 2003. Samples were collected at most on a weekly basis. There was no discernable trend in concentrations at that site to correlate with a decline in azinphos methyl usage referred to in the comment. In approximately weekly sampling from 1999 to 2004 ( except 2000), detection frequency ranged from 76% in 2003 to 100% in 2001 and 2002. Only two samples were collected during the application season in 2000. There were also no apparent trends in concentration during the application season as well. Monitoring in the NAWQA program for the most part reflects larger streams and rivers that reflect a wide variety of land uses in the basin. Smaller water bodies will have higher aquatic exposures of azinphos methyl. 11 4. Comment ( Page 2): " The weight of the evidence from available monitoring data indicates that azinphos methyl concentrations are significantly lower than the hypothetical values used in the ecological risk model to calculate ecological impacts from azinphos methyl. Additionally, the monitoring data indicate that these values have continued to decline as EPA has imposed greater restrictions on azinphos methyl use. These factors are strong indicators that EPA's model overestimates the ecological risk, since real measurements of azinphos methyl are significantly lower than the hypothetical values used in the model."

EFED Response: A cursory analysis of the monitoring data from Washington did not support the claim that concentrations in surface waters have declined in all areas, although that may be the case in areas where agriculture is dominated by crops on which azinphos methyl can no longer be used ( e. g. sugar cane). EFED believes that the monitoring data do not reflect the full potential for toxic exposures to azinphos methyl as discussed above ( in the response to comment # 1 from Bayer CropScience). Available monitoring data are collected at most on a weekly basis and would be expected to result in lower concentrations than are estimated by the 1 day modeling time step. EFED's Tier 2 simulation modeling is conservative by design and estimates risk for locations that are most vulnerable to ecological risk. The concentrations to which aquatic organisms are actually exposed probably fall somewhere between the monitored and modeled results. Since there continues to be some monitoring measurements above the level of concern, based on these results alone, we would expect there to be some adverse environmental impacts as a result of azinphos methyl use.

5. Comment ( Page 2): "  the absence of recent adverse ecological incidences indicates that previous label modifications have been effective in reducing the ecological impact of azinphos methyl use. The dearth of such incidents also suggests that EPA's theoretical risk model overstates the real risk from azinphos methyl use. As an example, most previous incidents were caused by uses on cotton or sugarcane which are no longer labeled for use. Additionally, there have been no reported incidents since 2001."

EFED Response: Cancellation of the use of azinphos methyl on both sugar cane and cotton, in particular, undoubtedly reduced the ecological risks associated with this chemical. However, the risks associated with the remaining uses of azinphos methyl are still very high. Our assessment concluded that there are acute and chronic risks to all aquatic and terrestrial animals for all of the remaining labeled uses.

Further, the trend of decreasing adverse ecological incidents in the EIIS database is not unique to azinphos methyl. Reports of adverse ecological incidents have dropped dramatically since 1995. We suspect that this decline is more of a result of reduced reporting rather than to a drastic decrease in pesticide risk to fish and wildlife. In recent years, state budget shortfalls have caused many states have cut funding for programs responsible for investigating and reporting fish and wildlife mortality incidents. 12 Citations Balcomb R, Stevens R, Bowen II C. 1984. Toxicity of 16 granular insecticides to wildcaught songbirds. Bull. Environ. Contam. Toxicol. 33: 302 307.

Madrigal JL, Pixton GC, Collings BJ, Booth GM, Smith HD. 1996. A comparison of two methods of estimating bird mortalities from field applied pesticides. Env. Tox. Chem. 15: 878 885.

USDA NRCS. 2000. Conservation Buffers for Reducing Pesticide Losses. Natural Resource Conservation Service. Fort Worth, TX. 21 pp.