OppenheimerFunds, Inc.
498 Seventh Avenue
New York, New York 10018

Robert G. Zack
Senior Vice President and
General Counsel
Telephone: 212-323-0250
Facsimile: 212-323-4070
E-mail: bzack@oppenheimerfunds.com

November 29, 2002

Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

    Re: SEC Release Nos. 33-8138, 34-46701, IC-25775 (October 22, 2002) (the "Release") - "Disclosure Required by Sections 404, 406, and 407 of the Sarbanes-Oxley Act of 2002" (File No. S7-40-02)

Dear Mr. Katz:

OppenheimerFunds, Inc. submits these comments on the proposal by the Securities and Exchange Commission (the "Commission") to implement the requirements of Sections 404, 406, and 407 of the Sarbanes-Oxley Act of 2002 (the "Act"). OppenheimerFunds, Inc. is the investment manager for the more than sixty investment companies comprising the Oppenheimer family of mutual funds, which have more than $120 billion in assets and more than 7 million shareholder accounts.

We recognize that the Commission is under a mandate from Congress to implement the provisions of the Act, and that in some cases the provisions of the Act are fairly specific as to the substance of the rules that Congress apparently intended to be adopted. However, we believe that in carrying out that mandate from Congress, the Commission should carefully consider the differences in the structure, operations and exemplary regulatory compliance history of investment companies compared to operating companies, to assure that any rules that are adopted to implement the Act are fair and appropriate to the nature of the entities to be regulated and to best protect the interests of the public. Indeed, the Commission has noted some of those differences in the proposing Release for these disclosure requirements. We believe that the Commission can accomplish the purposes of the Act by following a reasoned, flexible approach in fashioning the rules as they apply to investment companies, and we offer these comments in that spirit.

Disclosures About Financial Experts Serving on a Company's Audit Committee

To implement Section 407 of the Act as to investment companies, the Commission proposes adding a new disclosure item (Item, 4) to proposed Form N-CSR. That item would require annual disclosure about "financial experts" serving on the investment company's audit committee. Under the Commission's proposal, the definition of "financial expert" for investment companies would be the same as in the rules applying to operating companies (other than factors applicable to foreign private issuers). No explanation is given for this approach, which we believe should be modified for investment companies. We believe that the definition of "financial expert" for investment companies should be more appropriately tailored to reflect the relatively less complex financial statements of investment companies and the level of financial sophistication necessary to necessary to enable audit committee members to be fully capable of protecting the interests of fund shareholders.

The Release discusses at length many of the "recent corporate scandals that have centered on the quality of a company's financial disclosure." None of those scandals involved investment companies. While the undersigned is not a certified public accountant or auditor, I believe it is fair to say that the financial statements for registered investment companies are reasonably straightforward and not susceptible to the types of manipulation and off-balance sheet chicanery cited by the Commission in discussing recent corporate auditing scandals. Investment companies do not engage in the types of transactions that arouse the concerns about financial reporting that the Act was intended to address.

We believe that the definition of "financial expert" proposed for investment company audit committee members is more stringent than necessary to carry out the intent of Section 407 of the Act and stricter than is necessary to provide the protection for shareholders of investment companies contemplated by that Section.

In our view the proposed rule reflects too narrow and restrictive a construction of Subsection (b) of Section 407 of the Act. Subsection (b) states that in defining the term "financial expert" the Commission "shall consider" whether "a person has, through education and experience as a public accountant or auditor or principal financial officer, comptroller, or principal accounting officer of an issuer, or from a position involving the performance of similar functions" certain attributes that would make the person a financial expert. "Shall consider" does not mean "must provide in the rule." We note that the Commission did follow a flexible reading of Section 407 in drafting the proposed rules, at least insofar as it added two additional "considerations" (experience with internal controls and procedures for financial reporting and an understanding of audit committee functions) to the list in Section 407. We submit that the language of that Section also permits the Commission to take a flexible approach in crafting a definition that reflects the differences among accounting treatments of different categories of issuers.

In particular, we strongly suggest that the proposed definition in Item 4 of Form N-CSR be revised to state that a director could be found to be a financial expert based on a qualitative assessment of that person's education and/or experience, which would not necessarily require experience as a public accountant or auditor or principal financial officers, controller, or principal accounting officer of a company. Experience in those capacities should instead be a factor, not a requirement, for the board of directors or trustees of the investment company to consider in determining financial expertise. Additionally, several other skills that the Instructions for Item 4 describes as "attributes" a financial expert must possess should also simply be factors for the board to consider, rather than requirements. They include (1) experience in applying generally accepted accounting principles in connection with accounting for estimates, accruals and reserves, (2) experience in preparing or auditing financial statements, and (3) experience with internal controls and procedures for financial reporting.

The proposed requirements and "attributes," if included in the final rule for investment companies, would essentially limit the definition of "financial expert" for investment companies to certified public accounts or former chief financial officers of public companies (not necessarily investment companies). The proposed rules would not permit an investment company's board of directors/trustees to consider the relevancy of a director's or trustee's experience on the investment company's board. Indeed, a director or trustee of an investment company who is not an accountant or former CFO of a public company but who has a substantial business background and who has served decades on the investment company's audit committee might fund herself or himself not able to be deemed a "financial expert," while a CFO of a non-fund operating company could be deemed a "financial expert" (if able to satisfy the somewhat ambiguous standard of having experience with "generally comparable" accounting issues).

The proposed definition would substantially limit the number of individuals potentially qualified to serve as a financial expert on investment company audit committees, and could result in fund boards having to consider adding new directors or trustees if they wish to have a director or trustee who meets the proposed definitional standards. While an investment company would not be required by the rules to designate a financial expert for its audit committee, fund boards may feel compelled to do so by the very existence of the disclosure obligation and the implications for potential litigation exposure by failing to do so. However, adding additional directors or trustees not only takes time, but it may also entail substantial additional costs for funds and their shareholders to hold shareholder meetings to elect such directors or trustees (if because of the provisions of Section 16(a) of the Investment Company Act of 1940 such election could not be accomplished merely by a vote of the board itself).

Since the purpose of the financial expert is to "assist the audit committee in overseeing the audit process, not to audit the company," persons with appropriate business experience and relevant past service on an investment company's audit committee should be capable of effective service in that capacity.

We are also concerned that the designation of an individual as a "financial expert" may expose such persons to litigation on the theory that they have a higher degree of responsibility than other audit committee members or board members in general. The Commission's statement in the Release (which we strongly support) that "[t]he mere designation of the financial expert should not impose a higher degree of individual responsibility or obligation on a member of the audit committee" is helpful and should be entitled to great deference by courts in interpreting the provisions of the proposed rules.

However, while that statement in the Release helps explain the Commission's intent, there remains the risk that such statement would not provide a sufficient basis for a federal or state court to make such determination, nor to pre-empt state courts seeking to interpret state laws on fiduciary responsibility of directors of corporations or trustees of business trusts. For example, state courts applying "prudent investor" requirements to trustees of business trusts under state laws might consider the designation of a person as a "financial expert" to give rise to a higher standard of care than applies to other trustees. The result could be substantial and expensive litigation to determine the existence of a federal corporate law on the point and whether such law pre-empts state laws on fiduciary duties. Absent a clear federal regulation (rather than merely a statement in a proposing Release) disclaiming any higher standard of care for financial experts, the risks of such litigation may discourage individuals from being willing to assume the designation as financial expert for an investment company.

Therefore, we strongly urge the Commission to state unequivocally in a rule (which could appropriately be enacted pursuant to Section 36(a) of the Investment Company Act of 1940, as amended) that:

A director designated and identified, in reports filed with the Commission, as a "financial expert" and serving in such capacity on an investment company's audit committee shall not be held to a higher standard of fiduciary responsibility, obligation or liability than any other director of such investment company by virtue of such designation and service.

Disclosure Regarding Codes of Ethics

To implement Section 406 of the Act, the Commission has proposed to require registered investment companies to disclose annually whether the investment company, its investment adviser, and its principal underwriter have adopted a written code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions of such entities. We urge the Commission to revise this proposal to conform to the intent of Section 406 to apply this requirement only to "issuers."

By seeking to impose this requirement on investment advisers and principal underwriters, the Commission's proposal could subject to the code of ethics requirement persons who have nothing to do with a client investment company's operations or financial reports. We do not see any justification or need to extend the requirements of Section 406 to persons not employed by issuers, in the case of investment advisers or principal underwriters. We note that both OppenheimerFunds, Inc. and its subsidiary, OppenheimerFunds Distributor, Inc. (which acts as the general distributor of the Oppenheimer funds), have for many years had a Code of Conduct that covers all of their employees and includes standards designed to promote the types of ethical behavior set forth in the proposing Release. Nonetheless, we believe the Commission's rule proposal should focus on the issuers intended to be covered by Section 406 of the Act.

Technical Changes to Rules and Forms Implementing Section 302 of the Act

The proposed rules would amend certain rules and forms implementing Section 302 of the Act for registered investment companies to conform those rules and forms to the changes the Commission proposes to adopt for rules affecting operating companies. One such proposed change, proposed paragraph (b)(4) of Rule 30a-2 under the Investment Company Act, would require an investment company's principal executive officer and principal financial officer to state that they are responsible for establishing and maintaining internal controls and procedures for financial reporting. We strongly oppose this proposal, because we believe it represents an attempt to impose on investment companies the type of requirement under Section 404 of the Act from which Section 405 of the Act specifically exempted investment companies.

A second proposal would require the evaluation of the effectiveness of the investment company's disclosure controls and procedures as of the end of the period covered by the report, modifying the original requirement in Rule 30a-2(b)(4)(ii) that investment companies conduct such evaluation within 90 days prior to the filing date of the report. The proposed change is not explained, other than as a measure to conform the requirements for investment companies to the rule proposed for operating companies. This proposal fails to take account of the frequency of such reports by investment company complexes and, thus, the substantial burden this increased reporting requirement would impose. In our fund complex, there are more than 75 portfolios for which reports are filed twice per year on Form N-SAR. Because we have staggered the fiscal years ends of our funds to reduce the burden on our accounting and compliance staff, they file such Forms N-SAR each month. As a result, we would be required to conduct such evaluation monthly.

It is burdensome enough to have to review disclosure controls and procedures each 90 days; having to do so monthly will, in essence, occupy an inordinate amount of the time each month and disrupt the oversight responsibilities of our chief executive officer, our chief financial officer, the other members of our Financial Oversight Committee and the many staff members who contribute to the review process, with little resulting benefit to shareholders of the funds we manage. There is a genuine risk that such frequent review requirements will result in their becoming perfunctory, if not meaningless, processes, having the opposite effect of that intended by the Act. Service providers may become unwilling to provide the certifications requested by fund complexes if the frequency increases to a monthly basis. The control environment in a fund complex simply does not change dramatically on a monthly basis, if at all, to require monthly evaluations. This proposed change is unjustified, unnecessary and undesirable, and should not be adopted. We urge the Commission to retain the current 90-day evaluation period requirement.

We appreciate the opportunity to comment on these proposals. Should there be any questions regarding these comments, please do not hesitate to contact the undersigned.


/s/ Robert G. Zack

Robert G. Zack
Senior Vice President and
General Counsel

cc: Boards of Trustees/Directors of the Oppenheimer Funds