OppenheimerFunds, Inc.
498 Seventh Avenue - 10^th Floor
New York, NY 10018

December 18, 2002

Jonathan G. Katz, Secretary
rule-comments@sec.gov
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

RE: File No. S7-45-02; 33-8150.wp; Comments on Proposed
Standards of Professional Conduct for Specified Attorneys

Dear Mr. Katz:

OppenheimerFunds, Inc. submits these comments on Proposed Part 205 of the Securities and Exchange Commission (the "Commission") Rules of Fair Practice. The Commission's proposal would establish standards of professional conduct for attorneys who appear and practice before the Commission in the representation of issuers, as called for by Section 307 of the Sarbanes-Oxley Act of 2002 (the "Act"). OppenheimerFunds, Inc. is the investment manager for the more than 60 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 issue rules "setting forth minimum standards of professional conduct" for attorneys who practice or appear before it. However, we believe that in carrying out that mandate from Congress, the Commission should carefully consider the impact of any rules that are adopted to implement the Act on protections afforded by the attorney-client privilege. We are concerned that the proposed rule does not pay sufficient attention to the benefits afforded by the attorney-client privilege, as recognized by the laws of virtually all the 50 states. We are especially concerned with the potential impact of certain provisions of the proposed rule on investment companies, especially those resulting from the broad scope of certain terms in the proposed rule. Taken together, these provisions will substantially alter the nature of investment company governance and attorney-client relationships in the investment company industry in ways that will impair the ability of attorneys to effectively assist investment companies in complying with the securities laws.

In summary, our comments are as follows:

• We recommend that the proposed rule not apply to attorneys representing investment companies, and the rule's "reporting out" provisions should require actual knowledge of evidence that a material violation is ongoing or will occur.

• We recommend that attorneys be deemed to act "in the representation of" an investment company only insofar as they are employed or retained by the investment company. Similarly, we recommend that the Commission make clear in the release adopting the final rule that absent these circumstances, an attorney to an investment adviser does not jointly represent the adviser and an investment company that the adviser serves.

• We recommend that the proposed rule not impose reporting requirements on persons who are qualified as attorneys but who perform non-legal services for an investment company.

A. "Reporting Out" Requirements

The proposed rule would require attorneys appearing and practicing before the Commission in the representation of an issuer to give notice to the Commission of an issuer's inappropriate response to reported evidence of a material violation that is ongoing or has yet to occur. The rule would permit, but not require, such attorneys to do so where the material violation has already occurred but is not ongoing.

In particular, the proposed rule's definition of "material violation" in the context of the investment company industry, would capture much more than just criminal or fraudulent conduct. It would also encompass a host of substantive regulatory violations that are not the result of bad faith acts. For example, it would include violations of the broad affiliated transactions prohibitions or the daily pricing provisions of the Investment Company Act of 1940 (the "1940 Act") and any act that can be construed as a violation of the fiduciary duty of care. The investment company industry has a successful record in resolving these types of violations through internal procedures and investigations that depend on the confidentiality of the attorneys conducting them.

Unfortunately, the proposed rule may make employees more reluctant to come forward and assist in an internal investigation or other internal compliance inquiries if they believe that their communications with investment company lawyers are much more likely to result in a Commission investigation or enforcement action. The "reporting out" provisions as currently proposed therefore may seriously damage the self-regulatory mechanisms that effectively redress the overwhelming majority of "material violations" of the 1940 Act.

We believe that the "reporting out" provisions should not go beyond well-settled law and time-tested investment company practice. We therefore recommend that the Commission amend the proposed rule so that these provisions do not apply to attorneys representing investment companies. Furthermore, the rule should require actual knowledge by the reporting attorney of evidence of a material violation of the securities laws. These are the terms that appear in Section 307 of the Act. The "reporting out" provisions should not be triggered on the basis of information that would lead a reasonable attorney to believe that a material violation has occurred, is occurring, or is about to occur. A "reasonableness" standard could result in sanctioning attorneys who do not have actual knowledge of the material violation.

B. Reporting by Attorneys for Investment Advisers

As mandated by Section 307 of the Act, the proposed rule imposes a reporting obligation on any attorney who appears or practices before the Commission "in the representation of" an investment company or other issuer. The proposed rule defines the phrase "in the representation of" to include any attorney who acts "on behalf of, at the behest of, or for the benefit of" any issuer. The Joint Representation Position makes clear the Commission's intention that this broad definition would operate to include any attorney employed by an investment adviser to an investment company who "appears or practices before the Commission." The phrase "appearing or practicing before the Commission" is broadly defined to include not only communications with any member of the Commission or its staff but any involvement in preparing any document to be filed or submitted to the Commission. An attorney can have such involvement simply by furnishing any information with reason to know that it will be incorporated into a Commission filing.

The unique and complex structure of the investment company industry raises many issues under the proposed rule. In particular, investment companies typically do not have employees of their own and instead rely on external sources, primarily investment advisers, to provide them with services. The attorneys employed by the investment company's adviser currently may provide services that could be deemed to "benefit" the investment company within the scope of the proposed rule. Nevertheless, although, as the Proposing Release notes, an investment adviser owes a fiduciary duty to the investment company, internal lawyers for investment advisers clearly act solely as employees of the adviser, which has contact responsibility to provide services to the investment company. We believe that the proposed rule confuses the fiduciary duty of the investment adviser to the investment company with an alleged responsibility of the internal lawyer of the adviser to the investment company.

We do not believe that there are sufficient legal or policy reasons to mandate this transfer of responsibility. While it is true that advisers to investment companies have fiduciary duties to those companies, they are nonetheless separate entities, each entitled to their own counsel (which is the arrangement for the Oppenheimer investment companies). In no other area of the law do the fiduciary duties of care and loyalty entail that the fiduciary's attorney owes the professional responsibilities of legal representation to the person to whom the fiduciary duties are owed.

We further believe that applying the requirements of the proposed rule to attorneys of the investment adviser will have serious and far-reaching consequences for the mutual fund industry. For example, investment advisers may limit or eliminate the participation of their internal and outside lawyers in the preparation of fund filings and materials so that such lawyers are not "involved in the representation of an issuer" or "practicing before the Commission" within the meaning of the proposed rule. This, in turn, threatens the quality of legal advice to investment companies, as internal lawyers for the adviser may be reluctant to provide advice to investment adviser personnel managing the fund's day-to-day business. Legal expenses for investment companies also may substantially increase because only outside lawyers employed by the investment company will be able to fill the roles previously held by internal and/or outside lawyers of investment advisers.

The underlying policy purpose of the proposed rule's board definitions and the Joint Representation Position appears to be that there is a need for investment companies to have another compliance reporting mechanism in place overlaying the numerous such mechanisms already built into the current regulatory structure. There is no evidence, however, for such a need in the legislative or administrative record, and indeed the investment company industry has not been subject to the types of scandals that recently have affected other sectors of the financial services industry.

We therefore recommend that the proposed rule be amended so that attorneys would be deemed to act "in the representation of" an investment company only insofar as they are employed or retained by the investment company. We also recommend that the Commission clarify in the release adopting the final rule that, absent these circumstances, an attorney to an investment adviser does not jointly represent the adviser and an investment company that the adviser serves.

C. Attorneys in Non-Legal Capacities

As a regulated industry, the investment company industry employs a large number of persons who, though admitted to practice law, are not members of the firm's legal department and do not provide legal services to an investment company. One of the Independent Directors of over 30 of the Oppenheimer investment companies, and a number of OppenheimerFunds, Inc. vice presidents not part of its legal department, are attorneys who may serve those investment companies in non-legal capacities. To impose on such persons the ethical responsibilities of the attorney-client relationship simply because they are qualified to serve as an attorney would be an unjustified expansion of their reporting obligations. Nevertheless, the Proposing Release states that the proposed rule is drafted broadly to include "attorneys who do not serve in the legal department of an issuer or do not act in their capacities as attorneys."

We believe that such attorneys should not be subject to the rule's reporting requirements. These attorneys, serving investment companies in non-legal capacities, are not "practicing before the Commission" or "involved in the representation of an issuer." In the case of investment company directors, an individual director's obligation to report potential violations will undermine the trust and collegiality that holds together a well-functioning board of directors. In the case of employees, most company structures provide that they report "up the ladder" within their own departments. The proposed rule will require an employee to subordinate the usual reporting structure and "report up" through a legal communication ladder devised for members of the legal department. Such a requirement may impair the trust and confidence between the employee and his or her reporting supervisor and may diminish the supervisor's willingness to hire and promote qualified employees who would have the reporting responsibilities of members of a firm's legal department.

Thus, we recommend that the Commission amend the proposed rule so that it does not impose reporting requirements on persons who are not performing legal services for an investment company or an investment adviser.

OppenheimerFunds, Inc. appreciates the opportunity to provide these comments in response to the Commission's Proposing Release. If you have any questions concerning these comments or would like additional information, please contact the undersigned.

Sincerely,

Mitchell J. Lindauer
Vice President &
Assistant General Counsel
(212) 323-0254
fax: (212) 323-4070
mlindauer@oppenheimerfunds.com

cc: Robert G. Zack, Esq.
Senior Vice President & General Counsel
OppenheimerFunds, Inc.

Boards of Directors/Trustees of the Oppenheimer Funds
Allan B. Adams, Esq.
Ronald M. Feiman, Esq.

paolicelli/marketing/s-o.sec comment#2