OppenheimerFunds, Inc. Two World Financial Center 225 Liberty Street, 16th Floor New York, New York 10281-1008 September 28, 2006 Via Electronic Transmission Richard Pfordte, Esq. Vincent DiStefano, Esq. U.S. Securities and Exchange Commission Mail Stop 0-7, Filer Support 6432 General Green Way Alexandria, Virginia 22312 Re: Registration Statement on Form N-1A Oppenheimer Real Asset Fund (SEC File Nos. 333-14087; 811-07857) Dear Messrs. Pfordte and DiStefano: We have reviewed your comments on Post-Effective Amendment No. 14 ("Amendment 14") to the registration statement on Form N-1A (the "Registration Statement") of the Oppenheimer Real Asset Fund (the "Fund") filed with the Commission on August 8, 2006. For your convenience, we have included each of your comments in italics, followed by our response. The captions used below correspond to the captions the Fund uses in its Registration Statement and defined terms have the meanings defined therein. The Fund is filing Post-Effective Amendment No. 15 ("Amendment 15") to the Registration Statement, marked to show changes from the disclosure contained in Amendment 14. Page numbers listed in our responses below refer to page numbers in the Amendment 15 courtesy copies of the Prospectus, SAI and Part C provided to you separately. We are also filing a request for acceleration of the effectiveness of Amendments 14 and 15. General 1. Explain why the Fund's transfer of up to 25% of its assets to the Subsidiary would not constitute a "reorganization" requiring a shareholder vote under state law. The Fund's Declaration of Trust specifically permits the creation, "without the vote or consent of Shareholders," of "one or more corporations, trusts, partnerships, limited liability companies, associations, or other organization, under the laws of any jurisdiction, to take over all or a portion of the Trust property . . . or to carry on any business in which the Trust shall directly or indirectly have any interest." Massachusetts counsel has also confirmed that, under Massachusetts law, these transactions would not otherwise constitute a reorganization or require a shareholder vote. 2. Explain why the sale of shares of the Fund would not constitute an indirect distribution of shares of the Subsidiary. The sale of the Fund's shares in the U.S. will not constitute an indirect distribution of the shares of the Subsidiary. The Fund will be the only shareholder of the Subsidiary, and the Subsidiary's shares will not be offered for sale or otherwise marketed to other investors. We are not aware of a provision of the federal securities laws, or any Commission or Commission staff interpretation thereunder, that would suggest that the shares of a wholly-owned subsidiary comprising less than 25% of a registered investment company's net assets are considered to be indirectly offered or distributed to the public solely by virtue of an offering of the investment company's shares. Anecdotally, we note that many public operating companies have multiple subsidiaries, the shares of which are not required to be separately registered under the Securities Act of 1933, as amended (the "Securities Act"). In addition, the Commission staff, on several occasions, has provided no-action relief to registrants that proposed to invest in a wholly-owned investment company subsidiary organized in a non-U.S. jurisdiction.(1) In these letters, applicants sought and received no-action assurance that the registered fund's investment in a foreign, wholly-owned, unregistered investment company subsidiary would not constitute an indirect offering of the foreign investment company subsidiary's shares in violation of Section 7(d) of the Investment Company Act of 1940, as amended (the "Investment Company Act"). We believe that the no-action letters with respect to Section 7(d) support the conclusion that the Fund's investment in the Subsidiary does not result in the indirect distribution of the Subsidiary's shares. The Fund and the Subsidiary have agreed that the Subsidiary will be subject to certain provisions of the Investment Company Act and the Rules and Regulations thereunder as reflected in the Fund's Prospectus & SAI. Additionally, the Fund has included in the Prospectus all information about the Subsidiary necessary to inform shareholders about the operation of the Subsidiary and additional risks of the Subsidiary. The staff has requested, and the Fund has agreed, to require the directors of the Subsidiary to sign the registration statement of the Fund. Section 48(a) of the Investment Company Act, in essence, prohibits an investment company from doing indirectly what it cannot do directly under the federal securities laws. The Commission staff has stated that a transaction falls within Section 48(a) if the transaction is a "sham" or is effected for no other purposes than evading the Investment Company Act,(2) or if there is no "legitimate business reason" for the transaction.(3) Consequently, although the shares of capital stock of the Subsidiary are not directly being distributed to the public, if the Fund's investment in the Subsidiary were viewed as a "sham" or without a "legitimate business reason," it could be argued that the Fund's investment in the Subsidiary indirectly resulted in the distribution of the Subsidiary's shares. As discussed below, the Fund has legitimate business reasons for investing in the Subsidiary. Consequently, we do not believe Section 48(a) would apply to transform the Fund's investment in the Subsidiary into an indirect distribution of the Subsidiary's shares. 3. Please provide a copy of the private letter ruling from the Internal Revenue Service with regard to the Fund and the Subsidiary. A copy of the private letter ruling has been provided supplementally. 4. Confirm that, although the Subsidiary is not a registered investment company, it will comply with the provisions of the Investment Company Act with regard to its fee structure, liquidity and leverage limits and other investment policies, and that it will follow the same accounting rules and pricing procedures and that its assets will be held by the same custodian and its financial statements will be audited by the same independent registered public accounting firm as the Fund. We confirm that the Subsidiary will comply with the provisions of the Investment Company Act with regard to its fee structure, liquidity and leverage limits, and its other investment policies and restrictions, and that it will follow the same accounting rules and pricing procedures as the Fund. We further confirm that its assets will be held by the Fund's custodian and its financial statements will be audited by the same independent registered public accounting firm as the Fund's. Disclosure summarizing the above has been added to the Prospectus (on pages 24 and 27) and to the SAI (on pages 3, 36, 40, 62 and 65) and as an undertaking on page C-30 of Part C. The advisory and other material agreements of the Subsidiary are being filed as exhibits to Amendment 15. 5. Explain whether the Subsidiary will be able to increase its management fee, and thereby increase the indirect expenses to the Fund's shareholders, without a vote of the Fund's shareholders. The Fund and the Subsidiary have undertaken to comply with the requirements of Section 15(c) of the Investment Company Act with respect to the advisory agreement of the Subsidiary. Therefore the advisory agreement of the Subsidiary will be subject to annual review and approval by the Fund's Board of Trustees as part of the Board's review and approval of the Fund's own advisory agreement. Additionally, the advisory agreement of the Subsidiary is the same as that of the Fund in all material respects except that it provides that if the Fund's advisory agreement is terminated, the Subsidiary's advisory agreement will also terminate. The Manager has undertaken to seek shareholder approval prior to any increase in the advisory fees of the Subsidiary that would impose additional costs on the Fund and the Fund's shareholders will have the ability to vote to terminate the advisory agreement of the Subsidiary to the same extent that they have the ability to vote to terminate the advisory agreement of the Fund. This information is included on pages 24 of the Prospectus and as an undertaking on Page C-30 of Part C. 6. Will information about the Subsidiary's expenses be included in the Fund's registration statement and shareholder reports? Yes. The Fund intends to provide information in the Fund's registration statement, and the amendments thereto, and in the Fund's shareholder reports regarding the expenses of the Subsidiary that are indirectly borne by the Fund. That information will include the Subsidiary's expense ratio and its payment of brokerage commissions. In addition, the Fund will include the Subsidiary's financial statements in its annual reports (which will include the full audited financial statement of the Subsidiary) and semi-annual reports (which will include unaudited financial statements of the Subsidiary) provided to shareholders, which reports are also available to shareholders of the Fund upon request, as stated on page 24 of the Prospectus and as an undertaking on page C-30 of Part C. No financial statements for the Subsidiary are available at this time; however, they will be filed with the Fund's annual report for its fiscal year ended August 31, 2006. 7. Is the Fund's investment in the shares of the Subsidiary an illiquid investment? No, the Subsidiary will provide the Fund with daily liquidity. 8. Are either the Fund or the Subsidiary required to be registered as a Commodity Pool Operator or a Commodity Trading Advisor? Neither the Fund nor the Subsidiary is required to be registered as a Commodity Pool Operator. However, Oppenheimer Real Asset Management, Inc., the sub-advisor to the Fund and to the Subsidiary, is registered with the Commodities Futures Trading Commission as a Commodity Trading Advisor. 9. Explain whether the trading and investment activities of the Fund and the Subsidiary will be joint transactions for purposes of section 17(d) under the Investment Company Act. As explained below, the fact that the Subsidiary and the Fund share a common investment adviser and sub-advisor would not constitute a joint enterprise under Section 17(d) or Rule 17d-1. Additionally, none of the self-dealing abuses that Section 17(d) and Rule 17d-1 are designed to prevent are present in the Fund's investment in the Subsidiary since the Fund fully owns and controls the Subsidiary and both are ultimately under the supervision and control of the Fund's independent trustees. Section 17(d) provides: "It shall be unlawful for any affiliated person of or principal underwriter for a registered investment company...or any affiliated person of such a person or principal underwriter, acting as principal to effect any transaction in which such registered company, or a company controlled by such registered company, is a joint or a joint and several participant with such person, principal underwriter, or affiliated person, in contravention of such rules and regulations as the Commission may prescribe for the purpose of limiting or preventing participation by such registered or controlled company on a basis different from or less advantageous than that of such other participant." Rule 17d-1(c), which implements the provisions of Section 17(d), defines a joint enterprise as "any written or oral plan, contract, authorization or arrangement, or any practice or understanding concerning an enterprise or undertaking whereby a registered investment company or a controlled company thereof and any affiliated person of or a principal underwriter...have a joint or a joint and several participation, or a share in the profits of such enterprise or undertaking, including, but not limited to, any stock option or stock purchase plan, but shall not include an investment advisory contract subject to section 15 of the Act." We do not believe that the Fund's investment in the Subsidiary or the Subsidiary's advisory arrangements with the Manager and Sub-Advisor constitute a joint enterprise for purposes of Rule 17d-1. The Commission and the courts have recognized that, for an arrangement to be subject to Section 17(d) and Rule 17d-1, some element of combination or profit-sharing motive generally must be present.(4) We do not believe that the proposed arrangements present the element of combination or profit. In particular, we note that the Manager has contractually agreed to waive advisory fees paid by the Fund to the extent that the Subsidiary pays the Manager advisory fees, with a corresponding reduction in the fees received by the Sub-Advisor. Consequently, neither the Manager nor the Sub-Advisor will realize any additional benefits from the arrangement. Moreover, all profits of any sort that are earned by the Subsidiary will inure solely to the benefit of the Fund, which is the 100% owner of the Subsidiary. In addition, we note that the Commission staff has previously considered subsidiary arrangements similar to those proposed by the Fund and either provided no-action relief from Section 17(d) and Rule 17d-1,(5) or did not find it necessary to address whether Section 17(d) or Rule 17d-1 applied to the proposed arrangements.(6) 10. Will any other entity or person own shares of the Subsidiary in the future? No, the Fund will be the sole shareholder of the Subsidiary. The Subsidiary does not intend to offer its shares to any other person or entity. Further, the Fund does not intend to make a direct or indirect distribution of the Subsidiary's shares. Any such distribution that may occur at any future time would be subject to all requirements for the registration of the Subsidiary's shares. Disclosure regarding this policy is on page 23 of the Prospectus and as an undertaking on page C-30 of Part C. 11. Will the Fund invest 80% of its assets in "real assets" or commodities? No. The Fund will invest in commodity-linked derivative investments which provide investors with exposure to the investment returns of "real assets" that trade in the commodities markets without investing directly in physical commodities. The Fund will invest a substantial portion of the Fund's assets in U.S. government securities and other debt securities to provide liquidity and income. Although the Fund will not invest directly in commodities, it will normally provide a very high level of exposure to the commodities market through its use of this strategy. The Fund's Board of Trustees will consider renaming the Fund to more closely tie the Fund's name to its investment strategy of investing in commodity-linked instruments and its total return investment objective. We anticipate that such name change will be reflected in the Fund's annual update of its registration statement for the Fund's fiscal year ended August 31, 2006. Prospectus About the Fund - The Fund's Investment Objective and Principal Investment Strategies What Does the Fund Mainly Invest In? 12. Define "hybrid instruments," "commodity-linked derivative investments," and "structured securities" when those terms are first used. We have revised the disclosure to describe more clearly, and to distinguish the types of, instruments in which the Fund invests. In particular, we have made the following revisions: o Hybrid instruments: "Hybrid instrument" is defined on page 3 of the Prospectus as "a derivative instrument that has characteristics of a security and of a commodity-linked derivative. Its value is linked to the value of a commodity, commodity index or commodity futures contract." o Commodity-linked derivatives: The Prospectus has been revised to indicate that the Fund may invest broadly in derivatives, including "commodity-linked derivative investments." That term is defined on page 3 of the Prospectus to mean hybrid instruments and futures and options contracts the value of which is linked to a commodity, commodity index, or commodity futures contract. o Structured securities: The Prospectus has been revised to delete general references to "structured securities," and to refer to structured securities as a type of hybrid instrument in which the Fund may invest. Please see pages 12 and 13 of the Prospectus. 13. Disclose the reasons for the creation of the offshore subsidiary. We have added disclosure to this section that the Subsidiary is expected to provide the Fund with exposure to the investment returns of commodities markets within the limitations of the U.S. federal tax requirements that apply to the Fund. We have also included a more detailed description in the section "About the Fund's Investments - The Fund's Principal Investment Policies and Risks - Investment in Wholly-Owned Subsidiary." That sections states that "[i]nvestment in the Subsidiary is expected to provide the Fund with exposure to the commodities markets within the limitations of the federal tax requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Subchapter M requires, among other things, that the Fund derive at least 90% of its income from securities or derived with respect to its business of investing in securities (typically referred to as "qualifying income"). Income from certain of the commodity-linked derivatives in which the Fund invests may not be treated as "qualifying income" for purposes the 90% income requirement. The Fund has received a private letter ruling from the Internal Revenue Service ruling that income from the Fund's investment in the Subsidiary will constitute "qualifying income" for purposes of Subchapter M." How do the Portfolio Managers Decide What Investments to Buy or Sell? 14. Add descriptions of the index-linked and commodity-linked securities that the Fund invests in. We have replaced references to "index-linked securities" and "commodity-linked securities" with the term "hybrid instruments." We have added the definition of "commodity-linked derivatives" noted in our response to comment 11 above. 15. What is the relative proportion of debt securities to hybrid instruments? As of August 31, 2006, the Fund's net assets were approximately $1.72 billion, assuming clearance of all outstanding trades. Of that amount, 79.4% consisted of debt securities and 20.7% consisted of hybrid instruments (providing net notional exposure to the commodities markets of 61.4%). The Fund also has exposure to the commodities markets through futures positions that do not have a market value for accounting purposes, but which provide net notional exposure to the commodities markets of approximately 35.9%. Please note that the combined market value of debt securities and hybrid instruments slightly exceeds 100% of net assets because of the settlement periods for certain transactions. Main Risks of Investing in the Fund 16. Will the Fund or the Subsidiary have high portfolio turnover? If so, disclose the risks of high turnover in this section. The Fund's portfolio turnover has been less than 100% for each of its last four fiscal years, and it is not currently anticipated that the Fund or the Subsidiary will have high portfolio turnover. Consequently, we have not included additional portfolio turnover information in the Prospectus. 17. Does the Fund have any limitations on the maturity or duration of the debt instruments it purchases? If so, disclose those limitations. The Fund does not have any policies limiting the maturity or duration of the debt securities in which it invests. 18. In the section "Risks of Leverage," include a more detailed description of leverage risks. We have revised the disclosure as requested. Fees and Expenses of the Fund 19. Does the Manager charge a fee to the Subsidiary under the advisory agreement for that entity? If so, is there a "layering" of fees? The Manager does charge a fee to the Subsidiary for the management of the Subsidiary's portfolio investments. However, this fee does not result in a layering of fees because. As stated on pages 12 (in footnote 6 to the fee table) and 24 of the Prospectus and page 62 of the SAI, the Manager has contractually agreed to waive the management fee it receives from the Fund in an amount equal to the management fee paid to the Manager by the Subsidiary. The Fund's Principal Investment Policies and Risks Commodity-Linked Derivative Investments 20. Describe the difference between the Fund's hybrid instruments that qualify for exemption from regulation under the Commodity Exchange Act and those that do not so qualify. A description of the characteristics that are necessary for a hybrid instrument to qualify for exemption from Commodity Exchange Act regulations is included in the second paragraph and the bullet points following it in the section "About the Fund's Investments - The Fund's Principal Investment Policies and Risks - Hybrid Instruments." Index-Linked and Commodity-Linked "Structured" Securities 21. Add counter-party risk to this section. This section has been revised to refer only to "hybrid instruments" and lists only the special risks to which conventional debt and equity securities may not be subject. To address the counterparty risk of hybrid investments, we have included discussion of hybrid instrument counterparties in the separate section regarding "Credit Risk" on page 7 of the Prospectus. 22. Explain how leverage occurs with these instruments and the Fund's limits on leverage. The requested disclosure has been added to the fourth bullet point in the section "Special Risks of Hybrid Instruments" on page 6 of the Prospectus, and to the discussion of in "Risks of Leverage" on page 8 of the Prospectus. Investment in Wholly-Owned Subsidiary 23. Add further information regarding the Fund's wholly owned Subsidiary. We have provided additional disclosure about the operation and management of the Subsidiary in this section, as noted in our response to comment 13 above. Industry Focus 24. List the five basic commodity sectors of the Goldman Sachs Commodity Index (GSCI). We have included the requested disclosure in this section. Investments by "Funds of Funds" 25. Will the "funds-of-funds" that invest in the Fund be subject to the Fund's 2% redemption fee? The funds-of-funds that invest in the Fund will not be subject to the Fund's 2% redemption fee. Those funds are subject to asset allocation policies and will engage in periodic "rebalancing." They will not market time the Fund. About Your Account - How to Buy Shares At What Price are Shares Sold? - Net Asset Value 26. In calculating the entities' net asset values, will the investments of the Fund and the Subsidiary be "marked-to-market"? Both the Fund and the Subsidiary "mark to market" their investments for purposes of calculating their net asset values. We have added disclosure to this section regarding that policy on page 27 of the Prospectus. Buying Through a Dealer 27. If a shareholder submits a purchase request to his or her dealer before 4:00 pm but the dealer does not place the order until after 5:00 pm, will the investor's purchase or sale be valued at the day's net asset value? Orders placed by an investor before the Fund's 4:00 pm cut-off time will receive the day's net asset value. We have revised our disclosure on page 27 of the Prospectus to clarify that policy. Statement of Additional Information About the Fund - Additional Information About the Fund's Investment Policies and Risks The Fund's Investment Policies 28. Include the information regarding the five principal sectors of the Goldman Sachs Commodity Index in the Prospectus, as appropriate. This disclosure has been added to the Prospectus, as noted in our response to comment number 23, above.. Investment in Wholly-Owned Subsidiary 29. Include the information in this section in the Prospectus sections "How the Fund Invests" and "Main Risks of the Fund," as appropriate. This disclosure has been added to the Prospectus, as requested. Investments in Hybrid Instruments 30. Include the information in these sections in the Prospectus, as appropriate. This disclosure has been added to the Prospectus, as requested. Counterparty Risk 31. Distinguish the "risks" from the descriptions and policies in this section. This disclosure has been revised, as requested. Commodity Futures Contracts 32. Include additional information about Commodity Futures Contract in the discussion of these instruments in the Prospectus as appropriate. This disclosure has been added to the Prospectus, as requested. Options 33. Please add disclosure to the Prospectus regarding the following types of investments: OTC options, exchange traded options, swaps, options on swaps Disclosure has been added to the Prospectus, as requested. Leverage 34. Add the appropriate information from this section to the Prospectus. Supplementally quantify the Fund's anticipated use of leverage. This disclosure has been added to the Prospectus, as requested. The Fund typically seeks to provide dollar-for-dollar investment exposure. Consequently, the Fund's portfolio, in the aggregate, is not leveraged. Individual investments may create economic leverage, but the Fund complies, and the Subsidiary will comply, with Section 18 of the Investment Company Act and Commission and Commission staff requirements relating to asset segregation and other methods designed to reduce the leverage of any one instrument. Other Investment Techniques and Strategies Foreign Securities 35. Add information regarding foreign securities from this section to the Prospectus. This disclosure has been added to the Prospectus, as requested. Special Risks of Emerging Markets 36. Add information regarding foreign securities from this section to the Prospectus. This disclosure has been added to the Prospectus, as requested. Loans of Portfolio Securities 37. Add information regarding foreign securities from this section to the Prospectus. This disclosure has been added to the Prospectus, as requested. Other Investment Restrictions - What Are "Fundamental Policies?" Does the Fund Have Additional Fundamental Policies? 38. Include the Fund's concentration policies in the section of the Prospectus that responds to Item 2 of Form N-1A. The Fund's concentration policies have been added to the section "How do the Portfolio Managers Decide What Investments to Buy or Sell?" in the Prospectus, as requested. Appendix D 39. Summarize this disclosure regarding Qualifying Hybrid Investments in the Prospectus. This disclosure has been summarized in the section "Hybrid Instruments" in the Prospectus, as requested. The undersigned hereby acknowledges that (i) should the Commission or the staff, acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing; (ii) the action of the Commission or the staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the Registrant from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and (iii) the Registrant may not assert this action as defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. Please direct any questions you may have regarding the draft amendment or this letter to: Nancy S. Vann Vice President and Assistant Counsel Tel: (212) 323-5089 Fax: (212) 321-4071 nvann@oppenheimerfunds.com Sincerely, /s/ Robert Hawkins Robert Hawkins Assistant Vice President & Assistant Counsel 212.323.5039 cc: Board II Board of Trustees Myer, Swanson, Adams & Wolf, P.C. Bell, Boyd & Lloyd LLC Phillip S. Gillespie, Esq. Gloria LaFond Nancy S. Vann, Esq. Robert Zack, Esq. (1) Infra footnotes 5 and 6. (2) See, e.g., Cornish and Carey Commercial, Inc., SEC No-Action Letter (pub. avail. June 21, 1996) (Section 3(c)(1)). (3) See, e.g., Shoreline Fund, L.P., SEC No-Action Letter (pub. avail. Apr. 21, 1994) (Section 3(c)(1)). (4) See Massachusetts Mutual Life Insurance Company (pub. avail. June 7, 2000) and SMC Capital, Inc. (pub. avail. Sept. 5, 1995) (citing In re Steadman Security Corp., [1974-75 Transfer Binder] Fed. Sec. L. Rep. (CCH)P. 80,038 at 84,848 (Dec. 20, 1974) and SEC v. Talley Industries, Inc., 399 F.2d 396, 403 (2d Cir. 1968), cert. denied, 393 U.S. 1015 (1969)). (5) See The Spain Fund, Inc., SEC No-Act. Letter (pub. avail. Nov. 2, 1987). The incoming letter indicated that a registered fund proposed to establish a Netherlands entity substantially equivalent to a limited partnership (the "Partnership") of which the fund would be the sole general partner. A wholly-owned subsidiary of the fund (the "Subsidiary") would be established under Netherlands law as a limited liability company with the investment company as the subsidiary's sole shareholder solely for the purpose of acting as the sole limited partner of the partnership. The fund's investment adviser would manage the investments of the Partnership, subject to the supervision of the fund's board of directors in the fund's role as general partner, without any charge other than the investment advisory fee it would be receiving from the fund. (6) See Templeton Vietnam Opportunities Fund, Inc., SEC No-Action Letter (pub. avail. Sept. 10, 1996)(proposing to invest registered fund assets in one or more Vietnamese LLCs, with (a) the fund acquiring 100% of the equity interest in one or more Hong Kong or other foreign holding companies (each a "Holding Company"), each of which would purchase securities of a Vietnamese LLC, and (b) the fund's investment adviser managing each Holding Company's assets, subject to the supervision of the fund's board of directors); see also South Asia Portfolio, SEC No-Action Letter (pub. avail. March 12, 1997)(proposing arrangement under which (a) a registered fund would establish a Mauritius limited life company, of which the fund would be the sole shareholder and through which investments in Indian securities would be made, and (b) fund's investment adviser would manage the investments of the Mauritius company, subject to the supervision of the fund's board of trustees, without any charge for advisory services other than the investment advisory fee received from the fund).
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CORRESP Filing
Oppenheimer Commodity Strategy Total Return Fund Inactive CORRESPCorrespondence with SEC
Filed: 28 Sep 06, 12:00am