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Did you read the V5R4 Memo to Users?  Printed page 45, pdf page 55.
http://publib.boulder.ibm.com/infocenter/iseries/v5r4/topic/rzaq9/rzaq9.pdf

IBM DB2 Query Manager and SQL Development Kit for iSeries (5722-ST1)

In V5R4, the ILE RPG precompiler will enforce the rule that the SET OPTION 
statement must precede any other SQL statement.

This rule is enforced by the other precompilers available with the IBM DB2 
Query Manager and SQL Development Kit for iSeries product, and has been 
previously documented in the DB2 UDB for iSeries SQL Reference topic: "If 
embedded in an application program, [the SET OPTION statement] is not 
executable and must precede any other SQL statements."

Prior to V5R4, you could have used the SET OPTION statement anywhere in 
your application program.

Rob Berendt

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