SEC Division of Investment Management staff letter: SEI Liquid Asset Trust ? Prime Obligation Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

DIVISION OF

INVESTMENT MANAGEMENT

April 20, 2009
Timothy W. Levin
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Re: SEI Liquid Asset Trust- Prime Obligation Fund (File No. 811-03231) Dear Mr. Levin:
Your letter ofApril 16, 2009 requests our assurance that we would not recommend that the Securities and Exchange Commission (the' "Commission") take any enforcement action under Sections 17(a)(l)1, 17(di and 12(d)(3)3 ofthe Investment Company Act of1940 (the "Act"), and the rules thereunder, ifthe Prime Obligation Fund (the "Fund"), a series ofSEI Liquid Asset Trust (the ''Trust''), and SEI Investments Company ("SEI"), enter into the arrangement summarized below and more fully described in the letter. SEI is the parent ofthe Trust's investment adviser, SEI Investments Management Corporation and, thus, is an affiliated person of the Fund as defined in Section 2(a)(3) ofthe Act. The Trust is an open-end management investment company that is registered with the Commission under the Act. The Fund is a money market fund that seeks to maintain a stable net
Section 17(a)(1) generally makes it unlawful for any affiliated person ofa registered investment
company, or an affiliated person ofsuch person, acting as principal, to knowingly sell any security or other property to the registered investment company. 2 Section 17(d) generally makes it unlawful for any affiliated person ofa registered investment company, or any affiliated person ofsuch a person, acting as principal, to effect any transaction in which the registered investment company is a joint or joint and several participant with such person in contravention ofrules and regulations adopted by the Commission. 3 Section 12(d)(3) generally makes it unlawful for any registered investment company to acquire any security issued by, or any interest in the business of, any broker-dealer, any person engaged in the business ofunderwriting, or an investment adviser ofan investment company, or an investment adviser registered under the Investment Advisers Act of 1940.

asset value per share of$1.00 and uses the amortized cost method ofvaluation in valuing its portfolio securities as permitted by rule 2a-7 under the Act. The Trust and SEI have entered into a capital support agreement (the "Agreement") for the benefit ofthe Fund. The Agreement obligates SEI to make a cash contnbution (up to a specified maximum amount) to the Fund sufficient to restore the Fund's net asset value (''NAV'') to a specified minimum permissible NAV if certain triggering events ("Contnbution Events") occurred. You state that the Fund holds in its portfolio securities issued by the issuers identified on Schedule A ofthe Agreement (the "Covered Investments"). The Agreement was intended to limit the potential losses that the Fund may incur upon the ultimate disposition of a Covered Investment. SEI does not have its own credit rating, but you state that SEI's obligations under the Agreement are guaranteed by a letter of credit for the benefit ofthe Fund issued by a bank that has received the highest short-term credit rating from the Requisite NRSROs as that term is defined in rule 2a-7 under the Act and by cash or cash equivalents in a segregated account maintained at a qualified custodian under Section 17 ofthe Act. As a result, ifdeemed to be a security, the Agreement is a First Tier Security as that term is defined in rule 2a-7 under the Act. SEI and the Trust entered into and amended the capital support agreement after the staff ofthe Division ofInvestment Management informed the Trust and SEI that it would not recommend enforcement action to the Commission ifthe arrangement was effected.4 The Trust and SEI now seek to amend the Agreement (the "Amendment"), and a form of the Amendment was provided to the staff. The principal change the Trust and SEI propose to make to the Agreement is to amend one ofthe Contnbution Events such that Replacement Notes (as defined in the Agreement) received by the Fund on or after April 1, 2009 would not be considered a Contnbution Event ifthe Trust's Board ofTrustees (the "Board") determines that no other option would be in the best interests ofthe Fund, the Fund notifies the Commission's Division ofInvestment Management ofthe option selected, and the Board's reasoning is maintained in Board minutes and made available to the Commission for inspection. You state that the Board, including all the trustees who are not "interested persons" as that term is defined in
section 2(a)(19) ofthe Act, has approved the proposed Amendment.
See SEI Liquid Asset Trust-Prime Obligation Fund, SEC StaffNo-Action Letter (Dec. 3, 2007); SEI Liquid Asset Trust-Prime Obligation Fund, SEC StaffNo-Action Letter (Mar. 2, 2009). 2

4

On the basis ofthe facts and representations above and in your letter, we will not recommend enforcement action under Sections 12(d)(3), 17(a)(1) or 17(d) ofthe Act ifthe Trust and SEI enter into the Amendment. You should note that any different facts or representations might require a different conclusion. Moreover, this response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented.5 Very truly yours, Sarah G. ten Siethoff Senior Counsel The Division ofInvestment Management generally permits third parties to rely on no-action or interpretive letters to the extent that the third party's facts and circumstances are substantially similar to those described in the underlying request for a no-action or interpretive letter. Investment Company Act Release No. 22587 (Mar. 27, 1997), n.20. In light ofthe very fact-specific nature of the Trust's request, however, the position expressed in this letter applies only to the entities seeking relief, and no other entity may rely on this position. Other funds facing similar legal issues should contact the staff ofthe Division about the availability ofno-action relief. 3 5

Morgan. Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Tel: 215.963.5000
Morgan Lewis COUNSELORS AT LAW
Fax: 215.963.5001 www.morganiewis.com
Timothy W. Levin
215.963.5037 tlevin@morganlewis,com
April 16, 2009
Investment Company Act of 1940
Sections 12(d)(3), 17(a)(I), and 17(d)
Mr. Robert E. Plaze
Associate Director
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: SEI Liquid Asset Trust - Prime Obligation Fund Dear Mr. Plaze:
We are writing on behalf of SEI Investments Company (the "Support Provider"), an affiliated person ofSEI Liquid Asset Trust (the "Trust") with respect to its Prime Obligation Fund (the "Fund"). We seek assurance from the staff of the Division of Investment Management ("Division") that it will not recommend enforcement action to the Securities and Exchange Commission (the "Commission") under Sections 12(d)(3), 17(a)(l) or 17(d) of the Investment Company Act of 1940 ("1940 Act"), or the rules thereunder, if the Fund and the Support Provider amend the agreement governing the capital support arrangements previously considered by the Division in no-action letters dated December 3, 2007 and March 2, 2009 (together the "Initial Letters") in the manner described below. The Trust is registered with the Commission under the 1940 Act as an open-end management investment company. The Fund is a money market fund and seeks to maintain a stable net asset value per share of $1.00 using the amortized cost method of valuation in valuing its portfolio securities in reliance on Rule 2a-7 under the 1940 Act. SEI Investments Management Corporation ("SIMC"), which is a direct, wholly-owned subsidiary of the Support Provider, is the Fund's investment adviser. Columbia Management Advisors, LLC, a subsidiary of Bank of America Corporation, is the sub-adviser to the Fund. Capitalized terms used herein and not otherwise defined have the meaning given to them in the Agreement (as defined below). The Amended and Restated Capital Support Agreement. As described in the Initial Letters, the Fund holds Notes (collectively, the "Notes") issued by the Issuers identified on Schedule A of the Agreement (defined below) (each, an "Issuer"). In order to limit the potential losses that the Fund may incur upon the ultimate disposition ofthe Notes, the Support Provider has entered into an Amended and Restated Capital SUPP0l1 Agreement (the "Agreement"), at no cost to the Fund, that would prevent any losses realized on the Notes (collectively with any notes received in exchange for the Notes that do not qualify as "Eligible Securities" under Rule 2a-7, "Eligible Notes") from causing the Fund's market based DBI/62426767.6

Morgan Lewis
Mr. Robert E. Plaze COUNSELORS ,\T LAW
April 16,2009 net asset value per share ("NAV") to fall below the Minimum Permissible NAV specified in the Agreement. Generally, upon a sale or other ultimate disposition of an Eligible Note, the Agreement obligates the Support Provider to make a cash contribution to the Fund (in an amount up to the maximum amount specified in the Agreement) sufficient to restore the Fund's NAV to the Minimum Permissible NAV. The Support Provider would not obtain any shares or other consideration from the Fund for its contribution; and the Fund would agree to retain the contribution and not to include it in any dividends or distributions. The Support Provider's obligations under the Agreement are guaranteed in two ways. First, the Support Provider has arranged for a Letter of Credit issued at the expense of the Support Provider by a bank having a First Tier credit rating to be issued for the benefit of the Fund (the "Letter of Credit Provider"). Second, the Support Provider may deposit funds into a Segregated Account at a bank that is a qualified eustodian under Section 17 of the 1940 Act for the benefit of the Fund. The Segregated Account, which maybe an interest-bearing account and/or the assets of which may be invested in money market investments, is structured so that the Fund may effect a withdrawal by initiating an ACH transfer from the Segregated Account without the need for further action or authorization by the Support Provider. Under the Agreement, the Fund will draw on the Letter of Credit and/or draw funds from the Segregated Account in the event that the Support Provider fails to make a cash contribution when due under the Agreement. The Agreement further provides that any securities received in exchange for the Notes that qualify as Eligible Securities under Rule 2a-7 (or any Notes that qualify again as Eligible Seeurities) will not be subject to the Agreement. The Agreement obligates the Fund to sell the Eligible Notes (i) promptly following any change in the Letter ofCredit Provider's short term credit ratings such that the Letter of Credit Provider's obligations no longer qualify as First Tier Securities as defined in paragraph (a)(l2) of Rule 2a-7, or (ii) on the business day immediately prior to November 6, 2009; provided that, the Fund shall not be required to complete any such sale if the amount the Fund expects to receive would not result in the payment of a Capital Contribution, or, with respect to an event described in (i) above, if the Support Provider substitutes an obligation or credit support that satisfies the requirement of a First Tier Security within fifteen (15) ealendar days from the oecurrence of such event and, during sueh 15 day period, the Letter of Credit Provider's obligations continue to qualify as Second Tier Seeurities under paragraph (a)(22) of Rule 2a-7. The Agreement will terminate upon the oceurrence of any change in the Letter of Credit Provider's short-term eredit ratings such that the Letter of Credit Provider's
obligations no longer qualify as First Tier Securities as defined in paragraph (a)(l2) of Rule 2a-7, unless the Support Provider satisfies the terms of the Agreement permitting arrangements for a substitute obligation or eredit support within 15 days. Termination of the Agreement does not relieve (i) the Fund ofits obligation to sell the Eligible Notes prior to termination, to the extent that sueh a sale is required by the Agreement; or (ii) the Support Provider ofits obligation to make a Capital Contribution to the Fund following sueh a sale, to the extent that such sale would give rise to a Contribution Event. Proposed Amendment to the Agreement. The Support Provider and the Trust propose to amend the sub-part of the defInition of "Contribution Event" regarding reeeipt of Replacement Notes. The Support Provider's DBI/62426767.6

Morgan Lewis
Mr. Robert E. Plaze COUNSELORS AT LAW
April 16, 2009

obligation to make a Capital Contribution under the Agreement is triggered by the oeeurrenee of a Contribution Event.l Under the Agreement, receipt of Replacement Notes "on or after April l, 2009 that have a value less than the Amortized Cost Value of the applicable Covered Investment on the date that the Fund receives such Replacement Notes" currently constitutes a Contribution Event. The Amendment to the Agreement, however, would allow an exception to this sub-part ofthe definition of Contribution Event such that Replacement Notes received by the Fund on or after April 1, 2009 shall not be considered a Contribution Event if the Board of Trustees determines that no other option would be in the best interests of the Fund, the Fund notifies the U.S. Securities and Exchange Commission's Division oflnvestment Management of the option selected, and the Board's reasoning is maintained in Board minutes and made available to the U.S. Seeurities and Exchange Commission for inspection. We believe that this Amendment to the Agreement would allow the Fund to receive Replacement Notes if in the best interests of the Fund and if no other option that would be in the best interests of the Fund exists. We believe that the proposed Amendment also has several features that are designed to protect the interests of shareholders. First, the proposed Amendment allows an event that would otherwise be a Contribution Event to be disregarded only if the Board determines that such fiduciary duty demands that a Contribution Event not be declared. Second, it would provide reassurance to the shareholders of the Fund that decisions made by the Board of Trustees will be documented, along with the accompanying reasoning behind each of the Board's decisions, contemporaneously with the decision itsclf. We also note that this Amendment would be consistent with no-action relief recently granted by the Commission to similarly situated money market mutual funds) The Board, including the Independent Trustees, approved the proposed Amendment at a meeting held on December 17, 2008. Need for No-Action Relief. The Support Provider is an "affiliated person" or an "affiliated person of an affiliated person" of the Fund under Section 2(a)(3) of the 1940 Act because it is the parent company of the investment adviser to the Fund. Amendment to the Amended and Restated Agreement may Under the Agreement, a "Contribution Event" is defined to include (i) the Fund's sale of, or receipt of payment for, Eligible Notes in an amount less than the Amortized Cost Value of the Eligible Notes, (ii) diseharge of the issuer of the Eligible Notes from liability by a court in an amount less than the Amortized Cost Valne of the Eligible Notes, or (iii) receipt of Replacement Notes having a value less than the then-current amortized cost value of the Eligible Notes in connection with any restructuring of the issuer of the Eligible Notcs occurring on or after April 1.2009. See Columbia Funds Series Trust- Columbia
Cash Reserves, SEC No-Action Letter (Mar. 2, 2009) (providing no-action relief to amended definition of "Contribution Event" under capital support agreement where receipt of receipt of replacement securities is not Contribution Event if fund "Board determines that no other option. would be in the best interests of the Fund, in light of the Board's fiduciary duties").; Columbia Funds Series Trust - Columbia Money Market Reserves, SEC No-Action Lettcr (Mar. 2, 2009) (same); Master Portfolio Trust and Legg Mason Parmers Money Market Trust, SEC No-Action Letter (Mar. 2.2009) (providing no￾action relief to amended definition of "contributiol1 event" under capital support agreement where receipt of receipt of replacement securities may be contribution event "subject to certain tlduciary determinations"); Northern lnstitutional Funds and Northeru Funds. SEC No-Action Letter (MaL 2, 2009) (same). D81/62426767.6 2

Morgan Lewis
Mr. Robert E. Plaze COUNSELORS AT LAW
April 16, 2009 be subjeet to Seetion l7(a)(l) of the 1940 Aet, whieh makes it unlawful for any affiliated person of a registered investment eompany (or any affiliated person of sueh person) aeting as principal knowingly to sell any seeurity or other property to the investment eompany. The proposed arrangement may also fall within Seetion 17(d) of the 1940 Aet, whieh makes it unlawful for any affiliated person (or any affiliated person of sueh person) of a registered investment eompany to effeet any transaetion in whieh sueh registered investment company is a joint, or joint and several partieipant, with sueh person in eontravention of rules adopted by the Commission. The Support Provider's operations include subsidiaries that aet as broker/dealers and investment advisers registered with the Commission. The amendment of the Amended and Restated Agreement may be, therefore, subjeet to Section 12(d)(3) of the 1940 Aet, whieh makes it unlawful for a registered investment eompany to purehase or otherwise aequire any security issued by or any other interest in the business of any person who aets as a broker, dealer or registered investment adviser. The Fund eould not rely upon the exemption provided under Rule 12d3-1 beeause the exemption does not extend to affiliated persons of the Fund's investment adviser. On behalf of the Fund and the Support Provider, we hereby request that the Division staff give its assurance that it will not reeommend the Commission take enforcement aetion against the Fund or the Support Provider under Section 17(a)(l), Seetion l7(d) or Seetion 12(d)(3) of the 1940 Act, or rules thereunder, if the Support Provider and the Fund amend the Amended and Restated Agreement as described above. If you have any questions or other communieations concerning this matter, please eall the undersigned at 215.963.5037. Very truly yours, Timothy W. Levin ee: Timothy D. Barto, Esq. DBI/62426767.6