FGIC Holdings said this week that the Securities and Exchange Commission approved the funds offered by its cash management subsidiary.

In the first quarter, FGIC Public Trust registered the Short-Term U.S. Government Income Fund and U.S. Treasury Money Market Fund with the SEC. The securities regulator declared the funds effective as of April 18, a FGIC spokeman said, adding that they are expected to be operational in mid-May.

The funds were developed in response to a need for "conservatively managed, regulated funds with high degrees of liquidity and credibility" for municipalities and tax-exempt authorities, said Stephen A. Attanasio, senior product manager of FGIC Advisors Inc.

FGIC Advisors is the funds' adviser and a wholly owned subsidiary of FGIC Holdings.

The well-publicized Steven Wymer case crystallized the need for such products, Attanasio said. Wymer, former president of the now-defunct Institutional Treasury Management, was sentenced last year to serve more that 14 years in prison for defrauding local governments in several states of more than $100 million.

Registering with the SEC provides regulatory oversight, standardized performance figures, and an independent board of trustees "with a fiduciary responsibility to the shareholders," Attanasio said.

In addition to registering the funds with the federal regulator, FGIC obtained ratings for its funds "to provide another layer of oversight and give an added comfort level to a market that has had some problems," he said.

In March, Standard & Poor's Corp. assigned an AAAf rating to the U.S. Government Income Fund, and both AAAm and aaa volatility ratings to the U.S. Treasury Money Market Fund. Both funds are rated Aaa by Moody's Investors Service.

The money market fund will invest exclusively in U.S. Treasury bills, notes, and other direct obligations of the Treasury with an average duration of 40 to 50 days.

The Short-Term U.S. Government Income Fund will also invest entirely in direct U.S. government obligations, but with an average duration of up to six months.

The funds were structured to meet the needs of municipalities and authorities "on a duration basis" and to comply with "most state investment guidelines," Attanasio said.

Both funds have a minimum initial investment of $100,000, and FGIC expects the assets in each to increase to $2 billion in 18 months with a target of 500 shareholders.

James E. McCullough will be the portfolio manager for the funds. He has managed more than $10 billion in portfolio assets for the U.S. government and has over 20 years experience in investment management, FGIC said.

That the funds are both rated and SEC-registered makes them different from cash management products offered by an affiliate of MBIA Inc., one of FGIC's main rivals.

But Leon J. Karvelis Jr., president of MBIA Municipal Investors Service Corp., noted that the differences between MBIA's and FGIC's approach to cash management "each offer advantage and disadvantages."

Through its Cooperative Liquid Assets Securities System, or CLASS, MBIA-MISC provides municipalities with the opportunity to invest in state-specific pools where the participating entities customize their own investment parameters instead of having them determined by an outside board of trustees.

Also, the CLASS pools are "consistent with specific statutory limits in each state," so any municipality in the states where CLASS operates may invest in them, Karvelis said. By contrast, a nationally registered fund like those offered by FGIC may not be considered an eligible investment in all states, like New York.

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