Tax-Free Money-Market Funds Shine

The best rated open-end bond funds in May were tax-free money market funds paying out a consistent stream of income. Four municipal funds also made the top-10 list.

With stocks flirting near bear-market territory, off as much as 20% for the Dow Jones Industrial Average since October, investors may be seeking the relative safety of the bond market.

Unfortunately, the weak economy and inflationary environment has firms such as Lehman Brothers(LEH Quote), Bank of America(BAC Quote) and Barclays Capital(BCS Quote) predicting another corporate bond slump warning investors to pare their holdings.

The best rated open-end bond fund this month is the Evergreen Institutional U.S. Government Money Market Fund(EGNXX Quote), rated A+.

This fund, with $1.8 billion in assets, sticks to U.S. government securities with the goals of capital preservation and liquidity management. If Federal Reserve Chairman Ben Bernanke proves powerless to restrain inflation, the meager return from this fund may not be enough to overcome the loss in purchasing power over time.

The A+ rated US Global Investors US Government Securities Savings Fund(UGSXX Quote) is in the same boat. This fund's objective is high current income consistent with the highest possible safety of principal and liquidity. The fund may be smaller in total assets at $455 million but has been in business since 1986.

The highest rated of the four municipal bond funds on our list is the Advantage Ultra Short-Term Municipal Income Fund(SMUAX Quote) offered by Wells Fargo(WFC Quote). This A+ fund targets federal tax-exempt income while allowing a small amount of share price fluctuation.

The top holding, at 7.1% of assets, is the Golden State Tobacco Securitization Corp./CA. This should not be confused with the Garden State's Tobacco Settlement Financing Corp./NJ, which is the second largest holding at 4.1% of assets.

Top 10 Rated Open-End Bond Mutual Funds
Fund (Ticker) Rating	Total % Return 3 Year	Total % Return 1 Year	Objective
Evergreen Inst US Govt MM Inv (EGNXX) A+	4.20	3.90	Tax Free Money Market
US Global Inv Govt Sec Savings Fd (UGSXX) A+	4.03	3.73	Tax Free Money Market
UMB Scout Federal Money Market Inv (UMFXX) A+	3.96	3.63	Tax Free Money Market
Calvert Social Invest MM Cl O (CSIXX) A+	3.90	3.76	Tax Free Money Market
Monetta Trust-Govt Money Market (MONXX) A+	4.06	3.88	Tax Free Money Market
Federated Money Market Mgt Eagle Sh (MMMXX) A+	3.70	3.94	Tax Free Money Market
Wells Fargo Avtg Ult-Sh Muni Inv (SMUAX) A+	3.62	4.30	Municipal - Insured
Vanguard Short-Term Tax-Exempt Inv (VWSTX) A+	3.52	4.68	Municipal - National
Colorado Bond Shares Tax-Exempt A (HICOX) A+	5.22	4.88	Municipal - Single State
Wells Fargo Avtg ST Muni Bd Inv (STSMX) A+	3.52	3.84	Municipal - National
Source: TheStreet.com Ratings

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