This risk may be minimal for funds that invest in insured or U.S. Government bonds. Because interest rates have declined, the fund may have to reinvest the proceeds in bonds with lower interest rates, which can reduce the fund s return. Nearly all bond funds are subject to this type of risk, but funds holding bonds with longer maturities are more subject to this risk than funds holding bonds with shorter maturities. Because of this type of risk, you can lose money in a bond fund, including those that invest only in insured bonds or government bonds. A bond fund s prospectus should disclose these and any other risks.
Many bond funds invest in tax-exempt municipal bonds of a particular state.
Depending upon your state of residence, the bonds of your state may be exempt from state as well as federal income tax. Not all of the income that you receive from a municipal bond fund, however, will necessarily be exempt from federal and state income tax. The fund s prospectus will describe any of its tax-exempt features. Before investing in a bond fund, you should carefully read all of the fund s available information , including its prospectus and most recent shareholder report.