Have you been watching those astounding, enticing, double-digit yields on mutual funds that invest in super-safe government securities? You're not alone. Judging by my mail, these funds are riding as high as a flying trapeze, becoming the most popular way to seize and ride an investment strategy that seeks high income.

"My husband and I have money now in CDs {certificate of deposit} which are coming due, and we are very unsure what to do with it," runs a typical letter, this one from Dansville, N.Y. "If we put it back in CDs, we will have a lower income. What do you think of a high-income government securities fund?"

Here's what I think:

As long as you understand the risks of the investment, go ahead and buy. But my mail tells me that many of you don't know what these funds are really up to -- meaning that somewhere down the line, you're going to be unpleasantly surprised.

The essential question is: How can a mutual fund invested in governments pay you an income of 10 to 12 percent, when Treasury bonds and other securities underlying the fund yield only 8 to 9 percent?

You see this in the Putnam High Income Government Trust (distributing 12.6 percent in the first quarter), American Capital Government Securities (11.6 percent), Colonial Government Securities Plus Trust (11 percent) and Prudential-Bache Government Plus II (10.5 percent), among others.

They do it by writing options against their bonds. Basically, that means booking bets that bond prices will stay fairly level, neither rising nor falling by more than a specified amount.

Mutual funds earn fees for option writing. Those fees are distributed to investors to pump up their cash returns. Of an 11 percent return, then, only 8 percent might be a true yield from the bonds themselves. The other 3 percent could be income from option writing.

What happens if bond prices move by more than the funds expected and they lose their bets? You still get the fees from option writing. But your fund will take a loss, or forego a profit, on its underlying investments. So government-plus investments beef up your income at the possible cost of diminishing your capital. Did your broker explain that to you?

There's another risk that investors may not understand. A government securities mutual fund is not like an insured CD. It is possible to lose money in such a fund. Here's how:

All bonds -- including government bonds -- fluctuate in value as interest rates change. A government bond is safe from default, but it is not safe from fluctuations in price. In the past couple of years, as interest rates fell, government bonds increased in value. Investors not only earned high income but were getting attractive capital gains.

But recently, interest rates turned up again. And when that happens, the value of your bond investment falls. If you had to sell your mutual fund, you might not get back as much money as you paid.

In the first four months of this year, share values on government securities mutual funds fell about 5 percent. That was enough to cancel more than 50 percent of the income they paid so far this year. So while you are putting a nice income into your pocket, you are losing principal.

If you subtract the money lost in principal during the first quarter of this year, the Putnam High Income fund actually returned a total of only 1 percent (compared with an advertised annualized distribution of 12.6 percent). The other funds performed about the same. So your real returns were a lot lower than you thought.

If interest rates fall again, these funds will regain value. The point is that they are not sure things. So, back to the original question: Should you buy a high-income government-securities fund?Yes, if income matters more to you than always preserving your principal intact. Siblings trying to provide for a mother in a nursing home, for example, might want the highest possible income, without really caring how much of the principal will be left to inherit.

How much could you lose in a government securities mutual fund? A small run-up in interest rates, like the one we've had this year, cost the funds about 5 percent in capital. Much higher rates would do a lot more damage. Nevertheless, your income distributions would still arrive regularly. No, if you're deeply concerned about preserving your principal intact. Government bond funds rise and fall with the market. You could lose money if you had to sell at an unpropitious time. If your stockbroker didn't tell you that, get another one.