Some mighty strange goings-on out in Boulder, Colo., where events at Boulder Investments' ( BIF) Growth & Income (BIF) fund are starting to look like a Road Runner cartoon.

You'll remember how Wile E. Coyote could run off the edge of a cliff and just keep on running in mid-air ... until he looked down.

That's sort of where investors in Growth & Income found themselves two weeks ago, when the fund suddenly plunged 25%.

This is not the kind of result you normally expect from a conservative investment fund whose biggest stake is in Warren Buffett's Berkshire Hathaway ( BRK.A). But then, nothing about this fund is quite what it seems.

Growth & Income is a closed-end fund whose shares trade throughout the day on the stock market. Through nearly the first four months of this year, those shares soared 60%.

Wonderful, yes?

Um, sort of.

The problem is that the shares left the cliff edge months ago and were simply running in mid-air. While the price went from $9.63 on Jan. 1 to $15.45 late last month, the actual value of the fund's investments rose by just a single penny, from $9.19 a share to $9.20.

Turns out, by late April this cartoon coyote fund was running about 60% above the ground.

Then investors looked down. Cue the long face ... and the last, pitiful wave goodbye.

Beep beep!

But the cartoon doesn't end there.

Boulder's big appeal to investors is an 11% yield, which is to be paid monthly.

That's an astonishing payout. Investors everywhere are desperately hunting for income. No wonder so many raced to buy.

The problem?

Sure the fund is sending you a check every month. But it isn't income. They're just sending you back your own money.

As Boulder conceded two weeks ago: "Currently the dividend consists mostly of a return of capital to stockholders. A 'return of capital' represents a return of a stockholder's original investment in the Fund's shares, and should not be confused with a dividend yield."

Who built this income policy? The Acme corporation?

I spoke to Boulder spokeswoman Nicole Murphey to find the reason for this bizarre behavior. She explained that shareholders had voted for this fund's dividend policy a year ago.

The reason? Back then, the fund's shares were trading far below their value. So returning capital made sense.

The problem is that the plan worked so well that the shares stopped selling for a lot less than they were worth, and started selling for a lot more. Yet here they are, still handing back capital every month.

Murphey says the dividends came from income and a return of capital. The proportion of each varied month to month. Right now, she conceded, it was mostly just a return of capital.

But it doesn't stop there. In fact, the mind-bending nature of this cartoon only gets revealed in the final act.

Because the shares are now so valuable, Boulder announced last month the fund is going to ... sell more of them. It announced a "rights issue," which will allow investors to subscribe for extra shares.

Yes, that's right. Boulder is simultaneously handing investors back their cash and asking them ... for more cash.

Beep beep!

This may be excellent news for Boulder Investment Advisers. They get a fee based on the total assets. But it's hard to see why shareholders would pony up. In fact, it's hard to see why they should hang around in this fund at all. There are cheaper ways to have a laugh.
In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.