(FORTUNE Magazine) – Look -- there in that portfolio! It's a stock! It's a bond! It could behave like either, depending on which half of an unusual species of split mutual fund it belongs to. These are closed-end mutual funds fissioned into two classes of stock: capital shares for investors seeking capital appreciation and income shares for those who want a predictable stream of income. The concept dates from the 1960s but has been revived with a covey of new funds. The dual structure allows capital gains aficionados to put a little pow into their portfolios. They receive all the capital gains from the fund's portfolio of stocks and bonds in return for forgoing dividend income, and stand to reap roughly twice the appreciation for the same investment. The income shareholders, eschewing capital gains, can get twice as much dividend and interest income on the same stake. Capital shares in two of the dual-purpose funds shown in the table, all tracked by Lipper Analytical Services, have beaten the market by a wide margin this year. Like all closed-end funds, the dual-purpose variety has another advantage. The shares tend to trade at a discount from the net asset value of the stocks and bonds in a fund's portfolio. Currently the discounts on these portfolios range up to an unusually heavy 44%. When a dual fund liquidates, usually ten years after it is set up, capital investors can realize the full net asset value. At that time all the income shares of a dual-purpose fund are redeemed at par value. Then the capital shareholders divvy up the portfolio, which they can vote to liquidate or to convert into a conventional open-end fund. The main drawback: The funds' dual investment objectives are difficult to achieve with the same set of securities. Stocks with high dividend yields, which benefit income shareholders, tend to appreciate slowly; fast-growing stocks usually pay small dividends, if any. Says Thomas Herzfeld, president of Miami-based Thomas J. Herzfeld Advisors, who has monitored the performance of dual-purpose funds since the 1960s: ''You may be better off in a conventional growth or income fund.'' Because the latest crop of dual funds is new, it's important to look carefully at the portfolio manager's record. John Neff, who manages Vanguard's Gemini II fund, ran the original Gemini during its profitable life span from 1967 to 1984. When Gemini I matured it converted to a conventional open-end fund and eventually merged into the highly successful Windsor fund, which Neff also manages. Since Windsor is currently closed to new investors, Gemini II is the only way to get a piece of Neff's action. Unlike Gemini II, which retains all the dividends for the income shareholders, the Franklin group's Hampton Utilities is structured so that the income shareholders receive a fixed annual 8% payout. Income above that amount goes to capital shareholders. The portfolio is invested entirely in high- quality utility stocks that pay increasing dividends. Steep discounts make Oppenheimer's Quest for Value Dual Purpose, another good performer on the capital side, an alluring package. It's one of two dual funds that are trading at a discount on both their income and capital shares.

CHART: NOT AVAILABLE CREDIT: SOURCE: LIPPER ANALYTICAL SERVICES CAPTION: HAVE IT YOUR WAY These funds allow investors to choose between capital gains and dividends. Shown is Jeffrey Whittington of Quest for Value.