Last year wasn't a particularly strong showing for enhanced index mutual funds in the United States.

Two-thirds failed to make it into at least the top half of their respective categories, according to data from Morningstar Inc. Of 126 distinct U.S. enhanced index mutual funds, 43 produced returns that put them above average when compared with their closest rivals in 2007.

"In general, they didn't really distinguish themselves over the last year," said Dan Culloton, a Morningstar analyst.

The picture is slightly better looking at longer periods. Some 35 enhanced index mutual funds had 10-year records in the Chicago-based investment researcher's database. Of those, 18 were able to beat their respective categories in the past decade.

In the past five years through 2007, 34 of 65 were able to outperform their respective category averages. And over a rolling three years, some 38 of 85 enhanced funds managed to turn in above-average performances.

"That tells me relative to their categories as a group, they've been pretty mediocre," said Culloton.

But on their own, enhanced index funds don't count as a separate grouping. Instead, they come from all sorts of different categories and asset classes.

The 126 counted by Morningstar had a combined $59.3 billion in total assets at the end of 2007 and charged an average expense ratio of 1.41%. For that tidy sum, investors could expect average returns of around 3.99%. By comparison, the nonenhanced Vanguard Total Stock Market Index Fund (VTSMX) gained 5.4% in 2007 with an expense ratio of 0.18%.

"Enhanced index funds have expense ratios that tend to be much higher than regular index funds," said Culloton. "But their expenses are often somewhat lower than actively managed funds."

That's not always the case, though. Some enhanced index funds charge more than 2% in annual expense ratios, "which are ridiculously high," Culloton pointed out.

At the other end of the spectrum, Vanguard Growth & Income (VQNPX), which Morningstar classifies as an enhanced index fund, levies fees of 0.32% to operate the fund. It returned 2.6% in 2007 to rank in the bottom half among large-cap blend stock mutual funds.

Another relatively low-cost enhanced competitor fared better. That was DFA Enhanced U.S. Large Company Fund (DFELX). It had cheaper expenses (0.26%) and returned a respectable 5.1% last year. That was good enough to place it in the middle of the large blend pack.

But some brighter spots did emerge for enhanced funds.

Half a dozen enhanced funds from the Direxion family scored big in 2007. The top performer was its Commodity Bull 2X Fund (DXCLX). Its mandate to gain 200% of the daily price performance of the Morgan Stanley Commodity Related Index garnered an 87.57% return last year. The fund is down more than 13% so far in 2008.

Following close on its heels last year was Direxion Latin American Bull 2X Fund (DXZLX). After soaring 83.67% in 2007, it slumped almost 20% earlier this year. Now it's up more than 7% in 2008.

Rydex placed two of its 200% leveraged funds in the top 10 last year. Its OTC 2X Strategy Fund (RYVYX) jumped 29.04% and Weakening Dollar 2X Strategy made 18.05%.

An enhanced index fund that isn't leveraged, Rydex OTC (RYOCX), also wound up among the group's elite with an 18.05% return in 2007. It tracks the NASDAQ 100 and carries a 1.22% expense ratio. So far this year, it has lost around 14%.

The only other nonleveraged enhanced index mutual fund to make last year's top 10 was the Eaton Vance International Equity Fund (EAIEX). Its benchmark is the MSCI EAFE Index, according to the fund's annual report. Still, it held nearly 14% of its assets in emerging markets in late 2007. The managers credited stock selection in energy, industrial materials and reductions in financial services for the portfolio's showing last year.