Mutual Funds' Three-Year Itch

You may have noticed that mutual fund literature is looking snazzier lately. No, not the smiling septuagenarians pictured aboard the yacht -- the all-important three-year returns listed just below.

Mutual fund companies and the agencies that track them generally show four performance figures, all measuring average annual returns: year-to-date, one-year, three-year and five-year. Some funds even offer 10-year numbers.

But because many funds haven't been around even five years, the three-year return has emerged as the de facto fund-performance yardstick. That's a happy coincidence for fund companies, because looking at a fund's three-year performance right now eliminates the ugly showing that so many funds put in in a bleak 2002. ...