But how long will the rally last?

Despite a rash of scandals and ongoing government investigations, the mutual fund industry and fund investors had reasons for cheer at the close of 2003.

Finally, after three years of misery and financial losses, fund investors were able to open their quarterly statements without cringing. Funds on a broad basis were up substantially. The Dow Jones Industrial average topped 10,000 once again, a little more than 1,000 shy of the all-time high it set in 2000. The S&P 500 was up 28.3% after three consecutive down years. The economic outlook grew brighter. From an investor's outlook, 2003 was a year in which it seemed OK to think things may be getting back to normal.

Overall, it was a somewhat surprising turnaround in a year that started with a war, a recessionary economy and a stubborn, three-year-old bear market. "In a way, it was a wild year. It started out with a lot of fear and loathing," says David Winters, president, CEO and chief investment officer at Franklin Mutual Advisors in Short Hills, N.J. "But what you ended up with was the concerns melding into enthusiasm."

So much enthusiasm, in fact, that it was hard to find any fund sectors about which to complain. Of the 20 domestic stock fund categories followed by Morningstar, for example, only one had a losing year-bear-market funds, which are specifically geared to doing well during market downturns. Everywhere else the returns were in the double digits, led by small-cap and technology funds. On average, domestic stock funds provided a 31.2% return for investors in 2003. Things were also rosy overseas, with diversified emerging market funds leading the way with a 55.6% return on the year.

Yet for some, the year was almost too good. Observers note that, like a stroke victim learning to walk and talk again, the stock market and the economy had a lot of help in rebounding last year-not the least of which was a hefty offering of low interest rates and tax cuts. While those remedies may have helped the market get off its feet, their effects will diminish over time, leaving some to wonder if the 2003 rebound is sustainable. Looking further down the road, some also worry about whether the piper will eventually have to be paid for the increased government, corporate and consumer debt that grew out of the low-interest-rate environment.

"You could make a strong argument that the combination of U.S. fiscal policy and U.S. monetary policy was a very specific license to speculate," says Ben Inker, director of asset allocation with Grantham, Mayo, Van Otterloo & Co. in Boston. "At some point, there are going to be repercussions."

Those with a more optimistic outlook agree that the government and the Federal Reserve pulled a lot of levers to get the economic engine churning. But they view the actions as stimulus to give the economy momentum it needs to grow on its own.

"Last year we felt was just a very traditional transition between a bear market to a bull market," says Bob Turner, chairman and chief investment officer at Turner Investment Partners in Berwyn, Pa. Turner expects that consumer and corporate spending will carry the economy going forward, as the effects of the artificial stimulus diminish. "Will stocks get a little ahead of themselves prior to that? We'll figure that out," he says. He also feels domestic companies are poised to take advantage of a global economic expansion.

Also upbeat is Bill Fries, portfolio manager of the Thornburg International Value Fund and recently named Morningstar's international manager of the year for 2003. "Right now we're at a point where corporate earnings are going to be the driver," he says. "I think we're still pretty early in the economic recovery, and I think the recovery will broaden."

Fries also feels that strong growth in emerging markets will continue, and that this will benefit both U.S. and European companies. He notes that 2003 saw something of a resurgence in international investing, after several years in which international equities failed as a portfolio diversifier. "As the dollar weakened, there became a new reason to invest internationally and to hold stocks of companies in the U.S. that had significant international holdings," he says.