Mutual fund investors can celebrate the success of 2004: The fourth quarter saw the strongest rally of the year, stock indexes hit highs not seen since before the Sept. 11 attacks in 2001, and the market experienced its first two-year rally since 1999.

That's something worth tooting your horn about - unless, of course, you plan on extending the celebration into this year.

A piece of advice for 2005: Stow that party hat. Although the consensus outlook remains positive, you may have to unlearn the lessons of 2004.

For example: Is the hot money in Latin America? It sure was last year. Latin American funds gained more than 21 percent in the fourth quarter and were up more than 38 percent for the year, according to Lipper Inc. But analysts expect these funds to cool off somewhat in 2005, particularly if commodity prices fall.

Small-cap and mid-cap funds also performed quite well last year, but they could be overtaken this year by large-company funds, especially funds that invest in big industrial companies, analysts say.

And what about those high-yield, or "junk," bond funds? They provided some of the best returns among bond funds last year. But if interest rates continue to rise, they could be among the hardest hit as higher rates drive bond prices down.

There's one lesson from 2004 that's probably worth memorizing for 2005: Don't listen too closely to projections for the new year.

At the beginning of 2004, many market analysts said stocks would have a good first half of the year and a not-so-good second half. The reality was just the opposite. Although broad stock market indices such as the Standard & Poor's 500 index finished the year gaining 9 percent, most of those gains came in the second half.

"A lot of people expected a big run early in the year and a downturn later in the year," says Harry Clark, president of Clark Capital Management Group in Philadelphia. "They didn't get it. It was a typical election year. Usually the first seven or eight months are down in an election year and that's what happened."

"It's been a strange year," agrees Martin Vostry, a research analyst at Lipper. For example, "we expected that at some point in 2004 large-cap funds would start outperforming small caps. Small caps have outperformed over the previous five years. We and a lot of other analysts expected that to reverse itself in 2004 and that definitely didn't happen."

In addition, value funds, which usually don't do as well as growth funds in a rising market, outperformed growth funds. The average large-cap value fund returned nearly 12 percent for the year, according to Lipper, compared with 7 percent for large-cap growth funds. In the last three months of the year, large-cap growth funds made up ground, as they advanced 9.7 percent, while large-cap value funds gained just below 9 percent.

As confusing as the past year seemed to be, there was some logic behind the results, analysts say. Growth funds lagged, for example, because many of their portfolios were concentrated in both electronic and healthcare technology, Mr. Vostry says. "Those sectors tended to under- perform in 2004."

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