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It was unthinkable that anything could go so wrong in a life that seemed so perfect. We had counted on her to live happily ever after, to become a grandmother, perhaps, or even to return to movies someday. Above all we expected her to continue to reign in our imaginations, the so aptly titled Serene Highness, a beautiful woman who artfully embodied the dreams and even daydreams of a generation.

Before Diana, Princess of Wales, we had Grace Kelly of Philadelphia, a spunky debutante who proved that an American girl could grow up not only to become a glamorous movie star but also to become a princess. Her career in movies lasted barely five years, but it made her an overnight box office sensation. When she retired to wed Prince Rainier of Monaco in 1956, the role of royalty seemed tailor-made for her, and she excelled in it for more than a quarter-century. Every inch the princess, she worked tirelessly for such favorite charities as the Red Cross and the Princess Grace Ballet School. At her glittering parties, while her husband usually sat and chatted with cronies, Grace would circulate among the tables, concerned that no guest feel overlooked.

But she faced her most demanding responsibilities behind the palace walls. Nine months and five days after her wedding, she gave birth to a daughter. Firmly believing that the upbringing of children was primarily a mother's responsibility, Princess Grace devoted much of her attention to Caroline, 25, Albert, 24, and Stephanie, 17. "I had a quiet childhood compared to theirs," she recently told PEOPLE'S Fred Hauptfuhrer. "They have had the misfortune of growing up in the spotlight, and this is more difficult for them." Those difficulties were sometimes painfully apparent, at no time more so than during Caroline's brief marriage to playboy Philippe Junot, which ended in a 1980 divorce. Like Caroline, Stephanie showed a preference for nightlife over home life. Princess Grace staunchly defended her daughters, but temperamentally she was most attuned to her shy son, Albert, now serving in the French Navy. "When Prince Albert went away on a cruise for six months early this year, she missed him terribly," recalls Rupert Allen, a Los Angeles friend. "I was talking to her this spring and she said, 'I can't tell you how happy I am that Alby is coming home. I've missed him so.' "

But with only Stephanie still living at home, Princess Grace at 52 was beginning what she hoped would be the third and most satisfying act of her career. In 1976, to commemorate the American Bicentennial, she read some poems at the Edinburgh Festival that she had selected to illustrate the American spirit. Surprised and delighted by the critical acclaim, she added poetry readings to an already busy schedule. "The poetry reading is something that doesn't take too much time, and that I can do occasionally," she explained. "For the most part I do it for students or for people interested in poetry. I get a lot of satisfaction from it." She was planning to visit California next March to give readings at UCLA and in Palm Springs.

Constantly she was asked if she would ever make another Hollywood movie. Although she discounted the possibility, her fans—and shrewd producers—were ever hopeful. Among the plums she spurned was a choice of either leading role in the 1977 movie The Turning Point. Asked to co-star early this year in a London stage production of a play written by Pope John Paul II as a young man (she was reportedly the Pontiff's personal choice), Grace begged off. "To act, to have a career and to do it well, you have to do it completely," she explained. "I don't have the time to devote to it."

Yet in recent years she had made tentative moves toward a return to acting. In 1977 she narrated a documentary film on a Leningrad ballet school, The Children of Theater Street; later she played herself in a half-hour film, Rearranged, that has yet to be aired. She overcame her old aversion to publicity and the star system to attend a gala tribute to her film career last spring in Philadelphia. Some of her friends believe that with the major duties of motherhood behind her, Princess Grace would have resumed at least a part-time acting career. "I think she was going to come back and do a film," says Stewart Granger, her co-star in the 1954 movie Green Fire. "Maybe I'd have done one with her."

She was never idle. When she was able to relax, she loved to stitch needlepoint or arrange dried flowers, humming happily to herself. Her wood-paneled palace den, which a friend describes as "looking as modest as a tract home," is festooned with such joking stickers as "In God we trust, all others pay cash" and "We'd love to help you out, which way did you come in?" The gold record given to her for the 1956 hit True Love (she claimed that she needed 80 takes to harmonize with Bing Crosby) hung on the wall like a trophy. Royal responsibilities—she supervised a 180-room palace in Monaco, a hilltop farm across the border in France and a Paris town house—never overwhelmed her common sense. "I certainly don't think of my life as a fairy tale," she said. "I think of myself as a modern, contemporary woman who has had to deal with all kinds of problems that many women today have to deal with. I am still coping—trying to cope."

What she might yet have accomplished cannot be known. Having published one book on her dried-flower collages, she hoped someday to write a memoir. "I haven't started or kept diaries," she admitted, "and I won't decide what kind of book it will be until I sit down and write it." She looked forward to seeing her three children happily married. "Being a grandmother would be an exciting experience," she confided. Too busy to make detailed agendas for the future, she was optimistic about aging gracefully. "No one likes the idea of getting older," she mused. "It's a question of facing the inevitable and not getting upset about it. I don't plan much."