By Brian O'Keefe

(FORTUNE Magazine) – What we said

In "How to Ride Rising Rates" (May 17, 2004), we took it as a matter of faith that the Federal Reserve would soon begin raising its benchmark Federal Funds rate-which was at a 40-year low of 1%-but advised investors that the action was a sign of economic health, not a cause for concern. And we suggested one fund and three stocks that should thrive in a rising-rate environment.

What happened

The Fed followed our script. It's raised the overnight rate eight times since June 30, 2004, to 3%. But long-term interest rates have stubbornly failed to climb. That's killed the performance of our fund pick, ProFunds Rising Rates Opportunity (RRPIX), which bets that the price of the 30-year Treasury will fall. It's down 20%. As for our stock picks, Sterling Bancorp (STL, $22) announced a split in December, but in March said it would restate nearly three years of earnings. With dividends, it's down 2%. Shares of cabinetmaker American Woodmark (AMWD, $34) also split, rising nearly 50% before a profit shortfall in February sent them tumbling. It's now up 3%. And General Electric (GE, $37) has returned 26%. -- Brian O'Keefe