Benefits to policyholders increased 1.2%, or $44.0 million, from the prior year. Benefits to policyholders in the Protection Segment increased 5.9%, or $106.1 million, from the prior year, due to growth in long-term care insurance benefits to policyholders of 21.3%, or $88.7 million, primarily due to additions to reserves for premium growth and higher claim volume on growth of the business during the period. In addition, in the Protection Segment the non-traditional life insurance business experienced increased benefits to policyholders of 8.4%, or $24.1 million, primarily due to an increase in interest credited on higher current year account balances, partially offset by a $19.2 million decrease in reserves for lower reserves on term conversions and a decrease in death claims, net of reserves released. Benefits to policyholders in the Asset Gathering Segment increased 12.1%, or $54.0 million, driven by a $40.3 million increase in interest credit on growing fixed annuity account balances and $9.5 million increase in reserve provisions related to sales of life-contingent immediate fixed annuities. Benefits to policyholders in the G&SFP Segment decreased 8.7%, or $102.8 million, driven by a decrease of $60.5 million in interest credited on spread-based products due to a decline in the average interest crediting rate. The decrease in interest credited was due to a decline in the average interest credited rate on account balances for spread-based products. The average crediting rate fell to 4.22% from 4.85% in the prior year.
Investment management revenues, commissions, and other fees decreased 8.1%, or $34.4 million from the prior year due to a shift in the product mix. Average mutual fund assets under management were $27,159.7 million, an increase of $356.4 million, or 1.3% from the prior year. The increase in average mutual fund assets under management is primarily due to market appreciation of $4,009.4 million since December 31, 2002. The mutual fund business experienced net redemptions of $246.9 million during 2003, compared to net deposits of $379.1 million in the prior year, a decline of $626.0 million. This change was due to a decrease in deposits and reinvestments of $236.6 million and an increase in redemptions and withdrawals of $437.4 million. The decrease in deposits and reinvestments was driven by a decline in institutional advisory account sales of $527.2 million, partially offset by increases in retail open-end funds of $95.8 million, closed-end funds of $197.6 million and private managed account sales of $102.2 million. The increase in redemptions and withdrawals was
Benefits and expenses decreased 0.9%, or $8.8 million from the prior year. Driving the decrease was a decline in other operating costs and expenses of 17.8%, or $79.4 million, from the prior year, primarily due to cost savings in the mutual fund business as well as company wide cost reduction programs, which drove the decline in expenses in the other Asset Gathering segment businesses. Benefits to policyholders increased 1.2%, or $5.1 million, primarily due to a $50.4 million increase in interest credited on fixed annuity account balances due to higher average account balances and $5.2 million in higher guaranteed minimum death benefit claims, partially offset by $49.6 million lower reserve provisions for life-contingent immediate fixed annuity fund values on lower sales of these contract types. Amortization of deferred policy acquisition costs increased 87.3%, or $65.5 million, primarily due to the variable annuity business driven by the $36.1 million Q3 Unlocking of the DAC asset mentioned previously. The Segment's effective tax rate on operating income was 32.6% compared to 30.6% for the prior year. The increase in the rate is due to lower dividends received deductions in the current period associated with lower dividends received on stocks in the variable annuity separate account investment funds.
Revenues decreased 1.6%, or $28.2 million from the prior year, primarily as a result of lower net investment income. Premiums decreased 8.2%, or $1.5 million, from the prior year. Net investment income decreased 1.6%, or $27.2 million, despite growth of 8.9%, or $2.1 billion, in the average invested asset base. Net investment income declined as the average investment yield fell to 5.85% from 6.43% in the prior year. The decrease in the average investment yield is a reflection of the declining interest rate environment in the current period. Net investment income varies with market interest rates because the return on approximately $11 billion or 42.2% of the asset portfolio floats with market rates. Matching the interest rate exposure on our asset portfolio to the exposure on our liabilities is a central feature of our asset/liability management process.
equivalent of investment grade debt as defined by rating agencies such as S&P and Moody's (i.e., BBB /Baa3 or higher), while Categories 3-6 are the equivalent of below-investment grade securities. SVO ratings are reviewed and may be revised at least once a year.
The table above sets forth the SVO ratings for the bond portfolio along with an equivalent S&P rating agency designation. The majority of the fixed maturity investments are investment grade, with 87.1% and 88.0% of fixed maturity investments invested in Category 1 and 2 securities as of December 31, 2003 and 2002, respectively. Below investment grade bonds were 12.9% and 12.0% of fixed maturity investments and 9.1% and 8.6% of total invested assets as of December 31, 2003 and 2002, respectively. This allocation reflects the Company strategy of avoiding the unpredictability of interest rate risk in favor of relying on the Company's bond analysts' ability to better predict credit or default risk. The bond analysts operate in an industry-based, team-oriented structure that permits the evaluation of a wide range of below investment grade offerings in a variety of industries resulting in a well-diversified high yield portfolio.
In keeping with the investment philosophy of tightly managing interest rate risk, the Company's MBS & ABS holdings are heavily concentrated in commercial MBS where the underlying loans are largely call protected, which means they are not pre-payable without penalty prior to maturity at the option of the issuer. By investing in MBS and ABS securities with relatively predictable repayments, the Company adds high quality, liquid assets to our portfolios without incurring the risk of cash flow variability. The Company believes the portion of its MBS/ABS portfolio subject to prepayment risk as of December 31, 2003 and 2002 was limited to approximately 22.3% and 13.1%, respectively of our total MBS/ABS portfolio and 3.4% and 2.3%, respectively, of our total fixed maturity securities holdings, at each period end.
o $36.1 million on private and public fixed maturity securities (including an impairment loss of $34.6 million and $1.5 million in previously recognized gains where the bond was part of a hedging relationship) secured by aircraft leased by a large U.S. airline. This airline is seeking to reduce its lease rates as a small part of its larger efforts to reduce costs and emerge from bankruptcy. These impairments are based on public quoted prices for the public securities and the appraised values of the aircraft in conjunction with the expected restructured lease rates on the private securities. While we hold other investments in the aircraft industry, these circumstances are unique to this issuer.
written off the investment. The circumstances surrounding this investment are unique as the borrower has demonstrated a lack of willingness to repay the debt on this investment.
There were also gains of $101.1 million on the sale of equity securities as part of our overall investment strategy of using equity gains to minimize credit losses in the long term, gains of $25.2 million from the sale of other invested assets, and gains of $289.7 million resulting from the sale of real estate for the year 2003. Net derivative activity resulted in a gain
State insurance laws generally restrict the ability of insurance companies to pay cash dividends in excess of prescribed limitations without prior approval. The Company's limit is the greater of 10% of the statutory surplus at prior year-end or the prior calendar year's statutory net gain from operations of the Company. The ability of the Company to pay shareholder dividends is and will continue to be subject to restrictions set forth in the insurance laws and regulations of Massachusetts, its domiciliary state. The Massachusetts insurance law limits how and when the Company can pay shareholder dividends. The Company, in the future could also be viewed as being commercially domiciled in New York. If so, dividend payments may also be subject to New York's holding company act as well as Massachusetts' law. The Company currently does not expect such regulatory requirements to impair its ability to meet its liquidity and capital needs. During 2003, the Company paid $214.5 million in dividends to its parent, JHFS.
The risk-based capital standards for life insurance companies, as prescribed by the National Association of Insurance Commissioners, establish a risk-based capital ratio comparing adjusted surplus to required surplus for each of our United States domiciled insurance subsidiaries. If the risk-based capital ratio falls outside of acceptable ranges, regulatory action may be taken ranging from increased information requirements to mandatory control by the domiciliary insurance department. The risk-based capital ratios of all our insurance subsidiaries as of December 31, 2003, were above the ranges