Exhibit 13

PORTIONS OF 2000 ANNUAL REPORT TO SHAREHOLDERS

MANAGEMENT'S DISCUSSION AND ANALYSIS of FINANCIAL CONDITION and
RESULTS of OPERATIONS

      Management's discussion and analysis reviews our consolidated segment
financial condition as of December 31, 2000 and 1999, the consolidated results
of operations for the years ended December 31, 2000, 1999 and 1998 and, where
appropriate, factors that may affect future financial performance. This
discussion should be read in conjunction with the audited consolidated financial
statements and related notes, included elsewhere in this Form 10-K.

Forward-Looking Information

      The statements, analyses, and other information contained herein relating
to trends in the Company's operations and financial results, the markets for the
Company's products, the future development of the Company's business, and the
contingencies and uncertainties to which the Company may be subject, as well as
other statements including words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "will," "should," "may," and other similar
expressions, are "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. Such statements are made based upon management's
current expectations and beliefs concerning future events and their effects on
the Company and may not be those anticipated by management. John Hancock's
actual results may differ materially from the results anticipated in these
forward-looking statements.

      These forward-looking statements are subject to risks and uncertainties
including, but not limited to, the risks that (1) a significant downgrade in our
ratings for claims-paying ability and financial strength may lead to policy and
contract withdrawals and materially harm our ability to market our products; (2)
elimination of Federal tax benefits for our products and other changes in laws
and regulations (including in particular the possible amendment or repeal of the
Federal Estate Tax) which would Company expects would adversely affect sales of
our insurance and investment advisory products; (3) as a holding company, we
depend on dividends from our subsidiaries and the Massachusetts insurance law
may restrict the ability of John Hancock Life Insurance Company to pay dividends
to us; (4) we face increasing competition in our retail and institutional
businesses from mutual fund companies, banks and investment management firms as
well as from other insurance companies; (5) a decline or increased volatility in
the securities markets, and other economic factors, may adversely affect our
business, particularly our variable life insurance, mutual fund, variable
annuity and investment business; (6) our life insurance sales are highly
dependent on a third party distribution relationship; (7) customers may not be
responsive to new or existing products or distribution channels; (8) interest
rate volatility may adversely affect our profitability; (9) our net income and
revenues will suffer if customers surrender annuities and variable and universal
life insurance policies or redeem shares of our open-end mutual funds; (10) the
independent directors of our variable series trusts and of our mutual funds
could reduce the compensation paid to us or could terminate our contracts to
manage the funds; (11) under our Plan of Reorganization, we were required to
establish the closed block, a special arrangement for the benefit of a group of
our policyholders, and we may have to fund deficiencies in our closed block, and
any over-funding of the closed block will benefit only the holders of policies
included in the closed block, not our stockholders; (12) there are a number of
provisions in our Plan of Reorganization, our Restated Certificate of
Incorporation and by-laws, laws applicable to us, agreements that we have
entered into with our senior management, and our stockholder rights plan, that
will prevent or discourage takeovers and business combinations that our
stockholders might otherwise consider to be in their best interests; (13) we
will face losses if the claims on our insurance products, or reductions in rates
of mortality on our annuity products, are greater than we projected; (14) we
face risks relating to our investment portfolio; (15) the market price of our
common stock may decline if persons who received common stock as compensation in
the reorganization sell their stock in the public market; (16) we may experience
volatility in net income due to changes in standards for accounting for
derivatives and other changes; (17) our United States insurance companies are
subject to risk-based capital requirements and possible guaranty fund
assessments; (18) the National Association of Insurance Commissioners'
codification of statutory accounting practices will adversely affect the
statutory surplus of John Hancock Life Insurance Company; (19) we may be unable
to retain personnel who are key to our business; (20) we face risks from assumed
reinsurance business in respect of personal accident insurance and the
occupational accident component of workers compensation insurance; (21)
litigation and regulatory proceedings may result in financial losses, harm our
reputation and


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<PAGE>

divert management resources, and (22) we face unforeseen liabilities arising
from our acquisitions and dispositions of businesses.

      Readers are also directed to other risks and uncertainties discussed, as
well as to further discussion of the risks described above, in other documents
filed by the Company with the United States Securities and Exchange Commission.
The Company specifically disclaims any obligation to update or revise any
forward-looking information, whether as a result of new information, future
developments, or otherwise.

Overview

      John Hancock Financial Services (JHFS, or the Company) is a leading
financial services company providing a broad range of products and services in
two major businesses: (1) the retail business, which offers insurance protection
and asset gathering products and services primarily to retail consumers; and (2)
the institutional business, which offers guaranteed and structured financial
products and investment management products and services primarily to
institutional customers. In addition, we have a Corporate and Other Segment.

      Our revenues are derived principally from:

o     premiums on individual life insurance, individual and group long-term care
      insurance, annuities with life contingencies, single premium annuity
      contracts and group life insurance;

o     product charges from variable and universal life insurance products and
      annuities;

o     asset management fees from mutual fund and institutional investment
      management products;

o     sales charges and commissions derived from sales of investment and
      insurance products and distribution fees; and

o     net investment income and realized investment gains on general account
      assets.

      Our expenses consist principally of insurance benefits provided to
policyholders, interest credited on policyholders' general account balances,
dividends to policyholders, other operating costs and expenses, which include
commissions and general business expenses, net of expenses deferred,
amortization of deferred policy acquisition costs, and premium and income taxes.

      Our profitability depends in large part upon: (1) the adequacy of our
product pricing, which is primarily a function of competitive conditions, our
ability to assess and manage trends in mortality and morbidity experience, our
ability to generate investment earnings and our ability to maintain expenses in
accordance with pricing assumptions; (2) the amount of assets under management;
and (3) the maintenance of our target spreads between the rate of earnings on
our investments and credited rates on policyholders' general account balances.

      Our sales and financial results of our retail business over the last
several years have been affected by general economic and industry trends.
Variable products, including variable life insurance and variable annuities,
have accounted for the majority of recent increases in total premiums and
deposits for the insurance industry as a result of the strong equity market
growth in recent years and the "baby boom" generation reaching its high-earnings
years and seeking tax-advantaged investments to prepare for retirement. As sales
of variable products have increased, sales of traditional life insurance
products have experienced continued declines. With respect to our long-term care
insurance products, premiums have increased due to the aging of the population
and the expected inability of government entitlement programs to meet retirement
needs.


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<PAGE>

      Premiums and deposits of our individual annuity products increased 37.7%
to $2,061.4 million in 2000 as compared to 1999. Our variable life insurance
product deposits in 2000 increased 11.1% to $922.0 million compared to 1999,
while premiums on our individual and group long-term care insurance increased
53.5%, to $545.1 million in 2000 due to the acquisition of the long-term care
business of Fortis, Inc. (Fortis) on March 1, 2000. Primarily due to aggressive
marketing of both retail and institutional investment management services, new
fund offerings, and refocusing the sales organization on regional broker/dealers
and financial planners, mutual fund deposits and reinvestments increased
$1,561.1 million, or 34.7%, to $6,066.2 million in 2000. In addition to the
increase in sales and deposits, redemptions decreased $1,489.0 million, or
19.6%, to $6,111.7 million in 2000 due to conservation initiatives. We have
reduced operating expenses to protect profit margins as we work to stabilize and
grow assets under management in the mutual funds business. However, our mutual
fund operations are impacted by general market trends, and a continued downturn
in the mutual fund market may negatively affect our future operating results.

      Recent economic and industry trends also have affected the sales and
financial results of our institutional business. Sales of fund-type products
decreased $314.6 million, or 7.6%, to $3,830.4 million. The decrease is
primarily due to declining demand for general account GICs in the 401(k) plan
market. In response to this trend, we have created new products for the
non-qualified institutional marketplace.

      Premiums from single premium annuity contracts increased to $741.6 million
in 2000 from $451.8 million in 1999, primarily due to the sale of two single
premium annuity contracts totaling $509.0 million. Moreover, our investment
management services provided to domestic and international institutions include
services such as investment advisory client portfolios, individually managed and
pooled separate accounts, registered investment company funds, bond and mortgage
securitizations, and mutual fund management capabilities. Assets under
management of our Investment Management Segment decreased to $32,651.6 million
as of December 31, 2000.

The Reorganization

      The Board of Directors of John Hancock Mutual Life Insurance Company
unanimously adopted the Plan of Reorganization on August 31, 1999. Under the
terms of the Plan of Reorganization, effective February 1, 2000, John Hancock
Mutual Life Insurance Company converted from a mutual life insurance company to
a stock life insurance company and became a wholly owned subsidiary of John
Hancock Financial Services, Inc., which is a holding company. In connection with
the reorganization, John Hancock Mutual Life Insurance Company changed its name
to John Hancock Life Insurance Company.

      Under the Plan of Reorganization, as of February 1, 2000, John Hancock
Life Insurance Company, created a closed block for the benefit of policies
included therein. The purpose of the closed block is to protect the policy
dividend expectations of the policies included in the closed block after
demutualization. Unless the Massachusetts Commissioner of Insurance and, in
certain circumstances, the New York Superintendent of Insurance, consent to an
earlier termination, the closed block will continue in effect until the date
none of such policies is in force. As of February 1, 2000, John Hancock Life
Insurance Company segregated closed block assets of $9,343.0 million, an amount
that is expected to produce cash flows which, together with anticipated revenues
from policies included in the closed block, is expected to be reasonably
sufficient to provide for payment of policy benefits, taxes and direct asset
acquisition and disposal costs, and for continuation of policy dividend scales
payable in 1999, so long as the experience underlying such dividend scales
continues. The assets allocated to the closed block and any cash flows provided
by these assets will solely benefit the holders of policies included in the
closed block. Total closed block liabilities were $12,118.3 million as of
February 1, 2000.

    For additional information on the creation of the closed block see Note 5 to
our audited consolidated financial statements.


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<PAGE>

      Costs relating to the demutualization, excluding costs relating to the
offering, were $129.1 million net of income taxes, of which $17.0 million was
recognized in the year ended December 31, 2000. Demutualization expenses include
printing and mailing costs and our aggregate cost of engaging independent
accounting, actuarial, financial, investment banking, legal and other
consultants to advise us. In addition, our costs include the costs of the staff
and advisors of the Massachusetts Division of Insurance, the New York Insurance
Department as to the demutualization process and related matters.

Transactions Affecting Comparability of Results of Operations

Disposed Businesses

      We have completed a number of transactions which have affected the
comparability of our results of operations. On March 31, 1999, we completed the
sale of Unigard Security Insurance Company ("USIC") and John Hancock Insurance
Co. of Bermuda Ltd. ("John Hancock Bermuda"). The sale of USIC was completed by
entering into a 100% quota share reinsurance agreement with a third party
reinsurer and then through a stock sale. We also sold 100% of the stock of John
Hancock Bermuda, which offered reinsurance products and services. Assets and
liabilities transferred in connection with both sales amounted to $381.0 million
and $161.8 million, respectively. The sale of USIC resulted in an after-tax loss
of $21.4 million. John Hancock Bermuda was sold for its net book value which
resulted in the recognition of no gain or loss. For additional information on
disposed businesses see Item 6. Selected Financial Data, included elsewhere in
this Form 10-K.

Corporate Account Asset Transfer

      We established a "corporate account" as part of our Corporate and Other
Segment to facilitate our capital management process. The corporate account
contains capital not allocated to support the operations of our business
segments.

      Late in the fourth quarter of 1999, we transferred certain assets from the
business segments to the corporate account. These assets include investments in
certain subsidiaries and the home office real estate complex (collectively
referred to as "corporate purpose assets"). Historically, we have allocated the
investment performance or other earnings of corporate purpose assets among all
of our business segments. However, subsequent to the conversion to a stock life
insurance company, we have centrally managed the performance of corporate
purpose assets through the corporate account.

      We accounted for the transfer of the corporate purpose assets between the
business segments and the corporate account at historical cost. Because of the
participating features of the affected group participating contracts, we believe
that the transfer of corporate purpose assets was analogous to their sale. Group
participating contractholders are entitled to receive the proceeds from assets
sold from the segment. As a result, we recognized an expense to increase our
liability to affected group participating contractholders for their
proportionate share of the appreciation of the corporate purpose assets
transferred. For the other business segments, differences between the historical
cost of the assets transferred and the fair value of amounts received by the
business segments was recorded as a capital adjustment by each segment. The
transfer during the fourth quarter of 1999 resulted in a charge to operations in
1999 of $205.8 million, net of tax. The Company recorded a $5.7 million
after-tax credit to operations in the first quarter of 2000 related to revised
estimates for the transaction.

Transactions Occurring Subsequent to Year End

      On February 5, 2001, the Board of Directors approved stock and stock
option grants to the Policy Committee of the Company. The equity grants were
made under the terms of the demutualization Plan of Reorganization and the 1999
Long-Term Stock Incentive Plan which had been originally approved by the Board
of Directors of John Hancock Financial Services, Inc. on August 31, 1999 (the
Plan). A total of 56.0 thousand shares of non-vested stock was granted, with a
total grant date exercise price of $2.0 million. A total of 9.4 million options
were granted, with a grant date exercise price of $35.53 per share. Also, in
February 2001, the Company announced that it signed letters of intent with two
reinsurers covering 50% of its closed block business. The treaties are
structured so they will not affect policyholder dividends or any other financial
items reported within the closed block, which was established at the time of the
Company's demutualization to protect the reasonable dividend expectations of
certain participating life insurance policyholders. The reinsurance agreements
cost approximately $3.0 million pre-tax and result in making several hundred
million dollars in statutory capital available for further business development
or other purposes, the timing of which will be dependent on a number of
circumstances. In addition, on March 2, 2001, the Company announced the sale of
the retirement plan recordkeeping business operated out of the mutual fund
subsidiary of the Company, John Hancock Funds. It is estimated that an after-tax
charge of approximately $9 million will be recorded in the first quarter of 2001
and that the Company will initially sever 31 employees, with additional
severances planned. The Company will continue to manage the assets of the
business; the purchaser will assume the record keeping and support
responsibility.


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<PAGE>

Results of Operations

    The table below presents our consolidated results of operations and
consolidated financial information for the years ended 2000, 1999 and 1998.

<TABLE>
<CAPTION>
                                                      For the Year Ended December 31,
                                           -------------------------------------------------------
                                                         2000
                                           ---------------------------------
                                                                (in millions)
                                           Non Closed   Closed     Result of
                                              Block      Block    Operations    1999       1998
                                           -------------------------------------------------------
<S>                                         <C>        <C>         <C>        <C>         <C>
Revenues
  Premiums ..............................   $2,587.1   $  865.0    $3,452.1   $2,717.5    $2,197.9
  Universal life and investment-
   type product charges .................      749.3         --       749.3      703.5       597.0
  Net investment income .................    3,271.4      591.6     3,863.0    3,574.0     3,330.7
  Net realized investment gains
   (losses), net of related
   amortization of deferred policy
   acquisition costs and amounts
   credited to participating pension
   contractholders (1) ..................       83.2       11.7        94.9      175.1       106.4
  Investment management revenues,
   commissions, and other fees ..........      764.8         --       764.8      680.9       659.7
  Other revenue (expense) ...............       18.2       (0.6)       17.6        6.5        10.3
                                            --------   --------    --------   --------    --------

    Total revenues ......................    7,474.0    1,467.7     8,941.7    7,857.5     6,902.0

Benefits and expenses
  Benefits to policyholders,
   excluding amounts related
   to net realized investment
   gains credited to
   participating pension
   contractholders (2) ..................    4,457.1      870.0     5,327.1    5,418.4     4,152.0
  Other operating costs and expenses ....    1,596.4      (10.0)    1,586.4    1,412.3     1,383.0
  Amortization of deferred
   policy acquisition costs,
   excluding amounts related
   to net realized investment
   gains (3) ............................      191.6       76.5       268.1      166.8       249.7
  Dividends to policyholders ............      157.3      407.1       564.4      501.6       473.2
  Demutualization expenses ..............       10.6         --        10.6       96.2        18.0
                                            --------   --------    --------   --------    --------

   Total benefits and expenses ..........    6,413.0    1,343.6     7,756.6    7,595.3     6,275.9
                                            --------   --------    --------   --------    --------
Income before income taxes and
   cumulative effect of
   accounting change ....................    1,061.0      124.1     1,185.1      262.2       626.1
Income taxes ............................      346.2         --       346.2       99.3       177.6
                                            --------   --------    --------   --------    --------
Income before cumulative effect of
   accounting change ....................      714.8      124.1       838.9      162.9       448.5
  Cumulative effect of accounting
    change ..............................         --         --          --       (9.7)         --
                                            --------   --------    --------   --------    --------
Net income ..............................   $  714.8   $  124.1    $  838.9   $  153.2    $  448.5
                                            ========   ========    ========   ========    ========
</TABLE>

(1)   Net of related amortization of deferred policy acquisition costs and
      amounts credited to participating pension contractholders of $6.0 million,
      $85.8 million, and $120.3 million for the years ended 2000, 1999, and
      1998, respectively.

(2)   Excluding amounts related to net realized investment gains credited to
      participating pension contractholders of $6.9 million, $35.3 million, and
      $79.1 million for the years ended 2000, 1999, and 1998, respectively.

(3)   Excluding amounts related to net realized investment gains of $(0.9)
      million, $50.5 million, and $41.2 million for the years ended 2000, 1999,
      and 1998, respectively.


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<PAGE>

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

      Consolidated income before income taxes and cumulative effect of
accounting change of $1,185.1 million for the year ended December 31, 2000
increased by $922.9 million, or 351.9%, as compared to consolidated income
before income taxes and cumulative effect of accounting change of $262.2 million
for the year ended December 31, 1999. The increase was primarily attributable to
increases in income before income taxes and cumulative effect of accounting
change of $234.9 million in the Guaranteed and Structured Financial Products
Segment, $601.1 million in the Corporate and Other Segment, $65.9 million in the
Asset Gathering Segment $0.3 million in the Protection Segment and $20.7 million
in the Investment Management Segment. The increase in the Guaranteed and
Structured Financial Products Segment was primarily due to the recognition of a
$345.5 million pre-tax charge in the prior year for compensation of group
participating contractholders for assets transferred in conjunction with the
formation of the corporate account. The increase in the Corporate and Other
Segment was primarily due to a $208.6 million pre-tax charge in the prior year
for our exposure to losses under our Workers' Compensation reinsurance programs,
including Unicover Managers, Inc., that was associated with the group business
we sold in 1998 and a $140.2 million pre-tax charge in the prior year in
connection with the class action settlement. The increase in the Asset Gathering
Segment was primarily due to an improvement in realized gains from the prior
year: $15.4 million in realized gains were recognized in 2000 compared to $11.0
million in realized losses in 1999. In addition, demutualization and
restructuring expenses decreased compared to the prior year. The Protection
Segment remained relatively stable compared to the prior year due to increased
net investment income and fee income partially offset by decreased realized
gains. The increase in the Investment Management Segment was due primarily to
higher investment advisory fees resulting from an incentive fee on contract
restructuring and performance fees earned by the mezzanine fund manager.

      Premium revenue was $3,452.1 million for 2000, an increase of $734.6
million, or 27.0%, from $2,717.5 million in 1999. The increase was primarily due
to a $299.7 million increase in premiums in the Guaranteed and Structured
Financial Products Segment, including the sale of two single premium annuity
contracts totaling $509.0 million, and a $117.5 million increase, or 8.2%, in
the Protection Segment primarily due to premiums on individual long-term care
insurance products from the acquisition of a block of business.

      Universal life and investment-type product charges were $749.3 million for
2000, an increase of $45.8 million, or 6.5%, from $703.5 million in 1999. These
product charges consist primarily of cost of insurance fees on our variable life
insurance and universal life insurance products and mortality and expense fees
on our variable annuity products. The increase was primarily due to higher cost
of insurance fees resulting from growth in the average account values in
universal life insurance products and higher average variable annuity
liabilities and surrender fees.

      Net investment income was $3,863.0 million for 2000, an increase of $289.0
million, or 8.1%, from $3,574.0 million in 1999. Net investment income in the
prior year includes $9.0 million in net investment income earned in operations
of disposed businesses. The increase was primarily the result of higher average
invested assets, which increased $3,206.9 million, or 6.0%, to $49,964.5 million
in 2000, as compared to $46,757.6 million in 1999. The net yield on average
invested assets increased to 7.73% in 2000. The increase in yield from the prior
year is consistent with the average market rates in 2000 compared to 1999, the
average 10-year U.S. Treasury rate in 2000 was 34 basis points higher than in
1999.

      Net realized gains on investments were $94.9 million for 2000, a decrease
of $80.2 million from $175.1 million in 1999. Net realized gains in the prior
year include $23.0 million in net realized losses in the operations of disposed
businesses in 1999. The decrease was primarily the result of 1999 gains on sales
of real estate relating to the planned program to divest the Company of much of
its real estate portfolio. The Company recognized an estimated $115.1 million in
realized gains from the sales of real estate in the prior year compared to net
realized losses of approximately $21.1 million in 2000.


                                       6
<PAGE>

      Investment management revenues, commissions, and other fees were $764.8
million, an increase of $83.9 million, or 12.3%, from $680.9 million in 1999.
The increase was the result of an increase in the Investment Management segment
which increased $45.9 million primarily due to the $45.3 million incentive fee
received on the restructuring of a timber management contract and the favorable
settlement of a lawsuit. Underwriting and distribution fees increased $25.7
million primarily resulting from the increase in front-end load mutual fund
sales, partially offset by a decrease in deferred sales charges due to improved
retention of existing accounts. Mutual fund advisory fees declined $6.4 million
in 2000, primarily due to lower average assets under management along with a
slight decline in the average investment advisory fee rate, as fixed income
assets, which bear a lower advisory fee than equity assets, increased as a
percentage of total assets.

      Other revenue was $17.6 million in 2000, an increase of $11.1 million, or
170.8%, from $6.5 million reported in 1999. Other revenue in the prior year
includes $2.9 million in other losses in the operations of disposed businesses
in 1999.

      Benefits to policyholders were $5,327.1 million for 2000, a decrease of
$91.3 million, or 1.7%, from $5,418.4 million in 1999. Benefits to policyholders
in the prior year includes $243.6 million in the operations of disposed
businesses in 1999. The decrease was primarily due to recognizing a $345.5
million pre-tax charge in the prior year for compensation of group participating
contractholders for assets transferred in conjunction with the formation of the
corporate account, a $208.6 million pre-tax charge in the prior year for our
exposure to losses under our Workers' Compensation reinsurance programs,
including Unicover Managers, Inc., that was associated with the group business
we sold in a prior year, a $140.2 million pre-tax charge in the prior year in
connection with the class action settlement involving individual life insurance
policies sold from 1979 through 1996, and $61.7 million in reserves established
in the prior year for incurred but unreported deaths identified as a result of
the policyholder demutualization mailing. Partially offsetting these decreases
in benefits to policyholders from the prior year were a $349.1 million, or 56.5%
increase primarily due to increased single premium annuity business, a $200.2
million increase primarily attributable to the acquisition of Aetna Canada which
is included in our results for a full year in 2000, and a $72.0 million increase
due to our Fixed Annuities business on the sales of single premium immediate
annuities. In addition, we experienced an increase of $158.8 million increase in
benefits on individual long-term care insurance products, primarily due to the
acquisition of the long-term care business of Fortis, Inc. as of March 1, 2000.

      Other operating costs and expenses were $1,586.4 million for 2000, an
increase of $174.1 million, or 12.3%, from $1,412.3 million for 1999. The
increase was primarily due to the acquisition of Aetna Canada as of October 1,
1999 and the long-term care business of Fortis, Inc. as of March 1, 2000. In
addition, other operating costs increased in the Investment Management Segment
primarily resulting from the $15.7 million in incentive compensation payments
related to incentive fees on a timber management contract and $9.1 million in
performance fees paid for the management of the mezzanine fund.

      Amortization of deferred policy acquisition costs was $268.1 million for
2000, a increase of $101.3 million, or 60.7%, from $166.8 million for 1999. The
increase was primarily due to higher amortization expense on non-traditional
life insurance products resulting from higher current net investment income
increasing margins in the business during 2000 which increased amortization of
deferred acquisition costs. In addition, amortization expense increased in the
Variable Annuity business, primarily resulting from poor separate account
performance during 2000, which resulted in revised projections of estimated
gross profits based upon decreases in estimated future margins thus increasing
current amortization.

      Dividends to policyholders were $564.4 million in 2000, an increase of
$62.8 million, or 12.5%, from $501.6 million in 1999. The increase primarily
resulted from normal growth in dividends on traditional life insurance products.

      Demutualization expenses were $10.6 million for 2000, a decrease of $85.6
million, or 89.0%, from $96.2 million for 1999. The decrease was related to the
extensive preparations for the demutualization occurring in 1999. These expenses
include printing and mailing fees, fees of the regulators' advisors and our
financial, legal, actuarial and accounting advisors. While demutualization
expenses were previously classified as an extraordinary item in our financial
results, recent accounting literature now requires demutualization expenses be
classified as a single line item within income from continuing operations.

      Income taxes were $346.2 million in 2000, compared to $99.3 million for
1999. Income taxes in the prior year includes $113.8 million in income tax
credits due to the loss from operations of disposed businesses in 1999. Our
effective tax rate was 29.2% in 2000, as compared to 28.4% in 1999, taking into
account the prior year income tax credit generated from operations of disposed
businesses. We had been subject to the surplus tax (add-on tax) imposed on
mutual life insurance companies which disallows a portion of mutual life
insurance company's policyholder dividends as a deduction from taxable income.
As a stock company, we are no longer subject to the surplus tax.


                                       7
<PAGE>

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      Consolidated income before income taxes and cumulative effect of
accounting change of $262.2 million for the year ended December 31, 1999
decreased by $363.9 million, or 58.1%, as compared to consolidated income before
income taxes and cumulative effect of accounting change of $626.1 million for
the year ended December 31, 1998. The decrease was primarily attributable to
decreases in income before income taxes and cumulative effect of accounting
change of $205.9 million in the Guaranteed and Structured Financial Products
Segment, $193.6 million in the Corporate and Other Segment, and $45.2 million in
the Asset Gathering Segment. These decreases were offset by increases of $41.3
million in the Protection Segment and $39.5 million in the Investment Management
Segment. The decrease in the Guaranteed and Structured Financial Products
Segment was primarily due to recognizing a $345.5 million pre-tax charge for
compensation of group participating contractholders for assets transferred in
conjunction with the formation of the corporate account. The decrease in the
Corporate and Other Segment was primarily due to a $208.6 million pre-tax charge
for our exposure to losses under our Workers' Compensation reinsurance programs,
including Unicover Managers, Inc., that was associated with the group business
we sold in 1997 partially offset by lower pre-tax charges in connection with the
class action settlement of $140.2 million in 1999 compared to $230.8 million in
1998. The decrease in the Asset Gathering Segment was primarily due to lower
investment advisory fees earned from our mutual fund operations. The increase in
the Protection Segment was primarily due to higher realized investment gains on
real estate, higher fee income on variable life insurance products, and
favorable claims experience on long-term care insurance products. The increase
in the Investment Management Segment was due primarily to higher investment
advisory fees resulting from growth in assets under management and higher
realized investment gains on sales of mortgage loans.

      Premium revenue was $2,717.5 million for 1999, an increase of $519.6
million, or 23.6%, from $2,197.9 million in 1998. The increase was primarily due
to a $342.3 million increase in premiums in the Guaranteed and Structured
Financial Products Segment, including the sale of one single premium annuity
contract for $339.0 million, and a $58.1 million increase, or 26.6%, in the
Protection Segment for premiums on individual long-term care insurance products.

      Universal life and investment-type product charges were $703.5 million for
1999, an increase of $106.5 million, or 17.8%, from $597.0 million in 1998.
These product charges consist primarily of cost of insurance fees on our
variable life insurance and universal life insurance products and mortality and
expense fees on our variable annuity products. The increase was primarily due to
higher cost of insurance fees resulting from growth in the average amount of
variable life insurance in force and higher average variable annuity separate
account liabilities. Investment-type product charges in the Guaranteed and
Structured Financial Products Segment also increased as a result of higher sales
of single premium annuity contracts and separate account GICs.

      Net investment income was $3,574.0 million for 1999, an increase of $273.3
million, or 8.3%, from $3,300.7 million in 1998. The increase was primarily the
result of higher average invested assets, which increased $3,447.3 million, or
8.0%, to $46,757.6 million in 1999, as compared to $43,310.3 million in 1998.
The net yield on average invested assets was 7.62% for 1999 and 1998. Yields
were positively impacted in 1999 from lower investment expenses offset by the
general decline in market interest rates.

      Net realized gains on investments were $175.1 million for 1999, an
increase of $68.7 million from $106.4 million in 1998. The increase was
primarily the result of increased gains on sales of real estate relating to the
program initiated in 1998 to sell more than 150 of the properties in our real
estate portfolio in order to take advantage of the strong real estate market and
reduce our general account investment in real estate.

      Realized gains on sales of real estate increased $66.6 million to $115.1
million in 1999 from $48.5 million in 1998.


                                       8
<PAGE>

      Investment management revenues, commissions, and other fees were $680.9
million, an increase of $21.2 million, or 3.2%, from $659.7 million in 1998. The
increase was the result of higher institutional investment advisory fees which
increased $18.3 million primarily due to growth in average institutional assets
under management at Independence Investment Advisors, our investment advisory
subsidiary. Average institutional assets under management increased 13.5% to
$40,554.7 million in 1999. Underwriting and distribution fees increased $12.2
million primarily resulting from our acquisition of the Essex Corporation, a
distributor of annuities and mutual funds through banks, in January 1999.
Partially offsetting these increases, mutual fund advisory fees declined $8.1
million in 1999, primarily due to lower average assets under management along
with a slight decline in the average investment advisory fee rate, as fixed
income assets, which bear a lower advisory fee than equity assets, increased as
a percentage of total assets.

      Other revenue was $6.5 million in 1999, a decrease of $3.8 million, or
36.9%, from $10.3 million reported in 1998.

      Benefits to policyholders were $5,418.4 million for 1999, an increase of
$1,266.4 million, or 30.5%, from $4,152.0 million in 1998. The increase was
primarily due to a $373.8 million increase in benefits due to higher sales of
single premium annuity contracts, a $345.5 million increase in benefits related
to the compensation of group participating contractholders for assets
transferred in conjunction with the formation of the corporate account, a $140.7
million increase in benefits on traditional life insurance products due to
higher death benefits, including $61.7 million of reserves established for
incurred but unreported deaths identified as a result of the policyholder
demutualization mailing, a $113.2 million increase in benefits related to the
settlement of a class action lawsuit involving individual life insurance
policies sold from 1979 through 1996 and a $63.2 million increase in benefits on
individual long-term care insurance products, resulting from higher sales.

      Other operating costs and expenses were $1,412.3 million for 1999, an
increase of $29.3 million, or 2.1%, from $1,383.0 million for 1998. The increase
was primarily due to $26.3 million in restructuring charges during 1999 and
increased interest and related expenses of $9.0 million in the Investment
Management Segment primarily resulting from the formation of a collateralized
bond obligation during the second quarter of 1998. These increases were
partially offset by a $20.9 million decrease in interest expense on prior year
taxes.

      Amortization of deferred policy acquisition costs was $166.8 million for
1999, a decrease of $82.9 million, or 33.2%, from $249.7 million for 1998. The
decrease was primarily due to lower amortization expense on non-traditional life
insurance products resulting from revised projections of estimated gross profits
based upon increases in estimated future interest margins and mortality margins.
In addition, amortization expense on traditional life insurance products
decreased due to lower profits, primarily resulting from $61.7 million of
previously unreported deaths identified as a result of the policyholder
demutualization mailing.

      Dividends to policyholders were $501.6 million in 1999, an increase of
$28.4 million, or 6.0%, from $473.2 million in 1998. The increase primarily
resulted from normal growth in dividends on traditional life insurance products.

      Demutualization expenses were $96.2 million for 1999, an increase of $78.2
million, or 434.4%, from $18.0 million for 1998. The increase was related to the
extensive preparations in 1999 for the demutualization. These expenses include
printing and mailing fees, fees of the regulators' advisors and our financial,
legal, actuarial and accounting advisors. While demutualization expenses were
previously classified as an extraordinary item in our financial results. Recent
accounting literature now requires demutualization expenses be classified as a
single line item within income from continuing operations.

      Income taxes were $99.3 million in 1999, compared to $177.6 million for
1998. Our effective tax rate before the surplus tax was 37.9% in 1999, as
compared to 28.4% in 1998. We had been subject to the surplus tax (add-on tax)
imposed on mutual life insurance companies which disallows a portion of mutual
life insurance company's policyholder dividends as a deduction from taxable
income. As a stock company, we are no longer subject to the surplus tax.


                                       9
<PAGE>

    Cumulative effect of accounting change, net of tax was $9.7 million in 1999.
During 1999 we adopted Statement of Position 98-5, "Reporting the Costs of
Start-up Activities", which requires that start-up costs capitalized prior to
January 1, 1999 be written off and any future start-up costs be expensed as
incurred. We wrote off the unamortized balance of capitalized start-up costs
related to our closed-end mutual funds in 1999.

Results of Operations by Segment

    We evaluate segment performance and base management's incentives on segment
after-tax operating income, which excludes the effect of net realized investment
gains and losses and unusual or non-recurring events and transactions. Segment
after-tax operating income is determined by adjusting GAAP net income for net
realized investment gains and losses, and certain other items which we believe
are not indicative of overall operating trends. While these items may be
significant components in understanding and assessing our consolidated financial
performance, we believe that the presentation of segment after-tax operating
income enhances the understanding of our results of operations by highlighting
net income attributable to the normal, recurring operations of the business.
However, segment after-tax operating income is not a substitute for net income
determined in accordance with GAAP.


                                       10
<PAGE>

    A discussion of the adjustments to GAAP reported income, many of which
affect each operating segment, follows. A reconciliation of segment after-tax
operating income, as adjusted, to GAAP reported net income precedes each segment
discussion.

                                                 For the Year Ended December 31,
                                                 -------------------------------
                                                   2000      1999      1998
                                                  ------    ------    ------
Segment Data: (1)                                        (in millions)
Segment after-tax operating income:
 Protection Segment ............................  $262.0    $190.6    $172.3
 Asset Gathering Segment .......................   128.8     115.1     111.1
                                                  ------    ------    ------
    Total Retail ...............................   390.8     305.7     283.4
 Guaranteed and Structured Financial Products
    Segment ....................................   212.1     202.4     145.7
 Investment Management Segment .................    46.8      37.3      15.4
                                                  ------    ------    ------
    Total Institutional ........................   258.9     239.7     161.1
 Corporate and Other Segment ...................   102.5      67.8      56.3
                                                  ------    ------    ------
 Total segment income ..........................   752.2     613.2     500.8

After-tax adjustments: (1)
 Realized investment gains, net (1) ............    64.0     119.9      93.9
 Class action lawsuit ..........................      --     (91.1)   (150.0)
 Workers' compensation reinsurance reserve .....      --    (133.7)       --
 Restructuring charges .........................   (12.0)    (17.0)       --
 Corporate account asset transfer ..............     5.7    (205.8)       --
 Demutualization expenses ......................    (7.0)    (93.6)    (11.7)
 Other demutualization related costs ...........   (10.0)     (6.8)       --
 Surplus tax ...................................    46.0     (22.2)     15.5
                                                  ------    ------    ------
 Total after-tax adjustments ...................    86.7    (450.3)    (52.3)
                                                  ------    ------    ------

GAAP Reported:
  Income before cumulative effect
    of accounting change .......................   838.9     162.9     448.5
  Cumulative effect of accounting change .......      --      (9.7)       --
                                                  ------    ------    ------
  Net income ...................................  $838.9    $153.2    $448.5
                                                  ======    ======    ======

See "Adjustments to GAAP Reported Net Income" included in this Management's
Discussion and Analysis. Adjustments to GAAP Reported Net Income

      Our GAAP reported net income was significantly affected by net realized
investment gains and losses and unusual or non-recurring events and transactions
presented above as after-tax adjustments. A description of these adjustments
follows.

      In all periods, net realized investment gains and losses, except for gains
and losses from mortgage securitizations and investments backing our short-term
funding agreements, have been excluded from segment after-tax operating income
due to their volatility between periods and because such data are often excluded
by analysts and investors when evaluating the overall financial performance of
insurers. The volatility between periods can be impacted by fluctuations in the
market, as well as by changes in the volume of activity which can be influenced
by us and our investment decisions. Realized investment gains and losses from
mortgage securitizations and investments backing our short-term funding
agreements were not excluded from segment after-tax operating income because we
view the related gains and losses as an integral part of the core business of
those operations.

      Net realized investment gains have been reduced by: (1) amortization of
deferred policy acquisition costs to the extent that such amortization results
from realized gains and losses and (2) the portion of realized gains and losses
credited to certain participating contractholder accounts. We believe presenting
realized investment gains and losses in this format


                                       11
<PAGE>

provides information useful in evaluating our operating performance. This
presentation may not be comparable to presentations made by other insurers.
Summarized below is a reconciliation of (a) net realized investment gains per
the consolidated financial statements and (b) the adjustment made for net
realized investment gains to calculate segment after-tax operating income for
the years ended December 31, 2000, 1999 and 1998.

                                                 For the Year Ended December 31,
                                                 -------------------------------
                                                    2000      1999      1998
                                                   ------    ------    ------
                                                        (in millions)

Net realized investment gains ..................   $ 89.2    $260.9    $226.7
Add capitalization/less (amortization)
   of deferred policy acquisition costs
   related to net realized investment
   gains .......................................      0.9     (50.5)    (41.2)
Less amounts credited to participating
   pension contractholder accounts .............     (6.9)    (35.3)    (79.1)
                                                   ------    ------    ------
Net realized investment gains, net of
   related amortization of deferred
   policy acquisition costs and amounts
   credited to participating pension
   contractholders per consolidated
   financial statements ........................     83.2     175.1     106.4
Less realized investment (losses)
   attributable to mortgage
   securitizations and investments
   backing short-term funding agreements .......     (3.2)    (27.7)    (42.1)
Net realized investment gains in the
   closed block ................................     11.7        --        --
                                                   ------    ------    ------
Realized investment gains, net -
   pre-tax adjustment to calculate
   segment operating income ....................     91.7     202.8     148.5
Less income tax effect .........................    (27.7)    (82.9)    (54.6)
                                                   ------    ------    ------
Realized investment gains (losses), net -
   after-tax adjustment to calculate
   segment operating income ....................   $ 64.0    $119.9    $ 93.9
                                                   ======    ======    ======

      During 2000 and 1999, we incurred restructuring charges to reduce costs
and increase future operating efficiency by consolidating portions of our
operations. For additional information regarding restructuring charges see Note
1 to our audited consolidated financial statements, included elsewhere in the
December 31, 2000 JHFS Form 10-K.

      During 2000 and 1999, we recorded amounts for the transfer of certain
assets from the Guaranteed and Structured Financial Products Segment to the
corporate account. These assets included investments in certain subsidiaries and
the home office real estate complex (collectively referred to as "corporate
purpose assets"). Certain group contracts have participating features, under
which crediting rates and dividends are affected directly by portfolio earnings.
Certain participating contractholders participate in contract experience related
to net investment income and realized capital gains and losses in the general
account. These participating contractholders were compensated for transferred
assets based on the fair value of the assets transferred. The difference between
the fair value and carrying value of the assets transferred were credited to
affected participating contractholders through the crediting rates and dividends
on their contracts.

      In December 2000, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 00-3, "Accounting by Insurance
Enterprises for Demutualizations and Formations of Mutual Insurance Holding
Companies and Certain Long-Duration Participating Contracts." The SOP, which was
adopted with respect to accounting for demutualization expenses by the Company
on December 15, 2000, requires that demutualization related expenses be
classified as a single line item within income from continuing operations and
should not be classified as an extraordinary


                                       12
<PAGE>

item. The adoption of SOP 00-3 resulted in the reclassification of
demutualization expenses previously recorded as an extraordinary item in 1999
and 1998 of $93.6 million and $11.7 million, respectively (net of tax of $2.6
million and $6.3 million, respectively). In addition, the Company recognized
$6.8 million (net of tax of $3.8 million) of demutualization expenses for the
year ended December 31, 2000. The Company considers demutualization expenses to
be an adjustment to GAAP recorded net income.

     During 2000 and 1999, we incurred demutualization related expenses to
improve our financial analysis and financial reporting abilities. These charges
primarily included consulting fees and planning and expense management costs.

    During 1997, we entered into a court approved settlement relating to a class
action lawsuit involving individual life insurance policies sold from 1979
through 1996, as specified in the Legal Proceedings section of the December 31,
2000 JHFS Form 10-K. In entering into the settlement, we specifically denied any
wrongdoing. The reserve held in connection with the settlement to provide for
relief to class members and for legal and administrative costs associated with
the settlement amounted to $172.8 million and $496.6 million at December 31,
2000 and 1999, respectively. Given the uncertainties associated with estimating
the reserve, it is reasonably possible that the final cost of the settlement
could differ materially from the amounts presently provided for by the Company.
The Company will continue to update its estimate of the final cost of the
settlement as the claims are processed and more specific information is
developed, particularly as the actual cost of the claims subject to alternative
dispute resolution becomes available. However, based on information available at
this time, and the uncertainties associated with the final claim processing and
alternative dispute resolution, the range of any additional costs related to the
settlement cannot be estimated with precision.

      Through our group health insurance operations, which we sold in 1997, we
entered into a number of reinsurance arrangements in respect of personal
accident insurance and the occupational accident component of workers
compensation insurance, a portion of which was originated through a pool managed
by Unicover Managers, Inc. Under these arrangements, we both assumed risks as a
reinsurer, and also passed 95% of these risks on to other companies. This
business had originally been reinsured by a number of different companies, and
has become the subject of widespread disputes. During the fourth quarter of 1999
and early 2000, we received additional information about our exposure to losses
under the various reinsurance programs. As a result of this additional
information and in connection with global settlement discussions initiated in
late 1999 with other parties involved in the reinsurance programs, our present
best estimate of our remaining loss exposure to this issue is $133.7 million,
after-tax, which we recognized in 1999. The Company believes that any exposure
to loss from this issue, in addition to amounts already provided for as of
December 31, 2000, would not be material.

      We had been subject to the surplus tax imposed on mutual life insurance
companies which disallows a portion of mutual life insurance company's
policyholder dividends as a deduction from taxable income. As a stock company,
we are no longer subject to surplus tax and have excluded the surplus tax from
segment after-tax operating income in all periods.


                                       13
<PAGE>

Amortization of Goodwill

      The excess of cost over the fair value of the net assets of businesses
acquired was $228.6 million and $155.3 million at December 31, 2000 and 1999,
respectively. Goodwill is amortized on systematic basis over periods not
exceeding 40 years, which correspond with the benefits estimated to be derived
from the acquisitions. Accumulated amortization was $63.6 million and $43.3
million at December 31, 2000 and 1999, respectively. Amortization expense
included in other operating costs and expenses was $20.3 million, $9.7 million,
and $9.1 million in 2000, 1999 and 1998, respectively. The Company reevaluates
the recoverability of recorded goodwill based on the undiscounted cash flows of
the related business whenever significant events or changes indicate an
impairment may exist. If the undiscounted cash flows do not support the amount
recorded, an impairment is recognized by a charge to current operations to
reduce the carrying value of the goodwill based on the expected discounted cash
flows of the related business. The following table shows the amount of goodwill
amortization for each applicable segment:

                                                             For the Year Ended
                                                                December 31,
                                                           ---------------------
                                                            2000    1999    1998
                                                           -----   -----   -----
                                                               (in millions)
Amortization of Goodwill:
 Protection Segment ....................................   $ 3.8   $  --   $  --
 Asset Gathering Segment ...............................     6.8     6.8     6.5
                                                           -----   -----   -----
    Total Retail .......................................    10.6     6.8     6.5
 Guaranteed and Structured Financial Products
    Segment ............................................      --      --      --
 Investment Management Segment .........................     1.1     1.1     1.1
                                                           -----   -----   -----
    Total Institutional ................................     1.1     1.1     1.1
 Corporate and Other Segment ...........................     8.6     1.8     1.5
                                                           -----   -----   -----
 Total goodwill
      amortization expense .............................   $20.3   $ 9.7   $ 9.1
                                                           =====   =====   =====

Segment Allocations

      We allocate surplus to the segments in amounts sufficient to support the
associated liabilities of each segment and to maintain capital levels consistent
with the overall business segment and corporate strategies. Allocations of net
investment income are based on the amount of assets owned by each segment. Other
costs and operating expenses are allocated to each segment based on a review of
the nature of such costs, cost allocations utilizing time studies, and other
allocation methodologies.


                                       14
<PAGE>

Retail-Protection Segment

        The following table presents certain summary financial data relating to
the Protection Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                                 For the Year Ended
                                                                    December 31,
                                                          --------------------------------
                                                            2000        1999        1998
                                                          --------    --------    --------
                                                                   (in millions)
<S>                                                       <C>         <C>         <C>
Operating Results:
Revenues
  Premiums ............................................   $1,549.2    $1,431.7    $1,351.4
  Universal life and investment-type product
    charges ...........................................      388.3       361.1       333.3
  Net investment income (1) ...........................    1,203.7     1,107.3     1,063.9
  Other revenue .......................................        6.9         2.9        10.6
                                                          --------    --------    --------
    Total revenues (1) ................................    3,148.1     2,903.0     2,759.2

Benefits and expenses
   Benefits to policyholders ..........................    1,706.1     1,709.4     1,493.8
   Other operating costs and expenses .................      433.2       407.1       442.4
   Amortization of deferred policy acquisition
    costs, excluding amounts related to net realized
    investment gains ..................................      139.8        71.8       153.9
 Dividends to policyholders ...........................      475.6       452.0       422.8
                                                          --------    --------    --------
    Total benefits and expenses .......................    2,754.7     2,640.3     2,512.9

Segment pre-tax operating income (2) ..................      393.4       262.7       246.3

Income taxes ..........................................      131.4        72.1        74.0
                                                          --------    --------    --------

Segment after-tax operating income (2) ................      262.0       190.6       172.3

After-tax adjustments:(2)
   Realized investment (losses) gains, net ............      (12.0)      108.5        49.2
   Restructuring charges ..............................       (6.7)       (8.6)         --
 Demutualization expenses .............................        1.6       (61.3)       (7.9)
 Other demutualization related costs ..................       (6.8)       (4.6)         --
   Surplus tax ........................................       20.8       (12.5)       11.7
                                                          --------    --------    --------
     Total after-tax adjustments ......................       (3.1)       21.5        53.0
                                                          --------    --------    --------
GAAP Reported:
Net income ............................................   $  258.9    $  212.1    $  225.3
                                                          ========    ========    ========
Amortization of goodwill, net of tax ..................        2.2          --          --
                                                          --------    --------    --------
Net income before amortization of goodwill ............   $  261.1    $  212.1    $  225.3
                                                          ========    ========    ========
</TABLE>


                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                       For the Year Ended
                                                                          December 31,
                                                                --------------------------------
                                                                  2000        1999        1998
                                                                --------    --------    --------
                                                                         (in millions)
<S>                                                             <C>         <C>        <C>
Other Data:
Segment after-tax operating income (loss)
  Non-traditional life (variable life and  universal life) ..   $   97.0    $   92.8   $   74.6
  Traditional life ..........................................      110.5        68.2       73.0
  Individual long-term care .................................       41.9        20.6       16.4
  Group long-term care ......................................       14.5         7.9        7.8
  Other .....................................................       (1.9)        1.1         .5
Statutory premiums (3)
  Variable life .............................................   $  922.0    $  829.8   $  810.8
  Universal life (4) ........................................      173.5       117.9      436.8
  Traditional life ..........................................      965.5     1,043.6    1,051.3
  Individual long-term care .................................      455.3       258.6      199.8
  Group long-term care ......................................       89.8        78.4       72.7
</TABLE>

----------
(1)   The consolidated statement of income includes in revenues the contribution
      from the closed block of $124.1 million for the period ended December 31,
      2000. The contribution from the closed block includes closed block
      revenues of $1,467.7 million and closed block benefits and expenses of
      $1,343.6 million for the period ended December 31, 2000. For purposes of
      this Management's Discussion and Analysis the impact of the closed block
      is represented within each line of operations of the Protection Segment.
      For details of closed block activity as of and for the period ended
      December 31, 2000 see Note 5 -- Closed Block to the audited consolidated
      financial statements as of the same time period.

(2)   See "Adjustments to GAAP Reported Net Income" included in this
      Management's Discussion and Analysis.

(3)   Statutory data have been derived from the annual statements of John
      Hancock Life Insurance Company (formerly John Hancock Mutual Life
      Insurance Company), John Hancock Variable Life Insurance Company,
      Investors Partner Life (formerly John Hancock Life Insurance Company of
      America), and John Hancock Reassurance Company Ltd. as filed with
      insurance regulatory authorities and prepared in accordance with statutory
      accounting practices.

(4)   Includes bank owned life insurance premiums of $340.0 million for the year
      ended December 31, 1998, respectively. There were no bank owned life
      insurance premiums for the years ended December 31, 1999 and 2000,
      respectively.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

      Segment after-tax operating income was $262.0 million in 2000, an increase
of $71.4 million, or 37.5%, from $190.6 million in 1999. Non-traditional life
insurance segment after-tax operating income increased $4.2 million, or 4.5%,
primarily due to an increase in net investment income resulting from higher
yields on higher net average invested assets. Traditional life insurance segment
after-tax operating income increased $42.3 million, or 62.0%, primarily
resulting from higher net investment income due to higher portfolio rates, lower
operating expenses, and not repeating a $29.3 million charge, net of deferred
acquisition costs, taken in 1999 for previously unreported claims associated
with the demutualization. Individual long-term care insurance segment after-tax
operating income increased $21.3 million, or 103.4%, resulting from an increase
in net investment income due to the addition of the Fortis business and growth
in average net invested assets. Group long-term care insurance segment after-tax
operating income increased by $6.6 million, or 83.5%, resulting from lower
operating expenses due to increasing scale.

      Total revenues were $3,148.1 million in 2000, an increase of $245.1
million, or 8.4%, from $2,903.0 million in 1999. Premiums increased $117.5
million, or 8.2%, primarily due to an increase in individual long-term care
insurance premiums, which increased $196.4 million, or 71.0%, resulting from
both additional premiums assumed relating to the acquisition of


                                       16
<PAGE>

Fortis and continued growth in the business. Partially offsetting this increase
was a decline in traditional life insurance premiums. Universal life and
investment-type product charges consist primarily of cost of insurance fees and
separate account fees and were $388.3 million in 2000, an increase of $27.2
million, or 7.5%, from $361.1 million in 1999. The increase was primarily due to
growth in average account values. Net investment income increased $96.4 million,
or 8.7%, primarily due to increases in average net invested assets and portfolio
yields.

      Total benefits and expenses were $2,754.7 million in 2000, an increase of
$114.4 million, or 4.3%, from $2,640.3 million in 1999. Benefits to
policyholders increased $3.3 million, or 0.2%, due to several offsetting items,
including a decrease of $193.8 million in benefits to policyholders on
traditional life insurance products due to improved mortality, and not repeating
the prior year $62.0 million higher benefits to policyholders for previously
unreported death claims identified as part of the demutualization. Offsetting
this decrease was an increase of $158.8 million in benefits to policyholders of
individual long-term care insurance due to both the acquisition of Fortis and
growth in the business. Other increases in benefits to policyholders included a
$20.7 million increase on non-traditional life insurance products and a $11.0
million increase on group long-term care insurance. Other operating costs and
expenses increased $26.1 million, or 6.4%, to $433.2 million in 2000 from $407.1
million in 1999, primarily due to an increase of $39.6 million in operating
expenses associated with the individual long-term care business due to the
acquisition of Fortis and growth in the business. Amortization of deferred
policy acquisition costs of $139.8 million in 2000 increased $68.0 million, or
94.7%, from $71.8 million in 1999. The increase resulted from lower amortization
of deferred acquisition costs in the prior year for Traditional life products
due to revised projections of estimated gross profits based on the recording of
additional unreported claims to the demutualization. In addition, amortization
expense on Non-Traditional life products increased due to revised projections of
estimated gross profits based upon changes in estimated future interest margins.
Dividends to policyholders increased $23.6 million, or 5.2%, primarily due to
aging of the in-force business on traditional life insurance products. The
segment's effective tax rate increased to 33.4% in 2000 from 27.4% in 1999,
primarily due to the transfer of tax-preferenced assets to the Corporate and
Other Segment in the fourth quarter of 1999.

      Amortization of goodwill in 2000 relates to the acquisition of the
individual long-term care business from Fortis.


                                       17
<PAGE>

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      Segment after-tax operating income was $190.6 million in 1999, an increase
of $18.3 million, or 10.6%, from $172.3 million in 1998. Non-traditional life
insurance segment after-tax operating income increased $18.2 million, or 24.4%,
primarily due to an increase in universal life and investment-type product
charges due to growth in variable life insurance in-force. Traditional life
insurance segment after-tax operating income decreased $4.8 million, or 6.6%,
primarily resulting from higher death benefits and a $29.3 million charge net of
deferred acquisition costs for the incurred but not reported reserve associated
with the demutualization, partially offset by a decrease in interest expense on
prior year taxes. Individual long-term care insurance segment after-tax
operating income increased $4.2 million, or 25.6%, primarily due to higher net
investment income resulting from an increase in invested assets, partially
offset by unfavorable persistency. Group long-term care insurance segment
after-tax operating income increased by $0.1 million, or 1.3%.

      Total revenues were $2,903.0 million in 1999, an increase of $143.8
million, or 5.2%, from $2,759.2 million in 1998. Premiums increased $80.3
million, or 5.9%, primarily due to an increase in individual long-term care
insurance premiums, which increased $58.1 million, or 26.6%. Universal life and
investment-type product charges consist primarily of cost of insurance fees and
separate account fees and were $361.1 million in 1999, an increase of $27.8
million, or 8.3%, from $333.3 million in 1998. The increase was primarily due to
higher cost of insurance fees resulting from growth in the average amount of
variable life insurance in-force, which increased 10.7% to $54,622.0 million in
1999 from $49,364.1 million in 1998. Net investment income increased $43.4
million, or 4.1%, primarily due to an increase in the segment's average invested
assets and lower investment expenses.

      Total benefits and expenses were $2,640.3 million in 1999, an increase of
$127.4 million, or 5.1%, from $2,512.9 million in 1998. Benefits to
policyholders increased $215.6 million, or 14.4%, primarily due to a $140.7
million increase in benefits on traditional life insurance products due to
higher death benefits, including $61.7 million of benefits from previously
unreported deaths identified as a result of the policyholder demutualization
mailing, and a $63.2 million increase in benefits on individual long-term care
insurance products, due to higher sales. Other operating costs and expenses
decreased $35.3 million, or 8.0%, to $407.1 million in 1999 from $442.4 million
in 1998, primarily due to a decrease in interest expense on prior year taxes.
Amortization of deferred policy acquisition costs of $71.8 million in 1999
decreased $82.1 million, or 53.3%, from $153.9 million in 1998. The decrease was
primarily due to lower amortization expense on non-traditional life insurance
products resulting from revised projections of estimated gross profits based
upon increases in estimated future interest margins and mortality margins. In
addition, amortization expense on traditional life insurance products decreased
due to lower profits, primarily resulting from $61.7 million of previously
unreported death claims identified as a result of the policyholder
demutualization mailing. Dividends to policyholders increased $29.2 million, or
6.9%, primarily due to normal growth of dividends on traditional life insurance
products. The segment's effective tax rate declined to 27.4% in 1999 from 30.0%
in 1998, due to non-deductible losses in 1998.


                                       18
<PAGE>

Retail-Asset Gathering Segment

      The following table presents certain summary financial data relating to
the Asset Gathering Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                    For the Year Ended December 31,
                                                  -----------------------------------
                                                     2000         1999         1998
                                                  ---------    ---------    ---------
                                                             (in millions)
<S>                                               <C>          <C>          <C>
Operating Results:
Revenues
  Premiums ....................................   $    63.4    $    17.2    $    19.8
  Investment-type product charges .............       138.3        120.6         99.9
  Net investment income .......................       445.8        388.6        378.0
  Investment management revenues,
    commissions, and other fees ...............       547.1        528.8        516.8
  Other revenue ...............................         1.3          2.1          0.8
                                                  ---------    ---------    ---------
    Total revenues ............................     1,195.9      1,057.3      1,015.3

Benefits and expenses
  Benefits to policyholders ...................       371.3        299.3        296.3
  Other operating costs and expenses ..........       552.9        529.3        504.9
  Amortization of deferred policy
    acquisition costs, excluding amounts
    related to net realized investment gains ..        78.8         53.4         46.8
  Dividends to policyholders ..................         0.1          0.1          0.1
                                                  ---------    ---------    ---------
    Total benefits and expenses ...............     1,003.1        882.1        848.1

Segment pre-tax operating income (1) ..........       192.8        175.2        167.2

Income taxes ..................................        64.0         60.1         56.1
                                                  ---------    ---------    ---------

Segment after-tax operating income (1) ........       128.8        115.1        111.1

After-tax adjustments (1):
  Realized investment gains (losses), net .....        18.6         (6.9)        12.0
  Restructuring charges .......................        (1.4)        (7.3)          --
  Demutualization expenses ....................         0.4        (13.0)        (1.8)
  Other demutualization related costs .........        (1.3)        (0.9)          --
  Surplus tax .................................         0.6         (1.0)         0.3
                                                  ---------    ---------    ---------
    Total after-tax adjustments ...............        16.9        (29.1)        10.5
                                                  ---------    ---------    ---------

GAAP Reported:
  Income before cumulative effect
    of accounting change ......................       145.7         86.0        121.6
  Cumulative effect of accounting change ......          --         (9.6)          --
                                                  ---------    ---------    ---------
Net income ....................................   $   145.7    $    76.4    $   121.6
                                                  =========    =========    =========
Amortization of goodwill, net of tax ..........         4.5          4.4          4.2
                                                  ---------    ---------    ---------
Net income before amortization of goodwill ....   $   150.5    $    80.8    $   125.8
                                                  =========    =========    =========
</TABLE>


                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                    For the Year Ended December 31,
                                                  -----------------------------------
                                                     2000         1999         1998
                                                  ---------    ---------    ---------
                                                             (in millions)
<S>                                               <C>          <C>          <C>
Other Data:
Segment after-tax operating income
    Annuity ...................................   $    87.5    $    67.0    $    53.2
    Mutual funds ..............................        46.3         46.9         57.0
    Other .....................................        (5.0)         1.2          0.9
Annuity premiums and deposits (2)
    Fixed .....................................   $   854.3    $   648.6    $   360.6
    Variable ..................................     1,145.8        847.7        882.7
Mutual fund assets under management, end of
  year ........................................   $31,725.8    $32,696.6    $34,945.2
</TABLE>

----------
(1)   See "Adjustments to GAAP Reported Net Income" included in this
      Management's Discussion and Analysis.

(2)   Statutory data have been derived from the annual statements of John
      Hancock Life Insurance Company and John Hancock Variable Life Insurance
      Company, as filed with insurance regulatory authorities and prepared in
      accordance with statutory accounting practices.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

      Segment after-tax operating income was $128.8 million in 2000, an increase
of $13.7 million, or 11.9%, from $115.1 million in 1999. Annuity segment
after-tax operating income increased $20.5 million, or 30.6%, primarily due to
an increase in investment spread and higher invested assets on fixed annuity
products, partially offset by a decrease in after-tax operating income in the
variable annuity business. Spreads increased 22 basis points to 2.28% for the
year ended December 31, 2000. Mutual fund segment after-tax operating income
decreased $0.6 million, or 1.3%, primarily due to an increase in operating
expenses, partially offset by a 1.0% increase in management advisory fees.

      Total revenues increased $138.6 million, or 1.3%, to $1,195.9 million in
2000 from $1,057.3 million in 1999. Premiums increased $46.2 million, or 268.6%,
due to increased sales of immediate fixed annuities with life contingencies.
Investment-type product charges increased $17.7 million, or 14.7%, due to growth
in average variable annuity liabilities, which increased 3.6% from 1999 and
increased fees earned on surrenders. Mortality and expense fees as a percentage
of average account balances increased 6 basis points in 2000. Net investment
income increased $57.2 million, or 14.7%, primarily due to a higher level of
invested assets backing fixed annuity products, and an increase in the average
investment yield on invested assets backing fixed annuity products. The average
investment yield on invested assets backing fixed annuity products increased 43
basis points from 1999, reflecting higher market interest rates on new fixed
income investments.

      Investment management revenues, commissions, and other fees increased
$18.3 million, or 3.5%, to $547.1 million in 2000 from $528.8 million in 1999.
Average mutual fund assets under management decreased $742.8 million, or 2.2%,
to $32,605.2 million in 2000 from $33,348.0 million in 1999, primarily due to
market depreciation of $476.4 million and fees in 2000. During 2000 sales
increased $1,561.1 million and redemptions decreased $1,489.0 million compared
to the prior year. The result was net redemptions of $45.5 million for the year
ended December 31, 2000 compared to net redemptions of $3,095.6 million for the
year ended December 31, 1999, an improvement of $3,050.1 million. The
improvement in sales and redemptions is primarily due to the aggressive
marketing of both retail and institutional investment management services in
addition to the launch of a multi-sector fund in September 2000 and lower
redemptions in the financial sector funds and private managed accounts from the
prior year. Investment advisory fees decreased $6.4 million, or 3.1%, to $193.9
million in 2000 and were 0.59% and 0.61% of average mutual fund assets under
management for the years ended December 31, 2000 and 1999, respectively. The
decline in the investment advisory fee rate occurred primarily because fixed
income assets, which bear a lower advisory fee than equity assets, increased as
a percentage of total assets. Underwriting and distribution fees


                                       20
<PAGE>

increased $25.7 million, or 9.2%, to $304.6 million in 2000 primarily due to the
increase in front-end load mutual fund sales, and accordingly, commission
revenue. The increase in front-end load charges was partially offset by a
decrease in deferred sales charges due to improved retention of existing
accounts. Shareholder service and other fees were $48.6 million in 2000 compared
to $49.6 million in 1999, primarily reflecting lower assets under management.

      Total benefits and expenses increased $121.0 million, or 13.7%, to
$1,003.1 million in 2000 from $882.1 million in 1999. Benefits to policyholders
increased $72.0 million, or 24.1%, primarily due to an increase in benefits paid
on immediate annuities and interest credited on fixed annuity account balances.
The increase in benefits paid on immediate annuities is the result of increased
premiums in this business. Premiums on immediate annuities increased $45.0
million, or 316.9%, for the year ended December 31, 2000. Interest credited on
fixed annuity account balances increased primarily due to higher average fixed
annuity account balances of $5,211.6 million in 2000, as compared to $4,862.2
million in 1999. In addition to the increase in average fixed annuity account
balances, the average interest credited rate on fixed annuity account balances
increased to 5.83% in 2000 from 5.59% in 1999. The average interest credited
rate pattern is dependent upon the general trend of market interest rates,
frequency of credited rate resets and business mix. Deferred fixed annuities'
interest credited rates generally are reset annually on the policy anniversary.
Other operating costs and expenses increased $23.6 million, or 4.5%, to $552.9
million in 2000 from $529.3 million in 1999. The increase was primarily due to
an increase in the commission fees incurred in the mutual funds business,
primarily the result of increased front-end load charge mutual fund sales. In
addition, other operating costs and expenses increased due to increased
commission expense in Signator, partially offset by a decrease in the annuities
business. The increase in other operating costs were partially offset by
additional deferrals of acquisition expenses in the annuities business.
Amortization of deferred policy acquisition costs increased $25.4 million, or
47.6%, to $78.8 million in 2000 from $53.4 million in 1999, primarily due to
poor separate account performance and increased surrenders in the variable
annuities business which accelerated current amortization. The segment's
effective tax rate was 33.2% and 34.3% in 2000 and 1999, respectively.

      Amortization of goodwill increased $0.1 million in 2000 as compared to
1999. No new acquisitions were entered into by the Asset Gathering Segment in
2000.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      Segment after-tax operating income was $115.1 million in 1999, an increase
of $4.0 million, or 3.6%, from $111.1 million in 1998. Annuity segment after-tax
operating income increased $13.8 million, or 25.9%, primarily due to an increase
in variable annuity product charges, resulting from higher average account
balances, and higher investment spread on fixed annuity products, primarily
resulting from a decline in the average interest credited rate. Mutual fund
segment after-tax operating income decreased $10.1 million, or 17.7%, primarily
due to lower advisory fees as a result of lower assets under management and
exiting the New Mexico Capital Management business, partially offset by a
decline in operating expenses.

      Total revenues increased $42.0 million, or 4.1%, to $1,057.3 million in
1999 from $1,015.3 million in 1998. Premiums decreased $2.6 million, or 13.1%,
due to lower sales of immediate fixed annuities with life contingencies.
Investment-type product charges increased $20.7 million, or 20.7%, due to growth
in average variable annuity separate account liabilities, which increased 21.3%
to $6,955.7 million in 1999 from $5,736.0 million in 1998. Mortality and expense
fees as a percentage of average account balances were 1.41% and 1.37% for the
years ended December 31, 1999 and 1998, respectively. Net investment income
increased $10.6 million or 2.8%, primarily due to a higher level of invested
assets backing fixed annuity products, partially offset by a decrease in the
average investment yield on invested assets backing fixed annuity products. The
average investment yield on invested assets backing fixed annuity products was
7.77% in 1999 compared to 7.91% in 1998, reflecting lower market interest rates
on new fixed income investments.

      Investment management revenues, commissions, and other fees increased
$12.0 million, or 2.3%, to $528.8 million in 1999 from $516.8 million in 1998.
Average mutual fund assets under management decreased $882.0 million, or 2.6%,
to $33,348.0 million in 1999 from $34,230.0 million in 1998, primarily due to
net redemptions of $3,095.6 million in 1999 compared to net sales of $3,107.2
million in 1998. Investment advisory fees decreased $8.1 million, or 3.9%, to
$200.3 million in 1999 and were .60% and .62% of average mutual fund assets
under management for the years ended December 31, 1999 and 1998, respectively.
The decline in the investment advisory fee rate occurred primarily because fixed
income assets,


                                       21
<PAGE>

which bear a lower advisory fee than equity assets, increased as a percentage of
total assets. Underwriting and distribution fees increased $12.2 million, or
4.6%, to $278.9 million in 1999 primarily due to our acquisition of the Essex
Corporation, a distributor of annuities and mutual funds through banks, in
January 1999. Shareholder service and other fees were $49.6 million in 1999
compared to $41.7 million in 1998, primarily reflecting the increase in average
number of customer accounts.

      Total benefits and expenses increased $34.0 million, or 4.0%, to $882.1
million in 1999 from $848.1 million in 1998. Benefits to policyholders increased
$3.0 million, or 1.0%, primarily due to an increase in interest credited on
fixed annuity account balances. Interest credited on fixed annuity account
balances increased primarily due to higher average fixed annuity account
balances of $4,862.2 million in 1999, as compared to $4,673.2 million in 1998.
The increase in average fixed annuity account balances was partially offset by a
decline in the average interest credited rate on fixed annuity account balances
to 5.59% in 1999 from 5.96% in 1998. The average interest credited rate pattern
is dependent upon the general trend of market interest rates, frequency of
credited rate resets and business mix. Deferred fixed annuities' interest
credited rates generally are reset annually on the policy anniversary. Other
operating costs and expenses increased $24.4 million, or 4.8%, to $529.3 million
in 1999 from $504.9 million in 1998. The increase was primarily due to our
acquisition of the Essex Corporation and higher amortization of mutual fund
deferred selling commissions, resulting from higher redemptions in 1999. These
increases were partially offset by a decrease in operating expenses related to
our mutual fund operations and annuities operations. Amortization of deferred
policy acquisition costs increased $6.6 million, or 14.1%, to $53.4 million in
1999 from $46.8 million in 1998, primarily due to higher profits. The segment's
effective tax rate was 34.3% and 33.6% in 1999 and 1998, respectively.

      Amortization of goodwill increased $0.2 million in 1999 as compared to
1998 due to the acquisition of the Essex Corporation in 1999.


                                       22
<PAGE>

Institutional-Guaranteed and Structured Financial Products Segment

      The following table presents certain summary financial data relating to
the Guaranteed and Structured Financial Products Segment for the periods
indicated.

<TABLE>
<CAPTION>
                                                   For the Year Ended December 31,
                                                  --------------------------------
                                                    2000        1999        1998
                                                  --------    --------    --------
                                                           (in millions)
<S>                                               <C>         <C>         <C>
Operating Results:
Revenues
  Premiums ....................................   $  763.4    $  463.7    $  121.4
  Investment-type product charges .............       67.3        79.5        71.4
  Net investment income .......................    1,743.2     1,681.4     1,576.3
  Realized investment losses, net (1) .........         --       (31.2)      (37.7)
  Other revenue (expense) .....................        0.4         0.6        (0.2)
                                                  --------    --------    --------
    Total revenues ............................    2,574.3     2,194.0     1,731.2

Benefits and expenses
  Benefits to policyholders, excluding
  amounts related to net realized
  investment gains credited to
  participating pension contractholders .......    2,134.4     1,785.4     1,411.5
  Other operating costs and expenses ..........       73.0        85.8        92.6
  Amortization of deferred policy
    acquisition costs .........................        2.6         3.1         3.7
  Dividends to policyholders ..................       43.5        25.9        20.8
                                                  --------    --------    --------
    Total benefits and expenses ...............    2,253.5     1,900.2     1,528.6

Segment pre-tax operating income (1) ..........      320.8       293.8       202.6

Income taxes ..................................      108.7        91.4        56.9
                                                  --------    --------    --------

Segment after-tax operating income (1) ........      212.1       202.4       145.7

After-tax adjustments: (1)
  Realized investment (losses) gains, net .....      (40.5)       58.4        17.2
  Restructuring charges .......................       (2.6)       (0.6)         --
  Corporate account asset transfer ............        5.7      (205.8)         --
  Demutualization expenses ....................        0.4       (16.1)       (1.5)
  Other demutualization related costs .........       (1.7)       (1.1)         --
  Surplus tax .................................        6.5        (6.5)        2.0
                                                  --------    --------    --------
    Total after-tax adjustments ...............      (32.2)     (171.7)       17.7
                                                  --------    --------    --------
GAAP Reported:
Net income ....................................   $  179.9    $   30.7    $  163.4
                                                  ========    ========    ========
Amortization of goodwill, net of tax ..........         --          --          --
                                                  --------    --------    --------
Net income before amortization
  of goodwill .................................   $  179.9    $   30.7    $  163.4
                                                  ========    ========    ========
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                   For the Year Ended December 31,
                                                  --------------------------------
                                                    2000        1999        1998
                                                  --------    --------    --------
                                                           (in millions)
<S>                                               <C>         <C>         <C>
Other Data:
Segment after-tax operating income
  Spread-based products
    GIC's and funding agreements ..............   $  133.1    $  131.5    $   83.7
    Single premium annuities ..................       45.5        33.2        33.8
  Fee-based products ..........................       33.5        37.7        28.2
Statutory premiums and deposits (2)
  Spread-based products
    GICs and funding agreements ...............    4,457.3     5,217.4     4,995.0
    Single premium annuities ..................      741.6       451.8       111.8
  Fee-based products
    Participating contracts and
       conversion annuity contracts ...........      467.0       527.9       566.7
    Separate account GICs .....................       50.3       615.7       459.9
    Other separate account contracts ..........      242.6       272.7       145.6
</TABLE>

----------
(1)   See "Adjustments to GAAP Reported Net Income" included in this
      Management's Discussion and Analysis.

(2)   Statutory data has been derived from the annual statements, as filed with
      insurance regulatory authorities and prepared in accordance with statutory
      accounting practices.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

      Segment after-tax operating income was $212.1 million in 2000, an increase
of $9.7 million, or 4.8% from $202.4 million in 1999. Spread-based products'
segment after-tax operating income increased $13.9 million, or 8.4%, to $178.6
million primarily due to higher investment spread as a result of an increase in
average invested assets backing spread-based products. Fee-based products'
segment after-tax operating income decreased $4.2 million, or 11.1%, to $33.5
million in 2000 from $37.7 million in 1999 primarily due to lower separate
account GIC fees partially offset by increased gains from non-participating
annuities.

      Total revenues increased $380.3 million, or 17.3%, to $2,574.3 million in
2000 from $2,194.0 million in 1999, primarily due to a $299.7 million increase
in premiums. During 2000, we sold two large single premium annuity contracts
totaling $509.0 million. Investment-type product charges were $67.3 million for
2000, a decrease of $12.2 million, or 15.3%, primarily due to lower general
account expense recoveries and slower separate account GIC sales in the current
year. Investment-type product charges were 0.56% and 0.65% of average fee-based
policy reserves in 2000 and 1999, respectively. The decrease primarily reflects
lower expense charges on participating contracts and the impact of slower sales
in the current year. Net investment income increased $61.8 million, or 3.7%, to
$1,743.2 million in 2000 compared to $1,681.4 million in 1999, primarily as a
result of a higher yield on average invested assets backing spread-based
products. Average invested assets backing spread-based products decreased $196.5
million, or 1.2%, to $16,879.8 million in 2000 from $17,076.3 million in 1999
reflecting the termination of the short-term funding agreements in 1999, largely
offset by asset growth in 2000. The average investment yield on these invested
assets increased to 8.64% in 2000 compared to 8.10% in 1999, reflecting the
reinvestment of proceeds from lower-yielding assets into relatively
higher-yielding securities. Realized investment losses associated with the
termination of the short-term funding agreement business in 1999 were not
repeated in 2000.


                                       24
<PAGE>

      Total benefits and expenses increased $353.3 million, or 18.6%, to
$2,253.5 million in 2000 from $1,900.2 million in 1999. The increase was
primarily due to a $349.1 million increase in benefits to policyholders as a
result of increased sales of single premium annuity contracts. Benefits to
policyholders also includes interest credited on account balances for
spread-based products, which was $1,165.1 million in 2000, an increase of $46.8
million, or 4.2%, from $1,118.3 million in 1999. Excluding interest credited in
1999 on short-term funding agreements that were terminated in that year, the
interest credited for spread-based products increased $99.5 million, or 9.4%.
The increase was primarily due to an increase in average account balances for
spread-based products of $810.9 million, excluding short-term funding agreement
balances from 1999, to $16,185.2 million in 2000 from $15,374.4 million in 1999
and an increase in the average interest credited rate on account balances for
spread-based products, which was 7.18% in 2000 compared to 6.81% in 1999. The
increase in the average interest credited rate on account balances for
spread-based products was primarily due to the sale of GICs and funding
agreements with higher average interest credited rates. Other operating costs
and expenses were $73.0 million in 2000, a decrease of $12.8 million, or 14.9%,
from $85.8 million in 1999. The decrease was primarily due to lower deficiency
interest charges. Dividends of $43.5 million in 2000, increased $17.6 million,
or 68.0%, from $25.9 million in 1999, reflecting higher earnings on
participating contractholders' accounts. The segment's effective tax rate was
33.9% in 2000, as compared to 31.1% in 1999.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      Segment after-tax operating income was $202.4 million in 1999, an increase
of $56.7 million, or 38.9%, from $145.7 million in 1998. Spread-based products
segment after-tax operating income increased $47.2 million, or 40.2%, primarily
due to higher investment spread as a result of an increase in average invested
assets backing spread-based products and the receipt of $14.7 million of
interest on a defaulted fixed maturity investment. Fee-based products' segment
after-tax operating income increased $9.5 million to $37.7 million in 1999 from
$28.2 million in 1998 primarily due to an increase in separate account GIC fees
and lower operating expenses.

      Total revenues increased $462.8 million, or 26.7%, to $2,194.0 million in
1999 from $1,731.2 million in 1998, primarily due to a $342.3 million increase
in premiums. During the second quarter of 1999, we sold one single premium
annuity contract for $339.0 million. Investment-type product charges were $79.5
million for 1999, an increase of $8.1 million, or 11.3%, primarily due to higher
sales of single premium annuity contracts and higher product charges from
separate account GICs due to higher average account balances resulting from
sales. Investment-type product charges were .65% and .59% of average fee-based
policy reserves in 1999 and 1998, respectively. The increase primarily reflects
higher expense charges on participating contracts and the recognition of fee
income upon the sale of single premium annuity contracts and separate account
GICs. Net investment income increased $105.1 million, or 6.7%, in 1999 compared
to 1998, primarily as a result of a higher level of average invested assets
backing spread-based products. Average invested assets backing spread-based
products increased $1,924.5 million, or 12.7%, to $17,076.3 million in 1999 from
$15,151.8 million in 1998. The average investment yield on these invested assets
declined to 8.10% in 1999 compared to 8.18% in 1998, reflecting the reinvestment
of proceeds from higher-yielding fixed maturities into relatively lower-yielding
securities. Realized investment losses associated with our short-term funding
agreements, which were terminated in 1999, improved $6.5 million in 1999
primarily due to a narrowing of interest rate spreads on mortgage-backed
securities and corporate bonds relative to U.S. Treasury securities, resulting
in higher prices upon the sale of the securities in 1999 as compared to 1998.

      Total benefits and expenses increased $371.6 million, or 24.3%, to
$1,900.2 million in 1999 from $1,528.6 million in 1998. The increase was
primarily due to a $373.9 million increase in benefits to policyholders as a
result of increased sales of single premium annuity contracts. Benefits to
policyholders also includes interest credited on account balances for
spread-based products, which was $1,118.3 million in 1999, an increase of $69.2
million, or 6.6%, from $1,049.1 million in 1998. The increase was primarily due
to an increase in average account balances for spread-based products of $1,356.7
million to $16,429.1 million in 1999 from $15,072.4 million in 1998 partially
offset by a decline in the average interest credited rate on account balances
for spread-based products, which was 6.81% in 1999 compared to 7.21% in 1998.
The decline in the average interest credited rate on account balances for
spread-based products was primarily due to sales of GICs and funding agreements
with lower average interest credited rates. Other operating costs and expenses
were $85.7 million in 1999, a decrease of $6.8 million, or 7.3%, from $92.6
million in 1998. The decrease was primarily due to lower guaranty fund
assessments. Dividends of $25.9 million in 1999, increased $5.1 million, or
24.5%, from $20.8 million for 1998, reflecting higher earnings on participating
contractholders' accounts. The segment's effective tax rate was 31.1% in 1999,
as compared to 28.1% in 1998.


                                       25
<PAGE>

Institutional-Investment Management Segment

      The following table presents certain summary financial data relating to
the Investment Management Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                     For the Year Ended December 31,
                                                   ----------------------------------
                                                      2000        1999         1998
                                                   ---------   ---------    ---------
                                                            (in millions)
<S>                                                <C>         <C>          <C>
Operating Results:
Revenues
  Net investment income ........................   $    22.7   $    45.9    $    24.1
  Realized investment gains (losses), net (1) ..         3.2         3.5         (4.4)
  Investment management revenues,
    commissions, and other fees ................       186.1       140.2        123.8
  Other revenue ................................          --         0.3          0.4
                                                   ---------   ---------    ---------
    Total revenues .............................       212.0       189.9        143.9

Benefits and expenses
  Other operating costs and expenses ...........       132.7       127.2        117.8
                                                   ---------   ---------    ---------
  Total benefits and expenses ..................       132.7       127.2        117.8

Segment pre-tax operating income (1) ...........        79.3        62.7         26.1

Income taxes ...................................        32.5        25.4         10.7
                                                   ---------   ---------    ---------

Segment after-tax operating income (1) .........        46.8        37.3         15.4

After-tax adjustments: (1)
  Realized investment gains, net ...............         4.4         2.0          0.1
                                                   ---------   ---------    ---------

GAAP Reported:
  Income before cumulative effect of
    accounting change ..........................        51.2        39.3         15.5
  Cumulative effect of accounting change .......          --        (0.1)          --
                                                   ---------   ---------    ---------

Net income .....................................   $    51.2   $    39.2    $    15.5
                                                   =========   =========    =========
Amortization of goodwill, net of tax ...........         0.8         0.7          0.7
                                                   ---------   ---------    ---------
Net Income before amortization of goodwill .....   $    52.0   $    39.9    $    16.2
                                                   =========   =========    =========

Other Data:
Assets under management, end of year (2) .......   $32,651.6   $40,211.7    $39,637.7
                                                   =========   =========    =========
</TABLE>

----------
(1)   See "Adjustments to GAAP Reported Net Income" included in this
      Management's Discussion and Analysis.

(2)   Includes general account cash and invested assets of $106.9 million,
      $164.5 million, and $88.1 million as of December 31, 2000, 1999, and 1998,
      respectively.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

      Segment after-tax operating income was $46.8 million in 2000, an increase
of $9.5 million, or 25.5%, from $37.3 million in 1999. The increase was
primarily due to higher investment advisory fees.


                                       26
<PAGE>

      Total revenues increased $22.1 million, or 11.6%, to $212.0 million in
2000 from $189.9 million in 1999. Net investment income was $22.7 million in
2000, a decrease of $23.2 million from $45.9 million for 1999. The decrease in
net investment income was partially due to the purchased equity interest in
collateralized bond obligations by other business segments of $31.7 million.
Offsetting this decrease was a $7.8 million increase in interest income on
mortgage loans held for sale. Investment management revenues, commissions, and
other fees increased $45.9 million, or 32.7% in 2000, due primarily to an
increase investment advisory fees, which increased $47.0 million to $180.6
million compared to $133.6 million reported in 1999. The increase in investment
advisory fees was primarily due to the $45.3 million in incentive fee receipts
in connection with the restructuring of timber management contracts and $15.3
million in performance fees earned by the mezzanine fund manager. Investment
advisory fees were .50% and .34% of average advisory assets under management in
2000 and 1999, respectively. Mortgage origination and servicing fees were $5.4
million compared to $6.6 million in 1999. Realized investment gains decreased
$0.3 million due to lower securitization activity in 2000.

      Other operating costs and expenses were $132.7 million in 2000, an
increase of $5.5 million, or 4.3%, from $127.2 million in 1999. The increase was
primarily due to $15.7 million in incentive compensation payments related to the
receipt of incentive fees on timber management contracts and $9.1 million in
performance fees paid for the management of the mezzanine fund. Offsetting these
increases was a $19.8 million transfer of expenses on equity interest in
collateralized bond obligations to the other business segments owning these
assets. The segment's effective tax rate on operating income was 41.0% in 2000
and 1999. The effective tax rate for the Investment Management Segment is higher
than our other business segments due to the state tax on certain subsidiaries.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      Segment after-tax operating income was $37.3 million in 1999, an increase
of $21.9 million, or 142.2%, from $15.4 million in 1998. The increase was
primarily due to higher investment advisory fees resulting from an increase in
average assets under management and higher realized investment gains on sales of
mortgage loans.

      Total revenues increased $46.0 million, or 32.0%, to $189.9 million in
1999 from $143.9 million in 1998. Net investment income was $45.9 million in
1999, an increase of $21.8 million from $24.1 million for 1998. The increase in
net investment income was due to a higher level of average invested assets due
to the formation of a collateralized bond obligation in the fourth quarter of
1998. Investment management revenues, commissions, and other fees increased
$16.4 million, or 13.2%, in 1999, primarily due to an increase in investment
advisory fees, which increased $18.3 million to $133.6 million in 1999 compared
to $115.3 million in 1998. The increase in investment advisory fees was
primarily due to a higher level of average assets under management, which
increased $4,824.5 million, or 13.5%, to $40,554.7 million in 1999 from
$35,730.2 million in 1998. Investment advisory fees were .33% and .32% of
average advisory assets under management in 1999 and 1998, respectively. This
increase primarily reflects the receipt of a fee in connection with the
termination of a timber management contract. Mortgage origination and servicing
fees were $6.6 million in 1999 compared to $8.5 million in 1998. Realized
investment gains increased $7.9 million in 1999 primarily due to a narrowing of
interest rate spreads in 1999, as compared to 1998, on mortgage loans held for
sale.

      Other operating costs and expenses were $127.2 million in 1999, an
increase of $9.4 million, or 8.0%, from $117.8 million in 1998. The increase was
primarily due to a $6.7 million increase in interest expense in connection with
our collateralized bond obligation. Other operating costs and expenses were
0.22% and 0.24% of average advisory assets under management in 1999 and 1998,
respectively. The segment's effective tax rate was 41.0% in 1999 and 1998.


                                       27
<PAGE>

Corporate and Other Segment

      The following table presents certain summary financial data relating to
the Corporate and Other Segment for the periods indicated.

                                                 For the Year Ended December 31,
                                                 -------------------------------
                                                   2000       1999       1998
                                                 -------    -------    -------
                                                         (in millions)
Operating Results:
Segment after-tax operating income (loss):(1)
  International insurance operations ..........  $  32.2    $  26.0    $  25.3
  Corporate operations ........................     62.7       31.2        8.7
  Non-core businesses .........................      7.6       10.6       22.3
                                                 -------    -------    -------
    Total .....................................    102.5       67.8       56.3

After-tax adjustments (1):
  Realized investment gains (losses), net .....     93.5      (42.1)      15.4
  Class action lawsuit ........................       --      (91.1)    (150.0)
  Restructuring charges .......................     (1.3)      (0.5)        --
  Demutualization expenses ....................     (9.4)      (3.2)      (0.5)
  Other demutualization related costs .........     (0.2)      (0.2)        --
  Workers' compensation reinsurance reserve ...       --     (133.7)        --
  Surplus tax .................................     18.1       (2.2)       1.5
                                                 -------    -------    -------
    Total after-tax adjustments ...............    100.7     (273.0)    (133.6)
                                                 -------    -------    -------
GAAP Reported:
Net (loss) income .............................  $ 203.2    $(205.2)   $ (77.3)
                                                 =======    =======    =======
Amortization of goodwill, net of tax ..........      8.6        1.2        0.9
                                                 -------    -------    -------
Net (loss) income before amortization
  of goodwill .................................  $ 211.8    $(204.0)   $ (76.4)
                                                 =======    =======    =======

(1)   See "Adjustments to GAAP Reported Net Income" included in this
      Management's Discussion and Analysis.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

      Segment after-tax operating income from international insurance operations
was $32.2 million for 2000, an increase of $6.2 million from $26.0 million for
1999. On October 1, 1999, The Maritime Life Assurance Company (Maritime), our
Canadian subsidiary, purchased Aetna Holdings Canada Limited (Aetna).
Accordingly, Aetna's results of operations are included with Maritime's from the
date of the acquisition. The increase in segment after-tax operating income
primarily resulted from the inclusion of Aetna's operations for a full year in
2000 compared to one quarter in 1999.


                                       28
<PAGE>

      Segment after-tax operating income from corporate operations was $62.7
million in 2000, an increase of $31.5 million from $31.2 million in 1999. During
the fourth quarter of 1999, a corporate account was formed and all corporate
type assets, including certain tax advantaged assets, were moved from the other
segments to the Corporate and Other Segment. Tax credits, associated with the
tax advantaged assets, were $15.9 million in 2000 and $0.5 million in 1999. In
addition, as part of this move, the group pension participating contractholders
were reimbursed at fair market value for these contracts. Because of this
transaction, in 2000 there was no longer a need to credit participating
policyholders with a share of the change in these assets which amounted to a
charge to this segment of $13.7 million for the first nine months of 1999.

      Segment after-tax operating income from non-core businesses was $7.6
million in 2000, a decrease of $3.0 million from $10.6 million in 1999. The
decrease was due primarily to lower net investment income resulting from the
previously described disposals.

      Amortization of goodwill increased $7.4 million in 2000, as compared to
1999, due to the acquisition of Aetna in the fourth quarter of 1999.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      Segment after-tax operating income from international insurance operations
was $26.0 million for 1999, an increase of $0.7 million from $25.3 million for
1998. On October 1, 1999, The Maritime Life Assurance Company (Maritime), our
Canadian subsidiary, purchased Aetna Holdings Canada Limited (Aetna).
Accordingly, Aetna's results of operations are included with Maritime's from the
date of the acquisition. The increase in segment after-tax operating income
primarily resulted from the inclusion of Aetna's after-tax operating income of
$5.2 million partially offset by a decrease in Maritime's after-tax operating
income due to unfavorable group claims experience.

      Segment after-tax operating income from corporate operations was $31.2
million in 1999, an increase of $22.5 million from $8.7 million in 1998. The
increase was primarily due to a $13.7 million decrease in unallocated corporate
overhead and expenses associated with the disposed businesses and higher net
investment income due to a higher level of corporate purpose assets. During the
fourth quarter of 1999, a corporate account was formed and all corporate type
assets were removed from the business units to the Corporate and Other Segment.
As part of this move, the group pension participating contractholders were
reimbursed at fair market value for these contracts. Because of this
transaction, there was no longer a need to calculate the participating
policyholders share of the change in these assets. As a result, 1999's segment
after-tax operating income includes a charge for this item for nine months
versus a full year in 1998, an improvement of $9.4 million.

      Segment after-tax operating income from non-core businesses was $10.6
million in 1999, a decrease of $11.7 million from $22.3 million in 1998. The
decrease was due primarily to lower net investment income resulting from the
previously described disposals.

      Amortization of goodwill increased $0.3 million in 1999, as compared to
1998, due to the acquisition of Aetna in 1999 partially offset by completing the
amortization period for Investors Guaranty Life Insurance Company in 1998.


                                       29
<PAGE>

General Account Investments

      On the effective date of the Plan of Reorganization, the Company's
invested assets were allocated between the closed block and operations outside
the closed block. In view of the similar asset quality characteristics of the
major asset categories in the two portfolios, the invested assets in the closed
block have been combined with the Company's invested assets outside the closed
block for purposes of the following discussion and analysis.

Overall Composition of the General Account

      Invested assets, excluding separate accounts, totaled $52.2 billion and
$48.7 billion as of December 31, 2000 and December 31, 1999, respectively. The
most significant difference between the portfolio composition as of December 31,
2000 compared to December 31, 1999 is the growth of cash and cash equivalents.
This is primarily the result of the sale of approximately $850 million of
non-participating pension contracts in December 2000, which had yet to be placed
in permanent investments as of the end of the year.

                                                As of December 31,
                                   -------------------------------------------
                                          2000                   1999
                                   ------------------    ---------------------
                                   Carrying      % of    Carrying      % of
                                     Value      Total      Value       Total
                                   ------------------    ---------------------
                                       (in millions)        (in millions)
Fixed maturity securities (1) ..   $32,573.4     62.4%   $30,869.9     63.5%
Mortgage loans (2) .............    10,900.0     20.9     10,736.4     22.0
Real estate ....................       519.0      1.0        548.5      1.1
Policy loans (3) ...............     1,969.2      3.8      1,938.8      4.0
Equity securities ..............     1,372.3      2.6      1,316.2      2.7
Other invested assets ..........     1,393.7      2.6      1,311.1      2.7
Short-term investments .........       214.0      0.4        166.9      0.3
Cash and cash equivalents (4) ..     3,280.0      6.3      1,817.9      3.7
                                   ---------    -----    ---------    -----
  Total invested assets ........   $52,221.6    100.0%   $48,705.7    100.0%
                                   =========    =====    =========    =====

(1)   In addition to bonds, the fixed maturity security portfolio contains
      redeemable preferred stock with a carrying value of $735.3 million and
      $631.9 million as of December 31, 2000 and December 31, 1999,
      respectively. Carrying value is composed of investments categorized as
      'held-to-maturity,' which are carried at amortized cost, and investments
      categorized as 'available-for-sale,' which are carried at fair value. The
      total fair value of our fixed maturity security portfolio was $32,393.5
      and $30,518.0 million, at December 31, 2000 and December 31, 1999,
      respectively.

(2)   The fair value for our mortgage loan portfolio was $11,359.6 million and
      $10,685.2 million as of December 31, 2000 and December 31, 1999,
      respectively.

(3)   Policy loans are secured by the cash value of the underlying life
      insurance policies and do not mature in a conventional sense, but expire
      in conjunction with the related policy liabilities.

(4)   Cash and cash equivalents are included in total invested assets in the
      table above for the purposes of calculating yields on the income producing
      assets for the Company. Cash and cash equivalents are not considered part
      of Total Investments of the Company of $48,941.6 million and $46,887.8
      million at December 31, 2000 and December 31, 1999, respectively. Closed
      block Total Investments of $8,203.2 million as of December 31, 2000 are
      presented in closed block assets on the Consolidated Balance Sheets but
      remain part of the Company's total invested assets.

      Consistent with the nature of our product liabilities, our assets are
heavily oriented toward fixed maturity securities. We determine the allocation
of our assets primarily on the basis of cash flow and return requirements of our
products and secondarily by the level of investment risk.


                                       30
<PAGE>

Fixed Maturity. Securities Our fixed maturity securities portfolio is
predominantly comprised of low risk, investment grade, publicly and privately
traded corporate bonds and senior tranches of asset-backed securities (ABS) and
mortgage-backed securities (MBS). Our fixed maturity securities portfolio also
includes redeemable preferred stock. As of December 31, 2000, fixed maturity
securities represented 62.4% of general account investment assets with a
carrying value of $32.6 billion, roughly comprised of 50% public securities and
50% private securities. Each year we direct the majority of our net cash inflows
into investment grade fixed maturity securities. We typically invest between 5%
and 15% of funds allocated to fixed maturity securities in
below-investment-grade bonds while maintaining our policy to limit the overall
level of these bonds to no more than 10% of invested assets. Allocations are
based on our assessment of relative value and the likelihood of enhancing
risk-adjusted portfolio returns. While the general account has profited from the
below-investment-grade asset class in the past, care is taken to manage its
growth strategically by limiting its size relative to our total invested assets.

      The following table shows the composition by issuer of our fixed maturity
securities portfolio.

                     Fixed Maturity Securities -- By Issuer

                                                    As of December 31,
                                         --------------------------------------
                                                2000                 1999
                                         -----------------    -----------------
                                         Carrying    % of     Carrying    % of
                                           Value     Total      Value     Total
                                         -----------------    -----------------
                                            (in millions)        (in millions)
Corporate securities .................   $25,193.6    77.4%   $23,590.4    76.4%
MBS/ABS ..............................     5,483.5    16.8      5,288.4    17.1
U.S. Treasury securities and
obligations of
  U.S. government agencies ...........       205.8     0.6        297.3     1.0
Debt securities issued by foreign
  governments ........................     1,549.9     4.8      1,560.2     5.1
Obligations of states and political
  subdivisions .......................       140.6     0.4        133.6     0.4
                                         ---------   -----    ---------   -----
    Total ............................   $32,573.4   100.0%   $30,869.9   100.0%
                                         =========   =====    =========   =====

      Our MBS and ABS holdings, in keeping with our investment philosophy of
tightly managing interest rate risk, 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,
rather than in residential MBS where the underlying loans typically have no call
protection. By investing in MBS and ABS securities with relatively predictable
repayments, we add high quality, liquid assets to our portfolios without
incurring the risk of excessive cash flow in periods of low interest rates or a
cash flow deficit in periods of high interest rates. We believe the portion of
our MBS/ABS portfolio subject to prepayment risk as of December 31, 2000 and
December 31, 1999 was limited to 3.3% and 3.9% of our total MBS/ABS portfolio
and 0.6% and 0.7% of our total fixed maturity securities holdings, respectively.

      The securities valuation office (SVO) of the National Association of
Insurance Commissioners evaluates all public and private bonds purchased as
investments by insurance companies. The SVO assigns one of six investment
categories to each security it reviews. Category 1 is the highest quality
rating, and Category 6 is the lowest. Categories 1 and 2 are the 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.


                                       31
<PAGE>

      The following table sets forth the SVO ratings for our bond portfolio
along with an equivalent S&P rating agency designation. The majority of our
bonds are investment grade, with 86.3% invested in Category 1 and 2 securities
as of December 31, 2000. As a percent of total invested assets, our below
investment grade bonds, at 8.3% as of December 31, 2000, are higher than the
American Council of Life Insurers (ACLI) industry average of 5.9%, last
published as of December 31, 1999. This allocation reflects our strategy of
avoiding the unpredictability of interest rate risk in favor of relying on our
bond analysts' ability to better predict credit or default risk. Our 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. A majority
(64.3%) of our below investment grade bonds are in category 3, the highest
quality below investment grade. Category 6 bonds represent securities that were
originally acquired as long-term investments, but subsequently became
distressed. The fair value of our category 6 bonds was $216.7 million and $168.5
million as of December 31, 2000 and 1999, respectively. For the years ended
December 31, 2000, 1999 and 1998, $49.4 million, $24.8 million and $31.2 million
of interest on Category 6 bonds has been recognized in income but was
delinquent.

                 Fixed Maturity Securities -- By Credit Quality

                                                  As of December 31,
                                    --------------------------------------------
                                            2000                    1999
                                    --------------------     -------------------
    SVO       S&P Equivalent        Carrying       % of      Carrying       % of
Rating (1)   Designation (2)        Value (3)      Total     Value (3)     Total
----------   ---------------        ---------      -----     ---------     -----
                                  (in millions)           (in millions)
   1       AAA/AA/A ............    $14,614.2      45.9%    $14,760.6      48.8%
   2       BBB .................     12,877.8      40.5      11,077.6      36.6
   3       BB ..................      2,793.3       8.8       2,901.8       9.6
   4       B ...................      1,066.4       3.3         868.8       2.9
   5       CCC and lower .......        269.7       0.8         460.7       1.5
   6       In or near default ..        216.7       0.7         168.5       0.6
                                    ---------     -----     ---------     -----
           Total ...............    $31,838.1     100.0%    $30,238.0     100.0%
                                    =========     =====     =========     =====

(1)   With respect to securities that are awaiting an SVO rating, we have
      assigned a rating based on an analysis that we believe is equivalent to
      that used by the SVO.

(2)   Comparisons between SVO and S&P ratings are published by the National
      Association of Insurance Commissioners.

(3)   Does not include redeemable preferred stock with a carrying value of
      $735.3 million and $631.9 million as of December 31, 2000 and 1999,
      respectively.

Mortgage Loans. As of December 31, 2000, we held mortgage loans with a carrying
value of $10.9 billion, including $2.5 billion of agricultural loans and $1.2
billion of loans managed by our Canadian subsidiary, The Maritime Life Assurance
Company, of which $0.6 billion are government-insured by the Canada Mortgage and
Housing Corporation (CMHC).


                                       32
<PAGE>

      The following table shows the distribution of our mortgage loan portfolio
by property type as of the dates indicated. Our commercial mortgage loan
portfolio consists primarily of non-recourse fixed-rate mortgages on fully, or
nearly fully, leased commercial properties.

                                                As of December 31,
                                    --------------------------------------------
                                            2000                   1999
                                    --------------------   --------------------
                                      Carrying     % of      Carrying     % of
                                        Value      Total       Value      Total
                                        -----      -----       -----      -----
                                    (in millions)          (in millions)
Apartment ........................    $ 2,393.1     22.0%    $ 2,493.7     23.2%
Office Buildings .................      2,465.1     22.6       2,552.2     23.7
Retail ...........................      1,623.7     14.9       1,844.8     17.2
Agricultural .....................      2,511.1     23.0       1,893.0     17.6
Industrial .......................        905.8      8.3       1,006.5      9.4
Hotels ...........................        414.7      3.8         425.5      4.0
Multi-Family .....................         71.8      0.7          80.7      0.8
Mixed Use ........................        274.7      2.5         140.2      1.3
Other ............................        240.0      2.2         299.8      2.8
                                      ---------    -----     ---------    -----
    Total ........................    $10,900.0    100.0%    $10,736.4    100.0%
                                      =========    =====     =========    =====

      The following table shows the distribution of our mortgage loan portfolio
by geographical region.

                        Mortgage Loans -- By ACLI Region

                                               As of December 31,
                                ------------------------------------------------
                                            2000                   1999
                                --------------------------    ------------------
                                 Number   Carrying   % of     Carrying    % of
                                of Loans    Value    Total      Value     Total
                                --------    -----    -----      -----     -----
                                       (in millions)        (in millions)
East North Central ...........     153   $ 1,101.0    10.1%   $ 1,108.2    10.3%
East South Central ...........      41       530.4     4.9%       299.0     2.8%
Middle Atlantic ..............     115     1,481.3    13.6%     1,676.3    15.6%
Mountain .....................      96       401.9     3.7%       355.5     3.3%
New England ..................     129       838.6     7.7%       896.5     8.4%
Pacific ......................     289     1,969.5    18.0%     2,119.0    19.7%
South Atlantic ...............     206     2,048.6    18.8%     1,927.2    18.0%
West North Central ...........      70       368.2     3.4%       377.3     3.5%
West South Central ...........     151       817.2     7.5%       742.9     6.9%
Canada .......................     883     1,343.3    12.3%     1,234.5    11.5%
                                 -----   ---------   -----    ---------   -----
     Total ...................   2,133   $10,900.0   100.0%   $10,736.4   100.0%
                                 =====   =========   =====    =========   =====

      The allowance for losses on mortgage loans on real estate and real estate
to be disposed of is maintained at a level that we believe to be adequate to
absorb estimated probable credit losses. Our periodic evaluation of the adequacy
of the allowance for losses is based on past experience, known and inherent
risks, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of the underlying
security, the general composition of the portfolio, current economic conditions
and other factors. This evaluation is inherently subjective and is susceptible
to significant changes and no assurance can be given that the allowances taken
will in fact be adequate to cover all losses or that additional valuation
allowances or asset write-downs will not be required in the future. The portion
of the investment valuation allowance for our mortgage loan portfolio was $83.5
million, or 0.8% of carrying value before reserves and $110.4 million, or 1.0%
of carrying value before reserves as of December 31, 2000 and 1999,
respectively. The portion of the investment valuation allowance for our real
estate to be disposed of was $43.5 million, or 7.7% of carrying value before
reserves and $58.1 million, or 9.6% of carrying value before reserves as of
December 31, 2000 and 1999, respectively.


                                       33
<PAGE>

Investment Results

      The following table summarizes the Company's investment results for the
periods indicated. Overall, the yield, net of investment expenses, on our
general account portfolio increased from the year ended December 31, 1999. The
improved yield was primarily generated by favorable interest rates achieved on
our 2000 fixed maturity security acquisitions. In particular, 2000 bond
acquisitions benefited from a combination of higher U.S. Treasury rates and
relatively wide spreads in both the public and private sectors. While interest
rates declined substantially during the fourth quarter of 2000, they were well
above 1999 rates on a full calendar year basis. The average 10-year U.S.
Treasury rate in 2000 was 34 basis points higher than the average 10-year U.S.
Treasury rate in 1999.

<TABLE>
<CAPTION>
                                                           For the Year Ended
                                                               December 31,
                                                  --------------------------------------
                                                        2000                1999
                                                  Yield     Amount     Yield     Amount
                                                  --------------------------------------
                                                         (in millions)        (in millions)
<S>                                                <C>     <C>          <C>     <C>
General account assets-excluding policy loans
  Gross income................................     8.27%   $ 4,011.9    8.42%   $ 3,811.3
  Ending assets-excluding policy loans........              50,252.4             46,766.9

Policy loans
  Gross income................................     6.07%       118.6    5.75%       109.8
Ending assets.................................               1,969.2              1,938.8
  Total gross income..........................     8.19%     4,130.5    8.31%     3,921.1
    Less: investment expenses.................                (267.5)              (347.1)
                                                           ---------            ---------
      Net investment income...................     7.66%   $ 3,863.0    7.57%   $ 3,574.0
                                                           =========            =========
</TABLE>

(1)   Total Company net investment income of $3,863.0 million is discussed in
      this Management's Discussion and Analysis, which includes net investment
      income of $3,271.4 million in the consolidated statements of income and
      $591.6 million in Note 5 -- Closed Block to the audited consolidated
      financial statements for the year ended December 31, 2000.

Liquidity and Capital Resources

      Liquidity describes the ability of a company to generate sufficient cash
flows to meet the cash requirements of business operations. John Hancock
Financial Services, Inc. is an insurance holding company. The assets of JHFS
consist of the outstanding capital stock of John Hancock Life Insurance Company
(the Life Company) and a portion of the net proceeds of our initial public
offering (the offering), and investments in international subsidiaries. The
amount of net proceeds retained by JHFS was $105.7 million. JHFS cash flow
consists of dividends from its subsidiaries and investment returns on the $105.7
million in invested net proceeds of the offering retained by it, offset by
expenses. As a holding company, JHFS ability to meet its cash requirements, pay
interest on any debt, pay expenses related to its affairs and pay dividends on
its common stock substantially depends upon dividends from its subsidiaries.

      State insurance laws generally restrict the ability of insurance companies
to pay cash dividends in excess of prescribed limitations without prior
approval. The Life Company's limit is the greater of 10% of the statutory
surplus or the prior calendar year's statutory net gain from operations of the
Life Company. The ability of the Life Company, JHFS' primary operating
subsidiary, 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
Life Company can pay shareholder dividends. The Life 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. JHFS currently does not expect such regulatory
requirements to impair its ability to meet its liquidity and capital needs.
However, JHFS can give no assurance it will declare or pay dividends on a
regular basis.


                                       34
<PAGE>

      In September, October and December 2000, the Commissioner of Insurance for
the Commonwealth of Massachusetts approved, and the Life Company paid, dividends
to JHFS in the amount of $200.0 million, $200.0 million and $66.0 million,
respectively. None of these dividends were classified as extraordinary by state
regulators. The funds from these dividends, together with the net proceeds of
the offering, were principally used to repurchase $91.8 million in JHFS common
stock and pay $94.3 million in dividends to JHFS common stockholders. JHFS paid
a dividend on its common stock of $0.30 per share on December 14, 2000 to
shareholders of record as of November 20, 2000. During the fourth quarter of
2000, the Company used $267.2 million from the aforementioned dividends and net
proceeds of the offering, to acquire 100% of John Hancock Reinsurance Company
and 45% of John Hancock Canadian Holdings from the Life Company, its
wholly-owned subsidiary.

      Sources of cash for the Company's insurance subsidiaries are from
premiums, deposits and charges on policies and contracts, investment income,
maturing investments, and proceeds from sales of investment assets. In addition
to the need for cash flow to meet operating expenses, our liquidity requirements
relate principally to the liabilities associated with various life insurance,
annuity, and structured investment products, and to the funding of investments
in new products, processes, and technologies. Product liabilities include the
payment of benefits under life insurance, annuity and structured investment
products and the payment of policy surrenders, withdrawals and policy loans. The
Company periodically adjusts its investment policy to respond to changes in
short-term and long-term cash requirements and provide adequate funds to pay
benefits without forced sales of investments.

      The liquidity of our insurance operations is also related to the overall
quality of our investments. As of December 31, 2000, $27,492.0 million, or 86.4%
of the fixed maturity securities held by us and rated by Standard & Poor's
Ratings Services, a division of the McGraw-Hill Companies, Inc. (S&P) or the
National Association of Insurance Commissioners were rated investment grade (BBB
or higher by S&P or 1 or 2 by the National Association of Insurance
Commissioners). The remaining $4,346.1 million of fixed maturity investments
were rated non-investment grade. For additional discussion of our investment
portfolio see the General Account Investments section above in this Management's
Discussion and Analysis of Financial Condition and Results of Segment
Operations.

      We employ an asset/liability management approach tailored to the specific
requirements of each of our product lines. Each product line has an investment
strategy based on the specific characteristics of the liabilities in the product
line. As part of this approach, we develop investment policies and operating
guidelines for each portfolio based upon the return objectives, risk tolerance,
liquidity, and tax and regulatory requirements of the underlying products and
business segments.

      Net cash provided by operating activities was $1,465.5 million, $1,688.3
million, and $1,328.9 million for the years ended December 31, 2000, 1999 and
1998, respectively. The decrease in 2000 compared to 1999 resulted primarily
from cash transferred to the closed block of $158.6 million, income attributed
to the closed block of $124.1 million, and an increase in purchases of trading
securities of $35.1 million, partially offset by an increase in net income of
$685.7 million. The increase in 1999 as compared to 1998 resulted primarily from
a decrease in benefits paid to policyholders, partially offset by an increase in
purchases of trading securities.

      Net cash used in investing activities was $1,538.3 million, $1,996.9
million and $1,339.1 million for the years ended December 31, 2000, 1999, and
1998, respectively. The decrease in cash used in 2000 as compared to 1999
resulted from fewer acquisitions of fixed maturities during the year ended
December 31, 2000 than the comparable prior year period, prior year cash
payments related to acquisitions and disposals of subsidiaries which did not
recur and a decrease in the issuance of mortgage loans on real estate. The
increase in net cash used in 1999 as compared to 1998 resulted primarily from
net cash paid related to acquisitions and disposals of subsidiaries and a
decrease in maturities, prepayments and scheduled redemptions of fixed
maturities partially offset by an increase in sales of real estate.

      Net cash provided by financing activities was $1,229.3 million, $250.1
million and $850.0 million, for the years ended December 31, 2000, 1999 and
1998, respectively. The increase in 2000 as compared to 1999 resulted from a
reduction in cash payments made on withdrawals of universal life insurance and
investment-type contracts. Deposits on such universal life insurance and
investment-type contracts exceeded withdrawals by $989.5 million for the year
ended December 31, 2000. In addition, the Company generated $1,657.7 million
from the issuance of common stock in its IPO, this was partially offset by
$1,067.7 million in cash payments to policyholders as a result of the
demutualization. The decrease in 1999 as compared to


                                       35
<PAGE>

1998 resulted primarily from cash payments made on withdrawals of universal life
insurance and investment-type contracts which exceeded cash received from
deposits on such contracts by $221.9 million.

      On October 26, 2000, the Company announced that its Board of Directors
authorized a stock repurchase program, with no termination date, under which the
Company will purchase up to $500 million of its outstanding common stock. Under
the stock repurchase program, purchases will be made from time to time,
depending on market conditions, business opportunities and other factors, in the
open market or through privately negotiated transactions, and which may be, if
deemed appropriate, through a systematic program. Through December 31, 2000, the
Company has repurchased 3.0 million shares with a total cost of $91.8 million.

      Cash flow requirements also are supported by a committed line of credit of
$1.0 billion. The line of credit agreement provides for two facilities: one for
$500 million pursuant to a 364-day commitment (subject to renewal) and a second
for $500 million pursuant to a five-year facility. The line of credit is
available for general corporate purposes. The line of credit agreement contains
various covenants, among these being that shareholders' equity meet certain
requirements. To date, we have not borrowed any amounts under the line of
credit.

      As of December 31, 2000, we had $779.3 million of debt outstanding
consisting of $222.3 million of commercial paper borrowings, $447.2 million of
surplus notes, and $109.8 million of other notes payable. A new commercial paper
program has been established at JHFS that will ultimately replace the commercial
paper program now in place at its indirect subsidiary, John Hancock Capital
Corporation. As of December 31, 2000, no commercial paper has been issued by
JHFS.

      A primary liquidity concern with respect to life insurance and annuity
products is the risk of early policyholder and contractholder withdrawal. The
following table summarizes our annuity policy reserves and deposit fund
liabilities for the contractholder's ability to withdraw funds for the indicated
periods:

<TABLE>
<CAPTION>
                                                                           As of December 31,
                                                               ------------------------------------------
                                                                      2000                    1999
                                                               -------------------    -------------------
                                                                 Amount        %        Amount        %
                                                               ----------    ----     ----------    ----
                                                              (in millions)         (in millions)
<S>                                                             <C>          <C>       <C>          <C>
Not subject to discretionary withdrawal provisions ..........   $21,698.0    72.6%     $19,335.2    70.3%
Subject to discretionary withdrawal adjustment:
   With market value adjustment .............................       824.2     2.8        1,126.3     4.1
   At contract value ........................................     1,877.6     6.3        1,540.6     5.6
Subject to discretionary withdrawal at contract value less
   surrender charge .........................................     5,455.8    18.3        5,496.5    20.0
                                                               ------------------------------------------
Total annuity reserves and deposit funds liability ..........   $29,855.6   100.0%     $27,498.6   100.0%
                                                               ===========================================
</TABLE>

      Individual life insurance policies are less susceptible to withdrawal than
are annuity contracts because policyholders may incur surrender charges and
undergo a new underwriting process in order to obtain a new insurance policy. As
indicated in the table above, there is a substantial percentage of annuity
reserves and deposit fund liabilities that are not subject to withdrawal. As a
matter of policy, we seek to include provisions limiting withdrawal rights from
general account institutional structured investment products. These include GICs
and funding agreements sold to plan sponsors where the contract prohibits the
contractholder from making withdrawals other than on a scheduled maturity date.

      Individual life insurance policies (other than term life insurance
policies) increase in cash values over their lives. Policyholders have the right
to borrow from us an amount generally up to the cash value of their policy at
any time. As of December 31, 2000, we had approximately $17.1 billion in cash
values in which policyholders have rights to policy loans. The majority of cash
values eligible for policy loans are at variable interest rates which are reset
annually on the policy anniversary. Moreover, a portion of our fixed interest
rate policy loans have features that provide for reduced crediting rates


                                       36
<PAGE>

on the portion of cash values loaned. The amount of policy loans has remained
consistent over the past three years, at approximately $1.9 billion, $1.5
billion of which are in the closed block at December 31, 2000.

      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, 2000, were above the ranges that would require
regulatory action.

      We maintain reinsurance programs designed to protect against large or
unusual losses. Based on our review of our reinsurers' financial statements and
reputations in the reinsurance marketplace, we believe that our reinsurers are
financially sound, and, therefore, that we have no significant exposure to
uncollectable reinsurance in excess of uncollectable amounts recognized in our
audited consolidated financial statements.

      Given the historical cash flow of our subsidiaries and current financial
results, management believes that the cash flow from the operating activities
over the next year will provide sufficient liquidity for our operations, as well
as to satisfy debt service obligations and to pay other operating expenses.
Although we anticipate that we will be able to meet our cash requirements, we
can give no assurances in this regard.

Accounting Standards

For a discussion of accounting standards, see Note 1 to our audited consolidated
financial statements.

Quantitative and Qualitative Information About Market Risk

Capital Markets Risk Management

      The Company maintains a disciplined, comprehensive approach to managing
capital market risks inherent in its business operations. To mitigate these
risks, and effectively support Company objectives, investment operations are
organized and staffed to focus investment management expertise on specific
classes of investments, with particular emphasis placed on private placement
markets. In addition, a dedicated unit of asset/liability risk management (ALM)
professionals centralizes the implementation of its interest rate risk
management program. As an integral component of its ALM program, derivative
instruments are used in accordance with risk reduction techniques established
through Company policy and with formal approval granted from the New York
Insurance Department. The Company's use of derivative instruments is monitored
on a regular basis by the Company's Investment Compliance Department and
reviewed quarterly with senior management and the Committee of Finance of the
Company's wholly-owned subsidiary, John Hancock Life Insurance Company, (the
Company's Committee of Finance).

      The Company's principal capital market exposures are credit and interest
rate risk, which includes the impact of inflation, although we have certain
exposures to changes in equity prices and foreign currency exchange rates.
Credit risk pertains to the uncertainty associated with the ability of an
obligor or counterparty to continue to make timely and complete payments of
contractual principal and/or interest. Interest rate risk pertains to the market
value fluctuations that occur within fixed maturity securities or liabilities as
market interest rates move. Equity and foreign currency risk pertain to price
fluctuations, associated with the Company's ownership of equity investments or
non-US dollar denominated investments and liabilities, driven by dynamic market
environments.

Credit Risk

      The Company manages the credit risk inherent in its fixed maturity
securities by applying strict credit and underwriting standards, with specific
limits regarding the proportion of permissible below investment grade holdings.
We also diversify our fixed maturity securities with respect to investment
quality and credit concentration. Concentrations are monitored with


                                       37
<PAGE>

respect to issuer, industry, geographic location, and loan property-type. Where
possible, consideration of external measures of creditworthiness, such as
ratings assigned by nationally recognized rating agencies, supplement our
internal credit analysis. The Company uses simulation models to examine the
probability distribution of credit losses to ensure that it can readily
withstand feasible adverse scenarios. In addition, the Company periodically
examines, on various levels of aggregation, its actual default loss experience
on significant asset classes to determine if the losses are consistent with the
(1) levels assumed in product pricing, (2) ACLI loss experience and (3) rating
agencies' quality-specific cohort default data. These tests have generally found
the Company's aggregate experience to be favorable relative to these external
benchmarks and consistent with priced-for-levels.

      As of December 31, 2000, the Company's fixed maturity portfolio was
comprised of 86.4% investment grade securities and 13.6% below-investment-grade
securities. These percentages are consistent with recent experience and
indicative of the Company's long-standing investment philosophy of pursuing
moderate amounts of credit risk in anticipation of earning higher expected
returns. We believe that credit risk can be successfully managed given our
proprietary credit evaluation models and experienced personnel. For additional
information regarding the credit quality of the Company's portfolio see Note 2
to our audited consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Segment Operations.

Interest Rate Risk

      The Company maintains a tightly controlled approach to managing its
potential interest rate risk. Interest rate risk arises from many of our primary
activities, as we invest substantial funds in interest-sensitive assets to
support the issuance of our various interest-sensitive liabilities, primarily
within our Protection, Asset Gathering and Guaranteed and Structured Financial
Products Segments.

      We manage interest rate sensitive segments of our business, and their
supporting investments, under one of two broadly defined risk management methods
designed to provide an appropriate matching of assets and liabilities. For
guaranteed rate products, where contractual liability cash flows are highly
predictable (e.g., GICs or immediate annuities) we apply sophisticated
duration-matching techniques to manage the segment's exposure to both parallel
and non-parallel yield curve movements. Typically this management technique
involves a duration mismatch tolerance of only +/- .05 years, with other
measures used for limiting exposure to non-parallel risk. Duration measures the
sensitivity of the fair value of assets and liabilities to changes in interest
rates. For example, should interest rates increase by 100 basis points, the fair
value of an asset with a duration of 5 years is expected to decrease in value by
approximately 5.0%. For non-guaranteed rate products we apply scenario modeling
techniques to develop investment policies with what we believe to be the optimal
risk/return tradeoff given our risk constraints. Each scenario is based on near
term reasonably possible hypothetical changes in interest rates which illustrate
the potential impact of such events.

      We project asset and liability cash flows, and then discount them against
credit-specific interest rate curves to attain fair values. Duration is then
calculated by re-pricing these cash flows against a modified or "shocked"
interest rate curve and evaluating the percentage change in fair value versus
the base case. As of December 31, 2000, the fair value of fixed maturity
securities and mortgage loans supporting duration-managed liabilities was
approximately $24,950 million.


                                       38
<PAGE>

      The risk management method for non-guaranteed rate products, such as whole
life insurance or single premium deferred annuities, is less formulaic, but very
data intensive, due to the less predictable nature of the liability cash flows.
For these products, we manage interest rate risk based on scenario-based
portfolio modeling that seeks to identify the most appropriate investment
strategy given probable policyholder behavior and liability crediting needs
under a wide range of interest rate environments. As of December 31, 2000, the
fair value of fixed maturity securities and mortgage loans supporting
liabilities managed under this modeling was approximately $18,800 million

Derivative Instruments

      The Company uses a variety of derivative financial instruments, including
swaps, caps, floors, and exchange traded futures contracts, in accordance with
Company investment policy. Permissible derivative applications include the
reduction of economic risk (i.e., hedging) related to changes in yields, prices,
cash flows, and currency exchange rates. In addition, certain limited
applications of "income generation" are allowed. Examples of this type of use
include the purchase of call options to offset the sale of embedded options in
Company liability issuance or the purchase of swaptions to offset the purchase
of embedded put options in certain investments. The Company does not make a
market or trade derivatives for speculative purposes.

      The Company's Investment Compliance Unit monitors all derivatives activity
for consistency with internal policies and guidelines. All derivatives trading
activity is reported monthly to the Company's Committee of Finance for review,
with a comprehensive governance report provided jointly each quarter by the
Company's Derivatives Supervisory Officer and Chief Investment Compliance
Officer. The table below reflects the Company's derivatives positions hedging
interest rate risk as of December 31, 2000. The notional amounts in the table
represent the basis on which pay or receive amounts are calculated and are not
reflective of credit risk. These fair value exposures represent only a point in
time and will be subject to change as a result of ongoing portfolio and risk
management activities.

<TABLE>
<CAPTION>
                                               As of December 31, 2000
                             ----------------------------------------------------------------
                                                                    Fair Value
                                         Weighted-    ---------------------------------------
                             Notional  Average Terms   -100 Basis      As of      +100 Basis
                              Amount      (Years)     Point Change    12/31/00   Point Change
                              ------      -------     ------------    --------   ------------
                                     (in millions, except for Weighted-Average Terms)
<S>                          <C>            <C>        <C>           <C>           <C>
Interest rate swaps ....     $10,911.2      8.3        $(344.1)      $(185.3)      $(23.3)
CMT swaps ..............         491.3      1.6           (4.6)         (4.4)        (4.3)
Futures contracts (1) ..         602.1      9.1          (28.4)         (0.8)        26.6
Interest rate caps .....         321.6      3.2            0.9           2.0          4.3
Interest rate floors ...       8,328.0      9.4          138.7          59.0         25.1
Swaptions ..............          30.0      4.4           (3.0)         (1.3)        (0.5)
                             ---------                 -------       -------       ------
  Totals ...............     $20,684.2      8.5        $(240.5)      $(130.8)      $ 27.9
                             =========                 =======       =======       ======
</TABLE>

----------
(1)   Represents the notional value on open contracts as of December 31, 2000.

      Our non-exchange-traded derivatives are exposed to the possibility of loss
from a counterparty failing to perform its obligations under terms of the
derivative contract. We believe the risk of incurring losses due to
nonperformance by our counterparties is remote. To manage this risk, Company
procedures include the (a) on-going evaluation of each counterparty's credit
ratings, (b) the application of credit limits and monitoring procedures based on
an internally developed, scenario-based risk assessment system, (c) quarterly
reporting of each counterparty's "potential exposure", (d) master netting
agreements, and (e) the use of collateral agreements. Futures contracts trade on
organized exchanges and have effectively no credit risk.


                                       39
<PAGE>

As of December 31, 2000, the Company had outstanding fixed income obligations
(in the form of a $450 million Surplus Note) with an aggregate fair value of
approximately $436.1 million. Through the application of an interest rate swap
overlay this debt has no material sensitivity to interest rate movements.

Equity Risk

      Equity risk is the possibility that we will incur economic losses due to
adverse changes in a particular common stock. In order to reduce our exposure to
market fluctuations on some of our equity securities, we use equity collar
agreements. These equity collar agreements limit the market value fluctuations
on their underlying equity securities. Our equity collars are comprised of an
equal number of purchased put options and written call options, each with strike
rates equidistant from the stock price at the time the contract is established.
As of December 31, 2000, the fair value of our equity securities was $1,372.3
million. The fair value of our equity collar agreements as of December 31, 2000
was $4.3 million. A 15% decline in the December 31, 2000 value of the equity
securities hedged with the equity collar agreements would result in an
unrealized loss of $16.0 million. In certain cases the Company classifies its
equity holdings as trading securities. These holdings are marked-to-market
through the income statement, creating investment income volatility that is
effectively neutralized by changes in corresponding liability reserves.

Foreign Currency Risk

      Foreign currency risk is the possibility that we will incur economic
losses due to adverse changes in foreign currency exchange rates. This risk
arises in part from our international operations and certain foreign
currency-denominated funding agreements issued to non-qualified institutional
investors in the international market. We use currency swap agreements of the
same currency to hedge the foreign exchange risk related to our investments and
funding agreements denominated in foreign currencies. We also have fixed
maturities that are denominated in foreign currencies.We also use derivatives to
hedge the foreign currency risk of these securities (both interest and principal
payments). At December 31, 2000, the par value of our foreign currency
denominated fixed maturity securities was approximately $462 million. The fair
value of our currency swap agreements at December 31, 2000 supporting foreign
denominated bonds was $11.0 million.

      We estimate that as of December 31, 2000, a 10% immediate change in each
of the foreign currency exchange rates to which we are exposed, including the
currency swap agreements, would result in no material change to the net fair
value of our foreign currency-denominated instruments identified above. The
selection of a 10% immediate change in all currency exchange rates should not be
construed as a prediction by us of future market events but rather as an
illustration of the potential impact of such an event. Our largest individual
currency exposure is to the Canadian dollar.

      The modeling technique we use to calculate our exposure does not take into
account correlation among foreign currency exchange rates or correlation among
various markets. Our actual experience may differ from the results noted above
due to the correlation assumptions utilized or if events occur that were not
included in the methodology, such as significant illiquidity or other market
events.

Effects of Inflation

      Inflation has not been a material factor in our operations during the past
decade in terms of our investment performance, expenses, or product sales.


                                       40
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors
John Hancock Financial Services, Inc.

We have audited the accompanying consolidated balance sheets of John Hancock
Financial Services, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of John Hancock
Financial Services, Inc. at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.


                                                /s/ ERNST & YOUNG LLP

Boston, Massachusetts
February 8, 2001


                                       41
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS

                                                                December 31
                                                             2000        1999
                                                           ---------------------
                                                               (in millions)

Assets

Investments - Notes 2 and 3
Fixed maturities:
   Held-to-maturity--at amortized cost
   (fair value: 2000--$11,651.2; 1999--$13,448.4) ......   $11,888.6   $13,800.3
   Available-for-sale--at fair value
   (cost: 2000--$15,829.7; 1999--$17,267.7) ............    16,061.9    17,069.6
Equity securities:
   Available-for-sale--at fair value
   (cost: 2000--$870.6; 1999--$1,088.1) ................     1,134.4     1,232.1
   Trading securities--at fair value
   (cost: 2000--$193.4; 1999--$53.8) ...................       231.6        84.1
Mortgage loans on real estate ..........................     8,969.4    10,736.4
Real estate ............................................       519.0       548.5
Policy loans ...........................................       428.6     1,938.8
Short-term investments .................................       151.9       166.9
Other invested assets ..................................     1,353.0     1,311.1
                                                           ---------------------

   Total Investments ...................................    40,738.4    46,887.8

Cash and cash equivalents ..............................     2,974.4     1,817.9
Accrued investment income ..............................       586.9       654.5
Premiums and accounts receivable .......................       210.8       215.6
Deferred policy acquisition costs ......................     2,528.1     3,234.9
Reinsurance recoverable - Note 8 .......................     1,958.6     1,872.6
Other assets ...........................................     2,191.3     1,724.8
Closed block assets - Note 5 ...........................     9,710.0          --
Separate accounts assets ...............................    26,454.8    28,047.6
                                                           ---------------------

   Total Assets ........................................   $87,353.3   $84,455.7
                                                           =====================

The accompanying notes are an integral part of these consolidated financial
statements.


                                       42
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                   CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                        December 31
                                                                     2000         1999
                                                                   ----------------------
                                                                       (in millions)
<S>                                                                <C>          <C>
Liabilities and Shareholders' Equity

Liabilities
Future policy benefits .........................................   $22,996.4    $31,106.2
Policyholders' funds ...........................................    15,741.1     15,562.3
Unearned revenue ...............................................       671.3        490.2
Unpaid claims and claim expense reserves .......................       253.7        358.9
Dividends payable to policyholders .............................       130.8        472.8
Short-term debt - Note 6 .......................................       245.3        453.8
Long-term debt - Note 6 ........................................       534.0        536.9
Income taxes - Note 4 ..........................................       431.3        159.2
Other liabilities ..............................................     1,986.0      2,383.2
Closed block liabilities - Note 5 ..............................    12,035.9           --
Separate accounts liabilities ..................................    26,454.8     28,047.6
                                                                   ----------------------

   Total Liabilities ...........................................    81,480.6     79,571.1

Minority interest - Note 7 .....................................        93.5         93.5

Commitments and contingencies - Note 10

Shareholders' Equity - Note 11
Common stock, $.01 par value; 2.0 billion shares authorized;
315.0 million shares issued, 312.0 million shares outstanding ..         3.2           --
Additional paid in capital .....................................     5,086.4           --
Retained earnings ..............................................       700.6      4,825.0
Accumulated other comprehensive income (loss) ..................        80.8        (33.9)
Treasury stock, at cost (3.0 million
shares) ........................................................       (91.8)          --
                                                                   ----------------------
   Total Shareholders' Equity ..................................     5,779.2      4,791.1
                                                                   ----------------------

   Total Liabilities and Shareholders' Equity ..................   $87,353.3    $84,455.7
                                                                   ======================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       43
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                        Year Ended December 31
                                                                                      2000       1999        1998
                                                                                    -------------------------------
                                                                                            (in millions)
<S>                                                                                 <C>        <C>         <C>
Revenues
  Premiums ......................................................................   $2,587.1   $2,717.5    $2,197.9
  Universal life and investment-type product charges ............................      749.3      703.5       597.0
  Net investment income - Note 2 ................................................    3,271.4    3,574.0     3,330.7
  Net realized investment gains, net of related amortization of
    deferred policy acquisition costs and amounts credited to
    participating pension contractholders ($6.0, $85.8 and
    $120.3, respectively) - Notes 1, 2 and 12 ...................................       83.2      175.1       106.4
  Investment management revenues, commissions and other fees ....................      764.8      680.9       659.7
  Other revenue .................................................................       18.2        6.5        10.3
  Contribution from the closed block - Note 5 ...................................      124.1         --          --
                                                                                    -------------------------------
     Total revenues .............................................................    7,598.1    7,857.5     6,902.0

Benefits and expenses
  Benefits to policyholders, excluding amounts related to net realized
    investment gains credited to participating pension contractholders ($6.9,
    $35.3, $79.1, respectively)
    - Notes 1, 2 and 12 .........................................................    4,457.1    5,418.4     4,152.0
  Other operating costs and expenses ............................................    1,596.4    1,412.3     1,383.0
  Amortization of deferred policy acquisition costs, excluding
    amounts related to net realized investment gains (losses) ($(0.9),
    $50.5 and $41.2, respectively) - Notes 1, 2 and 12 ..........................      191.6      166.8       249.7
  Dividends to policyholders ....................................................      157.3      501.6       473.2
  Demutualization expenses ......................................................       10.6       96.2        18.0
                                                                                    -------------------------------
     Total benefits and expenses ................................................    6,413.0    7,595.3     6,275.9
                                                                                    -------------------------------

Income before income taxes and cumulative effect
  of accounting change ..........................................................    1,185.1      262.2       626.1

Income taxes - Note 4 ...........................................................      346.2       99.3       177.6
                                                                                    -------------------------------
Income before cumulative effect of accounting change ............................      838.9      162.9       448.5

Cumulative effect of accounting change, net of tax - Note 1 .....................         --       (9.7)         --
                                                                                    -------------------------------

Net income ......................................................................   $  838.9   $  153.2    $  448.5
                                                                                    ===============================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       44
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                                      Pro forma (unaudited)

                                                              For the Period         Year Ended December 31
                                                            February 1 through      ------------------------
(in millions, except per share data)                        December 31, 2000        2000              1999
============================================================================================================
<S>                                                               <C>               <C>               <C>
Basic earnings per common share:
     Income before cumulative effect
          of accounting change .......................            $ 2.53            $ 2.67            $ 0.52

     Cumulative effect of accounting
          change .....................................                --                --              0.03
                                                                  ------------------------------------------

      Net income .....................................            $ 2.53            $ 2.67            $ 0.49
------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
     Income before cumulative effect
          of accounting change .......................            $ 2.51            $ 2.65            $ 0.52

     Cumulative effect of accounting
         change ......................................                --                --              0.03
                                                                  ------------------------------------------

      Net income .....................................            $ 2.51            $ 2.65            $ 0.49
------------------------------------------------------------------------------------------------------------
Weighted-average shares used in basic earnings
     per common share calculations ...................             314.5             314.5             314.8

Dilutive securities
    Stock options ....................................               1.5               1.5                --
    Non-vested stock .................................               0.2               0.2                --
                                                                  ------------------------------------------

Weighted-average shares used in diluted earnings
     per common share calculations ...................             316.2             316.2             314.8
------------------------------------------------------------------------------------------------------------

Cash dividends paid per common share .................            $ 0.30                --                --
============================================================================================================
</TABLE>

The unaudited pro forma information above gives effect to the Reorganization and
Initial Public Offering referred to in Note 1.

The accompanying notes are an integral part of these consolidated financial
statements.


                                       45
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
                         EQUITY AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                 Additional                Accumulated Other                Total      Outstanding
                                                  Paid In     Retained       Comprehensive   Treasury   Shareholders'     Shares
                                   Common Stock   Capital     Earnings       Income (Loss)     Stock       Equity     (in thousands)
                                   -------------------------------------------------------------------------------------------------
                                                            (in millions)
<S>                                     <C>          <C>      <C>               <C>              <C>       <C>              <C>
Balance at January 1, 1998 .......      --           --       $4,223.3          $ 446.8          --        $4,670.1         --

Comprehensive income:
  Net income .....................      --           --          448.5                                        448.5
  Other comprehensive income,
     net of tax: .................      --           --
     Net unrealized gains (losses)      --           --                          (148.6)                     (148.6)
     Foreign currency translation
        adjustment ...............      --           --                            (6.0)                       (6.0)
     Minimum pension liability ...      --           --                            (8.8)                       (8.8)
                                                                                                         ------------
Comprehensive income .............      --           --                                                       285.1
                                   -------------------------------------------------------------------------------------------------
Balance at December 31, 1998 .....      --           --        4,671.8            283.4          --         4,955.2         --

Comprehensive income:
  Net income .....................      --           --          153.2                                        153.2
  Other comprehensive income,
     net of tax: .................      --           --
     Net unrealized gains (losses)      --           --                          (311.3)                     (311.3)
     Foreign currency translation
        adjustment ...............      --           --                            16.9                        16.9
     Minimum pension liability ...      --           --                           (22.9)                      (22.9)
                                                                                                         ------------
Comprehensive income .............      --           --                                                      (164.1)
                                   -------------------------------------------------------------------------------------------------
Balance at December 31, 1999 .....      --           --       $4,825.0          $ (33.9)         --        $4,791.1         --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       46
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
                 EQUITY AND COMPREHENSIVE INCOME -- (CONTINUED)

<TABLE>
<CAPTION>
                                                    Additional                 Accumulated Other
                                                      Paid In      Retained      Comprehensive
                                      Common Stock    Capital      Earnings      Income (Loss)
                                      -----------------------------------------------------------
                                                                (in millions)
<S>                                         <C>       <C>          <C>             <C>
Balance at December 31, 1999 ........         --            --     $4,825.0        $  (33.9)

Demutualization transaction .........       $2.2      $3,369.8     (4,869.0)
Initial public offering .............        1.0       1,656.7
Additional paid in capital ..........                     56.4
Restricted stock issued .............         --           4.2
Options exercised ...................         --            --
Forfeitures of restricted stock .....         --          (0.7)

Comprehensive income:
  Net income before demutualization .                                  44.0
  Net income after demutualization ..                                 794.9
                                                                  ----------
     Net income for the year ........                                 838.9

  Other comprehensive income,
     net of tax:
     Net unrealized gains (losses) ..                                                 125.6
     Foreign currency translation
        adjustment ..................                                                 (19.1)
     Minimum pension liability ......                                                   8.2

Comprehensive income ................

Treasury stock acquired .............
Dividends paid to shareholders ......                                 (94.3)
                                      -----------------------------------------------------------
Balance at December 31, 2000 ........       $3.2      $5,086.4     $  700.6        $   80.8
                                      ===========================================================

<CAPTION>
                                                      Total        Outstanding
                                       Treasury   Shareholders'      Shares
                                         Stock       Equity      (in thousands)
                                      -----------------------------------------
<S>                                       <C>         <C>           <C>
Balance at December 31, 1999 ........         --      $4,791.1           --

Demutualization transaction .........                 (1,497.0)     212,786.5
Initial public offering .............                  1,657.7      102,000.0
Additional paid in capital ..........                     56.4
Restricted stock issued .............                      4.2          291.0
Options exercised ...................                       --            0.2
Forfeitures of restricted stock .....                     (0.7)         (50.8)

Comprehensive income:
  Net income before demutualization .                     44.0
  Net income after demutualization ..                    794.9
                                                     ----------
     Net income for the year ........                    838.9

  Other comprehensive income,
     net of tax:
     Net unrealized gains (losses) ..                    125.6
     Foreign currency translation
        adjustment ..................                    (19.1)
     Minimum pension liability ......                      8.2

Comprehensive income ................                    953.6

Treasury stock acquired .............     $(91.8)        (91.8)      (3,038.0)
Dividends paid to shareholders ......                    (94.3)
                                      -----------------------------------------
Balance at December 31, 2000 ........     $(91.8)     $5,779.2      311,988.9
                                      =========================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       47
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             Year Ended December 31
                                                                         2000        1999         1998
                                                                      -----------------------------------
                                                                                 (in millions)
<S>                                                                   <C>         <C>          <C>
Cash flows from operating activities:
   Net income .....................................................   $   838.9   $    153.2   $    448.5
      Adjustments to reconcile net income to net cash
         provided by operating activities:
            Amortization of discount - fixed maturities ...........      (121.8)       (77.9)       (55.6)
            Realized investment gains, net ........................       (83.2)      (175.1)      (106.4)
            Change in deferred policy acquisition costs ...........      (381.4)      (317.3)      (206.9)
            Depreciation and amortization .........................        98.6         74.3         90.2
            Net cash flows from trading securities ................      (147.5)       (16.2)         4.2
            (Increase) decrease in accrued investment income ......       (68.5)      (118.0)        21.3
            Decrease in premiums and accounts
             receivable ...........................................         0.8         11.8        131.3
            Increase in other assets and other liabilities, net ...      (617.3)      (118.1)      (362.8)
            Increase in policy liabilities and accruals, net ......     1,789.9      2,253.6      1,347.4
            Loss on sale of subsidiaries ..........................          --         21.3           --
            Increase (decrease) in income taxes ...................       439.7         (3.3)        17.7
            Initial cash transferred to the closed block ..........      (158.6)          --           --
            Contribution from the closed block ....................      (124.1)          --           --
                                                                      -----------------------------------

               Net cash provided by operating activities ..........     1,465.5      1,688.3      1,328.9

Cash flows from investing activities:
  Sales of:
    Fixed maturities held-to-maturity .............................          --         28.7          8.5
    Fixed maturities available-for-sale ...........................     4,896.8      9,824.0     21,079.2
    Equity securities available-for-sale ..........................       742.9        182.7        249.2
    Real estate ...................................................        66.4      1,286.3        640.3
    Short-term investments and other invested assets ..............       101.9        764.4        926.3
  Maturities, prepayments and scheduled redemptions of:
    Fixed maturities held-to-maturity .............................     1,564.0      1,777.1      2,166.9
    Fixed maturities available-for-sale ...........................     1,466.2      1,880.3      2,162.3
    Short-term investments and other invested assets ..............       459.9        311.8         79.4
    Mortgage loans on real estate .................................     1,432.8      1,509.0      1,849.8
  Purchases of:
    Fixed maturities held-to-maturity .............................    (1,860.8)    (2,725.2)    (2,428.5)
    Fixed maturities available-for-sale ...........................    (7,553.0)   (12,728.5)   (24,154.7)
    Equity securities available-for-sale ..........................      (549.2)      (386.0)      (384.5)
    Real estate ...................................................       (46.0)      (197.2)      (152.0)
    Short-term investments and other invested assets ..............      (818.5)      (715.4)    (1,103.0)
    Mortgage loans on real estate issued ..........................    (1,605.8)    (2,414.1)    (2,265.3)
    Cash received related to acquisition of business ..............       141.3           --           --
  Net cash paid related to sale of subsidiaries ...................          --       (206.5)          --
  Net cash paid for acquisition of subsidiary .....................          --       (200.4)          --
  Other, net ......................................................        22.8         12.1        (13.0)
                                                                      -----------------------------------

            Net cash used in investing activities .................    (1,538.3)    (1,996.9)    (1,339.1)
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       48
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                               Year Ended December 31
                                                                           2000         1999         1998
                                                                        -----------------------------------
                                                                                   (in millions)
<S>                                                                     <C>          <C>          <C>
Cash flows from financing activities:
  Issuance of common stock ..........................................   $ 1,714.1           --           --
  Payments to eligible policyholders under Plan of Reorganization ...    (1,076.7)          --           --
  Acquisition of treasury stock .....................................       (91.8)          --           --
  Dividends paid on common stock ....................................       (94.3)          --           --
  Proceeds from issuance of preferred stock .........................          --    $    68.2           --
  Universal life and investment-type contract deposits ..............     8,148.3      8,365.9    $ 8,214.8
  Universal life and investment-type contract maturities and
     withdrawals ....................................................    (7,158.8)    (8,144.0)    (7,204.1)
  Issuance of long-term debt ........................................        20.0          6.0         77.0
  Repayment of long-term debt .......................................       (73.2)       (15.5)      (298.1)
  Net (decrease) increase in commercial paper .......................      (158.3)       (30.5)        60.4
                                                                        -----------------------------------

      Net cash provided by financing activities .....................     1,229.3        250.1        850.0
                                                                        -----------------------------------

      Net increase (decrease) in cash and cash equivalents ..........     1,156.5        (58.5)       839.8

Cash and cash equivalents at beginning of year ......................     1,817.9      1,876.4      1,036.6
                                                                        -----------------------------------

Cash and cash equivalents at end of year ............................   $ 2,974.4    $ 1,817.9    $ 1,876.4
                                                                        ===================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       49
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Summary of Significant Accounting Policies

John Hancock Financial Services, Inc. (the Company), formerly known as John
Hancock Mutual Life Insurance Company (the Mutual Company) and Subsidiaries, is
a diversified financial services organization that provides a broad range of
insurance and investment products and investment management and advisory
services.

Reorganization and Initial Public Offering

In connection with the Mutual Company's Plan of Reorganization (the Plan),
effective February 1, 2000, the Mutual Company converted from a mutual life
insurance company to a stock life insurance company (i.e., demutualized) and
became a wholly-owned subsidiary of John Hancock Financial Services, Inc., which
is a holding company. All policyholder membership interests in the Mutual
Company were extinguished on that date and eligible policyholders of the Mutual
Company received, in the aggregate, 212.8 million shares of common stock,
$1,438.7 million of cash and $43.7 million policy credits as compensation. It
has been determined that, due to complexities involved in determining
demutualization compensation, based upon information provided by the Company,
41,645 shares of common stock were overstated on the records of the Company's
transfer agent as having been issued as stock compensation in the
demutualization and were included in the number of shares of our common stock
previously reported as outstanding. Consequently, the transfer agent records
have been corrected and the total number of shares represented as outstanding in
this report has been adjusted accordingly. This has no impact on the financial
position, results of operations or earnings per share reported for the year
ended December 31, 2000. In addition, the Company established a closed block, to
fund the guaranteed benefits and dividends of certain participating insurance
policies. In connection with the Plan, the Mutual Company changed its name to
John Hancock Life Insurance Company (the Life Company).

In addition, on February 1, 2000, the Company completed its initial public
offering (IPO) in which 102.0 million shares of common stock were issued at a
price of $17.00 per share. Net proceeds from the IPO were $1,657.7 million, of
which $105.7 million was retained by the Company and $1,552.0 million was
contributed to the Life Company.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned and controlled subsidiaries. Less than
majority-owned entities in which the Company has at least a 20% interest are
accounted for using the equity method. All significant intercompany transactions
and balances have been eliminated.

The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Investments

In accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company is required to classify its investments into one of
three categories: held-to-maturity, available-for-sale or trading. The Company
determines the appropriate classification of debt securities at the time of
purchase and re-evaluates such designation as of each balance sheet date. Fixed
maturity investments include bonds, mortgage-backed securities, and redeemable
preferred stock and are classified as held-to-maturity or available-for-sale.
Bonds and mortgage-backed securities which the Company has the positive intent
and ability to hold to maturity are classified as held-to-maturity and carried
at amortized cost. Fixed maturity investments not classified as held-to-maturity
are classified as available-for-sale and are carried at fair value. Unrealized
gains and losses related to available-for-sale securities are reflected in
shareholders' equity, net of related amortization of deferred policy acquisition
costs, amounts credited to participating pension contractholders and applicable
taxes. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in investment income. The amortized cost of fixed maturity investments is
adjusted for impairments in value deemed to be other than temporary.


                                       50
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

For the mortgage-backed bond portion of the fixed maturity investment portfolio,
the Company recognizes income using a constant effective yield based on
anticipated prepayments and the estimated economic life of the securities. When
actual prepayments differ significantly from anticipated prepayments, the
effective yield is recalculated to reflect actual payments to date, and
anticipated future payments and any resulting adjustment is included in net
investment income.

Equity securities include common stock and non-redeemable preferred stock.
Equity securities that have readily determinable fair values are carried at fair
value. For equity securities which the Company has classified as
available-for-sale, unrealized gains and losses are reflected in shareholders'
equity as described above. Impairments in value deemed to be other than
temporary are reported as a component of realized investment gains (losses).
Gains and losses, both realized and unrealized, on equity securities classified
as trading are included in net investment income.

Mortgage loans on real estate are carried at unpaid principal balances adjusted
for amortization of premium or discount, less allowance for probable losses.
When it is probable that the Company will be unable to collect all amounts of
principal and interest due according to the contractual terms of the mortgage
loan agreement, the loan is deemed to be impaired and a valuation allowance for
probable losses is established. The valuation allowance is based on the present
value of the expected future cash flows, discounted at the loan's original
effective interest rate, or on the collateral value of the loan if the loan is
collateral dependent. Any change to the valuation allowance for mortgage loans
on real estate is reported as a component of realized investment gains (losses).
Interest received on impaired mortgage loans on real estate is included in
interest income in the period received. If foreclosure becomes probable, the
measurement method used is collateral value. Foreclosed real estate is then
recorded at the collateral's fair value at the date of foreclosure, which
establishes a new cost basis.

Investment real estate, which the Company has the intent to hold for the
production of income, is carried at depreciated cost, using the straight-line
method of depreciation, less adjustments for impairments in value. In those
cases where it is determined that the carrying amount of investment real estate
is not recoverable, an impairment loss is recognized based on the difference
between the depreciated cost and fair value of the asset. The Company reports
impairment losses as part of realized investment gains (losses).

Real estate to be disposed of is carried at the lower of cost or fair value less
costs to sell. Any change to the valuation allowance for real estate to be
disposed of is reported as a component of realized investment gains (losses).
The Company does not depreciate real estate to be disposed of. During 1998, the
Company made a strategic decision to sell the majority of its commercial real
estate portfolio. Properties with a carrying value of $43.7 million, $979.7
million and $512.0 million were sold in 2000, 1999 and 1998, respectively. As of
December 31, 2000, the plan to divest the Company of the majority of its
commercial real estate portfolio is substantially complete.

Policy loans are carried at unpaid principal balances which approximate fair
value.

Short-term investments are carried at amortized cost.

Partnership and joint venture interests in which the Company does not have
control or a majority ownership interest are recorded using the equity method of
accounting and included in other invested assets.

Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are determined
on the basis of specific identification and are reported net of related
amortization of deferred policy acquisition costs and amounts credited to
participating pension contractholder accounts.


                                       51
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Derivative Financial Instruments

The Company uses futures contracts; interest rate swap, cap and floor
agreements; swaptions and currency rate swap agreements for other than trading
purposes to hedge and manage its exposure to changes in interest rate levels and
foreign exchange rate fluctuations, and to manage duration mismatch of assets
and liabilities. The Company also uses equity collar agreements to reduce its
exposure to market fluctuations in certain equity securities.

The Company uses futures contracts principally to hedge risks associated with
interest rate fluctuations on sales of guaranteed investment contracts and
funding agreements. Futures contracts represent commitments to either purchase
or sell securities at a specified future date and at a specified price or yield.

The Company uses interest rate swap, cap and floor agreements and swaptions for
the purpose of converting the interest rate characteristics (fixed or variable)
of certain investments to more closely match its liabilities. Interest rate swap
agreements are contracts with a counterparty to exchange interest rate payments
of a differing character (e.g., fixed-rate payments exchanged for variable-rate
payments) based on an underlying principal balance (notional principal) to hedge
against interest rate changes. Interest rate cap and floor agreements are
contracts with a counterparty which require the payment of a premium for the
right to receive payments for the difference between the cap or floor interest
rate and a market interest rate on specified future dates based on an underlying
principal balance (notional principal) to hedge against rising and falling
interest rates. Swaptions entitle the Company to receive settlement payments
from other parties on specified expiration dates, contingent on future interest
rates. The amount of such settlement payments, if any, is determined by the
present value of the difference between the fixed rate on a market rate swap and
the strike rate multiplied by the notional amount.

Currency rate swap agreements are used to manage the Company's exposure to
foreign exchange rate fluctuations. Currency rate swap agreements are contracts
to exchange the currencies of two different countries at the same rate of
exchange at specified future dates.

The Company invests in common stock that is subject to fluctuations from market
value changes in stock prices. The Company sometimes seeks to reduce its market
exposure to such holdings by entering into equity collar agreements. A collar
consists of a call option that limits the Company's potential for gain from
appreciation in the stock price as well as a put option that limits the
Company's potential for loss from a decline in the stock price.

Futures contracts are carried at fair value and require daily cash settlement.
Changes in the fair value of futures contracts that qualify as hedges are
deferred and recognized as an adjustment to the hedged asset or liability.

The net differential to be paid or received on interest rate swap agreements and
currency rate swap agreements is accrued and recognized as a component of net
investment income. The related amounts due to or from counterparties are
included in accrued investment income receivable or payable.

Premiums paid for interest rate cap and floor agreements and swaptions are
deferred and amortized to net investment income on a straight-line basis over
the term of the agreements. The unamortized premium is included in other assets.
Amounts earned on interest rate cap and floor agreements and swaptions are
recorded as an adjustment to net investment income. Settlements received on
swaptions are deferred and amortized over the life of the hedged assets as an
adjustment to yield.


                                       52
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Interest rate swap, cap and floor agreements, swaptions and currency rate swap
agreements which hedge instruments designated as available-for-sale are adjusted
to fair value with the resulting unrealized gains and losses, net of related
taxes, included in shareholders' equity. The net unrealized gain (losses) on
derivatives hedging available-for-sale instruments included in shareholders'
equity was ($181.2) million, $86.1 million, and ($128.1) million, at December
31, 2000, 1999 and 1998, respectively. The change in net unrealized gain
(losses) for derivatives recorded as part of other comprehensive income for the
years ended December 31, 2000, 1999 and 1998 was ($267.3) million, $214.2
million, and ($68.4) million, respectively. The fair value of those derivatives
used to hedge items other than available-for-sale instruments is not recognized
in the financial statements.

Equity collar agreements are carried at fair value and are included in other
invested assets, with the resulting unrealized gains and losses included in
realized investment gains (losses).

Hedge accounting is applied after the Company determines that the items to be
hedged expose it to interest or price risk, designates these financial
instruments as hedges and assesses whether the instruments reduce the hedged
risks through the measurement of changes in the value of the instruments and the
items being hedged at both inception and throughout the hedge period.

From time to time, futures contracts; interest rate swaps, cap and floor
agreements; swaptions and currency rate swap agreements are terminated. If the
terminated position was accounted for as a hedge, realized gains or losses are
deferred and amortized over the remaining lives of the hedged assets or
liabilities. Realized and unrealized changes in fair value of derivatives
designated with items that no longer exist or are no longer probable of
occurring are recorded as a component of the gain or loss arising from the
disposition of the designated item or included in income when it is determined
that the item is no longer probable of occurring. Changes in the fair value of
derivatives no longer effective as hedges are recognized in income from the date
the derivative becomes ineffective until their expiration.

Revenue Recognition

Premiums from participating and non-participating traditional life insurance and
annuity policies with life contingencies are recognized as income when due.

Premiums from universal life and investment-type contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period against policyholders' account
balances for mortality charges, policy administration charges and surrender
charges.

Premiums for contracts with a single premium or a limited number of premium
payments, due over a significantly shorter period than the total period over
which benefits are provided, are recorded in income when due. The portion of
such premium that is not required to provide for all benefits and expenses is
deferred and recognized in income in a constant relationship to insurance in
force or, for annuities, the amount of expected future benefit payments.

Premiums from long-term care contracts are recognized as income when due.
Premiums from group life and health insurance contracts are recognized as income
over the period to which the premiums relate in proportion to the amount of
insurance protection provided.

Property and casualty insurance premiums are recognized as earned over the terms
of the contracts.

Investment advisory, transfer agent, distribution and service fees are
recognized as revenues when services are performed. Commissions related to
security transactions and related expenses are recognized as income on the trade
date. Contingent deferred selling charge commissions are recognized as income in
the year received. Selling commissions paid to the selling broker/dealer for
sales of mutual funds that do not have a front-end sales charge are deferred and
amortized on a straight-line basis over periods not exceeding six years. This is
the approximate period of time expected to be benefited and during which fees
earned pursuant to Rule 12b-1 distribution plans are received from the funds and
contingent deferred sales charges are received from shareholders of the funds.


                                       53
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Future Policy Benefits and Policyholders' Funds

Future policy benefits for participating traditional life insurance policies are
based on the net level premium method. This net level premium reserve is
calculated using the guaranteed mortality and dividend fund interest rates,
which range from 2.5% to 8.0%. The liability for annual dividends represents the
accrual of annual dividends earned. Settlement dividends are accrued in
proportion to gross margins over the life of the contract.

For non-participating traditional life insurance policies, future policy
benefits are estimated using a net level premium method on the basis of
actuarial assumptions as to mortality, persistency, interest and expenses
established at policy issue. Assumptions established at policy issue as to
mortality and persistency are based on the Company's experience, which, together
with interest and expense assumptions, include a margin for adverse deviation.
Benefit liabilities for annuities during the accumulation period are equal to
accumulated contractholders' fund balances and after annuitization are equal to
the present value of expected future payments. Interest rates used in
establishing such liabilities range from 2.5% to 8.0% for life insurance
liabilities, from 2.0% to 14.2% for individual annuity liabilities and from 2.0%
to 12.6% for group annuity liabilities.

Policyholders' funds for universal life and investment-type products, including
guaranteed investment contracts and funding agreements, are equal to the
policyholder account values before surrender charges. As of December 31, 2000,
the Company had approximately $6.3 billion of funding agreements, none of which
contain early termination provisions. Policy benefits that are charged to
expense include benefit claims incurred in the period in excess of related
policy account balances and interest credited to policyholders' account
balances. Interest crediting rates range from 3.0% to 9.0% for universal life
products and from 4.6% to 16.0% for investment-type products.

Future policy benefits for long-term care insurance policies are based on the
net level premium method. Assumptions established at policy issue as to
mortality, morbidity, persistency, interest and expenses, which include a margin
for adverse deviation, are based on estimates developed by management. Interest
rates used in establishing such liabilities range from 6.0% to 8.5%.

Liabilities for unpaid claims and claim expenses include estimates of payments
to be made on reported individual and group life, long-term care, and group
accident and health insurance claims and estimates of incurred but not reported
claims based on historical claims development patterns.

Estimates of future policy benefit reserves, claim reserves and expenses are
reviewed continually and adjusted as necessary; such adjustments are reflected
in current earnings. Although considerable variability is inherent in such
estimates, management believes that future policy benefit reserves and unpaid
claims and claims expense reserves are adequate.


                                       54
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Property and casualty reserves include loss reserve estimates based on claims
reported and unreported and estimates of future expenses to be incurred in
settlement of the claims provided for in the loss reserves estimates. These
liabilities include estimates of future trends in claim severity and frequency
and other factors that could vary as the losses are ultimately settled. During
1999, the Company sold the rest of its property and casualty business.

Participating Insurance

Participating business represents approximately 86.3%, 88.1%, and 87.7% of the
Company's life insurance in force, 97.9%, 98.3%, and 98.4% of the number of life
insurance policies in force, and 99.6%, 97.4%, and 97.3% of life insurance
premiums in 2000, 1999 and 1998, respectively.

The portion of earnings allocated to participating pension contractholders that
cannot be expected to inure to the Company is excluded from net income and
shareholders' equity.

The amount of policyholders' dividends to be paid is approved annually by the
Company's Board of Directors. The determination of the amount of policyholder
dividends is complex and varies by policy type. In general, the aggregate amount
of policyholders' dividends is related to actual interest, mortality, morbidity,
persistency and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by the Life Company. For
policies included in the closed block, expense experience is not included in
determining policyholders' dividends.

Deferred Policy Acquisition Costs

Costs that vary with, and are related primarily to, the production of new
business have been deferred to the extent that they are deemed recoverable. Such
costs include commissions, certain costs of policy issue and underwriting, and
certain agency expenses. For participating traditional life insurance policies,
such costs are being amortized over the life of the contracts at a constant rate
based on the present value of the estimated gross margin amounts expected to be
realized over the lives of the contracts. Estimated gross margin amounts include
anticipated premiums and investment results less claims and administrative
expenses, changes in the net level premium reserve and expected annual
policyholder dividends. For universal life insurance contracts and
investment-type products, such costs are being amortized generally in proportion
to the present value of expected gross profits arising principally from
surrender charges and investment results, and mortality and expense margins. The
effects on the amortization of deferred policy acquisition costs of revisions to
estimated gross margins and profits are reflected in earnings in the period such
estimated gross margins and profits are revised. For non-participating term life
and long-term care insurance products, such costs are being amortized over the
premium-paying period of the related policies using assumptions consistent with
those used in computing policy benefit reserves. Amortization expense was $190.7
million, $217.3 million, and $290.9 million in 2000, 1999 and 1998,
respectively.


                                       55
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Amortization of deferred policy acquisition costs is allocated to: (1) realized
investment gains and losses for those products that realized gains and losses
have a direct impact on the amortization of deferred policy acquisition costs;
(2) unrealized investment gains and losses, net of tax, to provide for the
effect on the deferred policy acquisition cost asset that would result from the
realization of unrealized gains and losses on assets backing participating
traditional life insurance and universal life and investment-type contracts; and
(3) a separate component of benefits and expenses to reflect amortization
related to the gross margins or profits, excluding realized gains and losses,
relating to policies and contracts in force.

Realized investment gains and losses related to certain products have a direct
impact on the amortization of deferred policy acquisition costs as such gains
and losses affect the amount and timing of profit emergence. Accordingly, to the
extent that such amortization results from realized gains and losses, management
believes that presenting realized investment gains and losses net of related
amortization of deferred policy acquisition costs provides information useful in
evaluating the operating performance of the Company. This presentation may not
be comparable to presentations made by other insurers.

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid debt investments
with a maturity of three months or less when purchased.

Goodwill and Value of Business Acquired

The excess of cost over the fair value of the net assets of businesses acquired
was $228.6 million and $155.3 million at December 31, 2000 and 1999,
respectively, and is included in other assets in the consolidated balance
sheets. Goodwill is amortized on systematic bases over periods not exceeding 40
years, which correspond with the benefits estimated to be derived from the
acquisitions. Accumulated amortization was $63.6 million and $43.3 million at
December 31, 2000 and 1999, respectively. Amortization expense included in other
operating costs and expenses was $20.3 million, $9.7 million, and $9.1 million,
in 2000, 1999 and 1998, respectively. The Company reevaluates the recoverability
of recorded goodwill based on the undiscounted cash flows of the related
business whenever significant events or changes indicate an impairment may
exist. If the undiscounted cash flows do not support the amount recorded, an
impairment is recognized by a charge to current operations to reduce the
carrying value of the goodwill based on the expected discounted cash flows of
the related business.

The Company records an asset representing the present value of future profits of
insurance policies in force related to the businesses acquired. This asset is
recorded as the value of business acquired (VOBA) and amounted to $340.0 million
and $112.4 million at December 31, 2000 and 1999, respectively, and is included
in other assets in the consolidated financial statements. VOBA is amortized in
proportion to the present value of expected gross profits. Amortization expense
included in other operating costs and expenses was $4.9 million, $1.3 million
and $1.7 million in 2000, 1999 and 1998 respectively.

On October 1, 1999, The Maritime Life Assurance Company (Maritime), an indirect
majority owned subsidiary of the Company, completed its purchase of Aetna Canada
Holdings Limited (Aetna Canada) for approximately $296 million. On March 1,
2000, the Company acquired the individual long-term care insurance business of
Fortis, Inc. (Fortis) through a coinsurance agreement for approximately $165
million. The acquisitions were recorded under the purchase method of accounting
and, accordingly, the operating results have been included in the Company's
consolidated results of operations from the applicable date of acquisition. Each
purchase price was allocated to the assets acquired and the liabilities assumed
based on estimated fair values, with the excess of the applicable purchase price
over the estimated fair values recorded as goodwill. The goodwill calculation
related to the Fortis acquisition is preliminary and further refinements might
be necessary and are expected to be finalized in 2001. The unaudited pro forma
revenues, net income, and earnings per share (basic and diluted), assuming that
the acquisition of Aetna Canada had occurred at the beginning of 1999, were
$8,217.4 million, $160.9 million, and $0.51 per share, respectively for the year
ended December 31, 1999. The pro forma results, assuming the acquisition of
Fortis had taken place as of the beginning of 2000 and 1999, respectively, would
not be materially different from the reported results.


                                       56
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Separate Accounts

Separate accounts assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are administered and invested
by the Company to meet specific investment objectives of the contractholders.
Investment income and investment gains and losses generally accrue directly to
such contractholders who bear the investment risk, subject in some cases to
minimum guaranteed rates. The assets of each account are legally segregated and
are not subject to claims that arise out of any other business of the Company.
Separate account assets are reported at fair value. Deposits, net investment
income and realized investment gains and losses of separate accounts are not
included in the revenues of the Company. Fees charged to contractholders,
principally mortality, policy administration and surrender charges, are included
in universal life and investment-type product charges.

Reinsurance

The Company utilizes reinsurance agreements to provide for greater
diversification of business, allow management to control exposure to potential
losses arising from large risks and provide additional capacity for growth.

Assets and liabilities related to reinsurance ceded contracts are reported on a
gross basis. The accompanying statements of income reflect premiums, benefits
and settlement expenses net of reinsurance ceded. Reinsurance premiums,
commissions, expense reimbursements, benefits and reserves related to reinsured
business are accounted for on bases consistent with those used in accounting for
the original policies issued and the terms of the reinsurance contracts.

Federal Income Taxes

The provision for federal income taxes includes amounts currently payable or
recoverable and deferred income taxes, computed under the liability method,
resulting from temporary differences between the tax basis and book basis of
assets and liabilities. A valuation allowance is established for deferred tax
assets when it is more likely than not that an amount will not be realized.
Foreign subsidiaries and U.S. subsidiaries operating outside of the United
States are taxed under applicable foreign statutory rates.

Foreign Currency Translation

The assets and liabilities of operations in foreign currencies are translated
into United States dollars at current exchange rates. Revenues and expenses are
translated at average rates during the year. The resulting net translation
adjustments for each year are accumulated and included in shareholders' equity.
Gains or losses on foreign currency transactions are reflected in earnings.

Severance

In 1999, the Company initiated a restructuring plan to reduce costs and increase
future operating efficiency by consolidating portions of its operations. The
plan consists primarily of reducing staff in the home office and terminating
certain operations outside the home office.

In connection with the restructuring plan, approximately 391 employees have been
or will be terminated. These employees are or have been associated with
operations in our Boston office and outside the home office. As of December 31,
2000, the liability for employee termination costs included in other liabilities
was $20.6 million. Employee termination costs, included in other operating costs
and expenses, were $18.8 million and $26.3 million for the years ended December
31, 2000 and 1999, respectively. Of the total number of employees affected,
approximately 364 have been terminated, having received benefit payments of
approximately $24.5 million.


                                       57
<PAGE>

                        HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Earnings Per Share

Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period excluding the dilutive effects of options, warrants or convertible
securities. Diluted earnings per share reflects the potential dilution that
could occur if dilutive securities, such as options and non-vested stock grants,
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company.

Reclassification

Certain prior year amounts have been reclassified to conform to the 2000
presentation.

Accounting Changes and New Accounting Principles Adopted

In December 2000, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 00-3, "Accounting by Insurance Enterprises
for Demutualizations and Formations of Mutual Insurance Holding Companies and
Certain Long-Duration Participating Contracts." The SOP, which was adopted with
respect to accounting for demutualization expenses by the Company on December
15, 2000, requires that demutualization related expenses be classified as a
single line item within income from continuing operations and should not be
classified as an extraordinary item. The adoption of SOP 00-3 resulted in the
reclassification of demutualization expenses previously recorded as an
extraordinary item in 1999 and 1998 of $93.6 million and $11.7 million,
respectively (net of tax of $2.6 million and $6.3 million, respectively). The
remaining provisions of this SOP, which will require the (1) inclusion of all
closed block activity together with all other assets, liabilities, revenues and
expenses and (2) recognition of a policyholder dividend obligation that
represents cumulative actual closed block earnings in excess of expected
periodic amounts calculated at the date of the demutualization, are effective no
later than December 31, 2001. See Note 5 for a summary description of the closed
block assets, liabilities, revenues and expenses, which do not include the
policyholder dividend obligation that will be required in 2001. The Company
currently is evaluating the effect that establishing the policyholder dividend
obligation will have on its results of operations and financial position. That
impact is not known at this time.

In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up
Activities." The SOP, which was adopted by the Company on January 1, 1999,
requires that start-up costs capitalized prior to January 1, 1999 be written-off
and any future start-up costs be expensed as incurred. The adoption of SOP 98-5
resulted in a charge to operations of $9.7 million (net of tax of $5.9 million)
and was accounted for as a cumulative effect of an accounting change.

In March 1998, the Accounting Standards Executive Committee of the AICPA issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 provides guidance for determining whether computer
software is for internal use and when costs incurred for internal use software
are to be capitalized. SOP 98-1 was adopted by the Company on January 1, 1999.
The adoption of SOP 98-1 did not have a material impact on the Company's
consolidated financial statements.

SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts That Do Not Transfer Insurance Risk," provides guidance on how to
account for insurance and reinsurance contracts that do not transfer insurance
risk under a method referred to as deposit accounting. SOP 98-7 is effective for
fiscal years beginning after June 15, 1999. SOP 98-7 did not have a material
impact on the Company's consolidated financial statements.


                                       58
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," provides guidance on how to account for the issuance of stock and
stock options to employees. The Company adopted APB No. 25 upon its
demutualization and IPO effective February 1, 2000. Compensation cost for stock
options, if any, is measured as the excess of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock. Compensation cost is recognized over the requisite vesting
periods based on market value on the date of grant. APB No. 25 was amended by
SFAS No. 123, "Accounting for Stock-Based Compensation," to require pro forma
disclosures of net income and earnings per share as if a "fair value" based
method was used. On March 31, 2000, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation, an interpretation of APB No. 25." The
Interpretation clarifies guidance for certain issues that arose in the
application of APB No. 25. The Company was required to adopt the Interpretation
on July 1, 2000. Interpretation No. 44 did not have a material impact on the
Company's consolidated financial statements.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement 133." This Statement amends SFAS No. 133 to
defer its effective date for one year, to fiscal years beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of SFAS No.
133. This Statement makes certain changes in the hedging provisions of SFAS No.
133, and is effective concurrent with SFAS No. 133. As amended, SFAS No. 133
requires all derivatives to be recognized on the balance sheet at fair value,
and establishes special accounting for the following three types of hedges: fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. Special accounting for qualifying hedges
provides for matching the timing of gain or loss recognition on the hedging
instrument with the recognition of the corresponding changes in value of the
hedged item. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in the fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be recognized immediately in earnings and will be included in
net realized and other investment gains. As a result, such amounts will not be
included in the determination of the Company's segment after tax operating
income.

The adoption of SFAS No. 133, as amended, will result in an increase in other
comprehensive income of $58.8 million (net of tax of $31.7 million) as of
January 1, 2001 that will be accounted for as the cumulative effect of an
accounting change. In addition, the adoption of SFAS No. 133, as amended, will
result in a charge to operations of $26.2 million (net of tax of $14.1 million)
as of January 1, 2001, that will be accounted for as the cumulative effect of an
accounting change. The Company believes that its current risk management
philosophy will remain largely unchanged after adoption of the Statement.

SFAS No. 133, as amended, precludes the designation of held-to-maturity fixed
maturity investment securities as hedged items in hedging relationships where
the hedged risk is interest rate risk. As a result, in connection with the
adoption of the Statement and consistent with the provisions of the Statement,
on January 1, 2001, the Company will reclassify approximately $12.1 billion of
its held-to-maturity fixed maturity investment portfolio to the
available-for-sale category. This will result in an additional increase in other
comprehensive income of $178.6 million (net of tax of $96.2 million) as of
January 1, 2001.


                                       59
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." The Statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a financial components approach that focuses on control. Under
that approach, after a transfer of financial assets, the Company recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The Statement is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 clarifies the SEC staff's views on applying generally
accepted accounting principles to revenue recognition in financial statements.
In March 2000, the SEC issued an amendment, SAB 101A, which deferred the
effective date of SAB 101. In June 2000, the SEC issued a second amendment, SAB
101B, which deferred the effective date of SAB 101 to no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
adopted SAB 101 in the fourth quarter of fiscal 2000. The adoption of SAB 101
did not have a material impact on the Company's results of operation or
financial position.

Codification

In March 1998, the National Association of Insurance Commissioners (NAIC)
adopted codified statutory accounting principles (Codification) effective
January 1, 2001. Codification changes prescribed statutory accounting practices
and results in changes to the accounting practices that the Company's domestic
life insurance subsidiaries will use to prepare their statutory-basis financial
statements. The states of domicile of the Company's domestic life insurance
subsidiaries have adopted Codification as the prescribed basis of accounting on
which domestic insurers must report their statutory-basis results effective
January 1, 2001. The cumulative effect of changes in accounting principles
adopted to conform to the requirements of Codification will be reported as an
adjustment to surplus as of January 1, 2001. Management believes that, although
the implementation of Codification will have a negative impact on the Company's
domestic life insurance subsidiaries' statutory-basis capital and surplus, the
Companies will remain in compliance with all regulatory and contractual
obligations.


                                       60
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Investments

The following information summarizes the components of net investment income and
realized investment gains, net:

<TABLE>
<CAPTION>
                                                                         Year Ended December 31
                                                                      2000        1999        1998
                                                                    --------------------------------
                                                                             (in millions)
<S>                                                                 <C>         <C>         <C>
Net Investment Income
    Fixed maturities ............................................   $2,288.3    $2,500.7    $2,210.2
    Equity securities ...........................................       50.6        62.6        18.7
    Mortgage loans on real estate ...............................      742.3       831.7       781.2
    Real estate .................................................       97.1       158.4       415.7
    Policy loans ................................................       24.5       109.8       111.9
    Short-term investments ......................................      159.3        92.6        45.3
    Other .......................................................      183.0       165.3       181.3
                                                                    --------------------------------
    Gross investment income .....................................    3,545.1     3,921.1     3,764.3

       Less investment expenses .................................      273.7       347.1       433.6
                                                                    --------------------------------

       Net investment income ....................................   $3,271.4    $3,574.0    $3,330.7
                                                                    ================================

Net Realized Investment Gains (Losses), Net of Related
  Amortization of Deferred Policy Acquisition Costs and
  Amounts Credited to Participating Pension
  Contractholders
    Fixed maturities ............................................   $ (129.3)   $  (34.6)   $  110.6
    Equity securities ...........................................      204.7       113.5       115.2
    Mortgage loans on real estate and real estate ...............      (13.1)      143.5       (15.6)
    Derivatives and other invested assets .......................       26.9        38.5        16.5
    Amortization adjustment for deferred policy acquisition
        costs ...................................................        0.9       (50.5)      (41.2)
    Amounts credited to participating pension contractholders ...       (6.9)      (35.3)      (79.1)
                                                                    --------------------------------

    Net realized investment gains, net of related amortization
      of deferred policy acquisition costs and amounts
      credited to participating pension contractholders .........   $   83.2    $  175.1    $  106.4
                                                                    ================================
</TABLE>


                                       61
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 - Investments - (Continued)

Gross gains of $308.7 million in 2000, $192.3 million in 1999, and $268.1
million in 1998, and gross losses of $124.3 million in 2000, $176.9 million in
1999, and $92.9 million in 1998, were realized on the sale of available-for-sale
securities.

The Company's investments in held-to-maturity securities and available-for-sale
securities are summarized below:

<TABLE>
<CAPTION>
                                                               Gross         Gross
                                            Amortized       Unrealized     Unrealized         Fair
                                              Cost             Gains         Losses          Value
                                            --------------------------------------------------------
                                                                  (in millions)
<S>                                         <C>              <C>             <C>           <C>
December 31, 2000
Held-to-Maturity:

Corporate securities ...............        $10,691.1        $  459.2        $665.7        $10,484.6

Mortgage-backed securities .........          1,104.2            10.3          48.2          1,066.3

Obligations of states and
  political subdivisions ...........             87.7             3.0           0.7             90.0

Debt securities issued by foreign
  governments ......................              5.6             4.7            --             10.3
                                            --------------------------------------------------------

   Total ...........................        $11,888.6        $  477.2        $714.6        $11,651.2
                                            ========================================================

Available-for-Sale:

Corporate securities ...............        $10,828.9        $  486.2        $417.5        $10,897.6

Mortgage-backed securities .........          3,433.2            82.4          25.2          3,490.4

Obligations of states and
  political subdivisions ...........             24.8             1.7            --             26.5

Debt securities issued by foreign
  governments ......................          1,355.3           112.3          12.7          1,454.9

U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies ........            187.5             5.3           0.3            192.5
                                            --------------------------------------------------------

Total fixed maturities .............         15,829.7           687.9         455.7         16,061.9

Equity securities ..................            870.6           360.7          96.9          1,134.4
                                            --------------------------------------------------------

   Total ...........................        $16,700.3        $1,048.6        $552.6        $17,196.3
                                            ========================================================
</TABLE>


                                       62
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 - Investments - (Continued)

<TABLE>
<CAPTION>
                                                              Gross        Gross
                                            Amortized      Unrealized    Unrealized        Fair
                                               Cost           Gains        Losses          Value
                                            ------------------------------------------------------
                                                                (in millions)
<S>                                         <C>              <C>           <C>           <C>
December 31, 1999
Held-to-Maturity:

Corporate securities ...............        $12,533.1        $390.3        $680.7        $12,242.7

Mortgage-backed securities .........          1,188.4           5.0          68.5          1,124.9

Obligations of states and
  political subdivisions ...........             59.7           1.8           4.4             57.1

Debt securities issued by foreign
  governments ......................              5.0           5.0            --             10.0

U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies ........             14.1            --           0.4             13.7
                                            ------------------------------------------------------

   Total ...........................        $13,800.3        $402.1        $754.0        $13,448.4
                                            ======================================================

Available-for-Sale:

Corporate securities ...............        $11,191.5        $304.7        $437.8        $11,057.3

Mortgage-backed securities .........          4,190.7          18.8         110.6          4,100.0

Obligations of states and
  political subdivisions ...........             68.9           5.0            --             73.9

Debt securities issued by foreign
  governments ......................          1,525.3          79.2          49.3          1,555.2

U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies ........            291.3           1.6           9.7            283.2
                                            ------------------------------------------------------

Total fixed maturities .............         17,267.7         409.3         607.4         17,069.6

Equity securities ..................          1,088.1         305.9         161.9          1,232.1
                                            ------------------------------------------------------

   Total ...........................        $18,355.8        $715.2        $769.3        $18,301.7
                                            ======================================================
</TABLE>


                                       63
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Investments - (Continued)

The amortized cost and fair value of fixed maturities at December 31, 2000, by
contractual maturity, are shown below:

                                                        Amortized        Fair
                                                          Cost           Value
                                                        ------------------------
                                                              (in millions)
Held-to-Maturity:
Due in one year or less ..........................      $   901.6      $   919.4
Due after one year through five years ............        3,332.4        3,396.6
Due after five years through ten years ...........        3,080.9        3,144.0
Due after ten years ..............................        3,469.5        3,124.9
                                                        ------------------------
                                                         10,784.4       10,584.9

Mortgage-backed securities .......................        1,104.2        1,066.3
                                                        ------------------------

Total ............................................      $11,888.6      $11,651.2
                                                        ========================

Available-for-Sale:
Due in one year or less ..........................      $   567.2      $   575.8
Due after one year through five years ............        3,368.2        3,361.5
Due after five years through ten years ...........        3,809.8        3,769.3
Due after ten years ..............................        4,651.3        4,864.9
                                                        ------------------------
                                                         12,396.5       12,571.5

Mortgage-backed securities .......................        3,433.2        3,490.4
                                                        ------------------------

Total ............................................      $15,829.7      $16,061.9
                                                        ========================

Expected maturities may differ from contractual maturities because eligible
borrowers may exercise their right to call or prepay obligations with or without
call or prepayment penalties.

The sale of fixed maturities held-to-maturity relate to certain securities, with
amortized cost of $24.3 million and $8.5 million for the years ended December
31, 1999 and 1998, respectively, which were sold due to a significant decline in
the issuers' credit quality or as part of the sale of our property and casualty
operations in 1999. The related net realized gains, on the sales were $0.9
million in 1999. There were no such gains in 1998.

The change in net unrealized gains (losses) on trading securities that has been
included in earnings during 2000, 1999 and 1998 amounted to $7.9 million, $15.4
million, and ($6.6) million, respectively.

The Company participates in a securities lending program for the purpose of
enhancing income on securities held. At December 31, 2000 and 1999, $87.1
million and $278.1 million, respectively, of the Company's bonds and stocks, at
market value, were on loan to various brokers/dealers, but were fully
collateralized by cash and U.S. government securities in an account held in
trust for the Company. The market value of the loaned securities is monitored on
a daily basis, and the Company obtains additional collateral when deemed
appropriate.


                                       64
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Investments - (Continued)

For 2000, 1999 and 1998, investment results passed through to participating
pension contractholders as interest credited to policyholders' account balances
amounted to $162.3 million, $170.8 million, and $178.1 million, respectively.

Mortgage loans on real estate are evaluated periodically as part of the
Company's loan review procedures and are considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. The allowance for losses is maintained at a level believed adequate
by management to absorb estimated probable credit losses that exist at the
balance sheet date. Management's periodic evaluation of the adequacy of the
allowance for losses is based on the Company's past loan loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of the underlying collateral, composition of the loan portfolio,
current economic conditions and other relevant factors. This evaluation is
inherently subjective as it requires estimating the amounts and timing of future
cash flows expected to be received on impaired loans that may be susceptible to
significant change.

Changes in the allowance for probable losses on mortgage loans on real estate
and real estate to be disposed of are summarized below. Included in deductions
in 2000 are $13.5 million of allowances for probable losses on mortgage loans
transferred to the closed block.

<TABLE>
<CAPTION>
                                       Balance at                          Balance at
                                        Beginning                            End of
                                         of Year   Additions   Deductions     Year
                                       ----------------------------------------------
                                                        (in millions)
<S>                                      <C>         <C>         <C>         <C>
Year ended December 31, 2000
   Mortgage loans on real estate ..      $110.4      $  5.4      $ 45.8      $ 70.0
   Real estate to be disposed of ..        58.1        17.1        31.7        43.5
                                         ------------------------------------------
Total .............................      $168.5      $ 22.5      $ 77.5      $113.5
                                         ==========================================

Year ended December 31, 1999
   Mortgage loans on real estate ..      $111.0      $ 39.3      $ 39.9      $110.4
   Real estate to be disposed of ..       112.0        22.5        76.4        58.1
                                         ------------------------------------------
Total .............................      $223.0      $ 61.8      $116.3      $168.5
                                         ==========================================

Year ended December 31, 1998
   Mortgage loans on real estate ..      $127.3      $ 15.9      $ 32.2      $111.0
   Real estate to be disposed of ..        25.5        97.0        10.5       112.0
                                         ------------------------------------------
Total .............................      $152.8      $112.9      $ 42.7      $223.0
                                         ==========================================
</TABLE>


                                       65
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Investments - (Continued)

At December 31, 2000 and 1999, the total recorded investment in mortgage loans
that are considered to be impaired under SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," along with the related provision for losses were as
follows:

<TABLE>
<CAPTION>
                                                                          December 31
                                                                       2000         1999
                                                                      -------------------
                                                                         (in millions)
<S>                                                                   <C>          <C>
Impaired mortgage loans on real estate with provision for losses ...  $ 57.6       $147.1
Provision for losses ...............................................   (16.8)       (43.2)
                                                                      -------------------
Net impaired mortgage loans on real estate .........................  $ 40.8       $103.9
                                                                      ===================
</TABLE>

The average recorded investment in impaired loans and the interest income
recognized on impaired loans were as follows:

<TABLE>
<CAPTION>
                                                           Year Ended December 31
                                                        2000        1999        1998
                                                       ------------------------------
                                                               (in millions)
<S>                                                    <C>         <C>         <C>
Average recorded investment in impaired loans ...      $102.4      $137.9      $210.8
Interest income recognized on impaired loans ....         2.9         4.9         2.7
</TABLE>

The payment terms of mortgage loans on real estate may be restructured or
modified from time to time. Generally, the terms of the restructured mortgage
loans call for the Company to receive some form or combination of an equity
participation in the underlying collateral, excess cash flows or an effective
yield at the maturity of the loans sufficient to meet the original terms of the
loans.

Restructured commercial mortgage loans aggregated $68.3 million and $133.1
million as of December 31, 2000 and 1999, respectively. The expected gross
interest income that would have been recorded had the loans been current in
accordance with the original loan agreements and the actual interest income
recorded were as follows:

                                              Year Ended December 31
                                        2000            1999            1998
                                        ------------------------------------
                                                   (in millions)
Expected ..................             $5.8           $12.0           $23.7
Actual ....................              5.2             7.9            12.6


                                       66
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Investments - (Continued)

At December 31, 2000, the mortgage portfolio was diversified by geographic
region and specific collateral property type as displayed below:

<TABLE>
<CAPTION>
                                          Carrying        Geographic                                 Carrying
Property Type                              Amount         Concentration                               Amount
--------------------------------------------------------------------------------------------------------------------
                                       (in millions)                                              (in millions)
<S>                                     <C>               <C>                                        <C>
Apartments.....................         $  2,082.4        East North Central.................        $  907.8
Hotels.........................              351.6        East South Central.................           475.0
Industrial.....................              784.3        Middle Atlantic....................         1,115.8
Office buildings ..............            1,990.2        Mountain...........................           312.6
Retail.........................            1,284.3        New England........................           682.5
1-4 Family.....................               71.8        Pacific............................         1,574.4
Mixed Use......................              234.9        South Atlantic.....................         1,678.9
Agricultural...................            2,104.7        West North Central.................           296.1
Other..........................              135.2        West South Central.................           659.9
                                                          Canada/Other.......................         1,336.4
Allowance for losses...........              (70.0)       Allowance for losses...............           (70.0)
                                        ------------                                                 ---------

Total..........................           $8,969.4        Total..............................        $8,969.4
                                        ============                                                 =========
</TABLE>

Mortgage loans with outstanding principal balances of $27.8 million, bonds with
amortized cost of $117.1 million and real estate with a carrying value of $1.1
million were non-income producing for the year ended December 31, 2000.

Depreciation expense on investment real estate was $9.5 million, $8.1 million,
and $41.7 million in 2000, 1999, and 1998, respectively. Accumulated
depreciation was $66.2 million and $60.5 million at December 31, 2000 and 1999,
respectively.

Investments in unconsolidated joint ventures and partnerships accounted for by
using the equity method of accounting totaled $183.6 million and $201.7 million
at December 31, 2000 and 1999, respectively. Total combined assets of these
joint ventures and partnerships were $1,235.0 million and $1,134.2 million
(consisting primarily of investments), and total combined liabilities were
$313.0 million and $267.1 million (including $124.8 million and $133.2 million
of non-recourse notes payable to banks) at December 31, 2000 and 1999,
respectively. Total combined revenues and expenses of such joint ventures and
partnerships were $1,908.4 million and $1,720.0 million, respectively, resulting
in $188.4 million of total combined income from operations before income taxes
in 2000. Total combined revenues of such joint ventures and partnerships were
$346.7 million and $1,435.6 million, and total combined expenses were $145.2
million and $1,128.0 million, respectively, resulting in $201.5 million and
$307.6 million of total combined income from operations before income taxes in
1999 and 1998, respectively. Net investment income on investments accounted for
on the equity method totaled $143.8 million, $65.1 million and $70.0 million in
2000, 1999, and 1998, respectively.


                                       67
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Derivatives

The notional amounts, carrying values and estimated fair values of the Company's
derivative instruments are as follows:

<TABLE>
<CAPTION>
                                                                                     Assets (Liabilities)
                                                 Number of Contracts/     -------------------------------------------
                                                   Notional Amounts              2000                    1999
                                                 --------------------------------------------------------------------
                                                                          Carrying     Fair      Carrying      Fair
                                                   2000        1999        Value       Value       Value       Value
                                                 --------------------------------------------------------------------
                                                                             (in millions)
<S>                                              <C>         <C>         <C>         <C>         <C>         <C>
Asset Hedges:
  Futures contracts to sell
     securities ..............................      5,874      19,288    $  (17.6)   $  (17.6)   $   32.2    $   32.2
  Interest rate swap agreements
     Notional ................................   $6,896.1    $5,824.0      (178.2)     (290.4)       82.9        94.7
     Average fixed rate-paid .................       6.90%       6.91%         --          --          --          --
     Average float rate-received .............       6.67%       6.06%         --          --          --          --
  Interest rate cap agreements ...............   $   42.2    $   80.0         0.1         0.1         0.2         0.2
  Interest rate swaption
     agreements ..............................         30        30.0        (1.3)       (1.3)       (3.6)       (3.6)
  Currency rate swap
    agreements ...............................      515.0       541.0        11.4        11.4         9.1         9.1
  Equity collar agreements ...................         --          --        11.7        11.7        53.0        53.0
Liability Hedges:
  Futures contracts to acquire
     securities ..............................        647       4,075         1.4         1.4        (0.9)       (0.9)
  Interest rate swap agreements
     Notional ................................   $3,008.2    $3,780.0          --       114.3          --      (113.0)
     Average fixed rate-received .............       6.79%       6.97%         --          --          --          --
     Average float rate-paid .................       6.68%       6.06%         --          --          --          --

  Interest rate swaps (receive CMT rate) .....   $  491.3    $  648.7          --        (5.2)         --         1.9
  Interest rate cap agreements ...............      279.4       279.4         2.1         2.1         5.6         5.6
  Interest rate floor agreements .............    8,328.0       125.0        59.0        59.0         0.1         0.1
  Currency rate swap
    agreements ...............................    3,423.4     5,470.2          --      (473.0)         --       (57.4)
</TABLE>

Financial futures contracts are used principally to hedge risks associated with
interest rate fluctuations on sales of guaranteed investment contracts and
funding agreements. The Company is subject to the risks associated with changes
in the value of the underlying securities; however, such changes in value
generally are offset by opposite changes in the value of the hedged items. The
contract or notional amounts of the contracts represent the extent of the
Company's involvement but not the future cash requirements, as the Company
intends to close the open positions prior to settlement. The futures contracts
expire in March 2001.


                                       68
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Derivatives - (Continued)

The interest rate swap agreements expire in 2001 to 2029. The interest rate cap
agreements expire in 2001 to 2007 and interest rate floor agreements expire in
2010. Interest rate swaption agreements expire in 2025. The currency rate swap
agreements expire in 2001 to 2021. The equity collar agreements expire in 2003.

Fair values for futures contracts are based on quoted market prices. Fair values
for interest rate swap, cap and floor agreements, swaptions, and currency swap
agreements and equity collar agreements are based on current settlement values.
The current settlement values are based on quoted market prices, which utilize
pricing models or formulas using current assumptions.

The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.

Note 4 -- Income Taxes

The Company files a life/non-life consolidated federal income tax return. The
life company sub-group includes four domestic life insurance companies (the Life
Company, John Hancock Variable Life Insurance Company, Investors Partner Life
Insurance Company and Investors Guaranty Life Insurance Company) and a Bermuda
life insurance company (John Hancock Reassurance Company, Ltd.) that is treated
as a U.S. company for federal income tax purposes. The non-life subgroup
consists of John Hancock Financial Services, Inc., John Hancock Subsidiaries,
Inc. and John Hancock International Holdings, Inc.

In addition to taxes on operations, mutual life insurance companies are charged
an equity base tax. As the Mutual Company was a mutual life insurance company
for the entire year 1999, it is subject to the recomputation of its 1999 equity
base tax liability in its 2000 tax return. The equity base tax is determined by
application of an industry-based earnings rate to the Mutual Company's average
equity base, as defined by the Internal Revenue Code. The industry earnings rate
is determined by the Internal Revenue Service (IRS) and is not finalized until
the subsequent year. The Mutual Company estimates its taxes for the current year
based on estimated industry earnings rates and revises these estimates up or
down when the earnings rates are finalized and published by the IRS in the
subsequent year.

Income before income taxes and cumulative effect of accounting change includes
the following:

<TABLE>
<CAPTION>
                                                          Year Ended December 31
                                                        2000       1999       1998
                                                      ------------------------------
                                                              (in millions)
<S>                                                   <C>        <C>        <C>
Domestic ..........................................   $1,115.5   $  214.0   $  593.9
Foreign ...........................................       69.6       48.2       32.2
                                                      ------------------------------

Income before income taxes and cumulative effect
   of accounting change ...........................   $1,185.1   $  262.2   $  626.1
                                                      ==============================
</TABLE>


                                       69
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Income Taxes - (Continued)

The components of income taxes were as follows:

                                                    Year Ended December 31
                                                2000         1999         1998
                                               --------------------------------
                                                         (in millions)
Current taxes:
   Federal ..............................      $ 12.2       $(60.6)      $228.6
   Foreign ..............................         7.5          2.6          1.9
   State ................................        12.0          5.8          6.3
                                               --------------------------------
                                                 31.7        (52.2)       236.8

Deferred taxes:
   Federal ..............................       292.4        137.2        (66.0)
   Foreign ..............................        23.1         15.4          7.7
   State ................................        (1.0)        (1.1)        (0.9)
                                               --------------------------------
                                                314.5        151.5        (59.2)
                                               --------------------------------

Total income taxes ......................      $346.2       $ 99.3       $177.6
                                               ================================

A reconciliation of income taxes computed by applying the federal income tax
rate to income before income taxes and the consolidated income tax expense
charged to operations follows:

                                                       Year Ended December 31
                                                      2000      1999      1998
                                                     --------------------------
                                                           (in millions)

Tax at 35% .......................................   $414.8    $ 91.8    $219.1
Add (deduct):
   Equity base tax ...............................    (46.0)     22.2     (19.9)
   Prior year taxes ..............................     (0.3)      2.1       5.8
   Tax credits ...................................    (20.6)    (12.9)    (13.0)
   Foreign taxes .................................      0.4       1.0       2.5
   Tax exempt investment income ..................    (16.4)    (19.4)    (24.4)
   Non-taxable gain on sale of subsidiary ........       --     (15.4)       --
   Disallowed demutualization expenses ...........       --      31.1        --
   Other .........................................     14.3      (1.2)      7.5
                                                     --------------------------

        Total income taxes .......................   $346.2    $ 99.3    $177.6
                                                     ==========================


                                       70
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Income Taxes - (Continued)

The significant components of the Company's deferred tax assets and liabilities
were as follows:

                                                                 December 31
                                                               2000       1999
                                                             -------------------
                                                                (in millions)
Deferred tax assets:
     Policy reserve adjustments ..........................   $  458.8   $  803.1
     Other postretirement benefits .......................      149.4      151.1
     Book over tax basis of investments ..................      168.7      119.7
     Dividends payable to policyholders ..................      117.6      129.0
     Unearned premium ....................................       93.3       58.3
     Interest ............................................       38.3       38.3
     Other ...............................................         --       68.1
                                                             -------------------
         Total deferred tax assets .......................    1,026.1    1,367.6
                                                             -------------------

Deferred tax liabilities:
     Deferred policy acquisition costs ...................      777.6      805.1
     Depreciation ........................................      212.2      232.1
     Basis in partnerships ...............................      109.8      159.2
     Market discount on bonds ............................       64.2       59.2
     Pension plan expense ................................      114.6       82.5
     Capitalized charges related to mutual funds .........       56.9       71.8
     Unrealized gains ....................................      112.3       32.3
     Other ...............................................       79.0         --
                                                             -------------------
         Total deferred tax liabilities ..................    1,526.6    1,442.2
                                                             -------------------

         Net deferred tax liabilities ....................   $  500.5   $   74.6
                                                             ===================

The Company received an income tax refund of $25.7 million, and made income tax
payments of $86.7 million, and $163.3 million in 2000, 1999 and 1998,
respectively.


                                       71
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 5 -- Closed Block

Under the Plan, on February 1, 2000, the Company created a closed block for the
benefit of policies included therein. The following tables set forth certain
summarized financial information relating to the closed block as of the dates
indicated:

<TABLE>
<CAPTION>
                                                                     December 31,   February 1,
                                                                         2000          2000
                                                                     --------------------------
Assets                                                                      (in millions)
<S>                                                                    <C>           <C>
Investments
Fixed maturities:
    Held-to-maturity--at amortized cost
       (fair value: December 31--$2,327.4; February 1--$2,259.6) ...   $ 2,269.9     $ 2,270.7
    Available-for-sale--at fair value
      (cost: December 31--$2,378.7; February 1--$2,275.1) ..........     2,353.0       2,199.2
Equity securities:
    Available-for-sale--at fair value
      (cost: December 31--$5.3; February 1--$6.4) ..................         6.3           3.4
Mortgage loans on real estate ......................................     1,930.6       1,875.9
Policy loans .......................................................     1,540.6       1,561.2
Short-term investments .............................................        62.1            --
Other invested assets ..............................................        40.7           5.3
                                                                       -----------------------
   Total Investments ...............................................     8,203.2       7,915.7

Cash and cash equivalents ..........................................       305.6         158.6
Accrued investment income ..........................................       149.3         136.2
Premiums and accounts receivable ...................................        27.1           4.0
Deferred policy acquisition costs ..................................       947.3       1,062.5
Other assets .......................................................        77.5          66.0
                                                                       -----------------------
    Total closed block assets ......................................   $ 9,710.0     $ 9,343.0
                                                                       =======================

Liabilities
Future policy benefits .............................................   $ 9,910.5     $ 9,732.8
Policyholders' funds ...............................................     1,459.5       1,885.4
Other liabilities ..................................................       665.9         500.1
                                                                       -----------------------
    Total closed block liabilities .................................   $12,035.9     $12,118.3
                                                                       =======================
</TABLE>


                                       72
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 5 -- Closed Block - (Continued)

<TABLE>
<CAPTION>
                                                                        For the Period February 1,
                                                                           through December 31,
                                                                                    2000
                                                                        --------------------------
Revenues                                                                        (in millions)
<S>                                                                               <C>
    Premiums ......................................................               $  865.0
    Net investment income .........................................                  591.6
    Realized investment gains, net ................................                   11.7
    Other expense .................................................                   (0.6)
                                                                                  --------
       Total revenues .............................................                1,467.7

Benefits and Expenses
    Benefits to policyholders .....................................                  870.0
    Other operating costs and expenses ............................                  (10.0)
    Amortization of deferred policy
      acquisition costs ...........................................                   76.5
    Dividends to policyholders ....................................                  407.1
                                                                                  --------
       Total benefits and expenses ................................                1,343.6
                                                                                  --------

       Contribution from the closed block .........................               $  124.1
                                                                                  ========
</TABLE>

Gross losses of $7.2 million in 2000 were realized on sales of
available-for-sale securities allocated to the closed block. There were no gross
gains realized in 2000.

Investments in held-to-maturity securities and available-for-sale securities
allocated to the closed block are summarized below:

<TABLE>
<CAPTION>
                                                             Gross     Gross
                                               Amortized  Unrealized Unrealized    Fair
                                                  Cost       Gains     Losses      Value
                                               ------------------------------------------
December 31, 2000                                             (in millions)
<S>                                             <C>        <C>        <C>        <C>
Held-to-Maturity:
Corporate securities ........................   $2,157.0   $   94.6   $   33.4   $2,218.2
Mortgage-backed securities ..................       98.3        1.2        4.8       94.7
Obligations of states and
  political subdivisions ....................       14.6        0.1        0.2       14.5
                                                -----------------------------------------

   Total ....................................   $2,269.9   $   95.9   $   38.4   $2,327.4
                                                =========================================
Available-for-Sale:
Corporate securities ........................   $1,485.4   $   42.8   $   80.4   $1,447.8
Mortgage-backed securities ..................      784.9       14.5        8.5      790.9
Obligations of states and
  political subdivisions ....................       11.3        0.4         --       11.7
Debt securities issued by foreign
  governments ...............................       84.0        6.7        1.4       89.3
U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies .................       13.1        0.2         --       13.3
                                                -----------------------------------------
Total fixed maturities ......................    2,378.7       64.6       90.3    2,353.0

Equity securities ...........................        5.3        1.6        0.6        6.3
                                                -----------------------------------------
   Total ....................................   $2,384.0   $   66.2   $   90.9   $2,359.3
                                                =========================================
</TABLE>


                                       73
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 5 -- Closed Block - (Continued)

The amortized cost and fair value of fixed maturities at December 31, 2000, by
contractual maturity, are shown below:
                                                           Amortized      Fair
                                                              Cost        Value
                                                           ---------------------
                                                               (in millions)
Held-to-Maturity:
Due in one year or less ................................    $  202.2    $  206.0
Due after one year through five years ..................       803.6       821.2
Due after five years through ten years .................       587.1       614.1
Due after ten years ....................................       578.7       591.4
                                                            --------------------
                                                             2,171.6     2,232.7

                                                            --------------------
Mortgage-backed securities .............................        98.3        94.7
                                                            --------------------
Total ..................................................    $2,269.9    $2,327.4
                                                            ====================

Available-for-Sale:
Due in one year or less ................................    $   64.5    $   66.0
Due after one year through five years ..................       431.7       431.4
Due after five years through ten years .................       473.8       466.8
Due after ten years ....................................       623.8       597.9
                                                            --------------------
                                                             1,593.8     1,562.1

                                                            --------------------
Mortgage-backed securities .............................       784.9       790.9
                                                            --------------------

Total ..................................................    $2,378.7    $2,353.0
                                                            ====================

Expected maturities may differ from contractual maturities because eligible
borrowers may exercise their right to call or prepay obligations with or without
call or prepayment penalties.

At December 31, 2000, the mortgage portfolio was diversified by geographic
region and specific collateral property type as displayed below:

<TABLE>
<CAPTION>
                                          Carrying        Geographic                                 Carrying
Property Type                              Amount         Concentration                               Amount
--------------------------------------------------------------------------------------------------------------------
                                       (in millions)                                              (in millions)
<S>                                       <C>             <C>                                        <C>
Apartments.....................           $  324.3        East North Central.................        $  201.1
Hotels.........................               66.1        East South Central.................            58.5
Industrial.....................              127.2        Middle Atlantic....................           378.0
Office buildings ..............              494.6        Mountain...........................            92.1
Retail.........................              350.4        New England........................           162.0
1-4 Family.....................                 --        Pacific............................           420.7
Mixed Use......................               41.8        South Atlantic.....................           384.5
Agricultural...................              433.1        West North Central.................            74.9
Other..........................              106.6        West South Central.................           162.7
                                                          Canada/Other.......................             9.6
Allowance for losses...........              (13.5)       Allowance for losses...............           (13.5)
                                    ---------------------                                      ---------------------

Total..........................           $1,930.6        Total..............................        $1,930.6
                                    =====================                                      =====================
</TABLE>


                                       74
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Debt and Line of Credit

Short-term and long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                        December 31
                                                                      2000      1999
                                                                     ----------------
                                                                       (in millions)
<S>                                                                  <C>       <C>
Short-term debt:
   Commercial paper ..............................................   $222.3    $380.6
   Current maturities of long-term debt ..........................     23.0      73.2
                                                                     ----------------
Total short-term debt ............................................    245.3     453.8
                                                                     ----------------

Long-term debt:
   Surplus notes, 7.38% maturing in 2024 .........................    447.2     447.1
   Notes payable, interest ranging from 5.43% to 9.60%, due in
     varying amounts to 2005 .....................................    109.8     163.0
                                                                     ----------------

Total long-term debt .............................................    557.0     610.1

Less current maturities ..........................................    (23.0)    (73.2)
                                                                     ----------------

Long-term debt ...................................................    534.0     536.9
                                                                     ----------------

    Total debt ...................................................   $779.3    $990.7
                                                                     ================
</TABLE>


                                       75
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Debt and Line of Credit - (Continued)

The Company issues commercial paper primarily to take advantage of current
investment opportunities, balance operating cash flows and existing commitments
and meet working capital needs. The weighted average interest rate for
outstanding commercial paper at December 31, 2000 and 1999 was 6.59% and 6.28%,
respectively. The weighted average life for outstanding commercial paper at
December 31, 2000 and 1999 was approximately 26 days and 11 days, respectively.
Commercial paper borrowing arrangements are supported by a syndicated line of
credit.

The issuance of surplus notes was approved by the Massachusetts Commissioner of
Insurance, and any payments of interest or principal on the surplus notes
requires the prior approval of the Massachusetts Commissioner of Insurance.

At December 31, 2000, the Company had a syndicated line of credit with a group
of banks totaling $1.0 billion, $500.0 million of which expires on August 2,
2001 and $500.0 million of which expires on August 3, 2005. The banks will
commit, when requested, to loan funds at prevailing interest rates as determined
in accordance with the line of credit agreement. Under the terms of the
agreement, the Company is required to maintain certain minimum levels of net
worth and comply with certain other covenants, which were met at December 31,
2000. At December 31, 2000, the Company had no outstanding borrowings under the
agreement.

Aggregate maturities of long-term debt are as follows: 2001--$23.0 million;
2002--$38.0 million; 2003--$22.9 million; 2004--$6.0 million; 2005--$19.9
million and thereafter--$447.2 million.

Interest expense on debt, included in other operating costs and expenses, was
$63.4 million, $70.1 million, and $76.7 million in 2000, 1999 and 1998,
respectively. Interest paid amounted to $63.4 million in 2000, $70.1 million in
1999, and $76.7 million in 1998.

Note 7 -- Minority Interest

Minority interest relates to preferred stock issued by The Maritime Life
Assurance Company (Maritime), an indirect majority owned subsidiary of the
Company. For financial reporting purposes, the assets, the liabilities, and
earnings of Maritime are consolidated in the Company's financial statements.

In 1986, Maritime issued $25.3 million of Series A Cumulative Redeemable
Preferred Stock (Preferred Stock). Dividends on the Preferred Stock are payable
quarterly at 18% of the average of two prime rates of two specified Canadian
banks. The Preferred Stock is nonvoting and redeemable at Maritime's sole option
at a price of 25 Canadian dollars per share.

On November 19, 1999, Maritime issued $68.2 million of Non-Cumulative Redeemable
Second Preferred Shares, Series 1 (Series 1 Preferred Shares) at a price of 25
Canadian dollars per share. Dividends on the Series 1 Preferred Shares are
payable quarterly, through December 31, 2004, at a rate of 0.38125 Canadian
dollars per share. Commencing on January 1, 2005, the Series 1 Preferred Shares
dividends will be calculated by applying 25 Canadian dollars to the greater of
one quarter of 90% of prime rate and 5.85%. The Series 1 Preferred Shares are
nonvoting and redeemable at Maritime's sole option any time after December 31,
2004 at a price of 25.50 Canadian dollars plus all declared and unpaid
dividends. In addition, shareholders as of December 31, 2004 have the option to
convert their Series 1 Preferred Shares to Non-Cumulative Redeemable Second
Preferred Shares, Series 2 (Series 2 Preferred Shares). The Series 2 Preferred
Shares will have a dividend rate of not less than 95% of the yield of certain
bonds of the Government of Canada.

The investors' preferred stock interests have been reported as Minority Interest
on the consolidated balance sheets.


                                       76
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 8 -- Reinsurance

The effect of reinsurance on premiums written and earned was as follows:

<TABLE>
<CAPTION>
                                        2000                    1999                    1998
                                      Premiums                Premiums                Premiums
                                      --------                --------                --------
                                Written      Earned     Written      Earned     Written      Earned
                                --------------------------------------------------------------------
                                                           (in millions)
<S>                             <C>         <C>         <C>         <C>         <C>         <C>
Life, Health and Annuity:
  Direct ....................   $3,158.1    $3,157.4    $3,437.1    $3,435.2    $2,830.4    $2,828.4
  Assumed ...................      465.1       465.1       312.5       312.5       351.9       351.9
  Ceded .....................   (1,035.4)   (1,035.4)   (1,030.5)   (1,030.5)     (982.5)     (982.4)
                                --------------------------------------------------------------------
     Net life, health and
     annuity premiums .......    2,587.8     2,587.1     2,719.1     2,717.2     2,199.8     2,197.9
                                --------------------------------------------------------------------

Property and Casualty:
  Direct ....................         --          --          --          --         0.4         7.1
  Assumed ...................         --          --         0.3         0.3          --         1.9
  Ceded .....................         --          --          --          --        (0.4)       (9.0)
                                --------------------------------------------------------------------
     Net property and
     casualty premiums ......         --          --         0.3         0.3          --          --
                                --------------------------------------------------------------------

     Net premiums ...........   $2,587.8    $2,587.1    $2,719.4    $2,717.5    $2,199.8    $2,197.9
                                ====================================================================
</TABLE>

For the years ended December 31, 2000, 1999 and 1998, benefits to policyholders
under life, health and annuity ceded reinsurance contracts were $684.5 million,
$556.3 million, and $810.8 million, respectively.

On February 28, 1997, the Company sold a major portion of its group insurance
business to UNICARE Life & Health Insurance Company (UNICARE), a wholly owned
subsidiary of WellPoint Health Networks, Inc. The business sold included the
Company's group accident and health business and related group life business and
Cost Care, Inc., Hancock Association Services Group and Tri-State, Inc., all of
which were indirect wholly-owned subsidiaries of the Company. The Company
retained its group long-term care operations. The insurance business sold was
transferred to UNICARE through a 100% coinsurance agreement.

In connection with the coinsurance arrangement, the Company initially secured a
$397.0 million letter of credit facility with a group of banks. Under the terms
of the letter of credit facility agreement, the banks agreed to issue a letter
of credit to the Company pursuant to which the Company may draw up to the amount
of the letter of credit for any claims not satisfied by UNICARE under the
coinsurance agreement after the Company has incurred the first $113.0 million of
losses from such claims. The amount available pursuant to the letter of credit
agreement and any letter of credit issued thereunder automatically will be
reduced on a scheduled basis consistent with the anticipated runoff of
liabilities related to the business reinsured under the coinsurance agreement.
The letter of credit facility was reduced to $272.0 million effective March 1,
2000 and is scheduled to be reduced again to $127.0 million on March 1, 2001.
The letter of credit and any letter of credit issued thereunder are scheduled to
expire on March 1, 2002. The Company remains liable to its policyholders to the
extent that UNICARE does not meet its contractual obligations under the
coinsurance agreement.

Through the Company's group health insurance operations, the Company entered
into a number of reinsurance arrangements in respect of personal accident
insurance and the occupational accident component of workers compensation
insurance, a portion of which was originated through a pool managed by Unicover
Managers, Inc. Under these arrangements, the Company both assumed risks as a
reinsurer, and also passed 95% of these risks on to other companies. This
business had originally been reinsured by a number of different companies, and
has become the subject of widespread disputes. The disputes concern the
placement of the business with reinsurers


                                       77
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 8 -- Reinsurance - (Continued)

and recovery of the reinsurance. The Company is engaged in disputes, including a
number of legal proceedings, in respect of this business. The risk to the
Company is that other companies that reinsured the business from the Company may
seek to avoid their reinsurance obligations. However, the Company believes that
it has a reasonable legal position in this matter. During the fourth quarter of
1999 and early 2000, the Company received additional information about its
exposure to losses under the various reinsurance programs. As a result of this
additional information and in connection with global settlement discussions
initiated in late 1999 with other parties involved in the reinsurance programs,
during the fourth quarter of 1999 the Company recognized a charge for
uncollectible reinsurance of $133.7 million, after tax, as its best estimate of
its remaining loss exposure. The Company believes that any exposure to loss from
this issue, in addition to amounts already provided for as of December 31, 2000,
would not be material.

Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurers.

Note 9 -- Pension Benefit Plans and Other Postretirement Benefit Plans

The Company provides pension benefits to substantially all employees and general
agency personnel. These benefits are provided through both qualified defined
benefit and defined contribution pension plans. In addition, through
nonqualified plans, the Company provides supplemental pension benefits to
employees with salaries and/or pension benefits in excess of the qualified plan
limits imposed by federal tax law. Pension benefits under the defined benefit
plans are based on years of service and average compensation generally during
the five years prior to retirement. Benefits related to the Company's defined
benefit pension plans paid to employees and retirees covered by annuity
contracts issued by the Company amounted to $102.2 million in 2000, $97.6
million in 1999, and $92.6 million in 1998. Plan assets consist principally of
listed equity securities, corporate obligations and U.S. government securities.

The Company's funding policy for qualified defined benefit plans is to
contribute annually an amount in excess of the minimum annual contribution
required under the Employee Retirement Income Security Act (ERISA). This amount
is limited by the maximum amount that can be deducted for federal income tax
purposes. Because the qualified defined benefit plans are overfunded, no amounts
were contributed to these plans in 2000 or 1999. The funding policy for
nonqualified defined benefit plans is to contribute the amount of the benefit
payments made during the year. The projected benefit obligation and accumulated
benefit obligation for the non-qualified defined benefit pension plans, which
are underfunded, for which accumulated benefit obligations are in excess of plan
assets were $256.3 million, and $244.3 million, respectively, at December 31,
2000, and $257.4 million and $239.3 million, respectively, at December 31, 1999.
Non-qualified plan assets, at fair value, were $0.8 million and $1.0 million at
December 31, 2000 and 1999, respectively.

Defined contribution plans include The Investment Incentive Plan and the Savings
and Investment Plan. The expense for defined contribution plans was $10.2
million, $9.4 million, and $8.1 million, in 2000, 1999 and 1998, respectively.

In addition to the Company's defined benefit pension plans, the Company has
employee welfare plans for medical, dental, and life insurance covering most of
its retired employees and general agency personnel.


                                       78
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 9 -- Pension Benefit Plans and Other Postretirement Benefit Plans -
(Continued)

Substantially all employees may become eligible for these benefits if they reach
retirement age while employed by the Company. The postretirement health care and
dental coverages are contributory based on service for post January 1, 1992
non-union retirees. A small portion of pre-January 1, 1992 non-union retirees
also contribute. The applicable contributions are based on service.

The Company's policy is to fund postretirement benefits in amounts at or below
the annual tax qualified limits. As of December 31, 2000 and 1999, plan assets
related to non-union employees were comprised of an irrevocable health insurance
contract to provide future health benefits to retirees. Plan assets related to
union employees were comprised of approximately 60% equity securities and 40%
fixed income investments.

The changes in benefit obligation and plan assets related to the Company's
qualified and nonqualified benefit plans are summarized as follows:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31
                                                                               Other Postretirement
                                                       Pension Benefits             Benefits
                                                      --------------------------------------------
                                                        2000        1999        2000        1999
                                                      --------------------------------------------
                                                                      (in millions)
<S>                                                   <C>         <C>         <C>         <C>
Change in benefit obligation:
   Benefit obligation at beginning of year ........   $1,967.6    $1,839.8    $  443.2    $  441.1
   Service cost ...................................       36.8        35.7         7.8         7.5
   Interest cost ..................................      134.1       121.2        31.4        28.7
   Amendments .....................................      (10.3)       19.9          --          --
   Actuarial (gain) loss ..........................     (136.8)       32.6        36.4        (4.7)
   Translation (gain) loss ........................       (1.5)        2.1          --          --
   Benefits paid ..................................     (113.6)     (115.1)      (32.0)      (29.4)
   Acquisition of subsidiary ......................         --        44.6         6.5          --
   Curtailment ....................................         --       (13.2)         --          --
                                                      --------------------------------------------
   Benefit obligation at end of year ..............    1,876.3     1,967.6       493.3       443.2
                                                      --------------------------------------------

Change in plan assets:
   Fair value of plan assets at beginning
     of year ......................................    2,476.5     2,251.1       232.9       215.2
   Actual return on plan assets ...................      132.6       281.5         0.3        17.7
   Employer contribution ..........................       12.6        11.5        35.5          --
   Benefits paid ..................................     (113.6)     (108.4)       (7.3)         --
   Translation (loss) gain ........................       (2.3)        3.5          --          --
   Acquisition of subsidiary ......................         --        50.2          --          --
   Curtailment ....................................         --       (12.9)         --          --
                                                      --------------------------------------------
   Fair value of plan assets at end of year .......    2,505.8     2,476.5       261.4       232.9
                                                      --------------------------------------------

Funded status .....................................      629.5       508.9      (231.9)     (210.3)
Unrecognized actuarial gain .......................     (400.6)     (366.0)     (139.7)     (182.8)
Unrecognized prior service cost ...................       24.2        39.1        (1.4)       (1.6)
Unrecognized net transition asset .................       (6.3)      (11.8)         --          --
                                                      --------------------------------------------
Prepaid (accrued) benefit cost, net ...............   $  246.8    $  170.2    $ (373.0)   $ (394.7)
                                                      ============================================

Amounts recognized in balance sheet consist of:
      Prepaid benefit cost ........................   $  396.4    $  299.4
      Accrued benefit liability ...................     (243.5)     (238.9)
      Intangible asset ............................        6.0         7.9
      Accumulated other comprehensive
        income ....................................       87.9       101.8
                                                      --------------------
Prepaid benefit cost, net .........................   $  246.8    $  170.2
                                                      ====================
</TABLE>


                                       79
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 9 -- Pension Benefits Plans and Other Postretirement Benefit Plans -
(Continued)

The assumptions used in accounting for the Company's qualified and nonqualified
benefit plans were as follows:

<TABLE>
<CAPTION>
                                                            Year Ended December 31
                                                                         Other Postretirement
                                               Pension Benefits                 Benefits
                                              ------------------------------------------------
                                              2000           1999         2000           1999
                                              ------------------------------------------------
<S>                                           <C>            <C>          <C>            <C>
Discount rate........................         7.25%          7.00%        7.25%          7.00%
Expected return on plan assets ......         9.00%          8.50%        9.00%          8.50%
Rate of compensation increase........         4.77%          4.77%        4.77%          4.77%
</TABLE>

For measurement purposes, an 8.75% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001. The rate was assumed
to decrease gradually to 5.25% in 2006 and remain at that level thereafter.

For the prior valuation, an 5.50% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2000. The rate was assumed to
decrease gradually to 5.25% in 2001 and remain at that level thereafter.

The net periodic benefit (credit) cost related to the Company's qualified and
nonqualified benefit plans includes the following components:

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31
                                                                                                        Other Postretirement
                                                               Pension Benefits                               Benefits
                                                     ------------------------------------------------------------------------------
                                                       2000          1999           1998          2000          1999           1998
                                                     ------------------------------------------------------------------------------
                                                                                      (in millions)
<S>                                                  <C>           <C>            <C>          <C>           <C>            <C>
Service cost..................................       $   36.8      $   35.7       $   34.6     $   7.8       $   7.5        $   7.1
Interest cost.................................          134.1         121.2          117.5        31.4          28.7           29.1
Expected return on plan assets................         (217.4)       (186.6)        (168.5)      (24.1)        (18.3)         (14.7)
Amortization of transition asset..............          (12.7)        (12.1)         (11.7)         --            --             --
Amortization of prior service cost............            4.6           3.9            6.5        (0.2)         (0.2)          (0.3)
Recognized actuarial gain.....................          (10.9)         (8.1)          (2.6)       (8.8)         (8.5)          (7.8)
Other.........................................             --          (3.8)          (1.2)         --            --             --
                                                     ------------------------------------------------------------------------------
     Net periodic benefit (credit) cost.......       $  (65.5)     $  (49.8)      $  (25.4)    $   6.1       $   9.2         $ 13.4
                                                     ==============================================================================
</TABLE>

Assumed health care cost trend rates have a significant effect on the amounts
reported for the healthcare plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:

<TABLE>
<CAPTION>
                                                                        1-Percentage                   1-Percentage
                                                                       Point Increase                 Point Decrease
                                                                -------------------------------------------------------------
                                                                                       (in millions)
<S>                                                                         <C>                          <C>
Effect on total of service and interest costs
   in 2000.................................................                 $  4.6                       $  (2.2)
Effect on postretirement benefit obligations
   as of December 31, 2000.................................                   34.5                         (29.9)
</TABLE>


                                       80
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 10 -- Commitments and Contingencies

In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 2000. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.

During 1997, the Company entered into a court-approved settlement relating to a
class action lawsuit involving certain individual life insurance policies sold
from 1979 through 1996. In entering into the settlement, the Company
specifically denied any wrongdoing. The reserve held in connection with the
settlement to provide for relief to class members and for legal and
administrative costs associated with the settlement amounted to $172.8 million
and $496.6 million at December 31, 2000 and 1999, respectively. Costs incurred
related to the settlement were $140.2 million and $230.8 million, in 1999 and
1998, respectively. No such costs were incurred in 2000. The estimated reserve
is based on a number of factors, including the estimated cost per claim and the
estimated costs to administer the claims.

During 1996, management determined that is was probable that a settlement would
occur and that a minimum loss amount could be reasonably estimated. Accordingly,
the Company recorded its best estimate based on the information available at the
time. The terms of the settlement agreement were negotiated throughout 1997 and
approved by the court on December 31, 1997. In accordance with the terms of the
settlement agreement, the Company contacted class members during 1998 to
determine the actual type of relief to be sought by class members. The majority
of the responses from class members were received by the fourth quarter of 1998.
The type of relief sought by class members differed from the Company's previous
estimates, primarily due to additional outreach activities by regulatory
authorities during 1998 encouraging class members to consider alternative
dispute resolution relief. In 1999, the Company updated its estimate of the cost
of claims subject to alternative dispute resolution relief and revised its
reserve estimate accordingly.

Given the uncertainties associated with estimating the reserve, it is reasonably
possible that the final cost of the settlement could differ materially from the
amounts presently provided for by the Company. The Company will continue to
update its estimate of the final cost of the settlement as the claims are
processed and more specific information is developed, particularly as the actual
cost of the claims subject to alternative dispute resolution becomes available.
However, based on information available at this time, and the uncertainties
associated with the final claim processing and alternative dispute resolution,
the range of any additional costs related to the settlement cannot be estimated
with precision.


                                       81
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 11 - Shareholders' Equity

(a) Common Stock

As result of the demutualization and initial public offering as described in
Note 1, the Company has one class of capital stock, common stock ($.01 par
value, 2.0 billion shares authorized). At December 31, 2000, approximately 11.2
million shares of common stock were reserved for issuance related to the
issuance of stock under the 1999 Long-term Stock Incentive Plan.

On October 26, 2000, the Company announced that its Board of Directors
authorized a repurchase program beginning in the fourth quarter of 2000, with no
termination date, under which the Company will purchase up to $500.0 million of
its outstanding common stock. The stock repurchase program was implemented
primarily to offset the dilutive effect of its stock incentive plan. Stock
repurchased under the program is accounted for as treasury stock, carried at
cost and reflected as a reduction to shareholders' equity. Under the repurchase
program, purchases are being made from time to time, depending on market
conditions, business opportunities and other factors, in the open market or
through privately negotiated transactions. As of December 31, 2000, the Company
repurchased 3.0 million shares of its common stock in the open market at a total
cost of $91.8 million under this repurchase authorization.

(b) Other Comprehensive Income

The components of accumulated other comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                                              Foreign
                                                                Net           Currency       Minimum
                                                            Unrealized      Translation      Pension        Accumulated Other
                                                           Gains (Losses)    Adjustment     Liability     Comprehensive Income
                                                           -------------------------------------------------------------------
                                                                                     (in millions)
<S>                                                           <C>             <C>            <C>                <C>
Balance at January 1, 1998 ............................       $ 520.4         $(44.1)        $(29.5)            $ 446.8

Gross unrealized gains (losses) (net of deferred
   income tax benefit of $56.7 million) ...............        (121.3)            --             --              (121.3)
Less reclassification adjustment for
   (gains) losses, realized in net
   income (net of tax expense of
   $61.4 million) .....................................        (113.9)            --             --              (113.9)
Participating group annuity contracts (net of
   deferred income tax expense of $31.1 million)  .....          57.7             --             --                57.7
Adjustment to deferred policy acquisition costs and
   present value of future profits (net of deferred
   income tax expense of $15.5 million) ...............          28.9             --             --                28.9
                                                           -------------------------------------------------------------------
Net unrealized gains (losses) .........................        (148.6)            --             --              (148.6)
Foreign currency translation adjustment ...............            --           (6.0)            --                (6.0)

Minimum pension liability (net of deferred income
   tax benefit of $6.2 million) .......................            --             --           (8.8)               (8.8)
                                                           -------------------------------------------------------------------
Balance at December 31, 1998 ..........................         371.8          (50.1)         (38.3)              283.4
                                                           -------------------------------------------------------------------
</TABLE>


                                       82
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 11 -- Shareholders' Equity - (Continued)

<TABLE>
<CAPTION>
                                                                               Foreign
                                                                 Net           Currency        Minimum
                                                             Unrealized      Translation       Pension        Accumulated Other
                                                            Gains (Losses)    Adjustment      Liability     Comprehensive Income
                                                            --------------------------------------------------------------------
                                                                                     (in millions)
<S>                                                            <C>             <C>             <C>                 <C>
Balance at December 31, 1998 ..........................        $ 371.8         $ (50.1)        $ (38.3)            $ 283.4

Gross unrealized gains (losses) (net of deferred
   income tax benefit of $277.9 million) ..............         (508.2)             --              --              (508.2)
Less reclassification adjustment for
   (gains) losses, realized in net
   income (net of tax expense of
   $5.4 million) ......................................          (10.0)             --              --               (10.0)
Participating group annuity contracts (net of
   deferred income tax expense of $40.1 million)  .....           74.6              --              --                74.6
Adjustment to deferred policy acquisition costs and
   present value of future profits (net of deferred
   income tax expense of $71.3 million) ...............          132.3              --              --               132.3
                                                            --------------------------------------------------------------------
Net unrealized gains (losses) .........................         (311.3)             --              --              (311.3)
Foreign currency translation adjustment ...............             --            16.9              --                16.9

Minimum pension liability (net of deferred income
   tax benefit of $12.3 million) ......................             --              --           (22.9)              (22.9)
                                                            --------------------------------------------------------------------
Balance at December 31, 1999 ..........................           60.5           (33.2)          (61.2)              (33.9)
                                                            --------------------------------------------------------------------

Gross unrealized gains (losses) (net of deferred
   income tax expense of $39.1 million) ...............           49.8              --              --                49.8
Less reclassification adjustment for
   (gains) losses, realized in net
   income (net of tax benefit of
   $62.0 million) .....................................          115.2              --              --               115.2
Participating group annuity contracts (net of
   deferred income tax benefit of $3.6 million) .......           (6.8)             --              --                (6.8)
Adjustment to deferred policy acquisition costs and
   present value of future profits (net of deferred
   income tax benefit of $17.5 million) ...............          (32.6)             --              --               (32.6)
                                                            --------------------------------------------------------------------
Net unrealized gains (losses) .........................          125.6              --              --               125.6
Foreign currency translation adjustment ...............             --           (19.1)             --               (19.1)

Minimum pension liability (net of deferred income
   tax expense of $4.4 million) .......................             --              --             8.2                 8.2
                                                            --------------------------------------------------------------------
Balance at December 31, 2000 ..........................        $ 186.1         $ (52.3)        $ (53.0)            $  80.8
                                                            ====================================================================
</TABLE>


                                       83
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 11 -- Shareholders' Equity - (Continued)

Net unrealized investment gains (losses), included in the consolidated balance
sheets as a component of shareholders' equity, are summarized as follows:

<TABLE>
<CAPTION>
For the Years Ended December, 31                             2000            1999            1998
                                                           ---------------------------------------
                                                                        (in millions)
<S>                                                        <C>             <C>             <C>
Balance, end of year comprises:
   Unrealized investment gains (losses) on:
      Fixed maturities ............................        $ 206.5         $(198.1)        $ 730.7
      Equity investments ..........................          264.8           144.0           239.0
      Derivatives and other .......................         (148.5)          110.8          (111.5)
                                                           ---------------------------------------
Total .............................................          322.8            56.7           858.2

Amounts of unrealized investment (gains) losses
  attributable to:
      Participating group annuity contracts .......          (34.4)          (24.0)         (138.7)
      Deferred policy acquisition cost and
        present value of future profits ...........           10.0            60.1          (143.5)
      Deferred federal income taxes ...............         (112.3)          (32.3)         (204.2)
                                                           ---------------------------------------
Total .............................................         (136.7)            3.8          (486.4)
                                                           ---------------------------------------

Net unrealized investment gains ...................        $ 186.1         $  60.5         $ 371.8
                                                           =======================================
</TABLE>

C) Statutory Results

The Life Company and its domestic insurance subsidiaries prepare their
statutory-basis financial statements in accordance with accounting practices
prescribed or permitted by the state of domicile. Prescribed statutory
accounting practices include state laws, regulations and administrative rules,
as well as guidance published by the NAIC. Permitted accounting practices
encompass all accounting practices that are not prescribed by the sources noted
above. Since 1988, the Commonwealth of Massachusetts Division of Insurance has
provided the Company with approval to recognize the pension plan prepaid expense
in accordance with the requirements of SFAS No. 87, "Employers' Accounting for
Pensions." The Company furnishes the Commonwealth of Massachusetts Division of
Insurance with an actuarial certification of the prepaid expense computation on
an annual basis.

In addition, during 2000 and 1999, the Company received permission from the
Commonwealth of Massachusetts Division of Insurance to record its Asset
Valuation Reserve in excess of the prescribed maximum reserve level by $36.7
million and $48.0 million at December 31, 2000 and 1999, respectively. There are
no other material permitted practices.


                                       84
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 11 - Shareholders' Equity - (Continued)

Statutory net income and surplus include the accounts of the Life Company and
its variable life insurance subsidiary, John Hancock Variable Life Insurance
Company, including its wholly-owned subsidiary, Investors Partner Life Insurance
Company, and Investors Guaranty Life Insurance Company.

<TABLE>
<CAPTION>
                                                    2000                1999                 1998
                                                 --------------------------------------------------
                                                                   (in millions)
<S>                                              <C>                 <C>                  <C>
Statutory net income...................          $   617.6           $   573.2            $   627.3
Statutory surplus......................            3,700.5             3,456.7              3,388.7
</TABLE>

Massachusetts has enacted laws governing the payment of dividends by insurers.
Under Massachusetts insurance law, no insurer may pay any shareholder dividends
from any source other than statutory unassigned funds without the prior approval
of the Massachusetts Division of Insurance. Massachusetts law also limits the
dividends an insurer may pay in any twelve month period, without the prior
permission of the Massachusetts Division of Insurance, to the greater of (i) 10%
of its statutory policyholders' surplus as of the preceding December 31 or (ii)
the individual company's statutory net gain from operations for the preceding
calendar year, if such insurer is a life company.

Note 12 -- Segment Information

The Company's reportable segments are strategic business units offering
different products and services. The reportable segments are managed separately,
as they focus on different products, markets or distribution channels.

Retail-Protection Segment. Offers a variety of individual life insurance and
individual and group long-term care insurance products, including participating
whole life, term life, universal life, variable life, and retail and group
long-term care insurance. Products are distributed through multiple distribution
channels, including insurance agents and brokers and alternative distribution
channels that include banks, financial planners, direct marketing and the
Internet.

Retail-Asset Gathering Segment. Offers individual annuities and mutual fund
products and services. Individual annuities consist of fixed deferred annuities,
fixed immediate annuities, single premium immediate annuities, and variable
annuities. Mutual fund products and services primarily consist of open-end
mutual funds, closed-end funds, and 401(k) services. This segment distributes
its products through distribution channels including insurance agents and
brokers affiliated with the Company, securities brokerage firms, financial
planners, and banks.

Institutional-Guaranteed and Structured Financial Products (G&SFP) Segment.
Offers a variety of retirement products to qualified defined benefit plans,
defined contribution plans and non-qualified buyers. The Company's products
include guaranteed investment contracts, funding agreements, single premium
annuities, and general account participating annuities and fund type products.
These contracts provide non-guaranteed, partially guaranteed, and fully
guaranteed investment options through general and separate account products. The
segment distributes its products through a combination of dedicated regional
representatives, pension consultants and investment professionals.

Institutional-Investment Management Segment. Offers a wide range of investment
management products and services to institutional investors covering a variety
of private and publicly traded asset classes including fixed income, equity,
mortgage loans, and real estate. This segment distributes its products through a
combination of dedicated sales and marketing professionals, independent
marketing specialists, and investment professionals.


                                       85
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 12 -- Segment Information - (Continued)

Corporate and Other Segment. Primarily consists of the Company's international
insurance operations, certain corporate operations, and businesses that are
either disposed or in run-off. Corporate operations primarily include certain
financing activities, income on capital not specifically allocated to the
reporting segments and certain non-recurring expenses not allocated to the
segments. The disposed businesses primarily consist of group health insurance
and related group life insurance, property and casualty insurance and selected
broker/dealer operations.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Allocations of net investment income
are based on the amount of assets allocated to each segment. Other costs and
operating expenses are allocated to each segment based on a review of the nature
of such costs, cost allocations utilizing time studies, and other relevant
allocation methodologies.

Management of the Company evaluates performance based on segment after-tax
operating income, which excludes the effect of net realized investment gains or
losses and unusual or non-recurring events and transactions. Segment after-tax
operating income is determined by adjusting GAAP net income for net realized
investment gains and losses, including gains and losses on disposals of
businesses and certain other items which management believes are not indicative
of overall operating trends. While these items may be significant components in
understanding and assessing the Company's financial performance, management
believes that the presentation of after-tax operating income enhances its
understanding of the Company's results of operations by highlighting net income
attributable to the normal, recurring operations of the business.

Amounts reported as segment adjustments in the tables below primarily relate to:
(i) certain realized investment gains (losses), net of related amortization
adjustment for deferred policy acquisition costs and amounts credited to
participating pension contractholder accounts (the adjustment for realized
investment gains (losses) excludes gains and losses from mortgage
securitizations and investments backing short-term funding agreements because
management views the related gains and losses as an integral part of the core
business of those operations); (ii) benefits to policyholders and expenses
incurred relating to the settlement of a class action lawsuit against the
Company involving certain individual life insurance policies sold from 1979
through 1996; (iii) restructuring costs related to our distribution systems,
retail operations and mutual fund operations; (iv) the surplus tax on mutual
life insurance companies which as a stock company is no longer applicable to the
Company; (v) a fourth quarter 1999 charge for uncollectible reinsurance related
to certain assumed reinsurance business; (vi) a fourth quarter 1999 charge for a
group pension dividend resulting from demutualization related asset transfers
and the formation of a corporate account; (vii) a charge for certain one time
costs associated with the demutualization process; and (viii) cumulative effect
of accounting change.

The following table summarizes selected financial information by segment for the
year ended or as of December 31 and reconciles segment revenues and segment
after-tax operating income to amounts reported in the consolidated statements of
income (in millions):


                                       86
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 12 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                      Retail                 Institutional
                                                          Retail       Asset    Institutional  Investment   Corporate
2000                                                    Protection   Gathering      G&SFP      Management   and Other   Consolidated
                                                       -----------   ---------  ------------- ------------  ---------   ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>          <C>
Revenues:
      Segment revenues ..............................   $ 1,804.6    $ 1,195.9    $ 2,574.3    $   212.0    $ 1,719.6    $ 7,506.4
      Realized investment gains (losses), net .......       (18.9)        15.4        (64.7)         7.1        152.8         91.7
                                                       -----------------------------------------------------------------------------
      Revenues ......................................   $ 1,785.7    $ 1,211.3    $ 2,509.6    $   219.1    $ 1,872.4    $ 7,598.1
                                                       =============================================================================
      Net investment income .........................   $   612.0    $   445.8    $ 1,743.2    $    22.7    $   447.7    $ 3,271.4
Net Income:
      Segment after-tax operating income ............       262.0        128.8        212.1         46.8        102.5        752.2
      Realized investment gains (losses), net .......       (12.0)        18.6        (40.5)         4.4         93.5         64.0
      Restructuring charges .........................        (6.7)        (1.4)        (2.6)          --         (1.3)       (12.0)
      Surplus tax ...................................        20.8          0.6          6.5           --         18.1         46.0
      Demutualization expenses ......................         1.6          0.4          0.4           --         (9.4)        (7.0)
      Other demutualization related costs ...........        (6.8)        (1.3)        (1.7)          --         (0.2)       (10.0)
      Group pension dividend transfer ...............          --           --          5.7           --           --          5.7
                                                       -----------------------------------------------------------------------------
      Net income ....................................   $   258.9    $   145.7    $   179.9    $    51.2    $   203.2    $   838.9
                                                       =============================================================================
Supplemental Information:
      Inter-segment revenues ........................          --           --           --    $    39.1    $   (39.1)          --
      Equity in net income of investees
       accounted for by the equity method ...........   $     7.5    $     3.5    $    11.2         16.8        104.8    $   143.8
      Amortization of deferred policy
       acquisition costs ............................        63.4         78.8          2.6           --         46.8        191.6
      Interest expense ..............................         1.1          3.5           --         12.1         46.7         63.4
      Income tax expense ............................        93.7         57.9         78.5         35.2         80.9        346.2
      Segment assets ................................    26,746.4     14,067.2     30,908.4      3,124.5     12,506.8     87,353.3
Net Realized Investment Gains Data:
      Net realized investment (losses) gains ........       (35.0)        18.8        (57.8)        10.3        152.9         89.2
      Add capitalization/less amortization of
        Deferred policy acquisition costs
        related to net realized investment
        gains (losses) ..............................         4.4         (3.5)          --           --           --          0.9
      Less amounts credited to participating
        Pension contractholder accounts .............          --           --         (6.9)          --           --         (6.9)
                                                       -----------------------------------------------------------------------------
      Net realized investment (losses) gains,
        net of related amortization of
        deferred policy acquisition costs and
        amounts credited to participating
        pension contractholders - per consolidated
        financial statements ........................       (30.6)        15.3        (64.7)        10.3        152.9         83.2
      Less realized investment (losses) gains
        Attributable to mortgage securitizations ....          --           --           --         (3.2)          --         (3.2)
      Net realized investment gains in the
        closed block ................................        11.7           --           --           --           --         11.7
                                                       -----------------------------------------------------------------------------
      Realized investment (losses) gains,
        net-pre-tax adjustment made to
        calculate segment operating income ..........       (18.9)        15.3        (64.7)         7.1        152.9         91.7
      Less income tax effect ........................         6.9          3.3         24.2         (2.7)       (59.4)       (27.7)
                                                       -----------------------------------------------------------------------------
      Realized investment (losses) gains,
        net-after-tax adjustment made to
        calculate segment operating income ..........   $   (12.0)   $    18.6    $   (40.5)   $     4.4    $    93.5    $    64.0
                                                       =============================================================================
</TABLE>


                                       87
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 12 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                      Retail                 Institutional
                                                          Retail       Asset    Institutional  Investment   Corporate
1999                                                    Protection   Gathering      G&SFP      Management   and Other   Consolidated
                                                       -----------   ---------  ------------- ------------  ---------   ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>          <C>
Revenues:
      Segment revenues ..............................   $ 2,903.0    $ 1,057.3    $ 2,194.0    $   189.9    $ 1,310.5    $ 7,654.7
      Realized investment gains (losses), net .......       173.5        (11.0)        93.3          3.1        (56.1)       202.8
                                                       -----------------------------------------------------------------------------
      Revenues ......................................   $ 3,076.5    $ 1,046.3    $ 2,287.3    $   193.0    $ 1,254.4    $ 7,857.5
                                                       =============================================================================
      Net investment income .........................   $ 1,107.3    $   388.6    $ 1,681.4    $    45.9    $   350.8    $ 3,574.0
Net Income:
      Segment after-tax operating income ............       190.6        115.1        202.4         37.3         67.8        613.2
      Realized investment gains (losses), net .......       108.5         (6.9)        58.4          2.0        (42.1)       119.9
      Class action lawsuit ..........................          --           --           --           --        (91.1)       (91.1)
      Restructuring charges .........................        (8.6)        (7.3)        (0.6)          --         (0.5)       (17.0)
      Surplus tax ...................................       (12.5)        (1.0)        (6.5)          --         (2.2)       (22.2)
       Workers' compensation reinsurance
         Reserves ...................................          --           --           --           --       (133.7)      (133.7)
      Group pension dividend transfer ...............          --           --       (205.8)          --           --       (205.8)
      Demutualization expenses ......................       (61.3)       (13.0)       (16.1)          --         (3.2)       (93.6)
      Other demutualization related costs ...........        (4.6)        (0.9)        (1.1)          --         (0.2)        (6.8)
      CumuIative effect of accounting
       change .......................................          --         (9.6)          --         (0.1)          --         (9.7)
                                                       -----------------------------------------------------------------------------
      Net income ....................................   $   212.1    $    76.4    $    30.7    $    39.2    $  (205.2)   $   153.2
                                                       =============================================================================
Supplemental Information:
      Inter-segment revenues ........................          --           --           --    $    43.6    $   (43.6)          --
      Equity in net income of investees
       accounted for by the equity method ...........   $    46.2    $    (0.3)   $    14.3          3.5          1.4    $    65.1
      Amortization of deferred policy
       acquisition costs ............................        71.8         53.5          3.1           --         38.4        166.8
      Interest expense ..............................         0.7          6.2           --          5.3         57.9         70.1
      Income tax expense (credit) ...................       139.9         52.6         (7.8)        26.5       (111.9)        99.3
      Segment assets ................................    25,378.4     14,297.2     30,231.5      3,531.4     11,017.2     84,455.7
Net Realized Investment Gains Data:
      Net realized investment gains (losses) ........       228.3        (16.1)        97.4          6.6        (55.3)       260.9
      Less amortization of deferred policy
        Acquisition costs related to net realized
        Investment (losses) gains ...................       (54.8)         5.1           --           --         (0.8)       (50.5)
      Less amounts credited to participating
        Pension contractholder accounts .............          --           --        (35.3)          --           --        (35.3)
                                                       -----------------------------------------------------------------------------
      Net realized investment gains (losses),
        net of related amortization of
        deferred policy acquisition costs and
        amounts credited to participating
        pension contractholders - per consolidated
        financial statements ........................       173.5        (11.0)        62.1          6.6        (56.1)       175.1
      Less realized investment (losses) gains
        Attributable to mortgage securitizations
        and investments backing short-term
        funding agreements ..........................          --           --        (31.2)         3.5           --        (27.7)
      Less gain on sale of business .................          --           --           --           --        (33.0)       (33.0)
                                                       -----------------------------------------------------------------------------
      Realized investment gains (losses),
        net-pre-tax adjustment made to
        calculate segment operating income ..........       173.5        (11.0)        93.3          3.1        (89.1)       169.8
      Less income tax effect ........................       (65.0)         4.1        (34.9)        (1.1)        47.0        (49.9)
                                                       -----------------------------------------------------------------------------
      Realized investment gains (losses),
        net-after-tax adjustment made to
        calculate segment operating income ..........   $   108.5    $    (6.9)   $    58.4    $     2.0    $   (42.1)   $   119.9
                                                       =============================================================================
</TABLE>


                                       88
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 12 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                      Retail                 Institutional
                                                          Retail       Asset    Institutional  Investment   Corporate
                                                        Protection   Gathering      G&SFP      Management   and Other   Consolidated
                                                       -----------   ---------  ------------- ------------  ---------   ------------
<S>                                                     <C>          <C>          <C>          <C>          <C>          <C>
1998
Revenues:
      Segment revenues ..............................   $ 2,759.2    $ 1,015.3    $ 1,731.2    $   143.9    $ 1,103.9    $ 6,753.5
      Realized investment gains, net ................        75.6         18.3         30.7          0.2         23.7        148.5
                                                       -----------------------------------------------------------------------------
      Revenues ......................................   $ 2,834.8    $ 1,033.6    $ 1,761.9    $   144.1    $ 1,127.6    $ 6,902.0
                                                       =============================================================================
      Net investment income .........................   $ 1,063.9    $   378.0    $ 1,576.3    $    24.1    $   288.4    $ 3,330.7
Net Income:
      Segment after-tax operating income ............   $   172.3    $   111.1    $   145.7    $    15.4    $    56.3    $   500.8
      Realized investment gains, net ................        49.2         12.0         17.2          0.1         15.4         93.9
      Class action lawsuit ..........................          --           --           --           --       (150.0)      (150.0)
      Surplus tax ...................................        11.7          0.3          2.0           --          1.5         15.5
      Demutualization expenses ......................        (7.9)        (1.8)        (1.5)          --         (0.5)       (11.7)
                                                       -----------------------------------------------------------------------------
      Net income ....................................   $   225.3    $   121.6    $   163.4    $    15.5    $   (77.3)   $   448.5
                                                       =============================================================================
Supplemental Information:
      Inter-segment revenues ........................          --           --           --    $    34.3    $   (34.3)          --
      Equity in net income of investees
       accounted for by the equity method ...........   $    54.9           --    $    12.7          0.9          1.5    $    70.0
      Amortization of deferred policy
       acquisition costs ............................       153.9    $    46.8          3.7           --         45.3        249.7
      Interest expense ..............................         0.3          8.5           --          7.0         60.9         76.7
      Income tax expense (credit) ...................        82.3         62.2         68.4         10.7        (46.0)       177.6
      Segment assets ................................    25,703.7     12,715.7     29,315.2      3,439.6      5,792.5     76,966.7
Net Realized Investment Gains Data:
      Net realized investment gains (losses) ........       113.2         21.9         72.1         (4.2)        23.7        226.7
      Less amortization of deferred policy
        acquisition costs related to net realized
        investment (losses) gains ...................       (37.6)        (3.6)          --           --           --        (41.2)
      Less amounts credited to participating
        pension contractholder accounts .............          --           --        (79.1)          --           --        (79.1)
                                                       -----------------------------------------------------------------------------
      Net realized investment gains (losses),
        net of related amortization of
        deferred policy acquisition costs and
        amounts credited to participating
        pension contractholders - per consolidated
        financial statements ........................        75.6         18.3         (7.0)        (4.2)        23.7        106.4
      Less realized investment (losses) gains
        attributable to mortgage securitizations
        and investments backing short-term
        funding agreements ..........................          --           --        (37.7)        (4.4)          --        (42.1)
                                                       -----------------------------------------------------------------------------
      Realized investment gains, net-pre-tax
        adjustment made to calculate segment
        operating income ............................        75.6         18.3         30.7          0.2         23.7        148.5
      Less income tax effect ........................       (26.4)        (6.3)       (13.5)        (0.1)        (8.3)       (54.6)
                                                       -----------------------------------------------------------------------------
      Realized investment gains, net-after-tax
        adjustment made to calculate segment
        operating income ............................   $    49.2    $    12.0    $    17.2    $     0.1    $    15.4    $    93.9
                                                       =============================================================================
</TABLE>


                                       89
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 12 -- Segment Information - (Continued)

The Company operates primarily in the United States, Canada and the Pacific Rim
(China, Indonesia, Malaysia, the Philippines, Singapore, and Thailand). The
following table summarizes selected financial information by geographic location
for the year ended or at December 31:

<TABLE>
<CAPTION>
                                                                                                               Income Before
                                                                                                        Income Taxes and Cumulative
                                                                 Long-Lived                                      Effect of
Location                                        Revenues           Assets             Assets                 Accounting Change
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  (in millions)
<S>                                              <C>                <C>              <C>                          <C>
2000
United States..........................          $6,274.8           $424.8           $77,649.5                    $1,115.5
Canada.................................           1,078.6             30.4             9,259.7                        63.7
Foreign - other........................             244.7              3.4               444.1                         5.9
                                            ----------------------------------------------------------------------------------------
                                                 $7,598.1           $458.6           $87,353.3                    $1,185.1
                                            ========================================================================================

1999
United States..........................          $6,878.9           $440.0           $75,644.9                      $214.0
Canada.................................             741.9             28.8             8,461.7                        41.8
Foreign - other........................             236.7              2.2               349.1                         6.4
                                            ----------------------------------------------------------------------------------------
                                                 $7,857.5           $471.0           $84,455.7                      $262.2
                                            ========================================================================================

1998
United States..........................          $6,161.4           $442.5           $71,744.6                      $593.9
Canada.................................             512.0             24.9             4,941.6                        30.2
Foreign - other........................             228.6              2.1               280.5                         2.0
                                            ----------------------------------------------------------------------------------------
                                                 $6,902.0           $469.5           $76,966.7                      $626.1
                                            ========================================================================================
</TABLE>

The Company has no reportable major customers and revenues are attributed to
countries based on the location of customers.


                                       90
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Fair Value of Financial Instruments

The following discussion outlines the methodologies and assumptions used to
determine the fair value of the Company's financial instruments. The aggregate
fair value amounts presented herein do not represent the underlying value of the
Company and, accordingly, care should be exercised in drawing conclusions about
the Company's business or financial condition based on the fair value
information presented herein.

The following methods and assumptions were used by the Company to determine the
fair values of financial instruments:

     Fair values for publicly traded fixed maturities (including redeemable
     preferred stocks) are obtained from an independent pricing service. Fair
     values for private placement securities and fixed maturities not provided
     by the independent pricing service are estimated by the Company by
     discounting expected future cash flows using a current market rate
     applicable to the yield, credit quality and maturity of the investments.
     The fair value for equity securities is based on quoted market prices.

     The fair value for mortgage loans on real estate is estimated using
     discounted cash flow analyses using interest rates adjusted to reflect the
     credit characteristics of the loans. Mortgage loans with similar
     characteristics and credit risks are aggregated into qualitative categories
     for purposes of the fair value calculations. Fair values for impaired
     mortgage loans are measured based either on the present value of expected
     future cash flows discounted at the loan's effective interest rate or the
     fair value of the underlying collateral for loans that are collateral
     dependent.

     The carrying amount in the balance sheet for policy loans, short-term
     investments and cash and cash equivalents approximates their respective
     fair values.

     The fair value of the Company's long-term debt is estimated using
     discounted cash flows based on the Company's incremental borrowing rates
     for similar types of borrowing arrangements. Carrying amounts for
     commercial paper and short-term borrowings approximate fair value.

     Fair values for the Company's guaranteed investment contracts and funding
     agreements are estimated using discounted cash flow calculations based on
     interest rates currently being offered for similar contracts with
     maturities consistent with those remaining for the contracts being valued.
     The fair value for fixed-rate deferred annuities is the cash surrender
     value, which represents the account value less applicable surrender
     charges. Fair values for immediate annuities without life contingencies and
     supplementary contracts without life contingencies are estimated based on
     discounted cash flow calculations using current market rates.

     The Company's derivatives include futures contracts, interest rate swap,
     cap and floor agreements, swaptions, currency rate swap agreements and
     equity collar agreements. Fair values for these contracts are based on
     current settlement values. These values are based on quoted market prices
     for the financial futures contracts and brokerage quotes that utilize
     pricing models or formulas using current assumptions for all swaps and
     other agreements.

     The fair value for commitments approximates the amount of the initial
     commitment.


                                       91
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Fair Value of Financial Instruments - (Continued)

The following table presents the carrying amounts and fair values of the
Company's financial instruments:

<TABLE>
<CAPTION>
                                                                               December 31
                                                                   2000                            1999
                                                        -------------------------      --------------------------
                                                         Carrying          Fair         Carrying           Fair
                                                           Value          Value           Value           Value
                                                        -------------------------      --------------------------
                                                                              (in millions)
<S>                                                     <C>             <C>             <C>             <C>
Assets:
   Fixed maturities:
     Held-to-maturity ............................      $11,888.6       $11,651.2       $13,800.3       $13,448.4
     Available-for-sale ..........................       16,061.9        16,061.9        17,069.6        17,069.6
   Equity securities:
     Available-for-sale ..........................        1,134.4         1,134.4         1,232.1         1,232.1
     Trading securities ..........................          231.6           231.6            84.1            84.1
   Mortgage loans on real estate .................        8,969.4         9,351.1        10,736.4        10,685.2
   Policy loans ..................................          428.6           428.6         1,938.8         1,938.8
   Short-term investments ........................          151.9           151.9           166.9           166.9
   Cash and cash equivalents .....................        2,974.4         2,974.4         1,817.9         1,817.9

Liabilities:
   Debt ..........................................          779.3           771.5           990.7           962.8
   Guaranteed investment contracts and
     funding agreements ..........................       14,333.9        13,953.8        13,109.3        12,709.1
   Fixed rate deferred and immediate annuities ...        5,195.2         5,101.3         4,801.1         4,656.9
   Supplementary contracts
     without life contingencies ..................           60.0            63.1            56.6            55.7

Derivatives assets/(liabilities) relating to:
   Futures contracts, net ........................          (16.2)          (16.2)           31.3            31.3
   Interest rate swap agreements .................         (178.2)         (176.1)           82.9           (18.3)
   Interest rate swap CMT ........................             --            (5.2)             --              --
   Interest rate cap agreements ..................            2.2             2.2             5.8             5.8
   Interest rate floor agreements ................           59.0            59.0             0.1             0.1
   Interest rate swaption agreements .............           (1.3)           (1.3)           (3.6)           (3.6)
   Currency rate swap agreements .................           11.4          (461.6)            9.1           (48.3)
   Equity collar agreements ......................           11.7            11.7            53.0            53.0

Commitments ......................................             --        (1,843.9)             --        (1,273.5)
</TABLE>


                                       92
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 14 -- Stock Compensation Plans

On January 5, 2000, the Life Company, as sole shareholder of John Hancock
Financial Services, Inc., approved and adopted the 1999 Long-Term Stock
Incentive Plan (the Incentive Plan), which originally had been approved by the
Board of Directors of the Company on August 31, 1999. Under the Incentive Plan,
which became effective on February 1, 2000, the effective date of the Plan of
Reorganization of the Life Company, options granted may be either non-qualified
options or incentive stock options qualifying under Section 422 of the Internal
Revenue Code. The Incentive Plan objectives include attracting and retaining the
best personnel, providing for additional performance incentives, and promoting
the success of the Company by providing employees the opportunity to acquire the
Company's common stock.

The maximum number of shares of common stock available under the Incentive Plan
is 5% of the total number of shares of common stock that were outstanding
following the IPO. In addition, no more than 4% of these shares shall be
available for awards of incentive stock options under the Incentive Plan, and no
more than 1% of these shares shall be available for stock awards, which includes
non-vested stock. The aggregate number of shares that may be covered by awards
for any one participant over the period that the Incentive Plan is in effect
shall not exceed 1% of these shares. Subject to these overall limits, there is
no annual limit on the number of stock options or stock awards that may be
granted in any one year.

The Incentive Plan has options exercisable at March 13, 2001 and 2002, June 12,
2001 and 2002, and August 14, 2001 and 2002. The Company has granted 4.6 million
options as of December 31, 2000. Options outstanding under the Incentive Plan
were granted at a price equal to the market value of the stock on the date of
grant, vest over a two-year period, and expire five years after the grant date.

The status of stock options under the Long-Term Stock Incentive Plan is
summarized below as of December 31:

                                              Number of shares  Weighted-average
                                               (in thousands)    exercise price
                                              ----------------  ----------------

Outstanding at February 1, 2000                         --               --
  Granted                                          4,618.4          $ 14.06
  Exercised                                            0.2            13.94
  Canceled                                           311.6            13.94
                                              ----------------------------------

Outstanding at December 31, 2000                   4,306.6            14.07

Options exercisable at:
   March 13, 2001                                  2,125.3            13.94
   June 12, 2001                                       6.3            23.37
   August 14, 2001                                    21.7            23.75
   March 13, 2002                                  2,125.3            13.94
   June 12, 2002                                       6.3            23.37
   August 14, 2002                                    21.7            23.75

The Company accounts for stock-based compensation using the intrinsic value
method prescribed by APB Opinion No. 25, under which no compensation cost for
stock options is recognized for stock option awards granted at or above fair
market value. Had compensation expense for the Company's stock-based
compensation plan been determined based upon fair values at the grant dates for
awards under the plan in accordance with SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below. Additional stock option awards are anticipated in future years.


                                       93
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 14 -- Stock Compensation Plans - (Continued)

The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

The estimated weighted-average grant date fair value per share of stock options
granted during 2000 using the Black-Scholes option valuation model was $3.66.
The fair value of options granted in 2000 is estimated on the date of grant
using the following assumptions: dividend yield of 1.8%, expected volatility of
24%, risk-free interest rate range of 4.8% to 5.6% depending on grant date, and
an expected life ranging from 2 to 5 years.

For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:

<TABLE>
<CAPTION>
                                 For the Period February
                                        1 through                    Year Ended December 31, 2000
                                    December 31, 2000                   Pro Forma (unaudited)
                                 -----------------------             ----------------------------
                                           (dollars in millions, except per share data)
<S>                                       <C>                                    <C>
Net income:
   As reported                            $794.9                                 $838.9
   Pro forma (unaudited)                   791.2                                  834.6
Earnings per share
 Basic:
   As reported                              2.53                                   2.67
   Pro forma (unaudited)                    2.52                                   2.65
 Diluted:
   As reported                              2.51                                   2.65
   Pro forma (unaudited)                    2.50                                   2.64
</TABLE>

At December 31, 2000, the Company had 4.3 million stock options outstanding with
a weighted-average remaining contractual life of 4.2 years and a
weighted-average exercise price of $14.07. As of December 31, 2000, there were
21,707 options exercisable, which represent grants to employees who subsequently
retired. Employees who retire with outstanding options immediately vest and have
a maximum of one year to exercise.

On March 13, 2000, the Company granted 291,028 shares of non-vested stock to key
personnel at a weighted- average grant price per share of $14.34. These grants
of non-vested stock are forfeitable and vest at three or five years of service
with the Company. The total grant-date exercise price of the non-vested stock
granted from February 1, 2000 through December 31, 2000 is $4.2 million. During
the third and fourth quarters of 2000, 50,837 shares of non-vested stock were
forfeited with a total grant date exercise price of $0.7 million.

Stock Ownership and Loan Program

In January 2000, the Company adopted a loan program whereby the Company may
extend credit to key executives to purchase stock in order for them to meet
mandatory stock ownership requirements. These full recourse loans bear interest
at variable rates and principal and interest are payable no later than the death
of the executive, termination of employment or five years. As of December 31,
2000, these loans receivable were $3.6 million and are recorded in other assets.


                                       94
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 15-- Subsequent Events

On February 5, 2001, the Board of Directors approved stock and stock option
grants to the Policy Committee of the Company. The equity grants were made in
compliance with the terms of the demutualization Plan of Reorganization and the
1999 Long-Term Stock Incentive Plan which had been originally approved by the
Board of Directors of John Hancock Financial Services, Inc. on August 31, 1999
(the Plan). A total of 56.0 thousand shares of non-vested stock was granted,
with a total grant date exercise price of $2.0 million. A total of 9.4 million
options were granted, with a grant date exercise price of $35.53 per share.

On February 8, 2001, the Company signed letters of intent to reinsure 50% of the
business in the Closed Block, effective January 1, 2001. The effect of the
reinsurance will be to lower the Life Company's statutory risk based capital
requirements and to raise its statutory risk based capital ratio. This will
provide greater statutory capital flexibility for the Life Company. There will
be no effect on policyholder dividends, nor will the immediate effect on
earnings be material, as the reinsurance treaties will not meet the requirements
of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long Duration Contracts." Final treaties with two reinsurers are expected to be
signed by the end of the first quarter of 2001. The reinsurance agreements
result in making several hundred million dollars in statutory capital available
for further business development or other purposes.

-----------------------------------------------
Event (Unaudited) Subsequent to Date of Auditors' Report

In March 2001, the Company announced the sale of the retirement plan
record-keeping business operated out of the mutual fund subsidiary of the
Company, John Hancock Funds. It is estimated that an after-tax charge of
approximately $9 million will be recorded in the first quarter of 2001 and that
the Company will initially sever 31 employees with additional severances
planned. The Company will continue to manage the assets of the business, the
purchaser will assume the record-keeping and support responsibilities.


                                       95
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Quarterly Results of Operations - (Unaudited)

The following is a summary of unaudited quarterly results of operations for 2000
and 1999:

<TABLE>
<CAPTION>
                                                            2000                                           1999
                                         -------------------------------------------------------------------------------------------
                                           March      June     September   December     March       June      September     December
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>        <C>        <C>         <C>        <C>         <C>         <C>          <C>
(in millions, except per share data)
Premiums and other considerations        $  760.9   $  915.9   $  663.4    $1,011.7   $  723.0    $1,052.3    $  762.6     $  860.5
Net investment income                       848.6      812.0      795.9       814.9      843.3       873.6       864.1        993.0
Net realized investment gains (losses),
  net of related amortization
  of deferred policy acquisition costs
  and amounts credited to
  participating pension
  contractholders                            18.3       63.0       (2.7)        4.6      101.8       140.0       (63.8)        (2.9)
Total revenues                            1,864.3    1,999.9    1,695.1     2,038.8    1,823.5     2,261.1     1,733.5      2,039.4

Benefits and expenses (a)                 1,569.9    1,657.9    1,429.1     1,756.1    1,537.3     1,942.0     1,696.0      2,420.0
Income before income taxes and
  cumulative effect of accounting
  change                                    294.4      342.0      266.0       282.7      286.2       319.1        37.5       (380.6)
Cumulative effect of accounting
  Change, net of tax                           --         --         --          --        9.7          --          --           --
Net income                                  191.5      232.4      184.3       230.7      188.0       202.0        19.1       (255.9)
------------------------------------------------------------------------------------------------------------------------------------
 Income before cumulative effect of
  accounting change per common
  share
   Basic                                 (b)$0.61      $0.74      $0.59       $0.74        N/A         N/A         N/A     (c)$0.52
   Diluted                               (b)$0.61      $0.73      $0.58       $0.73        N/A         N/A         N/A     (c)$0.52
------------------------------------------------------------------------------------------------------------------------------------
 Net income per common share
   Basic                                 (b)$0.61      $0.74      $0.59       $0.74        N/A         N/A         N/A     (c)$0.49
   Diluted                               (b)$0.61      $0.73      $0.58       $0.73        N/A         N/A         N/A     (c)$0.49
------------------------------------------------------------------------------------------------------------------------------------
Market price
   High                                     18.81      24.63      28.13       38.25        N/A         N/A         N/A          N/A
   Low                                      13.44      16.38      20.63       25.63        N/A         N/A         N/A          N/A
   Close                                    18.06      23.59      26.88       37.63        N/A         N/A         N/A          N/A
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)   The extraordinary item recorded in the prior year for demutualization
      expenses has been reclassified to benefits and expenses for all periods
      presented in accordance with SOP 00-3, "Accounting by Insurance
      Enterprises for Demutualizations and Formations of Mutual Insurance
      Holding Companies and Certain Long-Duration Participating Contracts,"
      issued by the AICPA in December 2000.

(b)   First quarter 2000 earnings per share are on a pro forma basis as the
      Company's IPO did not close until February 1, 2000. See Note 1. Actual net
      income per common share for the period from February 1, 2000 through March
      31, 2000 was $0.47 for basic and diluted computations.

(c)   This is unaudited pro forma information which gives effect to the
      Reorganization and Initial Public Offering referred to in Note 1. Because
      the Company did not have outstanding common stock prior to its IPO on
      February 1, 2000, the balances represent earnings per share on a pro forma
      basis for the period from January 1, 1999 through December 31, 1999 using
      314.8 million outstanding shares.


                                       96