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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               -------------------

                                    FORM 10-K

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                            FOR THE FISCAL YEAR ENDED
                                DECEMBER 31, 2004
                           COMMISSION FILE NO. 1-15607

                               -------------------

                      JOHN HANCOCK FINANCIAL SERVICES, INC.
             (Exact name of registrant as specified in its charter)

                               -------------------

                DELAWARE                                04-3483032
     (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                Identification No.)

                               John Hancock Place
                               Post Office Box 111
                           Boston, Massachusetts 02117
                                 (617) 572-6000
    (Address, including zip code, and telephone number, including area code,
                  of Registrant's principal executive offices)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

                               -------------------
                                (Title of class)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE

                               -------------------
                                (Title of class)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the December 31, 2003 John
Hancock Financial Services, Inc. Form 10-K or any amendment to the December 31,
2003 John Hancock Financial Services, Inc. Form 10-K |X|.

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No |_|

      The registrant meets the conditions set forth in General Instructions
I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with reduced
disclosure format.

      As of March 11, 2005, there were outstanding 1,000 shares of common stock
and 1 share of redeemable preferred stock, both $0.01 par value per share, of
the registrant, all of which were owned by a subsidiary of Manulife Financial
Corporation.

                       Documents Incorporated by Reference
                                      None

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<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

CONTENTS

PART I ..................................................................      3

    ITEM 1.   BUSINESS OF JOHN HANCOCK FINANCIAL SERVICES, INC...........      3
    ITEM 2.   PROPERTIES.................................................     26
    ITEM 3.   LEGAL PROCEEDINGS..........................................     27
    ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........     27

PART II..................................................................     27

    ITEM 5.   MARKET FOR JOHN HANCOCK FINANCIAL SERVICES, INC.
              COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND
              ISSUER PURCHASES OF EQUITY SECURITIES......................     27
    ITEM 6.   SELECTED FINANCIAL DATA....................................     27
    ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS......................     28
    ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK.....................................................     68
    ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................     73
    ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE......................    169
    ITEM 9A.  CONTROLS AND PROCEDURES....................................    169
    ITEM 9B.  OTHER INFORMATION..........................................    169

PART III.................................................................    169

    ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF JOHN HANCOCK
                 FINANCIAL SERVICES, INC.................................    169
    ITEM 11.   EXECUTIVE COMPENSATION....................................    169
    ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                 MANAGEMENT..............................................    169
    ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............    169
    ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES....................    170

PART IV .................................................................    170

    ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES................    170


<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

PART I

Item 1. Business of John Hancock Financial Services, Inc.

      John Hancock Financial Services, Inc. (John Hancock, JHFS or the Company)
is a diversified financial services organization that provides a broad range of
insurance and investment products and investment management and advisory
services. Our principal executive offices are located at John Hancock Place,
Boston, Massachusetts 02117. Our corporate internet address is www.jhancock.com.
Since April 28, 2004, the Company operates as a subsidiary of Manulife Financial
Corporation (Manulife), see further discussion below. The "John Hancock" name is
Manulife's primary U.S. brand.

       Effective April 28, 2004, Manulife Financial Corporation (Manulife)
acquired all of the outstanding common shares of JHFS that were not already
beneficially owned by Manulife as general fund assets and JHFS became a wholly
owned subsidiary of Manulife. The combined entity has a more diversified product
line and distribution capabilities and expects to have improved operating
efficiencies and a leading position across all its core business lines. Pursuant
to the terms of the acquisition, the holders of JHFS common shares received
1.1853 shares of Manulife stock for each JHFS common share. Approximately 342
million Manulife common shares were issued at an ascribed price of CDN $39.61
per share based on the volume weighted average closing stock price of the common
shares for the period from September 25, 2003 to September 30, 2003. In
addition, all of the JHFS unvested stock options as of the date of announcement
of the acquisition on September 28, 2003, vested immediately prior to the
closing date and were exchanged for options exercisable for approximately 23
million Manulife common shares. For additional information, refer to relevant
John Hancock and other related public filings with the U.S. SEC relating to the
merger.

      The merger was accounted for using the purchase method under Statement of
Financial Accounting Standards (SFAS) No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets". Under the purchase method of
accounting, the assets acquired and liabilities assumed were recorded at
estimated fair value at the date of merger. The Company is in the process of
completing the valuations of a portion of the assets acquired and liabilities
assumed; thus, the allocation of the purchase price is subject to refinement,
refer to Note 1 - Change of Control and Note 2 - Summary of Significant
Accounting Policy.

      As a result of Manulife's merger with JHFS the Company renamed and
reorganized certain businesses within its operating segments to better align the
Company with its new ultimate parent, Manulife. The Company renamed the Asset
Gathering Segment as the Wealth Management Segment and the Maritime Life Segment
was renamed the Canada Segment. On December 29, 2004, the Canada Segment, whose
primary business was the operations of Maritime Life, was transferred to The
Manufacturers Life Insurance Company (MLI), Manulife's primary Canadian
insurance subsidiary. See Note 2 - Summary of Significant Accounting Policy.
Canada Segment's net income is reflected in the Company's Consolidated
Statements of Income as income from discontinued operations for all periods
presented. No gain or loss was recorded in the Company's Consolidated Statements
of Income on this transfer of a business between entities under common control.
The remaining Canada Segment notes receivable, equity and interest earned on the
notes receivable are reported in the Corporate and Other Segment. Further
aspects of the reorganization of JHFS included moving the Institutional
Investment Management Segment to the Corporate and Other Segment and moving
Signator Investors, Inc. our agent sales organization, from the Wealth
Management Segment to the Protection Segment, and moving group life, retail
discontinued operations, discontinued health insurance operations and creditor
from the Corporate and Other Segment to the Protection Segment. Direct Foreign
Operations (DFO) and International Group Plans (IGP) remain in international
operations and John Hancock Accident remains in our non-core business in our
Corporate and Other Segment while in Manulife's segment results DFO will be
reported in Asia, and IGP and John Hancock Accident will be reported in
Reinsurance. On September 30, 2004, the Company's Singapore subsidiary, the John
Hancock Life Assurance Limited in Singapore (JHLAC), a DFO subsidiary, was
transferred from the Company to Manulife (Singapore) Private Limited, a wholly
owned subsidiary of Manulife. See Note 2 - Summary of Significant Accounting
Policy. No gain or loss was recorded in the Company's Consolidated Statements of
Income on this transfer of a business between entities under common control. The
financial statements for all periods have been reclassified to conform to the
current period presentation.

      During most of 2004, the Company operated in five business segments: two
segments primarily served retail customers, one segment served institutional
customers, one segment served primarily Canadian retail and group customers and
our fifth segment was the Corporate and Other Segment, which includes our
institutional advisory business, the remaining international operations, and the
corporate account. As of December 31, 2004, our retail segments are the
Protection Segment and the Wealth Management Segment, previously called Asset
Gathering Segment. Our segment serving both retail and institutional customers
is the Guaranteed and Structured Financial Products Segment (G&SFP). As
previously discussed, the Canada Segment was transferred to an affiliated entity
on December 29, 2004 and is presented in the discussion below as a disposed
operation. In addition, in January 2005, the Company announced the transfer of
the G&SFP Segment to the Wealth Management Segment. This organizational change
reflects G&SFP's increasing focus on retail-oriented products and will enable
the company to better leverage the strong distribution channels of the Wealth
Management Segment with G&SFP's strong product development, risk management, and
immediate annuity servicing capabilities. G&SFP is presented as its own
operating segment for the discussion of 2004 results below.


                                       3
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Prior to the merger, the Company operated in the following six business
segments: two segments served primarily domestic retail customers, two segments
served primarily domestic institutional customers, one segment served primarily
Canadian retail and group customers and our sixth segment was the Corporate and
Other Segment, which included our remaining international operations, the
corporate account and run-off from several discontinued business lines. Our
retail segments were the Protection Segment and the Asset Gathering Segment. Our
institutional segments were the Guaranteed and Structured Financial Products
(G&SFP) Segment and the Investment Management Segment. Our Maritime Life Segment
consisted primarily of the financial results of our Canadian operating
subsidiary, Maritime Life. For additional information about the Company's
pre-merger business segments, please refer to the Company's 2003 Form 10-K.

      Based on LIMRA sales data, which ranks participants within the United
States, as of September 30, 2004, John Hancock is the fifteenth largest writer
of individual life insurance; the tenth largest writer of individual variable
universal life insurance, the tenth largest writer of individual universal life
insurance; the second largest writer of individual long-term care insurance and
the largest provider of long-term care insurance in the employer sponsored group
market based on inforce premium; and the thirty first largest writer of
individual annuity contracts.

      Our mutual fund subsidiary ranked 19th among non-proprietary broker-sold
U.S. asset managers in terms of total long-term, open-end assets under
management as of December 31, 2004.

      The Guaranteed and Structured Financial Products Segment offers a wide
variety of spread-based and fee-based investment products and services. The
spread-based products provide the customer with some form of guaranteed return.
The G&SFP Segment has begun targeting retail investors with new products such as
structured settlements, immediate fixed annuities and retail notes - sold
through a retail broker network. As previously discussed, in January 2005, the
Company announced the transfer of the G&SFP Segment to the Wealth Management
Segment. As a result of the transfer, going forward, the company will operate in
three segments.

      Our Corporate and Other Segment consists of our remaining international
operations, our corporate operations and non-core businesses that are either in
the process of winding down (i.e., are in "run-off") or have been divested.

      As of December 31, 2004 and 2003, respectively, our total assets under
management were $128.2 billion and $142.5 billion, which include $31.3 billion
and $29.3 billion, respectively, of assets invested in the Company's retail
mutual funds. Total shareholders' equity was $11.3 billion and $8.2 billion as
of December 31, 2004 and 2003, respectively. In addition, John Hancock generated
$7.8 billion and $8.3 billion in revenues and $805.0 million and $806.0 million
in income from continuing operations in 2004 and 2003, respectively. The Company
recognized $159.7 million and $133.5 million in income from discontinued
operations, related to the transfer of the Company's Canada Segment discussed
previously, for the years ended December 31, 2004 and 2003, respectively. In
2004, the Company adopted a new accounting pronouncement which resulted in a
charge to earnings of $4.3 million. In 2003, the Company adopted a new
accounting pronouncement which resulted in a charge to earnings of $166.2
million. For further explanation of the Company's adoption of new accounting
pronouncements refer to Note 2--Summary of Significant Accounting Policies in
the notes to the consolidated financial statements.


                                       4
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Protection Segment

   Overview

      The Protection segment provides life and long term care insurance products
and services to select markets. The Individual Insurance operation focuses on
high net-worth and emerging affluent markets by providing estate and business
planning solutions with an array of life insurance products. The Long Term Care
business provides insurance to individuals and groups to cover the costs of long
term care services including nursing homes, assisted living care facilities,
adult day care, and at home care. The Segment uses a multi-channel distribution
network, which includes The John Hancock Financial Network, a career agency
system that offers innovative financial solutions to individuals, families and
businesses.

      The Protection Segment has traditionally been our largest business
segment, contributing 58.9%, 56.8% and 59.3% of revenues generated by the three
primary operating segments and 47.3%, 64.1% and 58.7% of net income generated
from the three primary operating segments in the years ended December 31, 2004,
2003 and 2002, respectively. The Protection Segment generated revenues of
$3,995.3 million, $4,027.7 million and $3,888.4 million and segment net income
of $356.9 million, $335.4 million and $255.6 million in 2004, 2003, and 2002,
respectively. The Protection Segment has achieved the following financial
results for the periods indicated:

                                                      As of or for the Years
                                                        Ended December 31,
                                               ---------------------------------
                                                  2004        2003       2002
                                               ---------------------------------
                                                        (in millions)
Sales (new premiums and deposits)(1):
  Individual insurance (2):
     Core ..................................   $   198.3   $   189.5   $   238.8
     Coli/Boli .............................        40.6        85.4       106.0
  Long-term care ...........................       145.2       299.4       201.9
                                               ---------------------------------
            Total ..........................   $   384.1   $   574.3   $   546.7
                                               =================================
Assets:
  Individual insurance .....................   $33,395.3   $30,430.5   $27,973.6
  Long-term care ...........................     7,656.2     6,097.5     4,288.4
                                               ---------------------------------
            Total ..........................   $41,051.5   $36,528.0   $32,262.0
                                               =================================

---------------
(1)   Sales represent a measure, defined by LIMRA, of the amount of new business
      we have sold during the period rather than a measure of revenue.
(2)   Individual life insurance sales exclude (a) excess premiums, which are
      premiums that build cash value but do not purchase face amounts of
      insurance on variable life and universal life insurance products and (b)
      premiums on corporate owned life insurance (COLI) and bank owned life
      insurance (BOLI) policies covering more than 200 lives. Sales include 10%
      of single premium payments on universal and whole life insurance products.

Products and Markets

      The attractive demographics of an aging population are a key growth driver
for our industry. John Hancock provides an array of insurance solutions to meet
consumer's needs, from pure protection to retirement and estate planning.

Our products are marketed through a variety of distribution channels. The
success of product marketing is contingent upon the successful selling efforts
of career agents, insurance brokers, financial consultants and other
distributors of our products, who providing outstanding service to our producers
is a primary focus. We continually develop tools and processes to make it "easy
to do business with John Hancock". With a diversified and competitive portfolio
of both fixed and variable individual insurance and long-term care products, in
addition to comprehensive sales support tools for producers, we have been able
to serve our customers in all market conditions, and generate strong business
and earnings growth.

Individual Life Insurance

The Individual Insurance business offers traditional products such as term and
whole life, non-traditional products such as universal life and variable
universal life, as well as specialized Corporate Owned Life Insurance products.

Traditional Life Insurance Products: Our traditional life insurance products
include single life and survivorship whole life and term life insurance.
Survivorship products are typically used for estate planning purposes and insure
two lives rather than one, with the policy proceeds paid after the death of both
insured individuals. Participating whole life insurance combines a death benefit
with a cash value that generally increases gradually in amount over a period of
years, and typically pays a policy dividend. Term life insurance provides only a
death benefit, but does not build up cash value, or pay a dividend.


                                       5
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Variable Life Insurance Products: Variable life provides life insurance coverage
and an investment return linked to an underlying portfolio of investments chosen
by the policyholder. Our variable life insurance product portfolio includes
single life, survivorship, and corporate owned life insurance products.
Corporate owned life insurance products are sold to corporations for a variety
of reasons, including, funding deferred compensation plans and benefit programs
for key employees.

Universal Life Insurance Products: Our universal life insurance products meet a
range of needs, from providing pure, low cost life insurance coverage to
products with strong accumulation and income options. The life insurance
coverage and cash value increases based on a credited interest rate that is
periodically reset. These policies generally permit policyholders to use the
increase in cash value to vary the amount of insurance coverage as well as the
timing and amount of premium payments. Ideal for an unstable market environment,
universal products offer clients insurance protection and cash accumulation
without exposure to market volatility. Our universal life insurance product
portfolio also includes corporate owned life insurance products that are sold to
corporations including banks to fund post-retirement employee benefit plan
liabilities. We participate in both the corporate and bank owned life insurance
markets selectively, as profitable sales opportunities arise.

Overall, the Individual Insurance business has a track record of being able to
rapidly develop and launch innovative products and features. Product development
in 2004 was focused on streamlining the product portfolio to a competitively
positioned, merged company platform. In 2005, all products (Manulife and John
Hancock) will be promoted under the John Hancock name to leverage the brand, and
a common set of underwriting guidelines will be implemented to improve the
selling experience.

      Long-Term Care Insurance

Long term care insurance reimburses the costs of care needed when an insured is
no longer able to perform the ordinary activities of daily living or is
cognitively impaired. The Long Term Care business manufactures and sells
individual and group insurance products. Individual policies are available for
sale to people between the ages of 18 and 84. Group products are designed for
employees of small to large employers or other affinity plan sponsors. Currently
John Hancock is the number two provider in the market overall, having expertise
in all aspects of the business from marketing and sales to claim processing.
Products meet "tax-qualified" regulatory requirements so that premiums may be
deductible when filing an itemized U.S. Tax Return, and the benefits are not
taxable. Our long-term care insurance products are reimbursement products, which
provide benefits only for documented nursing home, assisted living or home or
health care expenses. These products are sold on a guaranteed renewable basis,
meaning that we are required to renew the policies each year as long as the
premium is paid. However, this also gives us the ability to reset the price of
the product prospectively, if needed.


      o     Individual Long-Term Care Insurance: Our individual long-term care
            insurance products are sold mainly to pre-retired and retired
            individuals and couples. The insured typically pays the premium for
            this product.

      o     Group Long-Term Care Insurance: Our group long-term care insurance
            products are sold through employer-sponsored plans to employees and
            retirees, and their eligible relatives. The insured, not the
            employer, generally pays the premium for this insurance although
            there is a growing trend among employers to purchase a "core" plan
            on behalf of their employees, with the option for those employees to
            "buy up" for additional amounts of coverage. Following selection of
            one of our plans by an employer, we market our products directly to
            the employee base. The principal market for our group long-term care
            insurance products is companies with over 4,000 employees and
            retirees. We also pursue smaller employers with 1,000 or more
            employees and retirees in selected industries.

      o     Federal Long-Term Care Insurance: In 2002, we completed the rollout
            of the new Federal Long-term Care Insurance Program (the program)
            which John Hancock and MetLife were jointly awarded at the end of
            2001. The program is expected to be the largest long-term care
            insurance program in the country and the government's decision to
            provide access to long-term care insurance to Federal government
            employees is expected to increase awareness of the product among
            consumers and employers. John Hancock and MetLife joined together to
            form Long-Term Care Partners, LLC to administer the plan and support
            a successful enrollment program.

      In 2005, Long Term Care will focus on enhancing existing product features
and flexibility in its next generation of individual and group products. In the
small business market (businesses with less than 500 employees), a new Long Term
Care product, will combine the advantages of a diverse individual distribution
network and a large group administration platform.


                                       6
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      John Hancock Financial Network

      John Hancock Financial Network is a nationally recognized career agency
distribution system that offers innovative financial solutions to individuals,
families and businesses. The network provides access to a broad variety of
proprietary and non-proprietary products and services to facilitate the sale of
wealth accumulation and protection oriented products. (For 2005 initiatives,
please refer to Distribution section.)

      The following table demonstrates total statutory premiums and deposits,
which is the premium we report on the annual statements we file with insurance
regulators, life insurance in force and GAAP reserves for our individual life
and long-term care insurance products. In addition to premium from sales of new
life and long-term care insurance policies, which we refer to as "sales,"
statutory premiums and deposits includes revenues from renewals of policies, 10%
of single premium payments, and premiums from reinsurance assumed by us. We
deduct from this measure the premiums that we cede to our reinsurers.

                             Selected Financial Data

                  Individual Life and Long-Term Care Insurance

                                       As of or for the Years Ended December 31,
                                       -----------------------------------------
                                             2004          2003          2002
                                       -----------------------------------------
                                                      (in millions)
Total statutory premiums and deposits:

Individual Insurance ...............     $  2,232.0    $  2,328.5    $  3,249.7
  Long-term care ...................        1,230.9       1,074.3         786.4
                                       -----------------------------------------
      Total ........................     $  3,462.9    $  3,402.8    $  4,036.1
                                       =========================================
Life insurance in force:
  Individual Insurance .............     $142,122.1    $142,986.7    $144,593.6
                                       =========================================
GAAP reserves:
  Individual Insurance .............     $ 26,011.8    $ 24,374.6    $ 22,285.5
  Long-term care ...................        5,443.5       3,606.3       2,770.9
                                       -----------------------------------------
      Total ........................     $ 31,455.3    $ 27,980.9    $ 25,056.4
                                       =========================================

Distribution

      Individual insurance and long term care products are sold through a
multi-channel strategy that includes the company owned John Hancock Financial
Network as well as third-party distributors. The third-party channels utilized
are independent agents, brokerage general agents, producer groups,
broker-dealers, banks, and wire houses. The Protection Segment actively develops
and maintains its relationships with these distributors by providing technical
support, delivery of competitive products, and advance marketing and sales
support. Distribution and service initiatives in 2004 were principally focused
on ensuring no disruption to customers as the business integrated operations
subsequent to the merger.

      In 2005, Individual Insurance business distribution efforts will focus on
positioning the combined Manulife and John Hancock businesses as One Company by
promoting the John Hancock brand and by solidifying our strong shelf-space
position with key distribution partners. Service improvements will be
implemented through the continued integration of sales, marketing, and
administrative processes.

      Long Term Care distribution initiatives include expanding and deepening
relations with wire houses, broker-dealers, and under-serviced market niches.
Service enhancements include augmented distributor service capabilities, a
simplified sales process, and upgrades to the claims and care coordination
services.

      Another key initiative for the Protection Segment will be to grow the
newly re-branded John Hancock Financial Network agency system. This includes
increasing the number of agents, expanding into new and under-served markets,
and growing its distribution across the range of Protection and Wealth
Management products. Initiatives to facilitate this growth include the
implementation of enhanced agent training and support programs, and the
development of innovative compensation structures to continually promote sales
activity.

Underwriting

      Insurance underwriting involves a determination of the type and amount of
risk that an insurer is willing to accept and the premium to be charged.
Underwriting also determines the amount and type of reinsurance levels
appropriate for a particular type of risk. By utilizing reinsurance, we can
limit our risk and, at times, improve product pricing.


                                       7
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      The Individual Insurance business has developed a reputation for expertise
in underwriting mortality risk, particularly for the older age market. The
underwriting area continually updates standards based on emerging trends and
medical developments in risk assessment, while producing experience consistent
with pricing assumptions. The business is also able to place large individual
insurance policies due to large retention limits of U.S. $20 million for single
lives and U.S. $25 million on survivorship cases.

      Our corporate owned and bank owned life insurance policies covering
multiple lives are issued on a guaranteed issue basis, where the amount of
insurance issued per life on a guaranteed basis is related to the total number
of lives being covered and the particular need for which the product is being
purchased. Guaranteed issue underwriting applies to employees actively at work,
and product pricing reflects the additional guaranteed issue underwriting risk.

      For individual long-term care insurance products, our underwriting is
based on historical morbidity experience, experience of the industry and general
population, and our underwriting criteria are appropriate to the morbidity risks
insured. Our overall profitability depends to a large extent on the degree to
which our mortality and/or morbidity experience matches our pricing assumptions.

      Group long-term care insurance underwriting is conducted on both the
employer group level and the individual level. Our group long-term care
insurance corporate customers generally offer their employees the opportunity to
purchase coverage on a "guaranteed-issue" basis, meaning that all employees are
eligible for insurance coverage, and offer individually underwritten coverage to
family members. We rely on our experience in underwriting large groups in order
to set prices that take into account the underwriting arrangements, the general
health conditions of the corporate customers' employees, the specifics of the
negotiated plan design, and other demographic and morbidity trends. Group
products are written on a guaranteed renewable basis, which permits repricing if
necessary.

Reserves

      We establish and report liabilities for future policy benefits on our
balance sheet to meet the obligations under our insurance policies and
contracts. Our liability for variable life insurance and universal life
insurance policies and contracts is equal to the cumulative account balances
before surrender charges, plus additional reserves established the merger
related purchase accounting (PGAAP). Cumulative account balances include
deposits plus credited interest less expense and mortality fees and withdrawals.
Future policy benefits for our traditional life, individual long-term care and
group long-term care insurance policies are calculated based on a set of
actuarial assumptions that we establish and maintain throughout the lives of the
policies. Our assumptions include investment yields, mortality, morbidity and
expenses. The reserves for the traditional life, individual long-term care and
group long-term care insurance policies were also fair valued in the merger
related purchase accounting (PGAAP).

Competition

      Each of the U.S. markets in which the Division operates is highly
competitive. Competitors in the individual insurance and long term care markets
vary across product lines, but are primarily other large insurance companies
that distribute via similar channels. Competitive advantage is based on the
ability to develop flexible product features to meet individual customer needs,
and develop and service a variety of distribution channels.

      Our competitive strengths include product innovation, underwriting
expertise, multiple distribution channels and high quality customer service. The
Company's competitive position is also enhanced due to scale from leading sales
positions in both the individual and long term care insurance markets, and to
the Company's strong financial strength and credit ratings.

Reinsurance

      As part of the Manulife group of companies subsequent to the merger, we
reinsure portions of the risks we assume for our protection insurance products.
The maximum amount of individual ordinary life insurance retained by us on any
life is $20 million under an individual policy and $25 million under a
second-to-die policy. As of January 1, 2001, we established additional
reinsurance programs, which limit our exposure to fluctuations in life insurance
claims for individuals for whom the net amount at risk is $3 million or more.

      As of January 1, 2001, the Company also entered into agreements with two
reinsurers covering 50% of its closed block business. One of these reinsurers is
Manulife. Effective April 28, 2004 the Company operates as a subsidiary of
Manulife. During the fourth quarter of 2004, the Company entered into an
additional agreement covering closed block policies with a Manulife affiliate in
order to facilitate its statutory capital management process. This transaction
increased the amount of the reinsurance of the closed block with Manulife by
20%. Effective December 31, 2003, the Company entered into an agreement with a
third reinsurer covering another 5% of its closed block business. The
reinsurance agreements 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 Life Company's demutualization to protect the
reasonable dividend expectations of certain participating life insurance
policyholders.


                                       8
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      In addition, the Company has entered into reinsurance agreements to
specifically address insurance exposure to multiple life insurance claims as a
result of a catastrophic event. The Company has put into place, effective July
1, 2002, catastrophic reinsurance covering individual life insurance policies
written by all of its U.S. life insurance subsidiaries. Effective July 1, 2004,
the Company are covered by its parent's catastrophic reinsurance under its
global catastrophe reinsurance program which covers the entire Manulife group of
companies for losses in excess of $50 million up to $150 million. This global
catastrophe reinsurance covers all terrorist acts in Canada; in the United
States and elsewhere, nuclear, biological and chemical terrorist acts are not
covered. Should catastrophic reinsurance become unavailable to the Company in
the future, the absence of, or further limitations on, reinsurance coverage
could adversely affect the Company's future net income and financial position.

      By entering into reinsurance agreements with a diverse group of highly
rated reinsurers, we seek to control our exposure to losses. Our reinsurance,
however, does not discharge our legal obligations to pay policy claims on the
policies reinsured. As a result, we enter into reinsurance agreements only with
highly rated reinsurers. Nevertheless, there can be no assurance that all our
reinsurers will pay the claims we make against them. Failure of a reinsurer to
pay a claim could adversely affect our business, financial condition or results
of operations.

      For a further description of this segment's results, see Management's
Discussion and Analysis of Financial Condition and Results of Operations,
included elsewhere in this Form 10-K.


                                       9
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Wealth Management Segment

      Overview

      Through our Wealth Management Segment, we offer individual annuities,
mutual fund products and investment management services. Individual annuities
include variable and fixed annuities, both immediate and deferred. Mutual fund
products primarily consist of open-end mutual funds and closed-end funds. Our
investment management services include retirement services, and the management
of institutional accounts. In this segment, we also include the results of, John
Hancock Signature Services, and Essex Corporation, one of the nation's largest
intermediaries between banks and product manufacturers for annuities.

      The Wealth Management Segment contributed 16.3%, 15.2% and 14.2% of
revenues generated by the three primary operating segments and 24.7%, 30.1% and
22.3% of net income generated from the three primary operating segments in the
years ended December 31, 2004, 2003 and 2002, respectively. The Wealth
Management Segment generated revenues of $1,102.4 million, $1,076.6 million and
$930.5 million and segment net income of $186.3 million, $157.9 million and
$97.0 million in 2004, 2003 and 2002, respectively. The Wealth Management
Segment has achieved the following financial results for the periods indicated:

                                       As of or for the Years Ended December 31,
                                       -----------------------------------------
                                             2004        2003         2002
                                       -----------------------------------------
                                                   (in millions)
Sales:(1)
Variable annuities(2)................     $   206.5    $   405.1    $   746.1
Fixed annuities(2)...................         719.5      2,319.4      2,667.9
John Hancock Funds(3)................       5,321.3      4,596.7      4,737.6
                                       -----------------------------------------
      Total..........................     $ 6,247.3    $ 7,321.2    $ 8,151.6
                                       =========================================
Assets:
Variable annuities...................     $ 6,051.0    $ 6,205.5    $ 5,702.4
Fixed annuities......................      12,449.6     12,216.8      9,935.8
John Hancock Funds...................       1,003.0        226.9        245.4
Other................................          41.5         55.5        154.3
                                       -----------------------------------------
      Total..........................     $19,545.1    $18,704.7    $16,037.9
                                       =========================================
Assets Under Management:
Variable annuities...................     $ 5,517.9    $ 5,779.3    $ 5,327.4
Fixed annuities......................      11,830.9     11,608.0      9,226.2
John Hancock Funds(4)................      31,264.7     29,289.9     25,810.3

---------------
(1)   Sales represent a measure, defined by LIMRA, of the amount of new business
      we have sold during the period rather than a measure of revenue.
(2)   Represents statutory annual statement values. Statutory revenues include
      premiums and deposits on variable and fixed annuities. Statutory premiums
      and deposits differ from GAAP premiums because GAAP requires that variable
      and certain fixed annuity products be accounted for using deposit
      accounting. Deposit accounting excludes from revenue the premiums and
      deposits received on these products. Variable annuity sales exclude safe
      harbor internal exchanges of $92.0 million in 2002. No such exchanges took
      place after 2003. Fixed annuity sales for 2002 have been restated to
      exclude supplemental contracts.
(3)   Mutual fund and institutional asset sales are defined as new inflows of
      funds from investors into our investment products. Sales of mutual fund
      products are recorded on the trade date. Sales of institutional investment
      products are recorded on the date a firm commitment is established.
(4)   Includes $2.4 billion, $2.7 billion and $3.4 billion of our general
      account assets and assets managed for certain John Hancock subsidiaries
      and assets managed for variable annuities as of December 31, 2004, 2003
      and 2002, respectively.


                                       10
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Products and Markets

      Annuities

      We offer variable and fixed annuities, both immediate and deferred, to a
broad range of consumers through multiple distribution channels. Annuities may
be deferred, where assets accumulate until the contract is surrendered, the
contractholder dies, or the contractholder begins receiving benefits under an
annuity payout option; or immediate, where payments begin within one year of
issue and continue for a fixed period of time or for life with or without a
period certain.

      Variable annuities are separate account products, where the contractholder
bears the investment risk and has the right to allocate funds among various
separate investment subaccounts. Our major source of revenues from variable
annuities is mortality and expense fees charged to the contractholder, generally
determined as a percentage of the market value of the underlying variable assets
under management. During 2004, the Company made a decision to discontinue
selling variable annuity products through the subsidiary of this legal entity,
and is instead issuing variable annuity products through the parent company
Manulife's U.S. legal entity.

      Fixed annuities are general account products, where we bear the investment
risk as funds are invested in our general account and a stated interest rate is
credited to the contractholders' accounts. Our major source of income from fixed
annuities is the spread between the investment income earned on the underlying
general account assets and the interest credited to contractholders' accounts.
Despite a difficult interest rate environment, John Hancock continued to issue
products with guaranteed floor rates to attract the retail customer.

      Investment management skills are critical to the growth and profitability
of our annuity business. The available investment options under our variable
annuity products include options that are funded through the John Hancock
Variable Series Trust I (VST). The VST contains subadvised funds managed by some
of the world's premier money managers, which John Hancock, as investment
adviser, is responsible for overseeing. As the VST's investment adviser, John
Hancock oversees the subadvisers and monitors their investment styles for
consistency. All our fixed annuity assets are managed internally.

      The relative proportion of our total annuity sales represented by fixed
and variable annuities is generally driven by the relative performance of the
equity and fixed income markets. The Company's total annuity deposits were
comprised of 78.3% fixed annuity and 21.7% variable annuity for the year ended
December 31, 2004 and 85.2% fixed annuity and 14.8% variable annuity for the
year ended December 31, 2003. The following table presents certain information
regarding our annuity reserve activity for the periods indicated:

                            Annuity Reserve Activity

<TABLE>
                                                                           As of or for the Years Ended December 31,
                                                                           -----------------------------------------
                                                                                2004          2003         2002
                                                                           -----------------------------------------
                                                                                          (in millions)

<S>                                                                         <C>            <C>          <C>
Variable Annuities:
Reserves, beginning of year.............................................     $ 5,722.5     $ 5,302.5    $ 6,323.1
      Deposits and other policy credits.................................         207.7         408.5        747.9
      Interest credited and investment performance......................         448.8         922.7       (778.4)
      Surrenders and benefits...........................................        (778.9)       (808.7)      (880.7)
      Product fees......................................................         (95.8)       (102.5)      (109.4)
                                                                           -----------------------------------------
Reserves, end of year...................................................     $ 5,504.3     $ 5,722.5    $ 5,302.5
                                                                           =========================================
Fixed Annuities:
Reserves, beginning of year.............................................     $10,678.9     $ 8,761.8    $ 6,497.4
      Premiums, deposits and other policy credits.......................         751.1       2,352.0      2,690.6
      Interest credited.................................................         395.7         437.3        394.1
      Surrenders and benefits...........................................        (970.4)       (857.9)      (810.9)
      Product fees......................................................         (14.2)        (14.3)        (9.4)
                                                                           -----------------------------------------
Reserves, end of year...................................................     $10,841.1     $10,678.9    $ 8,761.8
                                                                           =========================================
Total Annuities:
Reserves, beginning of year.............................................     $16,401.4     $14,064.3    $12,820.5
      Premiums, deposits and other policy credits(1)....................         958.8       2,760.5      3,438.5
      Interest credited and investment performance......................         844.5       1,360.0       (384.3)
      Surrenders and benefits...........................................      (1,749.3)     (1,666.6)    (1,691.6)
      Product fees......................................................        (110.0)       (116.8)      (118.8)
                                                                           -----------------------------------------
Reserves, end of year...................................................     $16,345.4     $16,401.4    $14,064.3
                                                                           =========================================
</TABLE>

(1)   Variable annuity deposits exclude internal exchanges as part of the safe
      harbor internal exchange program of $92.0 million for the year ending
      December 31, 2002. There were no such exchanges after 2003.


                                       11
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

John Hancock Funds

      We offer a variety of mutual fund products and related investment
management services through John Hancock Funds. We employ a team style in the
management of our funds. These teams manage portfolios in accordance with a
variety of specified strategies, which we believe gives us a competitive
advantage over competitors, many of whom deploy only one style across a family
of funds. As of December 31, 2004, our fixed income and equity research staffs
included over 56 portfolio managers and analysts with an average of 18 years of
experience. We are recruiting additional investment professionals to enhance our
capabilities across both fundamental and quantitative analysis and investment
styles. This ongoing commitment to investment research further enables us to
develop new products intended to strengthen our fund offerings, across a broad
array of investment styles. In addition, our investment staff is supplemented by
subadvisory arrangements with third-parties and other John Hancock units. We
also actively pursue the acquisition of top performing mutual funds, which can
be sold through our distribution system. While the business includes primarily
assets managed for third-party retail clients, the investment professionals
providing these services also manage assets underlying our general account and
separate account products, as well as variable life and variable annuity
products.

o     Mutual Funds. John Hancock Funds offers a broad array of open-end mutual
      funds and closed-end funds to a broad base of consumers across varying
      income levels. Open-end mutual funds are subject to redemption at any time
      by investors. After their initial public offering, the shares of
      closed-end funds are not subject to redemption and, accordingly, represent
      a more stable base of assets than open-end funds. As of December 31, 2004,
      58.4% of our mutual fund assets under management were invested in open-end
      mutual funds. Our product offerings cover both domestic and international
      equity and fixed-income markets. In 2004, the Company added one new fund,
      the Small Cap Fund, to its domestic offerings. The Small Cap Fund was
      acquired from Independence Investment Associates, LLC in December 2004. In
      addition, one new closed-end fund was offered; John Hancock Tax Advantaged
      Dividend Income Fund.

o     Retirement Services. We offer traditional IRA programs and a complete line
      of retirement products, including: 401(k) plans and sole proprietor 401(k)
      plans of a third party, SIMPLE IRA and SIMPLE 401(k) plans for companies
      with no more than 100 eligible employees and no other qualified plan;
      Simplified Employee Pensions for companies of any size, including
      self-employed persons, partnerships and corporations; and Roth IRA plans
      for individuals.

o     Institutional Services. John Hancock Funds manages diversified equity and
      fixed income strategies in multiple investment vehicles on behalf of
      public pension plans, corporate pension plans, endowments & foundations,
      insurance companies, and Taft-Hartley pension plans.

      The following tables present certain information regarding the assets
under management by John Hancock Funds for the periods indicated:

                  Total Assets Under Management By Asset Class

                                                       As of December 31,
                                                -------------------------------
                                                  2004       2003       2002
                                                -------------------------------
                                                        (in millions)
Assets Under Management:
Domestic equity and balanced..................  $20,205.6  $17,633.9  $13,727.7
International equity and balanced.............      100.4      310.1      309.3
Domestic and international fixed income.......   10,958.8   11,345.9   11,773.3
                                                -------------------------------
      Total assets under management(1)........  $31,264.8  $29,289.9  $25,810.3
                                                ===============================


                                       12
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                               Asset Flow Summary

<TABLE>
                                                                              For the Years Ended December 31,
                                                                       ---------------------------------------------
                                                                         2004               2003             2002
                                                                       ---------------------------------------------
                                                                                       (in millions)

<S>                                                                    <C>               <C>              <C>
Retail Mutual Funds:
Assets under management, beginning of year .......................     $22,786.1         $19,233.0        $22,876.2
      Deposits and reinvestments .................................       5,056.2           4,244.9          4,056.6
      Redemptions and withdrawals ................................      (3,529.5)         (3,364.4)        (3,817.2)
      Net money market funds .....................................        (118.1)           (157.4)          (205.4)
      Market appreciation (depreciation) .........................       1,188.4           3,096.1         (3,387.1)
      Fees .......................................................        (285.3)           (266.1)          (290.1)
                                                                       ---------------------------------------------
Assets under management, end of year(1) ..........................     $25,097.8         $22,786.1        $19,233.0
                                                                       =============================================
Institutional Investment Management:
Assets under management, beginning of year .......................     $ 6,503.8         $ 6,577.3        $ 6,409.6
      Deposits and reinvestments .................................         683.2             773.3          1,198.2
      Redemptions and withdrawals ................................      (1,408.4)         (1,743.4)          (853.1)
      Market appreciation (depreciation) .........................         404.7             913.4           (160.9)
      Fees .......................................................         (16.3)            (16.8)           (16.5)
                                                                       ---------------------------------------------
Assets under management, end of year .............................     $ 6,167.0         $ 6,503.8        $ 6,577.3
                                                                       =============================================
Total:
Assets under management, beginning of year .......................     $29,289.9         $25,810.3        $29,285.8
      Deposits and reinvestments .................................       5,739.4           5,018.2          5,254.8
      Redemptions and withdrawals ................................      (4,937.9)         (5,107.8)        (4,670.3)
      Net money market funds .....................................        (118.1)           (157.4)          (205.4)
      Market appreciation (depreciation) .........................       1,593.1           4,009.5         (3,548.0)
      Fees .......................................................        (301.6)           (282.9)          (306.6)
                                                                       ---------------------------------------------
Assets under management, end of year(1) ..........................     $31,264.8         $29,289.9        $25,810.3
                                                                       =============================================
</TABLE>

(1)   Retail mutual fund assets under management include $2.6 billion, $2.7
      billion and $2.5 billion in retirement plan assets at December 31, 2004,
      2003 and 2002, respectively.

      Distribution

      Wealth Management products are distributed through John Hancock Financial
Network, Essex, independent broker/dealers, banks, directly to state lottery
commissions and both directly and through consultants to institutions and
retirement plan sponsors.

      John Hancock Financial Network. Formerly known as Signator, a subsidiary
of the Company, through its broker/dealer and insurance agency subsidiaries, is
a key distribution channel for our variable annuities. We also sell fixed
annuities, mutual funds, 401(k) programs and other retirement programs through
these entities.

      Essex Corporation. Essex, a subsidiary of the Company, is one of the
nation's largest intermediaries between banks and product manufacturers for
annuities. Essex is the Company's primary distribution channel for selling
annuities through banks. Essex has historically focused on selling fixed
annuities and strives to grow variable annuity sales. Essex also serves as an
intermediary in the distribution of mutual funds. Essex's primary source of
income is commissions on sales of these products.

      Broker/Dealers. Broker/dealers, which include regional and national
brokerage firms and financial planners, are the primary distribution channel for
our mutual funds. Broker/dealers also sell our fixed and variable annuities. We
support this distribution channel with a network of wholesalers, referred to as
"Business Development Consultants", for our mutual fund sales. These wholesalers
meet directly with broker/dealers and financial planners and are supported by an
extensive home office sales and marketing staff.

      Pension Consultants. We market investment management services to pension
consultants nationwide who provide advisory services to plan sponsors. Marketing
efforts are supported by dedicated client relationship officers who keep clients
updated on portfolio performance information.


                                       13
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

             Wealth Management Segment Sales by Distribution Channel

                                               For the Years Ended December 31,
                                             ----------------------------------
                                               2004         2003         2002
                                             ----------------------------------
                                                        (in millions)
Broker/Dealers(1):
      Variable annuities(2)................  $   17.3     $   51.4     $  133.9
      Fixed annuities......................     187.0      1,031.8        555.3
      Mutual funds.........................   4,732.2      3,948.1      3,504.4
Signator:
      Variable annuities(2)................     157.9        243.5        305.8
      Fixed annuities......................     182.7        232.6        243.1
      Mutual funds.........................     282.1        212.9        270.2
Pension Consultants:
      Mutual funds.........................     218.1        384.5        911.7
Financial Institutions:
      Variable annuities...................      28.6        100.4        277.9
      Fixed annuities......................     347.5        967.2      1,704.1
      Mutual funds.........................      88.9         51.2         51.3
e-Business and Retail Partnerships.........       2.4          7.5         30.1
Other(3)...................................       2.6         90.1        163.8
                                             ----------------------------------
      Total................................  $6,247.3     $7,321.2     $8,151.6
                                             ==================================

---------------

(1)   The prior years have been restated to include Fidelity sales in the
      Broker/Dealer channel and exclude them from the Financial Institutions
      channel.
(2)   Variable annuity deposits exclude internal exchanges as part of the safe
      harbor internal exchange program of $92.0 million, for the year ending
      December 31, 2002. There were no such exchanges after 2003.
(3)   Other includes single premium immediate annuities, including
      lottery-related payout contracts.

      Reserves

      We establish and report liabilities for future policy benefits on our
balance sheet to meet the obligations under our annuity contracts. Our liability
for variable annuity contracts and deferred fixed annuity contracts is equal to
the cumulative account balances before surrender charges, plus additional
reserves for certain guarantees in some of these products and reserves
established in the merger related purchase accounting. Cumulative account
balances include deposits plus credited interest or change in investment value
less expense and mortality fees, as applicable, and withdrawals. Future policy
benefits on our immediate fixed annuity contracts are calculated based on a set
of actuarial assumptions that we establish and maintain throughout the lives of
the contracts. The reserves for the fixed immediate annuity contracts were also
fair valued in the merger related purchase accounting.

      Competition

      We face substantial competition in all aspects of our Wealth Management
business. The annuity business is highly competitive. We compete with a large
number of insurance companies, investment management firms, mutual fund
companies, banks and others in the sale of annuities. We compete for mutual fund
business with hundreds of fund companies. Many of our competitors in the mutual
fund industry are larger, have been established for a longer period of time,
offer less expensive products, have deeper penetration in key distribution
channels and have more resources than us.

      Competition in the Wealth Management business is based on several factors.
These include investment performance and the ability to successfully penetrate
distribution channels, to offer effective service to intermediaries and
consumers, to develop products to meet the changing needs of various consumer
segments, to charge competitive fees and to control expenses.


                                       14
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      We believe the Wealth Management Segment is well positioned to increase
assets under management in the face of this competition. Our competitive
strengths include the ability to:

      o     deliver strong investment performance, and enhance this performance
            by expanding the depth and breadth of fundamental research,
            portfolio management teams, and investment professionals;

      o    develop new products and expand into new markets; and

      o    provide excellent service to investors and distributors.


      For a further description of this segment's results, see Management's
Discussion and Analysis of Financial Condition and Results of Operations,
included elsewhere in this Form 10-K.


                                       15
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Guaranteed and Structured Financial Products Segment

      Overview

      Through our Guaranteed and Structured Financial Products Segment (G&SFP),
we offer a variety of specialized products and services to qualified defined
benefit and defined contribution retirement plans, and other domestic and
international investors. The G&SFP Segment has begun targeting retail investors
with products such as structured settlements, immediate fixed annuities and
retail notes sold through a retail broker network. Our institutional products
include non-guaranteed, partially-guaranteed and fully-guaranteed general
account and separate account investment options. We distribute these products
through home office and regional sales representatives either directly to
institutional buyers or indirectly through financial intermediaries, consultants
and brokers.

      The G&SFP Segment contributed 24.8%, 28.0% and 26.5% of revenues generated
by the three primary operating segments and 28.0%, 5.8% and 19.0% of net income
generated from the three primary operating segments in the years ended December
31, 2004, 2003 and 2002, respectively. The G&SFP Segment generated revenues of
$1,682.6 million, $1,988.8 million and $1,743.9 million and segment net income
of $211.7 million, $30.3 million and $82.8 million in 2004, 2003 and 2002,
respectively. G&SFP Segment financial information is summarized below:


<TABLE>
                                                                                                      As of December 31,
                                                                                             -----------------------------------
                                                                                                2004         2003         2002
                                                                                             -----------------------------------
                                                                                                        (in millions)

<S>                                                                                          <C>          <C>          <C>
Assets Under Management: (1)
Spread-based products ....................................................................   $25,779.4    $27,581.2    $25,125.1
Fee-based products .......................................................................     7,645.4      8,208.6      8,404.4
                                                                                             -----------------------------------
      Total ..............................................................................   $33,424.8    $35,789.8    $33,529.5
                                                                                             ===================================
Spread-based Premiums and Deposits: (2)
Fund-type products .......................................................................   $ 1,187.5    $ 2,372.9    $ 3,847.9
Single premium annuities .................................................................       221.1        468.4        292.7
SignatureNotes ...........................................................................       793.2      1,260.1        290.2
Banking Products .........................................................................       385.9        245.2           --
                                                                                             -----------------------------------
      Total Spread-based Premiums and Deposits ...........................................   $ 2,587.7    $ 4,346.6    $ 4,430.8
                                                                                             ===================================
Fee-based Premiums and Deposits: (2)
General account participating pension fund-type products and annuity contracts ...........   $   732.5    $   852.5    $   529.3
Structured separate accounts .............................................................        48.2         54.5        483.9
Other separate account contracts .........................................................       115.2        (46.2)        53.9
                                                                                             -----------------------------------
      Total Fee-based Premiums and Deposits ..............................................   $   895.9    $   860.8    $ 1,067.1
                                                                                             ===================================
</TABLE>


(1)   Assets under management includes $441.2 million and $227.8 million of
      Maritime Spread-Lending assets as of December 31, 2003 and 2002,
      respectively. No Maritime Spread-Lending assets are included in assets
      under management as of December 31, 2004 due to the transfer of the Canada
      Segment to an affiliate effective December 29, 2004.

(2)   The prior years have been restated to exclude Maritime Spread-Lending due
      to the transfer of the Canada Segment to an affiliate effective December
      29, 2004.

Products and Markets

      The G&SFP Segment offers spread-based products and fee-based products in a
variety of markets. Spread-based products serve the larger and faster growing
segment of the market. Fee-based products are typically niche products that have
less overall growth potential. As noted above, recent emphasis has been placed
on retail targeted products such as retail notes and immediate fixed annuities
due to relatively more attractive pricing when compared to our institutional
offerings. In the institutional market, we continue to offer several products
with which we have historically been very successful. The general account
Guaranteed Investment Contract (GIC) has been our predominant product issued in
the tax-qualified defined contribution plan market. Single premium and separate
account annuities are primarily limited to qualified and non-qualified defined
benefit plans. Funding agreements are issued to non-qualified domestic and
international institutional investors.


                                       16
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Spread-Based Products. Our spread-based products provide a guaranteed rate
of return to the customer. We derive earnings on these products primarily from
the difference between the investment returns on the supporting assets and the
guaranteed returns provided to customers. Our spread-based products include:

      o     Fund-type products. Our fund-type products consist of the following:

            General account GICs. GICs are annuity contracts that pay a
            guaranteed rate of return. GICs are primarily marketed to sponsors
            of tax-qualified retirement plans such as 401(k) plans. The
            guaranteed rate of return on GICs can be a fixed rate or a floating
            rate based on an external market index.

            Funding agreements. Funding agreements are investment contracts that
            pay a guaranteed rate of return. Funding agreements generally are
            issued to corporations, mutual funds and other institutional
            investors and, unlike GICs, are not typically used to fund
            retirement plans. The guaranteed rate of return on funding
            agreements can be a fixed rate or a floating rate based on an
            external market index.

      o     Single premium annuities and structured settlements. Single premium
            annuities are immediate or deferred annuity contracts, which provide
            for payments of a guaranteed amount commencing at a specified time,
            typically at retirement. These annuities are sold primarily to
            defined benefit plan settlements. The two most common types of
            annuities are the straight life annuity, which makes payments for
            the life of a retired annuitant, and the joint and survivor annuity,
            which continues to make payments to a spouse after the death of the
            annuitant. We also provide structured settlements, which provide a
            tax-free stream of periodic payments to individuals who receive
            awards or settlements in personal physical injury disputes. We have
            broadened our offerings to include a structuring program for
            attorney's fees, allowing counsel to defer legal fees as taxable
            disbursements into the future.

      o     SignatureNotes. SignatureNotes are debt securities issued directly
            by the Life Company to retail investors via a broker/dealer network.
            These debt securities, available to investors in $1,000 increments,
            are offered weekly under a $3 billion shelf registration with
            varying terms and maturity dates, as permitted in the prospectus.

      o     Banking Products. Banking Products consist primarily of brokered
            certificate of deposits issued by First Signature Bank & Trust via a
            broker-dealer network to the retail investors. These CDs are offered
            weekly with varying terms and maturity dates. Brokered certificates
            of deposits are FDIC insured up to $100,000.

      Fee-Based Products. Our fee-based products generally pass the investment
results of invested assets through to the contractholder with no, or minimal,
guarantees. We derive earnings on these products primarily from expense, risk,
and profit charges that are generally assessed based on assets under management.
Fee-based businesses provide relatively stable revenues and have lower capital
requirements than our spread-based businesses. Our fee-based products include:

      o     Participating general account fund-type products and annuity
            contracts. These products are funding vehicles for pension plans
            that pass investment results through to the contractholder, after
            risk and profit charges. Annuity guarantees for these products are
            supported by asset adequacy requirements under which assets must be
            maintained at levels at least 5% above the annuity reserve. If the
            level of assets held under the contract falls below this threshold,
            we may liquidate assets equal to the annuity reserve and apply the
            assets to purchase a fully guaranteed annuity.

      o     Structured Separate Accounts. These products pass the investment
            results of a separate account through to the contractholder and
            contain only minimal guarantees. Contractholders may select from
            among several investment styles offered by our various investment
            managers. The structured separate account business leverages the
            strong marketing relationships developed with our general account
            GIC customers. These contracts, like the general account GICs, are
            primarily marketed to sponsors of tax-qualified retirement plans
            such as 401(k) plans.

      o     Participating separate account annuities. These products are funding
            vehicles for pension plans which offer customers an insured
            pension-funding program in conjunction with a broad range of
            investment options, including both equity and fixed-income
            investment classes. The risk associated with providing these
            annuities is mitigated by excess collateral maintenance
            requirements, which vary depending on the investment option
            selected. If the collateral falls below the maintenance
            requirements, we may liquidate assets equal to the annuity reserve
            and apply the assets to purchase a fully guaranteed annuity.

      o     Separate investment accounts. These are non-guaranteed group annuity
            contracts under which assets are held in a separate account. We
            typically use affiliated investment advisors to manage these assets.
            We may also use non-affiliated investment managers if the customer
            so requires. Because these products do not provide guarantees, most
            new sales of separate investment accounts are reported in the
            Investment Management Segment. Existing agreements, however,
            continue to be reported in and serviced by the Guaranteed and
            Structured Financial Products Segment because of customer
            relationships.


                                       17
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Distribution

      We distribute our guaranteed and structured financial products through a
variety of channels. General account GICs and structured separate accounts are
sold through our regional representatives to plan sponsors, or to GIC managers
who represent plan sponsors. Funding agreements are sold either directly,
through brokers, or through investment banks in the form of medium-term notes.
SignatureNotes are distributed through a retail brokerage network. Annuities are
sold through pension consultants who represent defined benefit plan sponsors or
through brokers who receive a commission for sales of our products. Structured
settlement annuities are offered through a group of broker companies
specializing in dispute resolution.

      We have an experienced sales staff that develops and maintains
relationships with target customers, consultants, and other financial
intermediaries. We believe that our consistent market presence over the past two
decades has created strong and valuable relationships with a large segment of
the customer base.

      Spread-Based Products Risk Management

      Because of the significant guarantees provided as part of our spread-based
product offerings, risk management is particularly important in this line of
business. To facilitate risk management, we segregate and manage the assets
supporting our spread-based products separately from the rest of our general
account. Our risk management strategy incorporates a sophisticated
asset/liability matching system that is based on:

      o     Managing interest rate exposure by closely matching the relative
            sensitivity of asset and liability values to interest rate changes,
            i.e. controlling the "duration mismatch" of assets and liabilities.

      o     Using sophisticated systems and processes to project cash flows for
            each asset and each liability and to measure with precision the
            sensitivity of assets and liabilities to interest rate changes.

      o     Writing contracts that typically have a predictable maturity
            structure and do not have premature surrender or redemption
            provisions.

      o     Monitoring all contribution and withdrawal activity in each contract
            to anticipate deviations from expected cash flows.

      o     Establishing working groups with representatives from our various
            business units, to facilitate interaction among investment
            management, sales management, risk management, financial management
            and the pricing staff.

      For additional information, see Quantitative and Qualitative Information
about Market Risk, included elsewhere in this Form 10-K.

      Underwriting

      Underwriting is most significant for the following products in this
segment:

      o    General Account GICs. In developing pricing proposals for new
           contracts, our underwriters estimate both base-line cash flows and
           also likely variance from the base line due to plan participants
           reallocating assets from the "stable value" option of their defined
           contribution plan. Our underwriters utilize customized pricing models
           that generate plan-specific risk charges for each customer's book
           value payment provision. If these pricing models project the risk of
           losses exceeding customary thresholds, instead of rejecting the
           business, our underwriters can modify the proposal by suggesting the
           use of risk reduction techniques designed to shift some of the risk
           of redemptions back to the plan or to a third party.

      o    Single Premium Annuities. We underwrite immediate annuities using
           recent mortality experience and an assumption of continued
           improvement in annuitant longevity. We underwrite deferred annuities
           by analyzing mortality risk and the expected time to retirement.

      Reserves

      We establish and report liabilities for contractholder funds and future
policy benefits to meet the obligations on our policies and contracts. Since the
Manulife merger on April 28, 2004, our reported liability for contractholder
funds and future policy benefits is the sum of the pre-acquisition business
(contracts issued on and prior to the Manulife merger) and the post acquisition
business (contracts issued after the Manulife merger). The pre-acquisition
liability for contractholder funds and future policy benefits is calculated
using assumptions established at the time of the Manulife merger. The
post-acquisition liability for fund-type products and fee-based products is
equal to the cumulative account balances for these products. Cumulative account
balances include deposits plus credited interest or investment earnings less
expense charges and withdrawals. The post-acquisition liability for the future
policy benefits of our single premium annuity contracts are calculated based on
a set of actuarial assumptions that we establish and maintain throughout the
lives of the contracts. Our assumptions include investment yields, mortality and
the expected time to retirement.


                                       18
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Competition

      Our Guaranteed and Structured Financial Products Segment operates in a
variety of highly competitive institutional and retail markets. Although a large
number of companies offer these products, the market is concentrated, in large
part because the markets demand issuers of high financial quality. This is
especially true in the institutional market. Through the first three quarters of
2004, for example, the top four issuers of GICs issued approximately 65% of
total GICs and the top five issuers of annuities issued almost 70% of the total
(according to LIMRA). The global funding agreement market is equally
concentrated with the top four issuers issuing 76% of the funding agreements
according to S&P. While in the past we would have been included with these top
issuers, in 2004 we found that historically narrow spreads made it more
difficult to compete. We chose instead to adhere to our very strict pricing
discipline, sacrificing market share in order to maintain profitability.

      With the introduction of SignatureNotes in 2002, we became the first
insurer to enter the retail market to compete with other issuers of direct
access notes, including both financial and non-financial firms. The retail note
market has continued to grow since then, reaching more than $31 billion in
issuance in 2004. In 2004, four additional insurers entered the market.

      We believe that, going forward, we will be able to compete successfully in
all of our chosen markets as a result of our strong financial ratings, brand
name, investment management expertise, national distribution, flexible product
design and competitive pricing. Competition in these markets is restricted
almost exclusively to insurance companies with superior or excellent financial
ratings. The requirement for strong financial ratings reduces pressure on
margins by limiting the number of potential competitors and by lowering our cost
of funds. While current spread levels and our adherence to pricing disciplines
make sales in the institutional markets difficult, we will continue to
concentrate on the less price-sensitive retail markets.

      For a further description of this segment's results, see Management's
Discussion and Analysis of Financial Condition and Results of Operations,
included elsewhere in this Form 10-K.


                                       19
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Corporate and Other Segment

      Overview

      Our Corporate and Other Segment consists primarily of our international
operations, corporate operations, including the holding company, John Hancock
Financial Services (JHFS) and the institutional investment advisory business,
and non-core businesses that are either in the process of winding down (i.e.,
are in "run-off") or have been divested. The Corporate and Other Segment
generated revenues of $1,046.2 million, $1,022.8 million and $705.8 million and
segment net income/(loss) of $50.1 million, $282.4 million and $64.1 million in
2004, 2003 and 2002, respectively.

      The Corporate and Other Segment assets are summarized below:

                                                      As of December 31,
                                             -----------------------------------
                                               2004         2003         2002
                                             -----------------------------------
                                                     (in millions)
Assets:
International operations...............      $2,284.5    $15,561.7    $11,444.8
Corporate operations...................       3,983.5     10,147.3      9,255.4
Non-core businesses....................         295.9      1,280.7      1,060.6
Intra-segment eliminations.............        (122.3)    (7,308.1)    (6,593.3)
                                             -----------------------------------
      Total............................      $6,441.6    $19,681.6    $15,167.5
                                             ===================================

      International Operations

      Our international operations also offer individual life and group
insurance and pension products through local affiliates doing business in three
Asian countries. Working with an international network of 52 insurers, we also
coordinate and/or reinsure group life, health, disability and pension coverage
for foreign and globally mobile employees of multinational companies in our
international group plan business.

      On September 30, 2004, the Company's Singapore subsidiary, the John
Hancock Life Assurance Limited in Singapore (JHLAC), a DFO subsidiary, was
transferred from the Company to Manulife (Singapore) Private Limited, a wholly
owned subsidiary of Manulife; see Note 2 - Summary of Significant Accounting
Policy. The financial results for all periods have been reclassified to conform
to the current period presentation.

      In addition, the Company plans to divest itself of its joint venture life
insurance company in China due to regulatory requirements in the local market
which have arisen due to the merger with Manulife. Manulife has a mature
operation in China; local regulations allow an organization to have only one
license within its jurisdiction.

   Corporate Operations

      Corporate operations consist principally of revenues and expense of the
institutional investment advisory business, the holding company, investment and
treasury activities, and assets, investment income, interest expense and other
expenses not specifically allocated to segments or the holding company level.
Corporate operations investment activity is focused on tax-preferenced investing
which may generate lower pre-tax investments income but yields higher returns on
an after-tax basis.

      Change in corporate operations include the following business activities:
the transfer into corporate operations of the institutional advisory business,
the institutional investment advisory business generated revenues of $126.0
million, $144.1 million and $125.1 million for the three years ended December
31, 2004, 2003, and 2002, respectively. As discussed previously, the Canada
Segment was transferred to an affiliate for no gain or loss recognized in the
income statement as of December 29, 2004. In addition, the impact of currency
fluctuations between the U.S. and Canadian dollar for the Canada Segment's
primary operating subsidiary, Maritime Life, was formerly reflected in corporate
operations. The transfer of the Canada Segment resulted in the impact of the
U.S. and Canadian dollar for the Canada Segment being reclassified to income
from discontinued operations for all periods presented in this Form 10-K. The
remaining assets and liabilities in Maritime Life were transferred to corporate
operations in the Corporate and Other Segment. The Company transferred the group
life insurance business to the Protection Segment subsequent to the merger with
Manulife.

      Also included in corporate operations are the revenues and expenses of
Signature Fruit, a subsidiary of the Company, which purchased certain assets and
assumed certain liabilities out of bankruptcy proceedings of Tri Valley Growers,
Inc., a cooperative association, for approximately $53.0 million on April 1,
2001. Signature Fruit generated $242.6 million, $254.4 million and $235.9
million in revenues, $245.9 million, $257.8 million and $240.7 million in
expenses, and $(2.2) million, $(2.2) million, and $(3.1) million in after-tax
losses for the years ended December 31, 2004, 2003 and 2002, respectively.


                                       20
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Non-Core Businesses

      We have certain non-core businesses that have been divested or put in
run-off, reflecting a strategic decision to focus on our retail and investment
management businesses. Non-core businesses consist primarily of run-off property
and casualty insurance companies that were sold in 1999, a portion of our group
life and accident and health business and related subsidiaries that were sold in
1997, and other small subsidiaries in various stages of running-off their
operations.

       For a further description of this segment's results, see Management's
Discussion and Analysis of Financial Condition and Results of Operations,
included elsewhere in this Form 10-K.

REGULATION

General

      Our business is subject to extensive regulation at both the state and
Federal level, including regulation under state insurance and Federal and state
securities laws.

State Insurance Regulation

      The Company and its insurance subsidiaries are subject to supervision and
regulation by the insurance authorities in each jurisdiction in which they
transact business. Currently, we are licensed to transact business in all fifty
states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam,
the Northern Mariana Islands, 5 Canadian provinces, and several Asian countries,
including one city in the People's Republic of China and therefore are subject
to regulation in all these jurisdictions. Most states have laws and regulations
governing such issues as: what lines of business a company may engage in;
underwriting practices, including a company's ability to request results of
applicants' genetic tests; what premium rates may be charged in various lines of
business; what products a company may sell; mandating certain insurance benefits
and policy forms; minimum rates for accumulation of cash values and maximum
rates for policy loans; licensing of insurance companies and agents; advertising
and marketing practices; statutory accounting and reporting requirements;
reserve requirements and solvency standards; admitted statutory assets; the
appropriate mix of investments; dividend payments; transactions with affiliates;
and level of ownership regarding acquisitions of control. State insurance
departments periodically review the business and operations of an insurance
company by examining its financial condition and how its agents sell its
products. Our insurance subsidiaries are also required to file various reports
relating to their financial condition, including quarterly filings and detailed
annual financial statements. This is required in each jurisdiction where an
insurance business is licensed.

      State insurance regulatory authorities and other state law enforcement
agencies and attorneys general from time to time make inquiries concerning
whether our insurance businesses are in compliance with the regulations covering
those businesses. We reasonably and promptly respond to such inquiries and take
corrective action if warranted.

      In February 2004 the Massachusetts Division of Insurance completed its
routine regulatory statutory financial examination of John Hancock Life
Insurance Company and John Hancock Variable Life Insurance Company and issued
its report for the years 1998 through 2002. The findings of these examinations
did not have a material impact on our financial condition or results of
operations.

      The Connecticut, Delaware, New York, Missouri and Pennsylvania insurance
departments have ongoing market conduct examinations involving John Hancock Life
Insurance Company and John Hancock Variable Life Insurance Company. These
insurance departments and others periodically conduct examinations of insurers
that transact business in their jurisdictions. The Company believes that it
conducts its business in accordance with all applicable state regulations and
does not expect that the outcome of these examinations will have a material
impact on our business, financial condition or results of operations. The
Massachusetts Division of Insurance has completed its Market Conduct Examination
and issued its report in February without any material findings.

      State insurance regulators and the National Association of Insurance
Commissioners are continually re-examining existing laws and regulations. Among
other things, these laws and regulations may focus on insurance company
investments, financial reporting and solvency issues, risk-adjusted capital
guidelines, interpretations of existing laws, the development of new laws, the
implementation of non-statutory guidelines and the circumstances under which
dividends may be paid.


                                       21
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Regulation Governing Potential Acquisitions of Control

      We are subject to regulation under the insurance holding company statutes
of the states in which our insurance subsidiaries are organized, principally
Massachusetts, which is the state of domicile for the Life Company. The
Massachusetts insurance law contains provisions which, in general, provide that
the acquisition or change of "control" of a domestic insurer or of any person
that controls a domestic insurer cannot be consummated without the prior
approval of the Massachusetts Commissioner of Insurance. In general, a
presumption of "control" arises from the ownership, control, possession with the
power to vote or possession of proxies with respect to, 10% or more of the
voting securities of an insurer or of a person that controls an insurer. A
person seeking to acquire control, directly or indirectly, of a Massachusetts
insurance company or of any person controlling a Massachusetts insurance company
must file an application for approval of the acquisition of control with the
Massachusetts Commissioner of Insurance and obtain the approval of the
Massachusetts Commissioner of Insurance before consummating the acquisition.

      The restrictions described above may deter, delay or prevent a future
acquisition of control, including transactions that could be perceived as
advantageous to our parent, Manulife or its shareholders.

Regulation of Dividends and Other Payments from Insurance Subsidiaries

      JHFS is a holding company and its primary assets are the outstanding
capital stock of John Hancock Life Insurance Company, and remaining
international subsidiaries. As an insurance holding company, JHFS depends
primarily on dividends from John Hancock Life Insurance Company to pay dividends
to its shareholders, and pay operating expenses and implement its capital
management strategies. Any inability of John Hancock Life Insurance Company to
pay dividends to JHFS in the future in an amount sufficient for JHFS to pay
dividends to its sole shareholder, implement some of its capital management
plans or meet its cash obligations may materially adversely affect its business,
financial condition or results of operations.

      The Massachusetts insurance law limits how and when John Hancock Life
Insurance Company can pay dividends to JHFS. Under the Massachusetts insurance
law, no insurer may pay any shareholder dividend from any source other than
statutory unassigned funds without the prior approval of the Massachusetts
Commissioner of Insurance. The Massachusetts insurance holding company act
requires that notification be given to the Massachusetts Commissioner of
Insurance no later than five days following declaration, and at least ten days'
prior to payment, of any dividend or distribution by a Massachusetts insurance
company. Further, this act provides that no extraordinary dividend may be paid
without thirty days' prior written notice to the Massachusetts Commissioner of
Insurance, and only if the Massachusetts Commissioner of Insurance has not
disapproved, or has approved, the payment within the thirty day notice period.
An extraordinary dividend is any dividend or distribution of cash or other
property whose fair market value, together with other dividends or distributions
made within the preceding twelve months, exceeds the greater of (1) 10% of an
insurance company's surplus as regards policyholders as of the preceding
December 31, or (2) a life insurance company's statutory net gain from
operations for the twelve months ending on the preceding December 31. Although
not currently viewed as such, John Hancock Life Insurance Company, in the
future, could also be viewed as being commercially domiciled in New York and, if
so, dividend payments may also be subject to New York's insurance holding
company act as well as Massachusetts law.

Surplus and Capital Requirements

      Insurance regulators have the discretionary authority, in connection with
the ongoing licensing of our insurance businesses, to limit or prohibit the
ability to issue new policies if, in the regulators' judgment, the insurer is
not maintaining a minimum amount of surplus or is in hazardous financial
condition. Limits may also be established on the ability to issue new life
insurance policies and annuity contracts above an amount based upon the face
amount and premiums of policies of a similar type issued in the prior year.

Risk-Based Capital

      The National Association of Insurance Commissioners (NAIC) has established
risk-based capital (RBC) standards for life insurance companies as well as a
model act to apply such standards at the state level. The model act provides
that life insurance companies must submit an annual risk-based capital report to
state regulators reporting their risk-based capital based on five categories of
risk: asset risk-affiliates, asset risk-other, insurance risk, interest rate
risk and business risk. The formula is intended to be used by insurance
regulators as an early warning tool to identify possible weakly capitalized
companies for purposes of initiating further regulatory action.

      In 2001, the NAIC changed the risked-based capital formula, which resulted
in lower RBC charges or a higher risk-based capital ratio. The most significant
change made by NAIC is to tax effect the RBC, which is similar to reducing the
risk factors being applied to the different risk categories. One other change
was the creation of a common stock asset risk category and its treatment in the
covariance calculation. This change also lowered RBC. John Hancock took certain
actions to improve the risk-based capital ratio. The two most significant
actions were the partial reinsurance of the closed block and the upstreaming of
some of the Life Company's foreign insurance affiliates to JHFS. John Hancock
Life Insurance Company exceeded the level of risk-based capital that would
require it to propose actions to correct a deficiency by approximately 251
percent as of December 31, 2004.


                                       22
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Statutory Investment Valuation Reserves

      Life insurance companies are required to establish an asset valuation
reserve (AVR) consisting of two components: (i) a "default component," which
provides for future credit-related losses on fixed maturity investments, and
(ii) an "equity component," which provides for losses on all types of equity
investments, including equity securities and real estate. Insurers also are
required to establish an interest maintenance reserve (IMR) for net realized
capital gains and losses on fixed maturity securities, net of tax, related to
changes in interest rates. The IMR is required to be amortized into statutory
earnings on a basis reflecting the remaining period to maturity of the fixed
maturity securities sold. These reserves are required by state insurance
regulatory authorities to be established as a liability on a life insurer's
statutory financial statements, but do not affect our financial statements
prepared in accordance with GAAP. Although future additions to AVR will reduce
the future statutory capital and surplus of John Hancock Life Insurance Company,
we do not believe that the impact under current regulations of such reserve
requirements will materially affect the ability of John Hancock Life Insurance
Company to increase its statutory capital and surplus and pay future dividends
to John Hancock Financial Services, Inc.

IRIS Ratios

      The National Association of Insurance Commissioners has developed a set of
financial tests known as the Insurance Regulatory Information System (IRIS) for
early identification of companies which may require special attention by
insurance regulators. Insurance companies submit data on an annual basis to the
National Association of Insurance Commissioners. This data is used to calculate
ratios covering various categories of financial data, with defined "usual
ranges" for each category. IRIS consists of 13 key financial ratios for life
insurance companies. An insurance company may fall out of the usual range with
respect to one or more ratios because of specific transactions that are in
themselves immaterial or eliminated at the consolidated level. Departure from
the usual range on four or more of the ratios may lead to inquiries from
individual states' insurance departments. During the five-year period ended
December 31, 2004, John Hancock Life Insurance Company was outside the usual
range for Net Change in Capital Surplus ratio for the year 2000, and the Change
in Product Mix and Change in Reserving ratios in 2001. The Change in Capital
Surplus ratio fell outside the usual range in 2000 because of the
demutualization transaction. Specifically, under the applicable statutory
accounting rules, the Company was required to exclude the proceeds from the
stock offering from surplus while the demutualization consideration paid in cash
was deducted from surplus, thereby distorting the ratio. This adjustment did not
recur in the years 2004, 2003 and 2002. The unusual ratios in 2001 were the
result of the implementation of new statutory accounting rules and are not
expected to recur. During the same period, John Hancock Variable Life Insurance
Company and Investors Partner Life Insurance Company, which are wholly owned
direct and indirect subsidiaries of John Hancock Life Insurance Company,
respectively, had several ratios outside of the usual range. John Hancock
Variable Life Insurance Company had eight unusual ratios, all of which resulted
from growth in the business and the effect of reinsurance contracts with John
Hancock Life Insurance Company. Investors Partner Life Insurance Company had ten
unusual ratios due to the fact it writes no new business.

Regulation of Investments

      Our insurance businesses are subject to state laws and regulations that
require diversification of their investment portfolios. Some of these laws and
regulations also limit the amount of investments in specified investment
categories, such as below investment grade fixed maturity securities, equity
real estate, other equity investments and derivatives. Failure to comply with
these laws and regulations would cause investments exceeding regulatory
limitations to be treated as nonadmitted assets for purposes of measuring
statutory surplus, in some instances, requiring divestiture. State regulatory
authorities from the domiciliary states of our insurance subsidiaries have not
indicated any non-compliance with any such regulations.

Valuation of Life Insurance Policies Model Regulation

      The National Association of Insurance Commissioners has adopted a revision
to the Valuation of Life Insurance Policies Model Regulation (known as Revised
XXX). This model regulation established new minimum statutory reserve
requirements for certain individual life insurance policies written in the
future. Massachusetts adopted the Regulation effective January 1, 2001 and we
established increased reserves to be consistent with the new minimum standards
with respect to policies issued after the effective date of the regulation. In
addition, we revised our term life insurance products with guaranteed premium
periods and are in the process of revising and expanding our universal life
insurance products with no-lapse guarantees.


                                       23
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Federal Insurance Initiatives and Legislation

      Although the Federal government generally does not directly regulate the
insurance business, Federal initiatives often have an impact on our business.
Current and proposed measures that may significantly affect the insurance
business generally include limitations on anti-trust immunity, minimum solvency
requirements and health care reform.

      On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 became law,
implementing fundamental changes in the regulation of the financial services
industry in the United States. The act permits the transformation of the already
converging banking, insurance and securities industries by permitting mergers
that combine commercial banks, insurers and securities firms under one holding
company. Under the act, national banks retain their existing ability to sell
insurance products in some circumstances. In addition, bank holding companies
that qualify and elect to be treated as "financial holding companies" may engage
in activities, and acquire companies engaged in activities, that are "financial"
in nature or "incidental" or "complementary" to such financial activities,
including acting as principal, agent or broker in selling life, property and
casualty and other forms of insurance, including annuities. A financial holding
company can own any kind of insurance company or insurance broker or agent, but
its bank subsidiary cannot own the insurance company. Under state law, the
financial holding company would need to apply to the insurance commissioner in
the insurer's state of domicile for prior approval of the acquisition of the
insurer, and the act provides that the commissioner, in considering the
application, may not discriminate against the financial holding company because
it is affiliated with a bank. Under the act, no state may prevent or interfere
with affiliations between banks and insurers, insurance agents or brokers, or
the licensing of a bank or affiliate as an insurer or agent or broker.

      On October 26, 2001, the International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001 was enacted into law as part of the USA
PATRIOT Act. Among its many provisions the law requires that financial
institutions adopt anti-money laundering programs that include policies,
procedures and controls to detect and prevent money laundering, designate a
compliance officer to oversee the program and provide for employee training, and
periodic audits in accordance with regulations to be issued by the U.S. Treasury
Department. The Company has developed a program designed to fully comply with
the applicable provisions of the Act and the related Treasury Regulations.

Tax Legislation

      Currently, under the Internal Revenue Code, holders of many life insurance
and annuity products, including both traditional and variable products, are
entitled to tax-favored treatment on these products. For example, income tax
payable by policyholders on investment earnings under traditional and variable
life insurance and annuity products which are owned by natural persons is
deferred during the product's accumulation period and is payable, if at all,
only when the insurance or annuity benefits are actually paid or to be paid.
Also, for example, interest on loans up to $50,000 secured by the cash value of
life insurance policies owned by businesses on key employees is eligible for
deduction even though investment earnings during the accumulation period are
tax-deferred.

      In the past, legislation has been proposed that would have curtailed the
tax-favored treatment of some of our insurance and annuity products. If any such
proposals were enacted, market demand for such products would be adversely
affected. In addition, the Economic Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA), enacted by Congress in 2001, provides for the gradual reduction
and eventual elimination of Federal estate taxes by the year 2010. But EGTRRA
also contains a sunset provision, which would reinstate Federal estate taxes in
the year 2011, based on the Internal Revenue Code in effect prior to the
enactment of EGTRRA. Many insurance products are designed and sold to help
policyholders reduce the effect of Federal estate taxation on their estates. The
enactment of EGTRRA has adversely affected sales of certain of our insurance and
investment advisory products, but this effect is mitigated somewhat by the
sunset provision. If the sunset provision of EGTRRA is eliminated in the future,
the adverse affect on the sales of these products could increase. In addition,
sales of split dollar life insurance products have been adversely affected by
proposed changes being considered by the Internal Revenue Service. Recently the
President of the United States of America has also put forth proposals that
would significantly increase tax-favored savings vehicles for individuals. These
proposals, if enacted in their current forms, could adversely affect the sale of
our tax-favored annuity products.


                                       24
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Securities Laws

      Certain of our investment advisory activities are subject to Federal and
state securities laws and regulations. Our mutual funds are registered under the
Securities Act of 1933, as amended (the "Securities Act"), and the Investment
Company Act. All of our separate investment accounts that fund retail variable
annuity contracts and retail variable life insurance products issued by us,
other than those which fund private placement investment options that are exempt
from registration or support fixed rate investment options that are also exempt
from registration, are registered both under the Securities Act and the
Investment Company Act. Institutional products such as group annuity contracts,
guaranteed investment contracts and funding agreements are sold to tax qualified
pension plans or are sold to other sophisticated investors as "private
placements," and are exempt from registration under both acts. Some of our
subsidiaries are registered as broker/dealers under the Securities Exchange Act
of 1934, as amended (the "Securities Exchange Act"), and with the National
Association of Securities Dealers, Inc., and a number are registered as
investment advisers under the Investment Advisers Act of 1940. One subsidiary is
registered as a commodity pool operator and as a commodity trading advisor under
the Commodity Exchange Act. Our insurance companies or other subsidiaries also
own or manage other investment vehicles that are exempt from registration under
the Securities Act and the Investment Company Act but may be subject to other
requirements of those laws, such as antifraud provisions and the terms of
applicable exemptions. We are also subject to similar laws and regulations in
the states and foreign countries in which we provide investment advisory
services, offer the products described above or non-variable life and annuity
products or conduct other securities and investment related activities.

Environmental Considerations

      As owners and operators of real property, we are subject to extensive
Federal, state and local environmental laws and regulations. Inherent in such
ownership and operation is the risk that there may be potential environmental
liabilities and costs in connection with any required remediation of such
properties. When deemed appropriate, we routinely conduct environmental
assessments for real estate being acquired for investment and before taking
title to property acquired through foreclosure or deed in lieu of foreclosure.
Based on these environmental assessments and compliance with our internal
environmental procedures, we believe that any costs associated with compliance
with environmental laws and regulations or any remediation of such properties
would not be material to our consolidated financial position or results of
operations. Furthermore, although we hold equity positions in subsidiaries and
investments that could potentially be subject to environmental liabilities, we
believe, based on our assessment of the business and properties of these
companies and our level of involvement in the operation and management of such
companies, that we would not be subject to any environmental liabilities with
respect to these investments which would have a material adverse effect on our
business, financial position or results of operations.

ERISA Considerations

Certain of our lines of business, including our management of employee benefit
plan assets in our advisory capacity in separate accounts, are subject to the
requirements of ERISA. In addition, the Small Business Job Protection Act, which
we refer to as the SBJPA, offers insurers protection from potential litigation
exposure prompted by the 1993 U.S. Supreme Court decision in John Hancock Mutual
Life Insurance Company v. Harris Trust & Savings Bank, which we refer to as the
Harris Trust Decision, in which the Court held that, with respect to a portion
of the funds held under certain general account group annuity contracts, an
insurer is subject to the fiduciary requirements of ERISA. In January 2000, the
Department of Labor published a regulation pursuant to the SBJPA which provides,
among other things, that if an employee benefit plan acquired an insurance
policy (other than a guaranteed benefit policy) issued on or before December 31,
1998 that is supported by the assets of the insurer's general account, the
plan's assets for purposes of ERISA will not be deemed to include any of the
assets of the insurer's general account, provided that the requirements of the
regulation are met. Accordingly, if those requirements are met, the insurer is
not subject to the fiduciary obligations of ERISA in connection with such an
insurance policy. John Hancock Life Insurance Company has implemented procedures
to comply with the requirements set forth therein to secure the exemption
provided by the regulations from the fiduciary obligations of ERISA. However,
John Hancock Life Insurance Company's exposure to disintermediation risk could
increase due to the termination options that it would be required to provide to
policyholders. Any such increase, however, would not be material.


                                       25
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Employees

      As of December 31, 2004, we employed approximately 3,914 people. We
believe our relations with our employees are satisfactory.

Available Information

      We make available at our parent's corporate internet website
(www.manulife.com), free of charge, copies of our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K as soon as
reasonably practicable after such documents are filed with, or furnished to, the
United States Securities and Exchange Commission.

Item 2.  Properties

     The Company leases space for its Home Office in historic Boston's Back Bay,
the Company plans on continuing to utilize this space as its corporate
headquarters. In addition, we lease office space throughout the United States as
needed for our operations, including for our sales force. We believe that our
current facilities are adequate for our current and expected needs.


                                       26
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Item 3. Legal Proceedings

      We are regularly involved in litigation, both as a defendant and as a
plaintiff. The litigation naming us as a defendant ordinarily involves our
activities as a provider of insurance protection and wealth management products,
as well as an investment adviser, employer and taxpayer. In addition, state
regulatory bodies, state attorneys general, the United States Securities and
Exchange Commission, the National Association of Securities Dealers, Inc. and
other government and regulatory bodies regularly make inquiries and, from time
to time, require the production of information or conduct examinations
concerning our compliance with, among other things, insurance laws, securities
laws, and laws governing the activities of broker-dealers. As with many other
companies in the financial services industry, we have been requested or required
by such government and regulatory authorities to provide information with
respect to market timing and late trading of mutual funds and sales compensation
and broker-dealer practices, including with respect to mutual funds underlying
variable life and annuity products. It is believed that these inquiries are
similar to those made to many financial service companies by various agencies
into practices, policies and procedures relating to trading in mutual fund
shares and sales compensation and broker-dealer practices. We intend to continue
to cooperate fully with government and regulatory authorities in connection with
their respective inquiries. We do not believe that the conclusion of any current
legal or regulatory matters, either individually or in the aggregate, will have
a material adverse effect on our financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

      Omitted.

PART II

Item 5. Market for John Hancock Financial Services, Inc. Common Equity,
        Related Shareholder Matters and Issuer Purchases of Equity Securities

      Due to the merger with Manulife discussed previously, no trading market
exists for the John Hancock Financial Services preferred or common stock. John
Hancock Holdings (Delaware) LLLC, (JHHLLC) a wholly-owned subsidiary of
Manulife, owns all the Company's preferred and common stock. In 2004, the
Company paid no dividends to its shareholders prior to the merger, or to
Manulife or JHHLLC since the date of the merger. See Regulation of Dividends and
Other Payments from Insurance Subsidiaries in the Business section for a
discussion of limitations of the Company and its subsidiaries to pay dividends.

      In 2004, the Commissioner approved dividends from the Life Company to JHFS
in the amount of $200.0 million which were paid in 2004. None of these dividends
was classified as extraordinary by state regulators.

      As of March 11, 2005, the Company had issued and outstanding 1 share of
$0.01 par, preferred stock and 1,000 shares of $0.01 par, common stock.

Item 6. Selected Financial Data

      Omitted.

                                       27
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

      Management's discussion and analysis of financial condition and results of
operations is presented in a condensed disclosure format pursuant to General
Instruction (I) of Form 10-K. Management's narrative that follows reviews our
consolidated financial condition as of December 31, 2004 and 2003, the
consolidated results of operations for the years ended December 31, 2004, 2003
and 2002 and, where appropriate, factors that may affect future financial
performance. This management narrative for the Company should be read in
conjunction with the consolidated financial statements and related notes,
included elsewhere in this Form 10-K. All of the Company's United States
Securities and Exchange Commission filings are available on the internet at
www.sec.gov, under the name Hancock John Financial.

Forward-Looking Statements

      The statements, analyses, and other information contained in this
management's narrative and elsewhere in this Form 10-K, relating to trends in
John Hancock Financial Services, Inc.'s, (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 potential effects on the Company. Future events and their
effects on the Company may not be those anticipated by management. The Company'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)
new laws and regulations, including the recently enacted Sarbanes-Oxley Act of
2002, or changes to existing laws or regulations (including, but not limited to,
those relating to the Federal Estate Tax Laws and proposed Bush Administration
tax and savings initiatives), and the applications and interpretations given to
these laws and regulations, may adversely affect the Company's sales of
insurance and investment advisory products; (3) as a holding company, we depend
on dividends from our subsidiaries; Massachusetts insurance law may restrict the
ability of John Hancock Life Insurance Company (the Life Company) to pay
dividends within the consolidated group; (4) we face increasing competition in
our retail 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) due to acts of terrorism or
other hostilities, there could be business disruption, economic contraction,
increased mortality, morbidity and liability risks, generally, or investment
losses that could adversely affect our business; (7) our life insurance sales
are highly dependent on third party distribution relationships; (8) customers
may not be responsive to new or existing products or distribution channels, (9)
interest rate volatility may adversely affect our profitability; (10) 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; (11) 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; (12) 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. We may have to fund deficiencies in our closed
block, and any overfunding of the closed block will benefit only the holders of
policies included in the closed block, not our shareholder; (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
investment and credit losses relating to our investment portfolio including
without limitation, the risks associated with the evaluation and determination
by our investment professionals of the fair value of investments as well as
whether or not any investments have been impaired on an other than temporary
basis; (15) we may experience volatility in net income due to changes in
standards for accounting for derivatives and other changes; (16) our United
States insurance companies are subject to risk-based capital requirements and
possible guaranty fund assessments; (17) we may be unable to retain personnel
who are key to our business; (18) we may incur losses from assumed reinsurance
business in respect of personal accident insurance and the occupational accident
component of workers compensation insurance; (19) litigation and regulatory
proceedings may result in financial losses, harm our reputation and divert
management resources, (20) we may incur multiple life insurance claims as a
result of a catastrophic event which, because of higher deductibles and lower
limits under our reinsurance arrangements, could adversely affect the Company's
future net income and financial position.


                                       28
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      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.

Merger with Manulife Financial Corporation

      Effective April 28, 2004, Manulife Financial Corporation ("Manulife")
acquired all of the outstanding common shares of John Hancock Financial
Services, Inc. (JHFS or the Company) that were not already beneficially owned by
Manulife as general fund assets and JHFS became a wholly owned subsidiary of
Manulife. The combined entity has a more diversified product line and
distribution capabilities and expects to have improved operating efficiencies
and a leading position across all its core business lines. In order to more
efficiently manage its corporate structure, on October 7, 2004 Manulife
transferred all of its shares in JHFS to John Hancock Holdings (Delaware) LLC -
a wholly-owned subsidiary of Manulife.

      For additional information, refer to John Hancock and other related public
filings with the U.S. SEC relating to the merger.

Critical Accounting Policies and Estimates

      General

      We have identified the accounting policies below as critical to our
business operations and understanding of our results of operations. For a
detailed discussion of the application of these and other accounting policies,
see Note 2--Summary of Significant Accounting Policies in the notes to
consolidated financial statements in the Company's 2004 Annual Report on Form
10-K. Note that the application of these accounting policies in the preparation
of this report requires management to use judgments involving assumptions and
estimates concerning future results or other developments including the
likelihood, timing or amount of one or more future transactions or events. There
can be no assurance that actual results will not differ from those estimates.
These judgments are reviewed frequently by senior management, and an
understanding of them may enhance the reader's understanding of the Company's
financial statements. We have discussed the identification, selection and
disclosure of critical accounting estimates and policies with the Audit
Committee of the Board of Directors.

      Purchase Accounting (PGAAP)

      In accordance with SFAS No. 141, "Business Combinations" the merger
transaction was accounted for as a purchase of John Hancock by Manulife. In
accordance with "push down accounting," John Hancock, the acquired company,
adjusted the cost and reporting basis of its assets and liabilities to their
fair values on the acquisition date (the purchase adjustments).

      The determination of the purchase adjustments relating to investments
included utilization of independent price quotes where available and
management's own estimates and assumptions where independent price quotes were
unavailable. Other purchase adjustments also required significant management
estimates and assumptions. The purchase adjustments relating to intangible
assets, including goodwill, value of business acquired (VOBA), brand name and
others, and to liabilities, including policyholder reserves, and others,
required management to exercise significant judgment in assessing fair values.

      The Company is in the process of completing the valuations of a portion of
the assets acquired and liabilities assumed; thus the allocation of the purchase
price is subject to refinement.

      The Company's purchase adjustments resulted in a revalued balance sheet
which may result in future earnings trends which differ significantly from
historical trends. The Company does not anticipate any impact on its liquidity,
or ability to pay claims of policyholders, arising out of the purchase
accounting process related to the merger.

      Consolidation Accounting

      In December 2003, the Financial Accounting Standards Board re-issued
Interpretation 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51," (FIN 46R) which clarifies the consolidation
accounting guidance of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," (ARB No. 51) to certain entities for which controlling
interests are not measurable by reference to ownership in the equity of the
entity. Such entities are known as variable interest entities (VIEs).


                                       29
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      The Company has finalized its FIN 46R analysis for all of the entities
described below. The Company is not the primary beneficiary of any of them. For
many of these, the application of FIN 46R required estimation by the Company of
the future periodic cash flows and changes in fair values for each candidate,
starting as of the Company's original commitment to invest in and/or manage each
candidate, and extending out to the end of the full expected life of each. These
cash flows and fair values were then analyzed for variability, and this expected
variability was quantified and compared to total historical amounts invested in
each candidate's equity to help determine if each candidate is a VIE. The
Company also evaluated quantitative and non-quantitative aspects of control
relationships among the owners and decision makers of each candidate to help
determine if they are VIEs.

      For each candidate determined to be a VIE, the expected variable losses
and returns were then theoretically allocated out to the various investors and
other participants in each candidate, in order to determine if any party had
exposure to the majority of the expected variable losses or returns, in which
case that party is the primary beneficiary of the VIE. The Company used
significant levels of judgment while performing these quantitative and
qualitative assessments.

      The Company manages invested assets for its customers under various
fee-based arrangements using a variety of entities to hold these assets under
management, and since 1996, this has included investment vehicles commonly known
as collateralized debt obligations funds (CDOs). Various business units of the
Company sometimes invest in the debt or equity securities issued by these and
other CDOs to support their insurance liabilities.

      Since 1995, the Company generates income tax benefits by investing in
apartment properties (the Properties) that qualify for low income housing and/or
historic tax credits. The Company invests in the Properties directly, but
primarily invests indirectly via limited partnership real estate investment
funds (the Funds). The Funds are consolidated into the Company's financial
statements. The Properties are organized as limited partnerships or limited
liability companies each having a managing general partner or a managing member.
The Company is usually the sole limited partner or investor member in each
Property; it is not the general partner or managing member in any Property. The
Properties typically raise additional capital by qualifying for long-term debt,
which in some cases is guaranteed or otherwise subsidized by Federal or state
agencies or Fannie Mae. In certain cases, the Company invests in the mortgages
of the Properties.

      The Company has a number of relationships with a disparate group of
entities (Other Entities), which result from the Company's direct investment in
their equity and/or debt. This group includes energy investment partnerships,
investment funds organized as limited partnerships, and businesses which have
undergone debt restructurings and reorganizations and various other
relationships.

      Additional liabilities recognized as a result of consolidating any of
these entities would not represent additional claims on the general assets of
the Company; rather, they would represent claims against additional assets
recognized by the Company as a result of these consolidations. Conversely,
additional assets recognized as a result of these consolidations would not
represent additional assets which the Company could use to satisfy claims
against its general assets, rather they would be used only to settle additional
liabilities recognized as a result of these consolidations.

      The Company's maximum exposure to loss in relation to these entities is
limited to its investments in them, future debt and equity commitments made to
them, and where the Company is the mortgagor to the Properties, the outstanding
balance of the mortgages originated for them, and outstanding mortgage
commitments made to them. Therefore, the Company believes that the application
of FIN 46R has no potential impact on the Company's liquidity and capital
resources beyond what is already presented in the consolidated financial
statements and notes thereto.

      The Company discloses summary financial data and its maximum exposure to
losses for the CDOs, Properties and other entities in Note 4 - Relationships
with Variable Interest Entities in the notes to the Company's consolidated
financial statements.

      Intangible Assets

      The Company recognizes several intangible assets, all of which resulted
from business combinations. Valuation, and where applicable, amortization of
these assets require significant management estimates and judgment.

      Unamortizable assets include goodwill, brand name and investment
management contracts. Goodwill is the excess of the cost to Manulife over the
fair value of the Company's identifiable net assets acquired by Manulife in the
recent merger. Brand name is the fair value assigned to the Company's trademark
and trade name. Investment management contracts are fair values of the
investment management relationships between the Company and each of the mutual
funds managed by the Company.


                                       30
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Amortizable assets include value of business acquired (VOBA), distribution
networks and other investment management contracts. VOBA is the present value of
estimated future profits of insurance policies in force related to the Company's
businesses acquired by Manulife in the recent merger. VOBA had weighted average
lives ranging from 6 to 17 years for various insurance businesses at the merger.
Distribution networks are fair values assigned to the Company's networks of
sales agents and producers responsible for procuring business. Distribution
networks had weighted average lives of 21 years at the merger. Collectively,
these amortizable intangible assets had a weighted average life of 14.7 years at
the merger.

      The Company will test unamortizable intangible assets for impairment on an
annual basis, and also in response to any events which both suggest that these
assets may be impaired (triggering events). Amortizable intangible assets will
be tested only in response to triggering events. The Company will test goodwill
using the two-step impairment test set forth in SFAS No. 142 "Goodwill and Other
Intangible Assets." VOBA and the Company's other intangible assets will be
evaluated by comparing their fair values to their current carrying values
whenever they are tested. Impairments will be recorded whenever an asset's fair
value is deemed to be less than its carrying value.

      Amortization of Deferred Acquisition Costs (DAC) and Value of Business
Acquired (VOBA) Assets

      Costs that vary with, and are related primarily to, the production of new
business are deferred to the extent that they are deemed recoverable. Such costs
include commissions, certain costs of policy issue and underwriting, and certain
agency expenses. Similarly, any amounts assessed as initiation fees or front-end
loads are recorded as unearned revenue. The Company has also recorded intangible
assets representing the present value of estimated future profits of insurance
policies inforce related to business acquired. The Company tests the
recoverability of its DAC and VOBA assets quarterly with a model that uses data
such as market performance, lapse rates and expense levels. We amortize DAC and
VOBA on term life and long-term care insurance ratably with premiums. We
amortize DAC and VOBA on our annuity products and retail life insurance, other
than term life insurance policies, based on a percentage of the estimated gross
profits over the lives of the policies. These policy lives are, generally, up to
thirty years for products supporting DAC and VOBA. Our estimated gross profits
are computed based on assumptions related to the underlying policies including
mortality, lapse, expenses, and asset growth rates. We amortize DAC, VOBA and
unearned revenue on these policies such that the percentage of gross profits
realized compared to the amount of DAC, VOBA and unearned revenue amortized is
constant over the life of the policies.

      Estimated gross profits, including net realized investment and other gains
(losses), are adjusted periodically to take into consideration the actual
experience to date and assumed changes in the remaining gross profits. When
estimated gross profits are adjusted, we also adjust the amortization of DAC and
VOBA to maintain a constant amortization percentage over the life of the
policies. Our current estimated gross profits include certain judgments by our
actuaries concerning mortality, lapse and asset growth that are based on a
combination of actual Company experience and historical market experience of
equity and fixed income returns. Short-term variances of actual results from the
judgments made by management can impact quarter to quarter earnings. Our history
has shown us that the actual results over time for mortality, lapse and the
combination of investment returns and crediting rates (referred in the industry
as interest spread) for the life insurance and annuity products have reasonably
followed the long-term historical trends. As actual results for market
experience or asset growth fluctuate significantly from historical trends and
the long-term assumptions made in calculating expected gross profits, management
changes these assumptions periodically, as necessary.

      Benefits to Policyholders

      The liability for future policy benefits is the largest liability included
in our consolidated balance sheets, equal to $42,962.8 million, or 47.6%, of
total liabilities as of December 31, 2004. Changes in this liability are
generally reflected in the benefits to policyholders in our consolidated
statements of income. This liability is primarily comprised of the present value
of estimated future payments to holders of life insurance and annuity products
based on certain management judgments. Reserves for future policy benefits of
certain insurance products are calculated using management's judgments of
mortality, morbidity, lapse, investment performance and expense levels that are
based primarily on the Company's past experience and are therefore reflective of
the Company's proven underwriting and investing abilities. Once these
assumptions are made for a given policy or group of policies, they will not be
changed over the life of the policy unless the Company recognizes a loss on the
entire line of business, or the Company is acquired. The Company periodically
reviews its policies for loss recognition and, based on management's judgment,
the Company from time to time may recognize a loss on certain lines of business.
Short-term variances of actual results from the judgments made by management are
reflected in current period earnings and can impact quarter to quarter earnings.


                                       31
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Investment in Debt and Equity Securities

      Impairments on our investment portfolio are recorded as a charge to other
comprehensive income, and if judged by management to be other than temporary in
nature, are recorded as a charge to income. See the General Account Investments
section of this document for a more detailed discussion of the investment
officers' professional judgments involved in determining impairments and fair
values.

      Certain of our fixed income securities classified as available-for-sale
are not publicly traded, and quoted market prices are not available from brokers
or investment bankers on these securities. Changes in the fair values of the
available-for-sale securities are recorded in other comprehensive income as
unrealized gains and /or losses. We calculate the fair values of these
securities ourselves through the use of pricing models and discounted cash flows
which therefore calls for a substantial level of professional investment
management judgment. Our approach is based on currently available information,
including information obtained by reviewing similarly traded securities in the
market, and we believe it to be appropriate and fundamentally sound. However,
different pricing models or assumptions or changes in relevant current
information could produce different valuation results. The Company's pricing
model takes into account a number of factors based on current market conditions
and trading levels of similar securities. These include current market based
factors related to credit quality, country of issue, market sector and average
investment life. The resulting prices are then reviewed by the pricing analysts
and members of the Security Operations Department. Our pricing analysts take
appropriate action to reduce the valuation of securities where an event occurs
that negatively impacts the securities' value. Certain events that could impact
the valuation of securities include issuer credit ratings, business climate,
management changes at the investee level, litigation, fraud and government
actions, among others.

      As part of the valuation process we attempt to identify securities which
may have experienced an other than temporary decline in value, and thus require
the recognition of an other than temporary impairment as a charge against
income. To assist in identifying these impairments, at the end of each quarter
our Investment Review Committee reviews all securities where market value has
been less than ninety percent of amortized cost for three months or more to
determine whether other than temporary impairments need to be taken. This
committee includes the head of workouts, the head of each industry team, the
head of portfolio management, and the Chief Credit Officer of Manulife. The
analysis focuses on each investee company's or project's ability to service its
debts in a timely fashion and the length of time the security has been trading
below amortized cost. The results of this analysis are reviewed quarterly by the
Credit Committee at Manulife. This committee includes Manulife's Chief Financial
Officer, Chief Investment Officer, Chief Risk Officer, Chief Credit Officer, and
other senior management. See "Management's Discussion and Analysis of Financial
Condition and Analysis of Financial Condition and Results of Operations--General
Account Investments" section of this document for a more detailed discussion of
this process and the judgments used therein.

      Benefit Plans

      The Company reviewed its pension and other post-employment benefit plan
assumptions for the discount rate, the long-term rate of return on plan assets,
and the compensation increase rate for incorporation in the measurements made as
of April 28, 2004 (the date of the Manulife merger with the Company) and for net
periodic costs for the calendar year. These assumptions are normally
incorporated in measurements made annually as of each December 31 and for the
subsequent calendar year resulting thereon.

      The assumed discount rate is set based on the published December 31st
Moody's Investor Services long-term corporate bond yield for rating category Aa.
The discount rate used in the April 28, 2004 mark to market of 2004's net
periodic pension cost was 6.0%. The discount rate originally in effect for 2004
was 6.25%. A 0.25% increase in the discount rate would decrease the Projected
Benefit Obligation (PBO) and 2004 Net Periodic Pension Cost (NPPC) by
approximately $57.6 million and $1.2 million respectively. A 0.25% increase in
the discount rate would decrease other post- employment benefits Accumulated
Postretirement Benefit Obligation (APBO) and 2004 Net Periodic Benefit Cost
(NPBC) by approximately $15.9 million and $1.2 million, respectively.

      The assumed long-term rate of return on plan assets is generally set at
the long-term rate expected to be earned (based on the Capital Asset Pricing
Model and similar tools) based on the long-term investment policy of the plans
and the various classes of the invested funds. For 2004, Net Periodic Pension
(and Benefit) Cost, an 8.75% long term rate of return assumption is being used.
A 0.25% increase in the long-term rate of return would decrease 2004 NPPC by
approximately $5.3 million and 2004 NPBC by approximately $0.6 million. The
expected return on plan assets prior to the merger with Manulife was based on
the fair market value of the plan assets as of December 31, 2003. Post merger,
the expected return on plan assets is based on the fair value of plan assets as
of April 28, 2004.

      The compensation rate increase assumption is generally set at a rate
consistent with current and expected long-term compensation and salary policy
including inflation. A change in the compensation rate increase assumption can
be expected to move in the same direction as a change in the discount rate. A
4.0% compensation rate increase assumption is being used. A 0.25% increase in


                                       32
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

the salary scale would increase 2004 pension benefits PBO and NPPC by
approximately $5.8 million and $0.6 million, respectively. Post employment
benefits are independent of compensation.

      The Company uses a 10% corridor for the amortization of actuarial
gains/losses. At the date of the merger, actuarial gains and losses were set to
zero.

      On December 8, 2003, President Bush signed into law a bill that expands
Medicare, primarily by adding a prescription drug benefit for Medicare-eligible
retirees starting in 2006. The Medicare Prescription Drug Improvement and
Modernization Act of 2003 (the Act) provides for special tax-free subsidies to
employers that offer plans with qualifying drug coverages beginning in 2006.
There are two broad groups of retirees receiving employer-subsidized
prescription drug benefits at the Company. The first group, those who retired
prior to January 1, 1992, receives a subsidy of between 90% and 100% of total
cost. Since this subsidy level will clearly meet the criteria for qualifying
drug coverage, the Company anticipates that the benefits it pays after 2005 for
pre-1992 retirees will be lower as a result of the new Medicare provisions. In
accordance with Financial Accounting Standards Board Staff Position FAS 106-2
(FSP FAS 106-2), the Company reflected a reduction in the accumulated plan
benefit obligation for this group of $40.9 million as of the purchase accounting
remeasurement (April 28, 2004) and reduced net periodic postretirement benefit
costs by $1.0 million for the period from April 29 through December 31, 2004.
With respect to the second group, those who retired on or after January 1, 1992,
the employer subsidy on prescription drug benefits is capped and currently
provides as low as 25% of total cost. Since final authoritative accounting
guidance has not yet been issued on determining whether a benefit meets the
actuarial criteria for qualifying drug coverage, the Company has deferred
recognition as permitted by FSP FAS 106-2 for this group. The final accounting
guidance could require changes to previously reported information.

      Income Taxes

      Our reported effective tax rate on net income was 27.9%, 27.4% and 17.0%
for the years ended December 31, 2004, 2003 and 2002, respectively. The increase
in the effective tax rate during the period is due to changes in the recognition
of tax expense as a result of the purchase accounting for leveraged leases as
required by FASB Interpretation No. 21, "Accounting for Leases in a Business
Combination" and FASB Statement of Financial Accounting Standards No. 13,
"Accounting for Leases". Our effective tax rate is based on expected income,
statutory tax rates and tax planning opportunities available to us. Significant
judgment is required in determining our effective tax rate and in evaluating our
tax positions. We establish reserves when, despite our belief that our tax
return positions are fully supportable, we believe that certain positions are
likely to be challenged and that we may not succeed. We adjust these reserves in
light of changing facts and circumstances, such as the progress of a tax audit.
Our effective tax rate includes the impact of reserve provisions, changes to
reserves that we consider appropriate and related interest. This rate is then
applied to our year-to-date operating results.

      Tax regulations require certain items to be included in the tax return at
different times than those items are reflected in the financial statements. As a
result, our effective tax rate reflected in our financial statements is
different than that reported in our tax return. Some of these differences are
permanent, such as affordable housing tax credits, and some are temporary
differences, such as depreciation expense. Temporary differences create deferred
tax assets and liabilities. Deferred tax assets generally represent items that
can be used as a tax deduction or credit in our tax return in future years for
which we have already recorded the tax benefit in our income statement. Our
policy is to establish valuation allowances for deferred tax assets when the
amount of expected future taxable income is not likely to support the use of the
deduction or credit. Deferred tax liabilities generally represent tax expense
recognized in our financial statements for which payment has been deferred or
expense for which we have already taken a deduction on our tax return, but have
not yet recognized as expense in our financial statements.

      A number of years may elapse before a particular matter, for which we have
established an accrued liability, is audited and finally resolved. The Internal
Revenue Service is currently examining our tax returns for 1999 through 2001.

      While it is often difficult to predict the final outcome or the timing of
resolution of any particular tax matter, we believe that our reserves reflect
the probable outcome of known tax contingencies. Our tax reserves are presented
in the balance sheet net in the deferred tax asset or in the deferred tax
liability for the respective period ends.


                                       33
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Reinsurance

      As part of the Manulife group of companies' subsequent to the merger we
reinsure portions of the risks we assume for our protection insurance products.
The maximum amount of individual ordinary life insurance retained by us on any
life is $20 million under an individual policy and $25 million under a
second-to-die policy. As of January 1, 2001, we established additional
reinsurance programs, which limit our exposure to fluctuations in life insurance
claims for individuals for whom the net amount at risk is $3 million or more.

      As of January 1, 2001, the Company also entered into agreements with two
reinsurers covering 50% of its closed block business. One of these reinsurers is
Manulife. Effective April 28, 2004 the Company operates as a subsidiary of
Manulife. During the fourth quarter of 2004, the Company entered into an
additional agreement covering closed block policies with a Manulife affiliate in
order to facilitate its statutory capital management process. This transaction
increased the amount of reinsurance of the closed block with Manulife by 20%.
Effective December 31, 2003, the Company entered into an agreement with a third
reinsurer covering another 5% of its closed block business. The reinsurance
agreements 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 Life Company's demutualization to protect the reasonable
dividend expectations of certain participating life insurance policyholders In
addition, the Company has entered into reinsurance agreements to specifically
address insurance exposure to multiple life insurance claims as a result of a
catastrophic event. The Company has put into place, effective July 1, 2002,
catastrophic reinsurance covering individual life insurance policies written by
all of its U.S. life insurance subsidiaries. Effective July 1, 2004, the Company
is covered by its parent's catastrophic reinsurance under its global catastrophe
reinsurance program which covers the entire Manulife group of companies for
losses in excess of $50 million up to $150 million. This global catastrophe
reinsurance covers all terrorist acts in Canada; in the United States and
elsewhere, nuclear, biological and chemical terrorist acts are not covered.
Should catastrophic reinsurance become unavailable to the Company in the future,
the absence of, or further limitations on, reinsurance coverage could adversely
affect the Company's future net income and financial position.

      By entering into reinsurance agreements with a diverse group of highly
rated reinsurers, we seek to control our exposure to losses. Our reinsurance,
however, does not discharge our legal obligations to pay policy claims on the
policies reinsured. As a result, we enter into reinsurance agreements only with
highly rated reinsurers. Nevertheless, there can be no assurance that all our
reinsurers will pay the claims we make against them. Failure of a reinsurer to
pay a claim could adversely affect our business, financial condition or results
of operations.

Transactions Affecting Comparability of Results of Operations

      Discontinued operations. Pursuant to Manulife's rationalization of its
worldwide business operations along geographic lines, the Company's non-USA
operations were or will be transferred to Manulife's previously existing
subsidiaries in each region of the world.

      On December 29, 2004, the remaining operations and substantially all of
the remaining assets and liabilities of the Maritime Life Assurance Company
(Maritime Life), which was formerly reported as the Company's Canada Segment,
were transferred to The Manufacturers Life Insurance Company (MLI), Manulife's
primary Canadian insurance subsidiary. Maritime Life legal shell continues to be
owned by the Company. Maritime's net income is reflected in the Company's
Consolidated Statements of Income as income from discontinued operations for all
periods presented.

      This transfer was recorded by the Company as a disposal of a business by
other than sale, i.e. as a transfer of a business between entities under common
control. No gain or loss was recognized in the Company's Consolidated Statements
of Income on this transfer. The excess of the proceeds received over the net
carrying value of assets and liabilities transferred was accounted for as a
capital transfer to the Company by an affiliate.


                                       34
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Proceeds to the Company of the transfer consisted primarily of $2,185.1 of
redeemable preferred stock of a subsidiary of Old Manufacturers Life, a wholly
owned subsidiary of Manulife. The subsidiary of Old Manufacturers Life then
redeemed its preferred shares by assigning a $2,081.3 million demand note
payable bearing interest at 2.97% payable annually, maturing December 29, 2005,
and a $103.9 million non-interest bearing demand note receivable, both from MLI.
On December 31, 2004, the Company drew down $85.6 million on the 2.97% demand
note. MFC then partially repaid the 2.97% demand note by issuing a $1,703.2
million demand note bearing interest at 3.01%, reducing the balance of the 2.97%
note to $293.7 million. These three notes receivable are included in other
assets on the Company's Consolidated Balance Sheets.

      Summarized financial data for these discontinued operations are presented
in the tables below:

<TABLE>
<CAPTION>
                                                          Period from
                                                           April 29     Period from
                                                            through      January 1     Year Ended     Year Ended
Income Statement Data                                    December 31,  through April  December 31,   December 31,
                                                             2004         28, 2004        2003           2002
                                                         --------------------------------------------------------
                                                                             (in millions)
<S>                                                      <C>            <C>            <C>            <C>
Revenue .............................................    $1,522.0       $  738.5       $1,757.4       $1,209.5

Income before income taxes and cumulative effect
     of accounting change ...........................       123.9           43.9          193.5          104.5
Income taxes ........................................       (36.7)         (12.7)         (60.0)         (46.1)
                                                         --------------------------------------------------------

Income before cumulative effect of accounting
     change .........................................        87.2           31.2          133.5           58.4
Cumulative effect of accounting change ..............          --           41.3             --             --
                                                         --------------------------------------------------------

Net income from discontinued operations .............    $   87.2       $   72.5       $  133.5       $   58.4
                                                         ========================================================
</TABLE>

   Assets and liabilities transferred              December 29,   December 31,
                                                        2004         2003
                                                   ----------------------------
                                                         (in millions)
   Investments.................................    $   8,705.0  $   7,538.8
   Total assets................................       12,583.3     14,351.3
   Total liabilities...........................       10,589.0     13,348.6

      Recent Acquisition/Disposal Activity. The acquisition described under the
table below 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 each date of acquisition. Each purchased
price was allocated to the assets acquired and the liabilities assumed based on
estimated fair values, with the excess, if any, of the applicable purchase price
over the estimated fair values of the acquired assets and liabilities recorded
as goodwill. These acquisitions were made by the Company in execution of its
plan to acquire businesses and products that have strategic value, meet its
earnings requirements and advance the growth of its current business.

      The disposals described under the table below were conducted in order to
execute the Company's strategy to focus resources on businesses and geographic
regions in which it can have a leadership position. The table below presents
actual and proforma data for comparative purposes for the periods indicated to
demonstrate the proforma effect of the acquisitions and disposals as if they
occurred on January 1, 2002.

<TABLE>
<CAPTION>
                  Period from   Period from   Period from   Period from
                   April 29,     April 29,     January 1     January 1
                    through       through       through       through
                  December 31,  December 31,   April 28,     April 28,
                     2004          2004          2004           2004          2003         2003        2002         2002
                   Proforma                    Proforma                     Proforma                 Proforma
                  (unaudited)                  (unaudited)                 (unaudited)              (unaudited)
                 ------------------------------------------------------------------------------------------------------------
                                                             (in millions)

<S>               <C>           <C>            <C>           <C>           <C>          <C>          <C>          <C>
Revenue ......    $  4,947.0    $  5,009.5     $  2,764.5    $  2,817.0    $  8,153.6   $  8,313.9   $  7,182.7   $  7,268.6

Net Income ...    $    470.1    $    467.9     $    337.5    $    337.1    $    799.3   $    806.0   $    501.0   $    499.5
</TABLE>


                                       35
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Acquisitions:

      On July 8, 2003, the Maritime Life Insurance Company (Maritime Life),
formerly a majority owned Canadian subsidiary of the Company, completed its
purchase of the insurance business of Liberty Health, a Canadian division of
U.S.-based Liberty Mutual Insurance Company, through a reinsurance agreement for
approximately $97.5 million. Through the agreement, Maritime Life assumed the
entire business of Liberty Health, including its group life, group disability
and group health divisions, as well as its individual health insurance business.
There was no impact on the Company's results of operations from the acquired
insurance business during 2002 or the first six months of 2003.

      On December 31, 2002, the Company acquired the fixed universal life
insurance business of Allmerica Financial Corporation (Allmerica) through a
reinsurance agreement for approximately $104.3 million. There was no impact on
the Company's results of operations from the acquired insurance business during
2002.

      Disposals:

      On September 30, 2004, the Company's Singapore subsidiary, the John
Hancock Life Assurance Limited in Singapore (JHLAC) was transferred from the
Company to Manulife (Singapore) Private Limited, a wholly owned subsidiary of
Manulife, as part of Manulife's rationalization of its worldwide operations
along geographic lines. No gain or loss was recorded on this transfer of a
business between entities under common control.

      On June 19, 2003, the Company agreed to sell its group life insurance
business through a reinsurance agreement with Metropolitan Life Insurance
Company, Inc (MetLife). The Company is ceding all activity after May 1, 2003 to
MetLife. The transaction was recorded as of May 1, 2003, and closed November 4,
2003.

Subsequent Events

As a result of integration of operations between the Company and its parent,
Manulife, the Company is in negotiations to sell its China operations. The
Company will divest itself of its operations in China to accommodate Chinese
law, which allows only one license per Company. Manulife had an operation in
China prior to the merger with John Hancock.

On March 8, 2005 the Company borrowed $320.0 million from Manufacturer's
Hungarian Holdings Limited (MHHL) for capital planning purposes. The note
payable to MHHL bears interest at a rate of LIBOR plus 25 basis points, is
payable quarterly commencing March 28, 2005 and is due March 8, 2006. The
Company will include the note payable to MHHL in debt on its Consolidated
Balance Sheets.

                                       36
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Results of Operations

      The company was merged with Manulife Financial Corporation effective April
28, 2004. The following discussion provides an assessment of the consolidated
results of operations and liquidity and capital resources for the Company and
the Predecessor. Unless otherwise indicated, 2004 historical results represent
the combined operating results of the Predecessor from January 1, 2004 through
April 28, 2004 and the Company from the date of the merger though December 31,
2004.

      As further discussed in Note 1 to the Consolidated Financial Statements
the merger was accounted for as a purchase. Accordingly, the operating results
for the periods subsequent to April 28, 2004 reflect the results of operations
of the Company subsequent to the merger and include the impact of adjustments
required under the purchase method of accounting.

      The tables below present the consolidated results of operations for the
periods presented:

<TABLE>
<CAPTION>
                                                                                  Company             Predecessor Company
                                                                                -------------  ------------------------------------
                                                                                 Period from
                                                                                  April 29,    Period from
                                                                                     2004       January 1,     Year
                                                                                   through     2004 through    ended     Year ended
                                                                                 December 31,    April 28,    December    December
                                                                                     2004          2004       31, 2003    31, 2002
                                                                                -------------  ------------------------------------
                                                                                                    (in millions)
<S>                                                                             <C>          <C>           <C>           <C>
Revenues
      Premiums ..............................................................   $  1,871.2   $    916.6    $  3,010.6    $  2,695.8
      Universal life and investment-type product charges ....................        436.4        241.0         660.2         621.9
      Net investment income .................................................      2,162.0      1,311.2       3,849.3       3,628.3
      Net realized investment and other gains (losses), net of
         related amortization of deferred policy acquisition costs,
         amounts credited to participating pension contractholders
         and the policyholder dividend obligation $(13.9), $(31.2),
         $55.3 and $73.2, respectively) .....................................          7.7         80.0          23.8        (448.5)
      Investment management revenues, commissions and other fees ............        356.8        179.9         498.1         529.0
      Other revenue .........................................................        175.4         88.3         271.9         242.1
                                                                                ---------------------------------------------------
            Total revenues ..................................................      5,009.5      2,817.0       8,313.9       7,268.6

Benefits and expenses
      Benefits to policyholders, excluding amounts related to net
         realized investment and other gains (losses) credited to
         participating pension contractholders and policyholder
         dividend obligation $(26.7), $(42.3), $61.7, and $35.2,
         respectively) ......................................................      2,858.1      1,612.2       4,857.6       4,538.9
      Other operating costs and expenses ....................................      1,135.3        524.3       1,409.0       1,291.0
      Amortization of deferred policy acquisition costs, and value of
         the business acquired, excluding amounts related to net
         realized investment and other gains(losses) $12.9, $11.1,
         ($6.4), and $38.0, respectively) ...................................        170.1        139.8         343 1         337.8
      Dividends to policyholders ............................................        329.4        156.7         548.8         569.2
                                                                                ---------------------------------------------------
            Total benefits and expenses .....................................      4,492.9      2,433.0       7,158.5       6,736.9

Income from continuing operations before income taxes, discontinued
   operations and cumulative effect of accounting changes ...................        516.6        384.0       1,155.4         531.7
Income taxes ................................................................        135.9        115.1         316.7          90.6
                                                                                ---------------------------------------------------
Income from continuing operations before discontinued operations and
   cumulative effect of accounting change ...................................        380.7        268.9         838.7         441.1

Income from discontinued operations, net of tax .............................         87.2         72.5         133.5          58.4
                                                                                ---------------------------------------------------
Income before cumulative effect of accounting change ........................        467.9        341.4         972.2         499.5

Cumulative effect of accounting change, net of tax ..........................           --         (4.3)       (166.2)           --
                                                                                ---------------------------------------------------

Net income ..................................................................   $    467.9   $    337.1    $    806.0    $    499.5
                                                                                ===================================================
</TABLE>


                                       37
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

      As a result of Manulife's merger with the Company (see Note 1- Change of
Control) the Company renamed and reorganized certain businesses within its
operating segments to better align the Company with its new parent, Manulife.
The Company renamed the Asset Gathering Segment as the Wealth Management Segment
and the Maritime Life Segment was renamed the Canada Segment. On December 29,
2004, the Canada Segment, its primary business was the operations of Maritime
Life, was transferred to The Manufacturers Life Insurance Company (MLI),
Manulife's primary Canadian insurance subsidiary, (see Note 2 - Summary of
Significant Accounting Policy). Canada Segment's net income is reflected in the
Company's Consolidated Statements of Income as income from discontinued
operations for all periods presented. No gain or loss was recorded in the
Company's Consolidated Statements of Income on this transfer of a business
between entities under common control. The remaining Canada Segment notes
receivable, equity and interest earned on the notes receivable are reported in
the Corporate and Other Segment. Further efforts at reorganization of JHFS
included the movement of Institutional Investment Management Segment to the
Corporate and Other Segment. Other realignments include moving Signator
Investors, Inc. our agent sales organization, from the Wealth Management Segment
to the Protection Segment, and group life, retail discontinued operations,
discontinued health insurance operations and creditor from the Corporate and
Other Segment to the Protection Segment. Direct Foreign Operations (DFO) and
International Group Plans (IGP) remain in international operations and John
Hancock Accident remains in our non-core business in our Corporate and Other
Segment while in Manulife's segment results DFO will be reported in Asia, and
IGP and John Hancock Accident will be reported in Reinsurance. On September 30,
2004, the Company's Singapore subsidiary, the John Hancock Life Assurance
Limited in Singapore (JHLAC), a DFO subsidiary, was transferred from the Company
to Manulife (Singapore) Private Limited, a wholly owned subsidiary of Manulife.
(See Note 2 - Summary of Significant Accounting Policy). No gain or loss was
recorded in the Company's Consolidated Statements of Income on this transfer of
a business between entities under common control. The financial results for all
periods have been reclassified to conform to the current period presentation.

      During the majority of 2004, the Company operated in the following five
business segments: two segments primarily served retail customers, one segment
served institutional customers, one segment served primarily Canadian retail and
group customers and our fifth segment was the Corporate and Other Segment, which
includes our institutional advisory business, the remaining international
operations, and the corporate account. Our retail segments are the Protection
Segment and the Wealth Management Segment, previously called Asset Gathering.
Our institutional segment is the Guaranteed and Structured Financial Products
Segment (G&SFP). As previously discussed, the Canada Segment was transferred to
an affiliated entity on December 29, 2004 and is presented in the discussion
below as a disposed operation. Effective January 27, 2005, the G&SFP Segment
became a part of the Wealth Management Segment. This organizational change
reflects G&SFP's increasing focus on retail-oriented products and will enable
the company to better leverage the strong distribution channels of the Wealth
Management Segment with G&SFP's strong product development, risk management, and
immediate annuity servicing capabilities. G&SFP is presented as its own
operating segment for the discussion of 2004 results below.

      Consolidated income from continuing operations before income taxes,
discontinued operations, and cumulative effect of accounting changes decreased
22.1%, or $254.8 million, from the prior year. The decrease was driven by
decreased earnings in the non-traditional life insurance business, institutional
investment management business, spread-based business and integration expenses.
Consolidated income from continuing operations before income taxes, discontinued
operations, and cumulative effect of accounting changes by operating segment
were as follows: a decrease of $364.0 million in the Corporate and Other
Segment, an increase of $39.8 million in the Wealth Management Segment, an
increase of $37.1 million in the Guaranteed and Structured Financial Products,
and partially offset by growth of $32.3 million in the Protection Segment. After
consolidated income from continuing operations before income taxes, discontinued
operations, and cumulative effect of accounting changes the Company recorded
income from discontinued operations of $159.7 million and a decrease to net
income of $4.3 million (net of tax of $1.8 million) resulting from the adoption
of a new accounting pronouncement, Statement of Position 03-1 - Accounting and
Reporting by Insurance Enterprises for Certain Untraditional Long Duration
Contracts for Separate Accounts (SOP 03-1), see Note 2 - Summary of Significant
Accounting Policy for additional discussion.

      Premium revenues decreased 7.4%, or $222.8 million, from the prior year.
The decrease was primarily due to a $235.4 million decrease in premiums in the
G&SFP Segment, driven by a decrease in the single premium annuity business. We
continue to look for opportunistic sales in the single premium annuity market
where our pricing standards are met. In addition, premiums in the Wealth
Management Segment decreased $25.3 million driven by lower sales of single
premium immediate annuities in the fixed annuity business, while premiums
decreased $52.8 million in the traditional life insurance business and $38.1
million due to the sale of the group life insurance business in the prior year.
Partially offsetting these decreases in premiums was by an increase in premiums
of $128.5 million in the long-term care insurance business.


                                       38
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Universal life and investment-type product fees increased 2.6%, or $17.2
million, from the prior year. These product fees 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 an increase of $34.3 million in the Protection
Segment driven by growth in average account values in universal life insurance
products driven by growth in the existing business. Partially offsetting the
growth in the Protection Segment was a decline of $8.8 million in product fees
in the Wealth Management Segment which declined on lower mortality and expense
fees in the variable annuity business. In addition, product fees decreased $8.4
million in the G&SFP Segment driven by lowers fees in the single premium annuity
business.

      Net investment income decreased 9.8%, or $376.1 million, from the prior
year. The yield, net of investment expenses, on the general account portfolio
decreased to 5.12% from 5.95% in the prior year. Yield for the period subsequent
to the merger with Manulife, April 29, 2004 through December 31, 2004, was
4.78%. The decrease in yield was driven by the following factors:

      o     On April 28, 2004, as a result of Manulife's acquisition of John
            Hancock, assets were marked to market in accordance with purchase
            accounting rules. The impact of the asset adjustment and related
            amortization was a reduction in yield of approximately 71 basis
            points compared to the prior year.

      o     As of December 31, 2004, the Company's asset portfolio had
            approximately $12 billion of floating-rate exposure (primarily
            LIBOR). This compares to a $13 billion level of exposure as of
            December 31, 2003. This exposure was created mostly through interest
            rate swaps designed to match our floating-rate liability portfolio.
            As of December 31, 2004, approximately 86% of this exposure,
            excluding cash and short-term investments, was directly offset by
            exposure to floating-rate liabilities. Most of the remaining 14% of
            exposure is in floating rate assets were acquired for their relative
            value and are accounted for in the portfolio's interest rate risk
            management plan. The impact was a reduction of 43 basis points for
            2004 compared to 56 basis points in 2003.

      o     Certain of our tax-preferenced investments (affordable housing
            limited partnerships and lease residual management) dilute the
            Company's net portfolio yield on a pre-tax basis. In 2004 this
            dilutive effect was 8 basis points, compared to 8 basis points in
            the prior year. However, adjusting for taxes, these investments
            increased the Company's net income by $2.0 million in 2004 compared
            to the prior year.

      o     The inflow of new cash for the twelve month period ending December
            30, 2004 was invested at rates that were below the portfolio rate.
            In addition, maturing assets were rolling over into new investments
            at rates below the portfolio rate.

      Partially offsetting the effects of these decreases to yields on
investments was an increase in invested assets and a reduction in investment
expenses. In 2004, weighted-average invested assets grew $3,139.5 million, or
4.8%, from the prior year. In addition, investment expenses were reduced $32.2
million compared to the prior year.

Net realized investment and other gains increased 268.5%, or $63.9 million, from
prior year. See detail of current year net realized investment and other gains
in the table below. The improvement in the net realized investment and other
gains was driven by gross gains on disposal of fixed maturity securities
generated in the management of the portfolios for tax optimization and ongoing
portfolio positioning, as well as $104.8 million of prepayments. In addition,
there were $42.5 million of recoveries on sales of previously impaired
securities for the year ended December 31, 2004. Partially offsetting these
gains were impairments of $329.4 million driven by $179.5 million in other than
temporary impairments of fixed maturity securities (which excludes $14.4 million
of previously recognized gains where the bond was part of a hedging
relationship). Fixed maturity impairments in 2004 relate primarily to:
securities in the airline industry ($62.8 million), a manufacturer of parcel
delivery vans ($28.0 million), private placement securities related to secured
lease obligations of a regional retail food chain ($22.0 million), a holding in
a privately held pharmaceutical company ($21.3 million), and one of the world's
largest dairy companies ($17.5 million). The Company recorded losses due to
other than temporary impairments of other invested assets of $78.1 million for
year ended December 31, 2004. These impairments primarily relate to lease
investments in the U.S. airline industry ($29.2 million) and an investment in a
royalty stream ($25.5 million). There were also $12.7 million in impairments on
CBO and CDO equity for the period. Equity in these CBOs and CDOs take the first
loss risk in a pool of high yield debt. We have a total remaining carrying value
of $34.9 million and $60.0 million of CBO and CDO equity as of December 31, 2004
and December 31, 2003, which is currently supported by expected cash flows. The
Company recorded a net loss of $63.7 million on mortgage loans for the year
ended December 31, 2004 (of which $17.6 million was losses on hedging
adjustments). Included in this loss is $65.7 million in impairments. These
impairments primarily relate to mortgages on a company that operates flour
milling facilities ($20.2 million), a refrigeration warehouse company ($21.5
million), and a commercial office property ($10.0 million). There were also
gains of $107.4 million on the sale of equity securities as part of our overall
investment strategy of using equity gains to offset credit losses in the long


                                       39
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

term, gains of $50.3 million from the sale of other invested assets, and gains
of $83.1 million resulting from the sale of real estate for the year ended
December 31, 2004. For additional analysis regarding net realized investment and
other gains (losses), see below and General Account Investments in this
management's narrative. The Company recorded total impairments of $210.2 million
for the period subsequent to the merger with Manulife, April 29, 2004 through
December 31, 2004, and $119.2 million for the period prior to the merger with
Manulife, from January 1, 2004 through April 28, 2004, compared to $574.9
million for the prior year.

<TABLE>
<CAPTION>
For the year ended December 31, 2004                                   Gross Gain   Gross Loss    Hedging    Net Realized Investment
                                                           Impairment  on Disposal  on Disposal  Adjustments   and Other Gain/(Loss)
                                                          --------------------------------------------------------------------------
                                                                         (in millions)
<S>                                                      <C>           <C>          <C>           <C>           <C>
Fixed maturity securities ............................   $   (179.5)   $    298.0   $    (64.7)   $    (73.2)   $    (19.4)
Equity securities ....................................         (6.1)        107.4         (6.5)           --          94.8
Mortgage loans on real estate ........................        (65.7)         30.2        (10.6)        (17.6)        (63.7)
Real estate ..........................................           --          83.1         (2.5)           --          80.6
Other invested assets ................................        (78.1)         50.3        (12.8)           --         (40.6)
Derivatives ..........................................           --            --           --          40.6          40.6
                                                         ---------------------------------------------------------------------------
               Subtotal ..............................   $   (329.4)   $    569.0   $    (97.1)   $    (50.2)   $     92.3
                                                         ===========================================================================

          Amortization adjustment for deferred policy acquisition costs......................................         24.0
          Amounts credited to participating pension contractholders..........................................         (2.7)
          Amounts credited to the policyholder dividend obligation...........................................        (25.9)
                                                                                                                 -------------------
               Total.........................................................................................       $ 87.7
                                                                                                                 ===================
</TABLE>

      Investment management revenues, commissions, and other fees increased
7.7%, or $38.6 million, from the prior year. The increase in fee revenue was
driven by the mutual funds business where fees increased $18.9 million driven by
a 10.0%, or $2,702.6 million, increase in average assets under management. In
addition, advisory fees increased 3.3%, or $3.8 million, in the institutional
asset management business despite a 5.5%, or $1,542.1 million, decrease in
average assets under management. This increase in advisory fees was driven by
success with the new vertical integration strategy in the Hancock Natural
Resource Group. In addition, advisory fees earned in the Signator Financial
Network increased due to sales of the Manulife product since the merger.

      Other revenue decreased 3.0%, or $8.2 million, from the prior year. The
decrease in other revenue is due to Signature Fruit, a subsidiary of the Company
since April 2, 2001, which acquired certain assets and assumed certain
liabilities out of bankruptcy proceedings of Tri Valley Growers, Inc., a
co-operative association on that date. The revenues and expenses of Signature
Fruit are included in the Company's income statement in other revenue and other
operating costs and expenses, respectively, in the Corporate and Other Segment.
Signature Fruit generated revenue of $242.6 million in 2004, a decrease of $11.9
million from the prior year. Also included in other revenue is the fee revenue
generated in the Federal long-term care insurance business, its primary
operating revenue. The Federal long-term care insurance business is a fee
business where the Company administers and supports employee long-term care
insurance benefits offered by the Federal Government to its employees. Federal
long-term care insurance fee revenue increased $1.2 million from the prior year.

      Benefits to policyholders decreased 8.0%, or $387.3 million, from the
prior year. The decrease in benefits to policyholders was driven by a 22.1%, or
$358.2 million, decline in the G&SFP Segment on a 53.2% decline in premiums on
single premium annuities. In addition, interest credited in the G&SFP Segment
decreased 10.6%, or $107.5 million, from the prior year. The decrease in
interest credited was due to a decline in the average interest credited rate on
account balances for spread-based products, due to the reset of approximately
$10.5 billion of liabilities with floating rates and new business added at
current market rates. Interest credited in the G&SFP Segment also decreased due
to the repricing of liability products at the date of the merger with Manulife
for purchase accounting which resulted in resetting the crediting rates to a
lower market rate. The average crediting rate fell to 3.65% from 4.31% in the
prior year. Benefits to policyholders declined 23.0%, or $109.3 million, in the
fixed annuity business driven by lower sales of single premium immediate
annuities, as noted above, and impact of purchase accounting in the merger with
Manulife whereby reserves established at merger date are being amortized to
benefits to policyholders. In addition, benefits to policyholders declined
10.3%, or $111.2 million, in the traditional life insurance business driven by
lower premiums. Partially offsetting these decreases was growth in benefits to
policyholders of $134.2 million in the long-term care insurance business, driven
by 13.3%, or $128.5 million, increase in premiums. In addition, benefits to
policyholders increased $61.3 million in the non-traditional life insurance
business driven by 14.4% growth in average account balance.

      Other operating costs and expenses increased $250.6 million from the prior
year driven by a charge for unrecoverable reinsurance of $142.1 million, an
increase of $47.9 million in merger transaction expenses, an increase of $29.5
million in the integration costs and $3.6 million in amortization of other


                                       40
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

intangible assets created in the merger with Manulife. There was a $5.5 million
increase in operating expenses at the Hancock Natural Resource Group, which
included $4.4 million of expenses associated with the expansion of its property
management division. Partially offsetting these increases was a decrease in
operating expenses of $11.9 million at Signature Fruit. Signature Fruit other
operating costs and expenses were $245.9 million in 2004 and $257.8 million in
the prior year. Operating expenses at the institutional advisory businesses,
Declaration Management & Research and Independence Investments LLC, decreased
$6.9 million to $40.9 million primarily due to lower compensation expenses.

      Amortization of deferred policy acquisition costs and value of business
acquired decreased 9.7%, or $33.2 million, from the prior year. The decrease in
amortization of deferred policy acquisition costs and value of business acquired
was comprised of a $42.8 million decrease in the non-traditional life insurance
business and a decrease of $24.4 million in the traditional life insurance
business. The decrease in amortization of deferred policy acquisition costs and
value of business acquired was driven by the impact of purchase accounting in
the merger with Manulife during the year. Partially offsetting these decreases
was an increase in amortization of deferred policy acquisition costs and value
of business acquired of $36.4 million in the G&SFP Segment driven by the VOBA
asset established in this business due to purchase accounting resulting from the
merger with Manulife.

      Dividends to policyholders decreased 11.4%, or $62.7 million from the
prior year. The decrease in dividends to policyholders was driven by the
traditional life insurance business, which decreased 5.1%, or $23.0 million.
This decrease was due to the full year impact of lowering of the dividend scale
on traditional life insurance products in the prior year. Partially offsetting
the decrease in the dividend scale was growth in the traditional life insurance
products average reserves, which increased approximately 2.9% from the prior
period. Dividends to policyholders decreased $26.7 million due to a return of a
claim stabilization reserve to a single customer in the group life business in
the prior year. The result of this transaction in the prior year was a reduction
in benefits to policyholders and an increase in dividends resulting in no net
income impact. Group life was sold effective May 1, 2003. In addition, dividends
to policyholders declined $16.5 million in the institutional fee-based business
on lower average reserves from the prior year.

     Income taxes were $251.0 million in 2004, compared to $316.7 million for
2003. Our effective tax rate was 27.9% in 2004, compared to 27.4% in 2003. The
change in effective tax rate was primarily due to changes in the recognition of
tax expense as a result of the purchase accounting for leveraged leases as
required by FASB Interpretation No. 21, "Accounting for Leases in a Business
Combination" and FASB Statement of Financial Accounting Standards No. 13,
"Accounting for Leases".

      Income from discontinued operations of $159.7 million and $133.5 million
for the years ended December 31, 2004 and 2003, respectively, consist of the net
income of the Canada Segment, which was transferred to an affiliated entity on
December 29, 2004. See Note 2 - Summary of Significant Accounting Policy for
further discussion. Canada Segment's net income consists primarily of the
results of Maritime Life, formerly the Company's principal operating subsidiary
in Canada.

      Cumulative effect of accounting change, net of tax, was a charge of $4.3
million and $166.2 million for the years ended December 31, 2004 and 2003,
respectively. During the 2004, the Company adopted SOP 03-1 which requires
specialized accounting for insurance companies related to separate accounts,
transfers of assets, liability valuations, returns based on a contractually
referenced pool of assets or index, accounting for contracts that contain death
or other insurance benefit features, accounting for reinsurance and other
similar contracts, accounting for annuitization benefits and sales inducements
to contractholders. In 2003 the cumulative effect of accounting change related
to the adoption of DIG B36 as of October 1, 2003, refer to Note 2 - Summary of
Significant Accounting Policies in the notes to the Company's Consolidated
Financial Statements.


                                       41
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

      The following discussion has been updated to remain comparable with the
current year management's narrative; it therefore reflects the state of the
Company's operations subsequent to the merger with Manulife. In the following
management's narrative, references to operating segments which have been merged
with other operating segments or renamed since the date of the merger have been
updated to reflect such business decisions. In addition, the following
discussion has been updated to reflect the transfer of the Canada Segment,
referred to as the Maritime Life Segment at the time this discussion was
originally published, to an affiliate. The operating results of the Canada
Segment appear as discontinued operations on the Company's updated statements of
income for the periods covered by this discussion.

      Consolidated income before income taxes, discontinued operations and
cumulative effect of accounting changes increased 117.3%, or $623.7 million,
from the prior year. The increase was driven by growth in income before taxes,
discontinued operations and cumulative effect of accounting change of $266.6
million in the Corporate and Other Segment, $145.5 million in the Guaranteed and
Structured Financial Products, $114.3 million in the Protection Segment, and
$97.3 million in the Wealth Management Segment. After consolidated income from
continuing operations before income taxes, discontinued operations, and
cumulative effect of accounting changes the Company recorded income from
discontinued operations of $133.5 million and $58.4 million for the years ended
December 31, 2003 and 2002, respectively. In addition, the Company recorded a
decrease to net income of $166.2 million (net of tax of $89.5 million) resulting
from the adoption of a new accounting pronouncement, the Financial Accounting
Standards Board's Derivative Implementation Group (DIG) release of Statement of
Financial Accounting Standard No. 133 Implementation Issue No. B36, "Embedded
Derivatives: Modified Coinsurance Arrangements and Debt Instruments That
Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related
to the Creditworthiness of the Obligor under Those Instruments" (DIG B36), see
Note 2 - Summary of Significant Accounting Policy for additional discussion.

      Net realized investment and other gains increased 105.3%, or $472.3
million, from prior year. See detail of current year net realized investment and
other gains in the table below. The change in net realized investment gains is
the results of gross gains on disposal of; fixed maturity securities of $469.0
million including $90.8 million of previously written down securities, real
estate of $251.8 million driven by the sale of the Home Office properties,
equity securities of $102.8 million and mortgage loans on real estate of $75.9
million primarily from prepayment penalties. These gains are partially offset by
impairments on fixed maturity securities of $517.3 million and associated
hedging adjustments during the period. The improvement of $472.3 million in net
realized investment and other losses in 2003 is net of $3.2 million in net
realized investment and other losses allocated to the participating pension
contractholders and $58.5 million in net realized investment and other losses
allocated to the policyholder dividend obligation.

      The impairments in the current period were driven by losses recognized on
other than temporary declines in value of fixed maturity securities of $542.0
million, including impairment losses of $517.3 million and $24.7 million of
previously recognized gains where the bond was part of a hedging relationship.
The largest impairments were; $153.0 million on securities in the dairy
industry, $73.5 million in the airline industry and $69.3 million in the
securities in the power and energy industry, Additional losses were recorded for
other than temporary declines in the equity in collateralized bond obligations
of $29.8 million and other equity securities of $27.8 million during 2003. See
General Accounts Investments in this management's narrative for a more
comprehensive discussion of impairments.

<TABLE>
<CAPTION>
For the year ended December 31, 2003                   Gross Gain     Gross Loss       Hedging    Net Realized Investment
                                         Impairment    on Disposal   on Disposal     Adjustments   and Other Gain/(Loss)
                                        ---------------------------------------------------------------------------------
                                                                         (in millions)
<S>                                     <C>            <C>           <C>            <C>               <C>
Fixed maturity securities ............  $   (517.3)    $    469.0    $    (95.6)    $   (246.9)       $   (390.8)
Equity securities ....................       (27.8)         102.8          (3.7)            --              71.3
Mortgage loans on real estate ........          --           75.9         (41.0)         (63.7)            (28.8)
Real estate ..........................          --          251.8         (17.0)            --             234.8
Other invested assets ................       (29.8)          22.7         (29.1)            --             (36.2)
Derivatives ..........................          --             --            --          118.2             118.2
                                        ---------------------------------------------------------------------------------
               Subtotal ..............  $   (574.9)    $    922.2    $   (186.4)    $   (192.4)       $    (31.5)
                                                                                                      ===================

          Amortization adjustment for deferred policy acquisition costs......................               (6.4)
          Amounts credited to participating pension contractholders..........................                3.2
          Amounts credited to the policyholder dividend obligation...........................               58.5
                                                                                                      -------------------
               Total.........................................................................         $     23.8
                                                                                                      ===================
</TABLE>


                                       42
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      The increase in income before income taxes, discontinued operations and
the cumulative effect of an accounting change in the Corporate and Other Segment
was driven by growth in net realized investment and other gains due to a gain of
$233.8 million (and a deferred profit of $247.7 million) on the sale of the
Company's Home Office properties during the first quarter of 2003. See Note 9 -
Sale/Leaseback Transaction and other Lease Obligations in the notes to the
consolidated financial statements. The increase in the G&SFP Segment was
primarily due to a $97.5 million improvement in net realized investment and
other losses. The increase in the Protection Segment was driven by a $106.6
million increase in net investment income, a $38.7 million increase in net
realized investment and other losses, and a $35.3 million increase in universal
life product fees. The increase in the Wealth Management Segment was driven by
growth in net investment income, partially offset by an increase in benefits to
policyholders and operating expenses. In addition, within the Corporate and
Other Segment, income before income taxes, discontinued operations and
cumulative effect of accounting changes increased due to the institutional
investment advisory business where net realized investment and other gains
increased $9.0 million and management advisory fees increased $7.0 million.

      Premium revenues increased 11.7%, or $314.8 million, from the prior year.
Premiums in the G&SFP Segment improved $170.4 million driven by the single
premium annuity business and the structured settlements business. We continue to
look for opportunistic sales in the single premium annuity market where our
pricing standards are met. Premiums also increased in the Protection Segment by
$21.8 million driven primarily by long-term care insurance premiums, which
increased 22.8%, or $179.4 million, partially offset by a decline in the group
life insurance business of $115.0 million and in traditional life insurance
premiums of 4.0%, or $42.0 million. The Company sold the group life insurance
business effective May 1, 2003.

      Universal life and investment-type product fees increased 6.2%, or $38.3
million, from the prior year. These product fees 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 an increase of $35.3 million in the Protection
Segment driven by growth in average account values in universal life insurance
products driven by the acquisition of the Allmerica block of fixed universal
life insurance business as of December 31, 2002 and growth in the existing
business.

      Net investment income increased $221.0 million from the prior year. The
increase was primarily the result of asset growth and lower investment expenses.
The yield, net of investment expenses, on the general account portfolio
decreased to 5.95% from 6.29% in the prior year. The lower portfolio yield was
driven primarily by the drop in short-term interest rates during the year, which
impacted floating rate investments, and lower yields on investment acquisitions.
The change in yields was impacted by the following factors:

      o     As of December 31, 2003, the Company's asset portfolio had
            approximately $13 billion of floating-rate exposure (primarily
            LIBOR). This compares to $12 billion of exposure as of December 31,
            2002. This exposure was created mostly through interest rate swaps
            designed to match our floating-rate liability portfolio. As of
            December 31, 2003, approximately 87% of this exposure, excluding
            cash and short-term investments, was directly offset by exposure to
            floating-rate liabilities. Most of the remaining 13% of exposure is
            in floating rate assets acquired for their relative value and is
            accounted for in the portfolio's interest rate risk management plan.
            As a result of the drop in short term rates over the year, as well
            as the increase in exposure, this floating-rate exposure reduced the
            portfolio yield by 11 basis points in 2003 compared to the prior
            year.

      o     Certain of our tax-preferenced investments (lease residual
            management and affordable housing limited partnerships) dilute the
            Company's net portfolio yield on a pre-tax basis. In 2003, this
            dilutive effect was 8 basis points, compared to 11 basis points in
            2002. However, adjusting for taxes, these investments increased the
            Company's net income by $7.6 million in 2003 compared to the prior
            year.

      o     The inflow of new cash for the twelve-month period ending December
            31, 2003 was invested at rates that were below the portfolio rate.
            In addition, maturing assets were rolling over into new investments
            at rates less favorable than those available in 2002.

      o     Partially offsetting the effects of these decreases to yields on
            investments was an increase in invested assets and a reduction in
            investment expenses. In 2003, weighted-average invested assets grew
            $7,008.9 million, or 12.1%, from the prior year. In addition,
            investment expenses were reduced $36.6 million in 2003 compared to
            the prior year. Included are reductions in corporate complex
            expenses and in depreciation expenses associated with the sale of
            the Company's Home Office real estate.

      Investment management revenues, commissions, and other fees decreased
1.6%, or $7.9 million, from the prior year. The decrease in fee revenue was
driven by the mutual funds business where fees declined $23.8 million where


                                       43
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

distribution and advisory fees declined due to a shift in the product mix. The
decline in fee rates was primarily due to a decrease in contingent deferred
sales charges on a decline in open-end mutual fund class B share redemptions.
Rule 12b-1 fee revenue also declined due to lower eligible assets under
management. Average mutual fund assets under management were $27,159.7 million,
an increase of $356.4 million, or 1.3% from the prior year. Partially offsetting
the decline in the mutual funds business management fees was growth in the
institutional investment advisory business of $7.0 million driven by success
with the new vertical integration strategy in the Hancock Natural Resource
Group.

      Other revenue increased 12.3%, or $29.8 million, from the prior year. The
increase in other revenue is due to Signature Fruit, a subsidiary of the Company
since April 2, 2001, which acquired certain assets and assumed certain
liabilities out of bankruptcy proceedings of Tri Valley Growers, Inc., a
co-operative association on that date. The revenues and expenses of Signature
Fruit are included in the Company's income statement in other revenue and other
operating costs and expenses, respectively, in the Corporate and Other Segment.
Signature Fruit generated revenue of $254.5 million in 2003, an increase of
$18.6 million from the prior year. Also included in other revenue is the fee
revenue generated in the Federal long-term care insurance business, its primary
operating revenue. The Federal long-term care insurance business is a fee
business where the Company administers and supports employee long-term care
insurance benefits offered by the Federal Government to its employees. Federal
long-term care insurance fee revenue increased $7.2 million from the prior year,
its start-up year.

      Benefits to policyholders increased 7.0%, or $318.7 million, from the
prior year. The increase in benefits to policyholders was driven by an increase
in the Protection Segment of 3.6%, or $80.9 million, from the prior year. In the
Protection Segment long-term care insurance benefits to policyholders increased
26.6%, or $189.1 million, primarily due to additions to reserves for premium
growth and higher claim volume on growth of the business during the period. In
addition, in the Protection Segment the non-traditional life insurance business
experienced increased benefits to policyholders of 9.4%, or $27.4 million,
primarily due to an increase in interest credited on higher current year account
balances, partially offset by a $17.9 million decrease in reserves for lower
reserves on term conversions and a decrease in death claims, net of reserves
released. Partially offsetting these increases in benefits to policyholders was
a decrease of $127.1 million in the group life insurance business partially
offset by growth in the International Group Program of $111.9 million. In
addition, benefits to policyholders in the G&SFP Segment increased 5.6%, or
$84.7 million, on higher sales of single premium annuities, partially offset by
lower interest credited on account balances. Interest credited decreased 6.1%,
or $65.5 million, from the prior year. The decrease in interest credited was due
to a decline in the average interest credited rate on account balances for
spread-based products, due to the reset of approximately $11 billion of
liabilities with floating rates and new business added at current market rates.
The average crediting rate fell to 4.31% from 4.94% in the prior year.

      Other operating costs and expenses increased $118.0 million from the prior
year, driven by an increase in net periodic pension costs of $32.0 million,
deficiency interest of $22.4 million, $12.3 million in compensation costs, $3.3
million in pension curtailment losses and administrative service contracts of
$4.6 million. In addition, Signature Fruit operating expenses increased $16.5
million. Signature Fruit other operating costs and expenses were $257.8 million
in 2003 and $241.3 million in the prior year. G&SFP Segment other operating
costs and expenses increased $21.1 million on higher advertising, compensation
and commission costs. Wealth Management Segment other operating costs and
expenses increased $23.0 million driven by business growth.

      Amortization of deferred policy acquisition costs increased 1.6%, or $5.3
million, from the prior year. The decrease in amortization of deferred policy
acquisition costs was primarily due to the $64.0 million Q3 2002 Unlocking of
the Company's deferred policy acquisition costs (DAC) asset, which increased
amortization of the DAC asset in 2002. The Q3 2002 Unlocking of the DAC asset
occurred based on changes in the future investment return assumptions and our
lowering of the long-term growth rate assumption from 9% to 8%, gross of fees
(which are approximately 1% to 2%). In addition, we lowered the average rates
for the next five years from the mid-teens to 13%, gross of fees. The Q3 2002
Unlocking impacted the Wealth Management and Protection Segments. See Note
1--Summary of Significant Accounting Policies in the notes to consolidated
financial statements and Critical Accounting Policies in the MD&A to the
Company's 2003 Form 10-K for further discussion. The decrease in amortization of
DAC due to Q3 2002 Unlocking of the DAC asset was partially offset by a $26.0
million increase in amortization in the Protection Segment for growth in the
long-term care insurance business and adjusting gross profit margins for term
conversions in the non-traditional life insurance business.

      Dividends to policyholders decreased 3.6%, or $30.9 million from the prior
year. The decrease in dividends to policyholders was driven by the Protection
Segment, which decreased 2.4%, or $12.4 million. This decrease was due to the
full year impact of lowering of the dividend scale on traditional life insurance
products in the prior year. Partially offsetting the decrease in the dividend
scale was growth in the traditional life insurance products average reserves,
which increased approximately 3.3% from the prior period. The decrease in
dividends in the traditional life insurance business was partially offset by a
return of a claim stabilization reserve to a single customer in the group life
insurance business during the year. Due to the return of the claim stabilization
reserve dividends to policyholders increased $29.2 million in the group life
insurance business in 2003.


                                       44
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Income taxes were $316.7 million in 2003, compared to $90.6 million for
2002. Our effective tax rate was 27.4% in 2003, compared to 17.0% in 2002. The
higher effective tax rate was primarily due to increased pre-tax income driven
by improved net realized investment and other gains/losses, partially offset by
increased affordable housing tax credits.

      Income from discontinued operations of $133.5 million and $58.4 million
for the years ended December 31, 2003 and 2002, respectively, consist of the net
income of the Canada Segment transferred to an affiliated entity for no gain or
loss on December 29, 2004, see Note 2 - Summary of Significant Accounting Policy
for further discussion. Canada Segment's net income consists primarily of the
results of Maritime Life, formerly the Company's principal operating subsidiary
in Canada.

      Cumulative effect of accounting change, net of tax, was $166.2 million for
the year ended December 31, 2003, no cumulative effect of accounting change was
recorded in 2002. In 2003 the cumulative effect of accounting change related to
the adoption of DIG B36 as of October 1, 2003; refer to Note 2 - Summary of
Significant Accounting Policies in the notes to the Consolidated Financial
Statements of this Form 10-K.


                                       45
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

General Account Investments

      We manage our general account assets in investment segments that support
specific classes of product liabilities. These investment segments permit us to
implement investment policies that both support the financial characteristics of
the underlying liabilities, and also provide returns on our invested capital.
The investment segments also enable us to gauge the performance and
profitability of our various businesses.

Asset/Liability Risk Management

      Our primary investment objective is to maximize after-tax returns within
acceptable risk parameters. We are exposed to two primary types of investment
risk:

o     Interest rate risk, meaning changes in the market value of fixed maturity
      securities as interest rates change over time, and

o     Credit risk, meaning uncertainties associated with the continued ability
      of an obligor to make timely payments of principal and interest.

      We use a variety of techniques to control interest rate risk in our
portfolio of assets and liabilities. In general, our risk management philosophy
is to limit the net impact of interest rate changes on our assets and
liabilities. Assets are invested predominantly in fixed income securities, and
the asset portfolio is matched with the liabilities so as to eliminate the
Company's exposure to changes in the overall level of interest rates. Each
investment segment holds bonds, mortgages, and other asset types that will
satisfy the projected cash needs of its underlying liabilities. Another
important aspect of our asset-liability management efforts is the use of
interest rate derivatives. We selectively apply derivative instruments, such as
interest rate swaps and futures, to reduce the interest rate risk inherent in
combined portfolios of assets and liabilities.

      Management of credit risk is central to our business and we devote
considerable resources to the credit analysis underlying each investment
acquisition. Our corporate bond management group includes a staff of highly
specialized, experienced, and well-trained credit analysts. We rely on these
analysts' ability to analyze complex private financing transactions and to
acquire the investments needed to profitably fund our liability requirements. In
addition, when investing in private fixed maturity securities, we rely upon
broad access to proprietary management information, negotiated protective
covenants, call protection features and collateral protection.

      Our bond portfolio is reviewed on a continuous basis to assess the
integrity of current quality ratings. As circumstances warrant, specific
investments are "re-rated" with the adjusted quality ratings reflected in our
investment system. All bonds are evaluated regularly against the following
criteria:

o     material declines in the issuer's revenues or margins;
o     significant management or organizational changes;
o     significant uncertainty regarding the issuer's industry;
o     debt service coverage or cash flow ratios that fall below
      industry-specific thresholds;
o     violation of financial covenants; and
o     other business factors that relate to the issuer.

      Insurance product prices are impacted by investment results as well as
other results (e.g. mortality, lapse). Accordingly, incorporated in insurance
products prices are assumptions of expected default losses over the long-term.
Actual losses therefore vary above and below this average, and the market value
of the portfolio as a whole also changes as market credit spreads move up and
down during an economic cycle.

      John Hancock is able to hold to this investment strategy over the long
term, both because of its strong capital position, the fixed nature of its
liabilities and the matching of those liabilities with assets, and because of
the experience gained through many decades of a consistent investment
philosophy. We generally intend to hold all of our fixed maturity investments to
maturity to meet liability payments, and to hold securities with any unrealized
gains and losses over the long term. However, we do sell bonds under certain
circumstances, such as when new information causes us to change our assessment
of whether a bond will recover or perform according to its contractual terms, in
response to external events (such as a merger or a downgrade) that result in
investment guideline violations (such as single issuer or overall portfolio
credit quality limits), in response to extreme catastrophic events (such as
September 11, 2001) that result in industry or market wide disruption, or to
take advantage of tender offers.


                                       46
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Overall Composition of the General Account

      Invested assets, excluding separate accounts totaled $67.7 billion and
$76.2 billion as of December 31, 2004 and December 31, 2003, respectively. Prior
year's invested assets included $8.1 billion of invested assets for Maritime
Life. On December 29, 2004, the remaining operations, assets, and liabilities of
the Maritime Life Assurance Company (Maritime Life), which was formerly reported
as the Company's Canada Segment, were transferred to The Manufacturers Life
Insurance Company (MLI), Manulife's primary Canadian insurance subsidiary (See
Note 2 - Summary of Significant Accounting Policies to the Consolidated
Financial Statements). On April 28, 2004, as a result of Manulife's acquisition
of John Hancock, assets were marked to market, which became the new cost basis
of those assets, in accordance with purchase accounting guidelines. Also, the
January 1, 2004 adoption of the new accounting pronouncement SOP 03-01,
Accounting and Reporting by Insurance Enterprises for Certain Non Traditional
Long Duration Contracts and for Separate Accounts, increased fixed maturity
securities by $0.9 billion as of December 31, 2004. The following table shows
the composition of investments in the general account portfolio.

<TABLE>
<CAPTION>
                                                                  As of December 31,
                                                         2004                          2003
                                            --------------------------------------------------------------
                                                Carrying         % of          Carrying         % of
                                                  Value          Total          Value           Total
                                            --------------------------------------------------------------
                                              (in millions)                 (in millions)
<S>                                             <C>               <C>          <C>               <C>
Fixed maturity securities (1) ...........       $48,491.0          71.6%       $53,427.8          70.1%
Mortgage loans (2) ......................        11,816.2          17.5         12,936.0          17.0
Real estate .............................           277.2           0.4            195.0           0.3
Policy loans (3) ........................         2,012.0           3.0          2,117.9           2.8
Equity securities .......................           334.7           0.5          1,243.5           1.6
Other invested assets ...................         3,381.6           5.0          3,011.3           4.0
Short-term investments ..................             3.0           0.0            121.6           0.2
Cash and cash equivalents (4) ...........         1,396.9           2.0          3,121.6           4.0
                                            --------------------------------------------------------------
       Total invested assets ............       $67,712.6         100.0%       $76,174.7         100.0%
                                            ==============================================================
</TABLE>

(1)   In addition to bonds, the fixed maturity security portfolio contains
      redeemable preferred stock with a carrying value of $902.4 million and
      $606.3 million as of December 31, 2004 and December 31, 2003,
      respectively. The total fair value of the fixed maturity security
      portfolio was $48,491.0 million and $53,452.2 million, at December 31,
      2004 and December 31, 2003 respectively.
(2)   The fair value for the mortgage loan portfolio was $11,896.7 million and
      $13,979.5 million as of December 31, 2004 and December 31, 2003,
      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.

      Consistent with the nature of the Company's product liabilities, assets
are heavily oriented toward fixed maturity securities. The Company determines
the allocation of assets primarily on the basis of cash flow and return
requirements of its products and by the level of investment risk.

      Fixed Maturity Securities. The 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). The fixed maturity securities portfolio also
includes redeemable preferred stock. As of December 31, 2004, fixed maturity
securities represented 71.6% of general account invested assets with a carrying
value of $48.5 billion, comprised of 53.7% public securities and 46.3% private
securities. Each year, the Company directs the majority of net cash inflows into
investment grade fixed maturity securities. Typically, less than 10% of funds
allocated to fixed maturity securities are invested in below-investment-grade
bonds while maintaining a policy to limit the overall level of these bonds to no
more than 8% of invested assets and the majority of that balance in the BB
category. As of December 31, 2004, the below investment grade bonds were 7.0% of
invested assets, and 10.0% of total rated fixed maturities. Rated fixed maturity
securities exclude redeemable preferred stock. Allocations are based on an
assessment of relative value and the likelihood of enhancing risk-adjusted
portfolio returns. While the Company 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 the Company's total
assets.


                                       47
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      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.

      The following table shows the composition by credit quality of the fixed
maturity securities portfolio.

                 Fixed Maturity Securities -- By Credit Quality

<TABLE>
<CAPTION>
                                                  As of December 31,            As of December 31,
                                                         2004                          2003
                                             -------------------------------------------------------------
SVO                  S&P Equivalent              Carrying        % of        Carrying          % of
Rating (1)          Designation (2)           Value (3)(4)(5)    Total    Value (3)(4)(5)      Total
----------------------------------------------------------------------------------------------------------
                                             (in millions)                 (in millions)
<S>          <C>                                  <C>            <C>            <C>             <C>
    1        AAA/AA/A.......................      $21,325.2       44.8%         $24,132.3        45.7%
    2        BBB............................       21,526.2       45.2           22,503.1        42.6
    3        BB.............................        2,557.7        5.4            2,999.3         5.7
    4        B..............................        1,426.0        3.0            1,922.4         3.6
    5        CCC and lower..................          526.4        1.1              853.5         1.6
    6        In or near default.............          227.1        0.5              410.9         0.8
                                             -------------------------------------------------------------
                  Subtotal..................       47,588.6      100.0%          52,821.5       100.0%
             Redeemable preferred stock.....          902.4                         606.3
                                             -------------------------------------------------------------
                 Total fixed maturities.....      $48,491.0                     $53,427.8
                                             =============================================================
</TABLE>

(1)   For securities that are awaiting an SVO rating, the Company has assigned a
      rating based on an analysis that it believes 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)   Includes 61 securities that are awaiting an SVO rating, with a carrying
      value of $881.0 million as of December 31, 2004 and 175 securities that
      are awaiting an SVO rating, with a carrying value of $4,066.9 million at
      December 31, 2003. Due to lags between the funding of an investment, the
      processing of final legal documents, the filing with the SVO, and the
      rating by the SVO, there will always be a number of unrated securities at
      each statement date.

(4)   Includes the effect of $185.0 million notional invested in the Company's
      credit-linked note program, $165.0 million notional of written credit
      default swaps on fixed maturity securities in the AAA/AA/A category and
      $20.0 million notional of written credit default swaps on fixed maturity
      securities in the BBB category. As of December 31, 2003 the Company had
      $130.0 million notional invested in the Company's credit linked note
      program, $110.0 million notional written credit default swaps on fixed
      maturity securities in the AAA/AA/A category and $20.0 million notional
      written credit default swaps on fixed maturity securities in the BBB
      category.

(5)   The Company entered into a credit enhancement agreement in the form of a
      guaranty from an AAA rated financial guarantor in 1996 which was
      terminated during 2004. In 2003, to reflect the impact of this guaranty on
      the overall portfolio, the Company has presented securities covered in
      aggregate by the guaranty at rating levels provided by the SVO and Moody's
      that reflect the guaranty. As a result, $421.0 million of SVO Rating 3,
      $185.2 million of SVO Rating 4, and $7.6 million of SVO Rating 5
      underlying securities are included as $397.6 million of SVO Rating 1,
      $162.1 million of SVO Rating 2 and $54.1 million of SVO Rating 3 as of
      December 31, 2003. The guaranty also contained a provision that the
      guarantor can recover from the Company certain amounts paid over the
      history of the program in the event a payment is required under the
      guaranty. As of December 31, 2003, the maximum amount that could be
      recovered under this provision was $112.8 million.

      The table above sets forth the SVO ratings for the bond portfolio along
with an equivalent S&P rating agency designation. The majority of the rated
fixed maturity investments are investment grade, with 90.0% and 88.3% of rated
fixed maturity investments invested in Category 1 and 2 securities as of
December 31, 2004 and December 31, 2003, respectively. Below investment grade
bonds were 10.0% and 11.7% of fixed maturity investments rated by the SVO and
7.0% and 8.1% of total invested assets at December 31, 2004 and December 31,
2003, respectively. This allocation reflects the Company strategy of avoiding
the unpredictability of interest rate risk in favor of relying on the Company's
bond analysts' ability to better predict credit or default risk. The bond
analysts operate in an industry-based, team-oriented structure that permits the


                                       48
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

evaluation of a wide range of below investment grade offerings in a variety of
industries resulting in a well-diversified high yield portfolio.

      Valuation techniques for the bond portfolio vary by security type and the
availability of market data. Pricing models and their underlying assumptions
impact the amount and timing of unrealized gains and losses recognized, and the
use of different pricing models or assumptions could produce different financial
results. External pricing services are used where available, broker dealer
quotes are used for thinly traded securities, and a spread pricing matrix is
used when price quotes are not available, which typically is the case for our
private placement securities. The spread pricing matrix is based on credit
quality, country of issue, market sector and average investment life and is
created for these dimensions through brokers' estimates of public spreads
derived from their respective publications. When utilizing the spread pricing
matrix, securities are valued through a discounted cash flow method where each
bond is assigned a spread, which is added to the current U.S. Treasury rates to
discount the cash flows of the security. The spread assigned to each security is
changed from month to month based on changes in the market. Certain market
events that could impact the valuation of securities include issuer credit
ratings, business climate, management changes, litigation, and government
actions among others. The resulting prices are then reviewed by the pricing
analysts and members of the Security Operations Department. The Company's
pricing analysts take appropriate actions to reduce valuations of securities
where such an event occurs that negatively impacts the securities' value.
Although the Company believes its estimates reasonably reflect the fair value of
those securities, the key assumptions about risk premiums, performance of
underlying collateral (if any) and other factors involve significant assumptions
and may not reflect those of an active market. To the extent that bonds have
longer maturity dates, management's estimate of fair value may involve greater
subjectivity since they involve judgment about events well into the future.
Every quarter, there is a comprehensive review of all impaired securities and
problem loans by Manulife's Credit Committee, a group consisting of Manulife's
Chief Investment Officer, Chief Financial Officer, Chief Risk Officer and Chief
Credit Officer. The valuation of impaired bonds for which there is no quoted
price is typically based on the present value of the future cash flows expected
to be received. If the company is likely to continue operations, the estimate of
future cash flows is typically based on the expected operating cash flows of the
company that are available to make payments on the bonds. If the company is
likely to liquidate, the estimate of future cash flows is based on an estimate
of the liquidation value of its net assets.

      As of December 31, 2004 and December 31, 2003, 54.0% and 48.5% of our
below investment grade bonds are in Category 3, the highest quality below
investment grade. Category 6 bonds, those in or near default, represent
securities that were originally acquired as long-term investments, but
subsequently became distressed. The carrying value of bonds in or near default
was $227.1 million and $410.9 million as of December 31, 2004 and December 31,
2003, respectively. As of December 31, 2004 and December 31, 2003, $0.5 million
and $4.1 million, of interest on bonds near default were included in accrued
investment income, respectively. Unless the Company reasonably expects to
collect investment income on bonds in or near default, the accrual will be
ceased and any accrued income reversed. Management judgment is used and the
actual results could be materially different.

      In keeping with the investment philosophy of tightly managing interest
rate risk, the Company's MBS & ABS holdings are heavily concentrated in
commercial MBS where the underlying loans are largely call protected, which
means they are not pre-payable without penalty prior to maturity at the option
of the issuer. By investing in MBS and ABS securities with relatively
predictable repayments, the Company adds high quality, liquid assets to our
portfolios without incurring the risk of cash flow variability. The Company
believes the portion of its MBS/ABS portfolio subject to prepayment risk as of
December 31, 2004 and December 31, 2003 was limited to approximately 27.3% and
23.3% of our total MBS/ABS portfolio and 5.6% and 3.5% of our total fixed
maturity securities holdings, respectively.

      The following exhibits show a distribution of gross unrealized gains and
losses in the portfolio. As a result of Manulife's acquisition of the Company,
the Company's portfolio was marked to market through purchase accounting on
April 28, 2004. The gross unrealized loss position of the portfolio is fairly
evenly distributed across the portfolio. The following table shows the
composition by our internal industry classification of the fixed maturity
securities portfolio and the unrealized gains and losses contained therein.


                                       49
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

         Fixed Maturity Securities -- By Industry Classification/Sector

<TABLE>
<CAPTION>
                                                              Investment Grade As of December 31, 2004
                                       ----------------------------------------------------------------------------------------
                                                                 Carrying Value of             Carrying Value of
                                           Total         Net     Securities with      Gross    Securities with        Gross
                                         Carrying    Unrealized  Gross Unrealized  Unrealized  Gross Unrealized    Unrealized
                                           Value     Gain (Loss)      Gains           Gains         Losses           Losses
                                       ----------------------------------------------------------------------------------------
                                                                         (in millions)
<S>                                     <C>           <C>          <C>               <C>           <C>               <C>
Corporate securities:
     Banking and finance .............  $   6,089.9   $  84.3      $  4,493.8        $  97.0       $ 1,596.1         $ (12.7)
     Communications ..................      2,686.6      38.4         2,226.9           43.6           459.7            (5.2)
     Government ......................      2,803.7      45.9         2,111.8           47.8           691.9            (1.9)
     Manufacturing ...................      5,818.6     104.3         4,712.6          117.1         1,106.0           (12.8)
     Oil & gas .......................      3,760.2      90.3         3,317.8           93.8           442.4            (3.5)
     Services/trade ..................      2,578.0      25.2         1,979.4           30.3           598.6            (5.1)
     Transportation ..................      2,044.8      27.0         1,739.2           29.5           305.6            (2.5)
     Utilities .......................      7,312.5     149.6         6,247.7          155.0         1,064.8            (5.4)
     Other ...........................          2.0       0.0             1.5            0.0             0.5            (0.0)
                                       ------------------------------------------------------------------------------------------
   Total corporate securities ........     33,096.3     565.0        26,830.7          614.1         6,265.6           (49.1)

Asset-backed and mortgage-backed
    securities .......................      9,717.1      73.7         6,557.7          120.3         3,159.4           (46.6)
U.S. Treasury securities and
    obligations of U.S. government
    agencies .........................        345.0       1.1           233.8            1.6           111.2            (0.5)
Debt securities issued by foreign
    governments ......................        168.4      10.4           158.2           10.5            10.2            (0.1)
Obligations of states and political
    Subdivisions .....................        290.1      (0.8)           46.1            0.9           244.0            (1.7)
                                       ------------------------------------------------------------------------------------------
     Total ...........................  $  43,616.9   $ 649.4      $ 33,826.5        $ 747.4       $ 9,790.4         $ (98.0)
                                       ==========================================================================================
</TABLE>

  Fixed Maturity Securities -- By Industry Classification/Sector - (continued)

<TABLE>
<CAPTION>
                                                           Below Investment Grade As of December 31, 2004
                                       ----------------------------------------------------------------------------------------
                                                                 Carrying Value of             Carrying Value of
                                           Total         Net     Securities with      Gross    Securities with        Gross
                                         Carrying    Unrealized  Gross Unrealized  Unrealized  Gross Unrealized    Unrealized
                                           Value     Gain (Loss)      Gains           Gains         Losses           Losses
                                       ----------------------------------------------------------------------------------------
                                                                         (in millions)
<S>                                    <C>           <C>            <C>              <C>           <C>           <C>
Corporate securities:
     Banking and finance ...........   $   77.0      $  (0.6)       $   18.4         $   0.5       $   58.6      $  (1.1)
     Communications ................      149.9          8.8           102.6             9.2           47.3         (0.4)
     Government ....................       16.1          0.1             6.6             0.1            9.5         (0.0)
     Manufacturing .................    1,191.9         53.8           736.0            57.6          455.9         (3.8)
     Oil & gas .....................      478.3         22.2           436.3            22.8           42.0         (0.6)
     Services/trade ................      222.3          5.8           182.4             6.1           39.9         (0.3)
     Transportation ................      474.6         14.4           370.6            17.8          104.0         (3.4)
     Utilities .....................    1,904.5         66.1         1,519.7            71.5          384.8         (5.4)
     Other .........................        0.0          0.0             0.0             0.0            0.0          0.0
                                       ---------------------------------------------------------------------------------------
   Total corporate securities ......    4,514.6        170.6         3,372.6           185.6        1,142.0        (15.0)

Asset-backed and mortgage-backed
   securities ......................      342.1          7.9           286.6            10.9           55.5         (3.0)
Debt securities issued by foreign
   governments .....................       17.4          1.1            17.3             1.1            0.1           --
                                       ---------------------------------------------------------------------------------------
     Total .........................   $4,874.1      $ 179.6        $3,676.5         $ 197.6       $1,197.6      $ (18.0)
                                       =======================================================================================
</TABLE>


                                       50
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

         Fixed Maturity Securities -- By Industry Classification/Sector

<TABLE>
<CAPTION>
                                                              Investment Grade as of December 31, 2003
                                       ----------------------------------------------------------------------------------------
                                                                 Carrying Value of             Carrying Value of
                                           Total         Net     Securities with      Gross    Securities with        Gross
                                         Carrying    Unrealized  Gross Unrealized  Unrealized  Gross Unrealized    Unrealized
                                           Value     Gain (Loss)      Gains          Gains         Losses           Losses
                                       ----------------------------------------------------------------------------------------
                                                                            (in millions)
<S>                                      <C>          <C>          <C>            <C>            <C>            <C>
Corporate securities:
     Banking and finance .............   $  6,949.0   $   393.6    $  6,083.4     $   406.6      $   865.6      $  (13.0)
     Communications ..................      2,917.7       236.8       2,504.3         245.9          413.4          (9.1)
     Government ......................      3,180.5       133.6       2,134.8         140.9        1,045.7          (7.3)
     Manufacturing ...................      6,405.7       394.6       5,382.6         426.1        1,023.1         (31.5)
     Oil & gas .......................      3,975.1       349.4       3,804.6         355.0          170.5          (5.6)
     Services/trade ..................      2,511.4       186.1       2,352.3         190.7          159.1          (4.6)
     Transportation ..................      2,457.1       118.8       1,899.3         153.3          557.8         (34.5)
     Utilities .......................      7,733.4       577.9       6,939.4         603.2          794.0         (25.3)
     Other ...........................        217.1        17.7         197.3          18.0           19.8          (0.3)
                                       ---------------------------------------------------------------------------------------
   Total corporate securities ........     36,347.0     2,408.5      31,298.0       2,539.7        5,049.0        (131.2)

Asset-backed and mortgage-backed
    securities .......................      7,746.9       231.4       5,868.0         312.8        1,878.9         (81.4)
U.S. Treasury securities and
    obligations of U.S. government
    agencies .........................        300.4         3.4         120.9           4.9          179.5          (1.5)
Debt securities issued by foreign
    governments (1) ..................      2,183.8       240.6       2,049.2         242.8          134.6          (2.2)
Obligations of states and political
   Subdivisions ......................        446.0        16.5         349.6          17.8           96.4          (1.3)
                                       ---------------------------------------------------------------------------------------
     Total ...........................   $ 47,024.1   $ 2,900.4    $ 39,685.7     $ 3,118.0      $ 7,338.4      $ (217.6)
                                       =======================================================================================
</TABLE>

(1)   Includes $1,905.2 million in debt securities held by our Canadian
      insurance subsidiary and issued and fully supported by the Canadian
      federal, provincial or municipal governments.


                                       51
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

  Fixed Maturity Securities -- By Industry Classification/Sector - (Continued)

<TABLE>
<CAPTION>
                                                            Below Investment Grade as of December 31, 2003
                                       ----------------------------------------------------------------------------------------
                                                                 Carrying Value of             Carrying Value of
                                           Total         Net     Securities with      Gross    Securities with        Gross
                                         Carrying    Unrealized  Gross Unrealized  Unrealized  Gross Unrealized    Unrealized
                                           Value     Gain (Loss)      Gains           Gains         Losses           Losses
                                       ----------------------------------------------------------------------------------------
                                                                            (in millions)
<S>                                    <C>          <C>          <C>              <C>           <C>            <C>
Corporate securities:
     Banking and finance ...........   $    113.4   $  (3.6)     $    84.3        $   2.7       $    29.1      $   (6.3)
     Communications ................        209.3       8.4          110.9           17.7            98.4          (9.3)
     Government ....................         11.0      (0.4)           1.5            0.2             9.5          (0.6)
     Manufacturing .................      1,433.7      62.7        1,008.0           94.0           425.7         (31.3)
     Oil & gas .....................        674.8     (31.5)         415.3           21.5           259.5         (53.0)
     Services/trade ................        438.7      45.9          331.8           51.4           106.9          (5.5)
     Transportation ................        508.6     (14.3)         183.3           30.0           325.3         (44.3)
     Utilities .....................      2,615.7     107.2        1,846.0          154.4           769.7         (47.2)
     Other .........................          4.4       0.4            4.4            0.4              --            --
                                       ------------------------------------------------------------------------------------
   Total corporate securities ......      6,009.6     174.8        3,985.5          372.3         2,024.1        (197.5)

Asset-backed and mortgage-
    backed securities ..............        381.1     (61.2)          47.7            2.3           333.4         (63.5)
Debt securities issued by foreign
    governments ....................         13.0       0.6            8.9            0.7             4.1          (0.1)
                                       ------------------------------------------------------------------------------------
     Total .........................   $  6,403.7   $ 114.2      $ 4,042.1        $ 375.3       $ 2,361.6      $ (261.1)
                                       ====================================================================================
</TABLE>

      As of December 31, 2004 and December 31, 2003, there were gross unrealized
gains of $945.0 million and $3,493.3 million, and gross unrealized losses of
$116.0 million and $478.7 million on the fixed maturities portfolio. As of
December 31, 2004 gross unrealized losses of $116.0 million included $90.8
million or 78.3% was concentrated in asset-backed/mortgage-backed securities,
manufacturing, bank & finance and utilities securities. The tables above show
gross unrealized losses before amounts that are allocated to the closed block
policyholders or participating pension contractholders. Of the $116.0 million of
gross unrealized losses in the portfolio at December 31, 2004, $12.3 million was
in the closed block and $6.7 million has been allocated to participating pension
contractholders, leaving $97.0 million of gross unrealized losses after such
allocations. The 2003 gross unrealized losses of $478.7 million included $417.6
million, or 87.2%, of gross unrealized losses concentrated in the utilities,
manufacturing, oil and gas, transportation and asset-backed and mortgage-backed
securities. The tables above show gross unrealized losses before amounts that
were allocated to the closed block policyholders or participating pension
contractholders. Of the $478.7 million of gross unrealized losses in the
portfolio at December 31, 2003, $61.8 million was in the closed block and $20.2
million was allocated to participating pension contractholders, leaving $396.7
million of gross unrealized losses after such allocations.

      Unrealized losses can be created by rising interest rates or by rising
credit concerns and hence widening credit spreads. Credit concerns are apt to
play a larger role in the unrealized loss on below investment grade bonds and
hence the gross unrealized loss on the portfolio has been split between
investment grade and below investment grade bonds in the above tables. The gross
unrealized loss on below investment grade fixed maturity securities declined
from $261.1 million at December 31, 2003 to $18.0 million at December 31, 2004
primarily due to the marking to market of the portfolio at April 28, 2004. The
gross unrealized loss on December 31, 2004 was largely due to interest rate
changes since April 28, 2004 and is fairly evenly distributed across the
portfolio.

      The following table shows the composition by credit quality of the
securities with gross unrealized losses in our fixed maturity securities
portfolio. The gross unrealized loss on investment grade bonds (those rated in
categories 1 and 2 by the SVO) decreased by $109.8 million in the year ended
December 31, 2004 to $97.3 million. The gross unrealized loss on below
investment grade bonds (those rated in categories 3, 4, 5 and 6 by the SVO)
declined over this period, dropping by $244.4 million to a total of $16.1
million as of December 31, 2004 which was driven by the mark to market and
subsequent increase in interest rates.


                                       52
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

          Unrealized Losses on Fixed Maturity Securities -- By Quality

<TABLE>
<CAPTION>
                                                                     As of December 31, 2004
                                                  --------------------------------------------------------------
                                                    Carrying Value of
                                                      Securities
                                                       with Gross
   SVO                 S&P Equivalent                  Unrealized       % of    Gross Unrealized     % of
Rating (1)            Designation (2)                  Losses (3)      Total       Losses (3)        Total
----------------------------------------------------------------------------------------------------------------
                                                     (in millions)                 (in millions)
<S>            <C>                                       <C>             <C>          <C>             <C>
    1          AAA/AA/A.......................           $ 5,957.2        56.2%       $ (64.5)         56.8%
    2          BBB............................             3,561.0        33.6          (32.8)         29.0
    3          BB.............................               721.7         6.8           (9.5)          8.4
    4          B..............................               302.8         2.8           (4.1)          3.7
    5          CCC and lower..................                42.2         0.4           (1.2)          1.0
    6          In or near default.............                23.1         0.2           (1.3)          1.1
                                                  --------------------------------------------------------------
                    Subtotal..................            10,608.0       100.0%        (113.4)        100.0%
               Redeemable preferred stock.....               380.0                       (2.6)
                                                  --------------------------------------------------------------
                    Total.....................           $10,988.0                    $(116.0)
                                                  ==============================================================
</TABLE>

(1)   With respect to securities that are awaiting rating, the Company has
      assigned a rating based on an analysis that it believes 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)   Includes 20 securities with gross unrealized losses that are awaiting an
      SVO rating with a carrying value of $213.6 million and unrealized losses
      of $2.9 million. Due to lags between the funding of an investment, the
      processing of final legal documents, the filing with the SVO, and the
      rating by the SVO, there will always be a number of unrated securities at
      each statement date. Unrated securities comprised 2.0% and 2.5% of the
      total carrying value and total gross unrealized losses of securities in a
      loss position, including redeemable preferred stock, respectively.


                                       53
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

          Unrealized Losses on Fixed Maturity Securities -- By Quality

<TABLE>
<CAPTION>
                                                                    As of December 31, 2003
                                                  --------------------------------------------------------------
                                                    Carrying Value of
                                                      Securities
                                                       with Gross
   SVO                 S&P Equivalent                  Unrealized       % of    Gross Unrealized     % of
Rating (1)            Designation (2)                  Losses (3)      Total       Losses (3)        Total
----------------------------------------------------------------------------------------------------------------
                                                      (in millions)              (in millions)
<S>          <C>                                       <C>             <C>         <C>               <C>
   1         AAA/AA/A..........................        $  4,860.6       51.3%      $ (99.2)           21.2%
   2         BBB...............................           2,247.6       23.7        (107.9)           23.1
   3         BB................................             673.2        7.1         (74.2)           15.9
   4         B.................................           1,069.7       11.3         (90.6)           19.4
   5         CCC and lower.....................             465.0        4.9         (84.8)           18.1
   6         In or near default................             151.3        1.7         (10.9)            2.3
                                                 --------------------------------------------------------------
                     Subtotal..................           9,467.4      100.0%       (467.6)          100.0%
             Redeemable preferred stock........             232.6                    (11.1)
                                                 --------------------------------------------------------------
                    Total......................        $  9,700.0                  $(478.7)
                                                 ==============================================================
</TABLE>

(1)   With respect to securities that are awaiting rating, the Company has
      assigned a rating based on an analysis that it believes is equivalent to
      that used by the SVO. Recent experience has shown that our ratings are
      generally comparable to those of the SVO.
(2)   Comparisons between SVO and S&P ratings are published by the National
      Association of Insurance Commissioners.
(3)   Includes 59 securities with gross unrealized losses are awaiting an SVO
      rating with a carrying value of $1,798.1 million and unrealized losses of
      $27.4 million. Due to lags between the funding of an investment, the
      processing of final legal documents, the filing with the SVO, and the
      rating by the SVO, there will always be a number of unrated securities at
      each statement date. Unrated securities comprised 18.5% and 5.7% of the
      total carrying value and total gross unrealized losses of securities in a
      loss position, including redeemable preferred stock, respectively.

                Unrealized Losses on Fixed Maturity Securities --
                      By Investment Grade Category and Age

<TABLE>
<CAPTION>
                                                                           As of December 31, 2004
                                             --------------------------------------------------------------------------------------
                                                         Investment Grade                       Below Investment Grade
                                             ------------------------------------------  ------------------------------------------
                                               Carrying                                     Carrying
                                               Value of                                     Value of
                                              Securities                                   Securities
                                              with Gross                                   with Gross
                                              Unrealized       Hedging        Market       Unrealized    Hedging          Market
                                                Losses       Adjustments   Depreciation      Losses    Adjustments     Depreciation
                                             ------------------------------------------  ------------------------------------------
                                                            (in millions)                             (in millions)
<S>                                            <C>          <C>           <C>             <C>            <C>           <C>
Three months or less .......................   $  4,181.7   $      3.5    $    (33.8)     $    351.7     $     (0.8)   $     (1.9)
Greater than three months to six months ....        727.6         (1.5)        (16.7)          126.7           (0.5)         (0.9)
Greater than six months to nine months .....      4,608.9          0.7         (49.5)          611.4           (1.7)        (10.3)
Greater than nine months to twelve months ..           --           --            --              --             --            --
Greater than twelve months .................           --           --            --              --             --            --
                                             ------------------------------------------  ------------------------------------------
     Subtotal ..............................      9,518.2          2.7        (100.0)        1,089.8           (3.0)        (13.1)
Redeemable preferred stock .................        272.2          0.0          (0.7)          107.8            0.0          (1.9)
                                             ------------------------------------------  ------------------------------------------
     Total .................................   $  9,790.4   $      2.7    $   (100.7)     $  1,197.6     $     (3.0)   $    (15.0)
                                             ==========================================  ==========================================
</TABLE>

                                       54
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                Unrealized Losses on Fixed Maturity Securities --
                      By Investment Grade Category and Age

<TABLE>
<CAPTION>
                                                                             As of December 31, 2003
                                               ------------------------------------------------------------------------------------
                                                           Investment Grade                       Below Investment Grade
                                               -----------------------------------------  -----------------------------------------
                                               Carrying                                     Carrying
                                               Value of                                     Value of
                                              Securities                                   Securities
                                              with Gross                                   with Gross
                                              Unrealized       Hedging        Market       Unrealized    Hedging          Market
                                                Losses       Adjustments   Depreciation      Losses    Adjustments     Depreciation
                                             -------------------------------------------  -----------------------------------------
                                                            (in millions)                             (in millions)
<S>                                            <C>          <C>             <C>             <C>        <C>             <C>
Three months or less .......................   $2,006.9     $  (12.3)       $  (19.2)       $  248.4   $   (3.8)       $   (7.5)
Greater than three months to six months ....    1,422.8         (5.6)          (28.3)          123.2       (1.8)           (1.1)
Greater than six months to nine months .....      947.3         (1.0)          (33.2)          125.2       (2.5)          (10.9)
Greater than nine months to twelve months ..      208.3        (14.0)           (7.8)          196.2       (1.2)           (2.8)
Greater than twelve months .................    2,522.9        (43.7)          (42.0)        1,666.2      (61.7)         (167.2)
                                             -------------------------------------------  -----------------------------------------
         Subtotal ..........................    7,108.2        (76.6)         (130.5)        2,359.2      (71.0)         (189.5)
Redeemable preferred stock .................      230.2         (0.1)          (10.4)            2.4         --            (0.6)
                                             -------------------------------------------  -----------------------------------------
        Total ..............................   $7,338.4     $  (76.7)       $ (140.9)       $2,361.6   $  (71.0)       $ (190.1)
                                             ===========================================  =========================================
</TABLE>

      The tables above show the Company's investment grade and below investment
grade securities that were in a loss position at December 31, 2004 and December
31, 2003 by the amount of time the security has been in a loss position. Gross
unrealized losses from hedging adjustments represent the amount of the
unrealized loss that results from the security being designated as a hedged item
in a fair value hedge. When a security is so designated, its cost basis is
adjusted in response to movements in interest rates. These adjustments, which
are non-cash and reverse with the passage of time as the asset and derivative
mature, impact the amount of unrealized loss on a security. The remaining
portion of the gross unrealized loss represents the impact of interest rates on
the non-hedged portion of the portfolio and unrealized losses due to
creditworthiness on the total fixed maturity portfolio.

      As of December 31, 2004 and December 31, 2003, respectively, the fixed
maturity securities had a total gross unrealized loss of $115.7 million and
$331.0 million, excluding basis adjustments related to hedging relationships. As
of December 31, 2004, the aging of securities reflects the mark to market on
April 28, 2004. Unrealized losses on investment grade securities principally
relate to changes in interest rates or changes in credit spreads since the
securities were acquired. Credit rating agencies statistics indicate that
investment grade securities have been found to be less likely to develop credit
concerns.

      The scheduled maturity dates for securities in an unrealized loss position
at December 31, 2004 and December 31, 2003 is shown below.

          Unrealized Losses on Fixed Maturity Securities -- By Maturity

<TABLE>
<CAPTION>
                                                                 December 31, 2004             December 31, 2003
                                                             ---------------------------  ----------------------------
                                                                Carrying                     Carrying
                                                                 Value                        Value
                                                             of Securities                of Securities
                                                               with Gross     Gross         with Gross      Gross
                                                               Unrealized   Unrealized      Unrealized   Unrealized
                                                                  Loss         Loss            Loss         Loss
                                                             ---------------------------  ----------------------------
                                                                     (in millions)                 (in millions)

<S>                                                             <C>           <C>               <C>         <C>
Due in one year or less...................................      $ 1,183.2     $   (4.8)         $  403.3    $ (11.8)
Due after one year through five years.....................        3,713.3        (25.1)          1,538.5      (75.5)
Due after five years through ten years....................        1,426.3        (17.0)          2,042.9     (105.0)
Due after ten years.......................................        1,450.3        (19.5)          3,503.0     (141.5)
                                                             ---------------------------  ----------------------------
                                                                  7,773.1        (66.4)          7,487.7     (333.8)
Asset-backed and mortgage-backed securities...............        3,214.9        (49.6)          2,212.3     (144.9)
                                                             ---------------------------  ----------------------------
     Total................................................      $10,988.0     $ (116.0)         $9,700.0    $(478.7)
                                                             ===========================  ============================
</TABLE>

      Mortgage Loans. As of December 31, 2004 and December 31, 2003, the Company
held mortgage loans with a carrying value of $11.8 billion and $12.9 billion,
including $2.9 billion and $3.0 billion respectively, of agricultural loans and
$8.9 billion and $9.9 billion, respectively, of commercial loans. Impaired loans


                                       55
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

comprised 1.4% and 1.0% of the mortgage portfolio as of December 31, 2004 and
December 31, 2003, respectively. The Company's average historical impaired loan
percentage during the period from 1999 through 2004 is 1.0%.

      The following table shows the Company's agricultural mortgage loan
portfolio by its three major sectors: agri-business, timber and production
agriculture.

<TABLE>
<CAPTION>
                                  As of December 31, 2004                    As of December 31, 2003
                         ------------------------------------------- -----------------------------------------
                           Amortized     Carrying        % of          Amortized    Carrying        % of
                              Cost         Value         Total            Cost        Value        Total
                         ------------------------------------------- -----------------------------------------
                                (in millions)                              (in millions)
<S>                         <C>          <C>            <C>            <C>          <C>            <C>
Agri-business...........    $1,826.3     $1,798.1        61.5%         $1,864.4     $1,864.0        61.5%

Timber..................     1,112.1      1,112.1        38.0           1,174.6      1,146.5        37.8
Production agriculture..       $13.5        $13.5         0.5              19.0         19.0         0.7
                         ------------------------------------------- -----------------------------------------
    Total...............    $2,951.9     $2,923.7       100.0%         $3,058.0     $3,029.5       100.0%
                         =========================================== =========================================
</TABLE>

      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.

                        Mortgage Loans - By Property Type

<TABLE>
<CAPTION>
                                          As of December 31, 2004        As of December 31, 2003
                                      ---------------------------------------------------------------
                                         Carrying          % of         Carrying          % of
                                           Value           Total          Value           Total
                                      ---------------------------------------------------------------
                                       (in millions)                  (in millions)
<S>                                       <C>              <C>            <C>              <C>
Apartment..........................       $ 1,645.9         13.9%         $ 2,365.1         18.3%
Office Buildings...................         2,402.0         20.3            2,711.5         21.0
Retail.............................         2,680.1         22.7            2,329.6         18.0
Agricultural.......................         2,923.8         24.8            3,029.4         23.4
Industrial.........................         1,008.2          8.5            1,180.4          9.1
Hotels.............................           437.6          3.7              473.2          3.7
Multi-Family.......................             0.7          0.0               27.2          0.2
Mixed Use..........................           438.3          3.7              284.9          2.2
Other..............................           279.6          2.4              534.7          4.1
                                      ---------------------------------------------------------------
     Total.........................       $11,816.2        100.0%         $12,936.0        100.0%
                                      ===============================================================
</TABLE>

      The following table shows the distribution of our mortgage loan portfolio
by geographical region, as defined by the American Council of Life Insurers
(ACLI).

                        Mortgage Loans -- By ACLI Region

<TABLE>
<CAPTION>
                                     As of December 31, 2004              As of December 31, 2003
                           ---------------------------------------------------------------------------
                              Number      Carrying          % of          Carrying         % of
                             Of Loans       Value          Total           Value           Total
                           ---------------------------------------------------------------------------
                                        (in millions)                  (in millions)
<S>                            <C>        <C>               <C>           <C>               <C>
East North Central.......        142      $ 1,229.6          10.4%        $ 1,118.4           8.6%
East South Central.......         40          473.7           4.0             412.2           3.2
Middle Atlantic..........        119        1,690.1          14.2           1,449.5          11.2
Mountain.................         96          752.1           6.4             511.3           4.0
New England..............         94          932.5           7.9             869.6           6.7
Pacific..................        273        2,538.8          21.5           2,378.2          18.4
South Atlantic...........        208        2,538.2          21.5           2,378.3          18.4
West North Central.......         68          408.4           3.5             434.5           3.4
West South Central.......        118          976.5           8.3           1,024.1           7.9
Canada/Other.............         11          276.3           2.3           2,359.9          18.2
                           ---------------------------------------------------------------------------
     Total...............      1,169      $11,816.2         100.0%        $12,936.0         100.0%
                           ===========================================================================
</TABLE>

      The following table shows the carrying values of our mortgage loan
portfolio that are delinquent but not in foreclosure, delinquent and in
foreclosure, restructured and foreclosed. The table also shows the respective
ratios of these items to the total carrying value of our mortgage loan


                                       56
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

portfolio. Mortgage loans are classified as delinquent when they are 60 days or
more past due as to the payment of interest or principal. Mortgage loans are
classified as restructured when they are in good standing, but the basic terms,
such as interest rate or maturity date, have been modified as a result of a
prior actual delinquency or an imminent delinquency. All foreclosure decisions
are based on a thorough assessment of the property's quality and location and
market conditions. The decision may also reflect a plan to invest additional
capital in a property to make tenant improvements or renovations to secure a
higher resale value at a later date. Following foreclosure, we rely on our real
estate investment group's ability to manage foreclosed real estate for eventual
return to investment real estate status or outright sale.

                            Mortgage Loan Comparisons

<TABLE>
<CAPTION>
                                                  As of December 31, 2004               As of December 31, 2003
                                                 Carrying         % of Total          Carrying         % of Total
                                                  Value       Mortgage Loans (1)        Value      Mortgage Loans (1)
                                                --------------------------------  ------------------------------------
                                                       (in millions)                         (in millions)
<S>                                             <C>                 <C>                <C>                <C>
Delinquent, not in foreclosure ..............   $  0.5               --                $  2.6              --
Delinquent, in foreclosure ..................      1.4               --                  92.7             0.7%
Restructured ................................    107.3              0.9%                 87.8             0.7
Loans foreclosed during period ..............     58.5              0.5                  23.9             0.2
 All other loans with valuation  allowance ..     25.8              0.2                   8.4             0.1
                                                ------------------------               --------------------------

   Total ....................................   $193.5              1.6%               $215.4             1.7%
                                                ------------------------               --------------------------

Valuation allowance .........................   $ 45.3                                 $ 66.2
                                                ======                                 ======
</TABLE>

(1)  As of December 31, 2004 and December 31, 2003 the Company held mortgage
     loans with a carrying value of $11.8 billion and $12.9 billion,
     respectively.

      The valuation allowance is maintained at a level that management believes
is adequate to absorb estimated probable credit losses. Management's 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 valuation allowance for the mortgage loan portfolio
was $45.3 million, or 0.4% of the carrying value of the portfolio as of December
31, 2004. The decrease in the valuation allowance from December 31, 2003 was
driven by the purchase accounting mark to market on April 28, 2004.


                                       57
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Investment Results

Net Investment Income. The following table summarizes the Company's investment
results for the periods indicated:

<TABLE>
<CAPTION>
                                                              For the Years ended December 31,
                                            ------------------------------------------------------------------
                                                   2004                2003 (2)              2002 (2)
                                            Yield      Amount     Yield      Amount      Yield      Amount
                                            ------------------------------------------------------------------
                                                   (in millions)         (in millions)           (in millions)
<S>                                           <C>     <C>           <C>     <C>            <C>     <C>
General account assets-excluding policy
   loans
   Gross income..........................     5.33%   $  3,513.0    6.24%   $  3,914.8     6.70%   $  3,733.7
   Ending invested assets-excluding
   policy loans..........................             $ 65,700.6            $ 74,056.8             $ 65,030.9
Policy loans
   Gross income..........................     5.81%   $    117.5    6.11%   $    124.0     6.09%   $    120.7
   Ending assets.........................                2,012.0               2,117.9                2,097.2
                                                    -------------         -------------          -------------
   Total gross income....................     5.35%      3,630.5    6.24%      4,038.8     6.68%      3,854.4
   Less: investment expenses.............                 (157.3)               (189.5)                (226.1)
                                                    -------------         -------------          -------------
     Net investment income...............     5.12%   $  3,473.2    5.95%   $  3,849.3     6.29%   $  3,628.3
                                                    =============         =============          =============
</TABLE>

      (1)   Cash and cash equivalents are included in invested assets in the
            table above for the purposes of calculating yields on income
            producing assets for the Company.
      (2)   2003 and 2002 invested assets include $5.6 billion and $8.1 billion
            respectively of assets for Maritime Life. These assets have been
            excluded from the yield calculations due to Maritime Life becoming a
            discontinued operation in December 2004.

Twelve Months Ended December 31, 2004 Compared to Twelve Months Ended
December 31, 2003

      Net investment income decreased $376.1 million from comparable prior year
period. The yield for the twelve months ended December 31, 2004, net of
investment expenses, on the general account portfolio decreased to 5.12% from
5.95% for the prior year. Yield for the period subsequent to the merger with
Manulife, April 29, 2004 through December 31, 2004, was 4.78%. In summary, the
change in yields was driven by the following factors:

      o     On April 28, 2004, as a result of Manulife's acquisition of John
            Hancock, assets were marked to market in accordance with purchase
            accounting rules. The impact of the asset adjustment and related
            amortization was a reduction in yield of approximately 71 basis
            points for 2004 compared to 2003.

      o     As of December 31, 2004, the Company's asset portfolio had
            approximately $12 billion of floating-rate exposure (primarily
            LIBOR). This compares to a $13 billion level of exposure as of
            December 31, 2003. This exposure was created mostly through interest
            rate swaps designed to match our floating-rate liability portfolio.
            As of December 31, 2004, approximately 86% of this exposure,
            excluding cash and short-term investments, was directly offset by
            exposure to floating-rate liabilities. Most of the remaining 14% of
            exposure is in floating rate assets acquired for their relative
            value and is accounted for in the portfolio's interest rate risk
            management plan. The impact was a reduction of 43 basis points for
            2004 compared to 56 basis points for 2003.

      o     Certain of our tax-preferenced investments (affordable housing
            limited partnerships and lease residual management) dilute the
            Company's net portfolio yield on a pre-tax basis. For the twelve
            month period ended December 31, 2004, this dilutive effect was 8
            basis points, compared to 8 basis points in the prior year. However,
            adjusting for taxes, these investments increased the Company's net
            income by $2.0 million in 2004 compared to 2003.

      o     The inflow of new cash for the twelve month period ending December
            30, 2004 was invested at rates that were below the portfolio rate.
            In addition, maturing assets were rolling over into new investments
            at rates below the portfolio rate. In 2004, weighted-average
            invested assets grew $3,139.5 million (adjusted for Maritime), or
            4.8%, from the prior year. These two factors account for the
            majority of the remaining decline in portfolio rate.

      o     Investment expenses and taxes were reduced $32.2 million in the
            twelve month period ended December 31, 2004 compared to the prior
            year. Included are reductions in state income tax, real estate
            expenses, and miscellaneous expenses.


                                       58
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Twelve Months Ended December 31, 2003 Compared to Twelve Months Ended
December 31, 2002

Net investment income increased $221.0 million from the prior year. The increase
was primarily the result of asset growth and lower investment expenses. Overall,
the 2003 yield, net of investment expenses, on the general account portfolio
decreased to 5.95% from 6.29% in the prior year. The lower portfolio yield was
driven primarily by the drop in short-term interest rates during the year, which
impacts floating rate investments, and lower yields on investment acquisitions.
In summary, the change in yields was driven by the following factors:

      o     As of December 31, 2003, the Company's asset portfolio had
            approximately $13 billion of floating-rate exposure (primarily
            LIBOR). This compares to $12 billion of exposure as of December 31,
            2002. This exposure was created mostly through interest rate swaps
            designed to match our floating-rate liability portfolio. As of
            December 31, 2003, approximately 87% of this exposure, excluding
            cash and short-term investments, was directly offset by exposure to
            floating-rate liabilities. Most of the remaining 13% of exposure is
            in floating rate assets acquired for their relative value and is
            accounted for in the portfolio's interest rate risk management plan.
            As a result of the drop in short term rates over the year, as well
            as the increase in exposure, this floating-rate exposure reduced the
            portfolio yield by 11 basis points in 2003 compared to the prior
            year.

      o     Certain of our tax-preferenced investments (lease residual
            management and affordable housing limited partnerships) dilute the
            Company's net portfolio yield on a pre-tax basis. In 2003, this
            dilutive effect was 8 basis points, compared to 11 basis points in
            2002. However, adjusting for taxes, these investments increased the
            Company's net income by $7.6 million in 2003 relative to 2002.

      o     The inflow of new cash for the twelve-month period ending December
            31, 2003 was invested at rates that were below the portfolio rate.
            In addition, maturing assets rolling over into new investments at
            rates less favorable than those available in 2002. In 2003,
            weighted-average invested assets grew $7,008.9 million, or 12.1%,
            from the prior year. These two factors account for the majority of
            the remaining decline in portfolio rate.

      o     Investment expenses were reduced $36.6 million in the twelve month
            period ended December 31, 2003 compared to the prior year. Included
            are reductions in corporate complex expenses and in depreciation
            expenses associated with the sale of the Company's home office real
            estate.


                                       59
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Net Realized Investment and Other Gain/(Loss). The following table shows
the Company's net realized investment and other gains (losses) by asset class
for the periods presented:

<TABLE>
<CAPTION>
For the year ended December 31, 2004                      Gross Gain       Gross Loss       Hedging    Net Realized Investment
                                           Impairment   on Disposal (1)  on Disposal (2)  Adjustments   and Other Gain/(Loss)
                                          -------------------------------------------------------------------------------------
                                                                         (in millions)
<S>                                         <C>            <C>              <C>             <C>               <C>
Fixed maturity securities ................  $(179.5)       $298.0           $(64.7)         $(73.2)           $(19.4)
Equity securities ........................     (6.1)        107.4             (6.5)             --              94.8
Mortgage loans on real estate ............    (65.7)         30.2            (10.6)          (17.6)            (63.7)
Real estate ..............................       --          83.1             (2.5)             --              80.6
Other invested assets ....................    (78.1)         50.3            (12.8)             --             (40.6)
Derivatives ..............................       --            --               --            40.6              40.6
                                            -----------------------------------------------------------------------------------
               Subtotal ..................  $(329.4)       $569.0           $(97.1)         $(50.2)           $ 92.3
                                            ===================================================================================

          Amortization adjustment for deferred policy acquisition costs .....................                   24.0
          Amounts credited to participating pension contractholders .........................                   (2.7)
          Amounts credited to the policyholder dividend obligation ..........................                  (25.9)
                                                                                                              -----------------
               Total ........................................................................                 $ 87.7
                                                                                                              =================
</TABLE>

(1)   Fixed maturities gain on disposals includes $42.5 million of gains from
      previously impaired securities.
(2)   Fixed maturities loss on disposals includes $7.0 million of credit related
      losses.

<TABLE>
<CAPTION>
For the year ended December 31, 2003                     Gross Gain       Gross Loss       Hedging    Net Realized Investment
                                          Impairment   on Disposal (1)  on Disposal (2)  Adjustments   and Other Gain/(Loss)
                                          -----------------------------------------------------------------------------------
                                                                        (in millions)
<S>                                         <C>            <C>             <C>           <C>                 <C>
Fixed maturity securities ................  $(517.3)       $469.0          $ (95.6)      $(246.9)            $(390.8)
Equity securities ........................    (27.8)        102.8             (3.7)           --                71.3
Mortgage loans on real estate ............       --          75.9            (41.0)        (63.7)              (28.8)
Real estate ..............................       --         251.8            (17.0)           --               234.8
Other invested assets ....................    (29.8)         22.7            (29.1)           --               (36.2)
Derivatives ..............................       --            --               --         118.2               118.2
                                          -----------------------------------------------------------------------------------
               Subtotal ..................  $(574.9)       $922.2          $(186.4)      $(192.4)            $ (31.5)
                                          ===================================================================================

          Amortization adjustment for deferred policy acquisition costs ......................                  (6.4)
          Amounts credited to participating pension contractholders ..........................                   3.2
          Amounts credited to the policyholder dividend obligation ...........................                  58.5
                                                                                                             ----------------
               Total .........................................................................               $  23.8
                                                                                                             ================
</TABLE>

(1)   Fixed maturities gain on disposals includes $90.8 million of gains from
      previously impaired securities.
(2)   Fixed maturities loss on disposals includes $28.8 million of credit
      related losses.

      The hedging adjustments in the fixed maturities and mortgage loans asset
classes are non-cash adjustments representing the amortization or reversal of
prior fair value adjustments on assets in those classes that were or are
designated as hedged items in fair value hedge. When an asset or liability is so
designated, its cost basis is adjusted in response to movement in interest rate.
These adjustments are non-cash and reverse with the passage of time as the asset
or liability and derivative mature. The hedging adjustments on the derivatives
represent non-cash adjustments on derivative instruments and on assets and
liabilities designated as hedged items reflecting the change in fair value of
those items.

      For the year ended December 31, 2004 the Company realized net realized
investment and other gains and losses of $87.7 million compared to a gain of
$23.8 million for the year ended December 31, 2003. For the year ended December
31, 2004 gross losses on impairments and on disposal of investments - including
bonds, equities, real estate, mortgages and other invested assets was $426.5
million, excluding hedging adjustments, compared to $761.3 million in prior
year. The Company recorded total impairments of $210.2 million for the period
subsequent to the merger with Manulife, April 29, 2004 through December 31,
2004, and $119.2 million for the period prior to the merger with Manulife, from
January 1, 2004 through April 28, 2004, compared to $574.9 million for the prior
year.


                                       60
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      For the year ended December 31, 2004, realized gains on disposal of fixed
maturities, excluding hedging adjustments, were $298.0 million. These gains
resulted from managing the portfolios for tax optimization and ongoing portfolio
positioning, as well as $104.8 million of prepayments. There were $42.5 million
of recoveries on sales of previously impaired securities for the year ended
December 31, 2004.

      For the year ended December 31, 2004, the Company realized losses on the
disposal of fixed maturities, excluding hedging adjustments, of $64.7 million.
The Company generally intends to hold securities in unrealized loss positions
until they mature or recover. However, fixed maturities are sold under certain
circumstances such as when new information causes a change in the assessment of
whether a bond will recover or perform according to its contractual terms, in
response to external events (such as a merger or a downgrade) that result in
investment guideline violations (such as single issuer or overall portfolio
credit quality limits), in response to extreme catastrophic events (such as
September 11, 2001) that result in industry or market wide disruption, or to
take advantage of tender offers. Sales generate both gains and losses.

      The Company has a process in place to identify securities that could
potentially have an impairment that is other than temporary. This process
involves monitoring market events that could impact issuers' credit ratings,
business climate, management changes, litigation and government actions, and
other similar factors. This process also involves monitoring late payments,
downgrades by rating agencies, key financial ratios, financial statements,
revenue forecasts and cash flow projections as indicators of credit issues.

      At the end of each quarter, our Investment Review Committee reviews all
securities where market value is less than ninety percent of amortized cost for
three months or more to determine whether impairments need to be taken. This
committee includes the head of workouts, the head of each industry team, the
head of portfolio management, and the Chief Credit Officer of Manulife. The
analysis focuses on each company's or project's ability to service its debts in
a timely fashion and the length of time the security has been trading below
cost. The results of this analysis are reviewed by the Credit Committee at
Manulife. This committee includes Manulife's Chief Financial Officer, Chief
Investment Officer, Chief Risk Officer, and Chief Credit Officer. This quarterly
process includes a fresh assessment of the credit quality of each investment in
the entire fixed maturities portfolio.

      The Company considers relevant facts and circumstances in evaluating
whether the impairment of a security is other than temporary. Relevant facts and
circumstances considered include (1) the length of time the fair value has been
below cost; (2) the financial position of the issuer, including the current and
future impact of any specific events; and (3) the Company's ability and intent
to hold the security to maturity or until it recovers in value. To the extent
the Company determines that a security is deemed to be other than temporarily
impaired the difference between amortized cost and fair value would be charged
to earnings.

      There are a number of significant risks and uncertainties inherent in the
process of monitoring impairments and determining if an impairment is other than
temporary. These risks and uncertainties include (1) the risk that our
assessment of an issuer's ability to meet all of its contractual obligations
will change based on changes in the credit characteristics of that issuer, (2)
the risk that the economic outlook will be worse than expected or have more of
an impact on the issuer than anticipated, (3) fraudulent information could be
provided to our investment professionals who determine the fair value estimates
and other than temporary impairments, and (4) the risk that new information
obtained by us or changes in other facts and circumstances lead us to change our
intent to hold the security to maturity or until it recovers in value. Any of
these situations could result in a charge to earnings in a future period.

Realized Gains, Losses and Impairments on Disposals - Year Ended
December 31, 2004

      Of the $64.7 million of realized losses on sales of fixed maturity
securities for the year ended December 31, 2004, there was a total of $7.0
million in credit losses. Most of the sales were related to general portfolio
management, largely due to redeploying high quality, liquid public bonds into
more permanent investments and the losses resulted from increasing interest
rates during the period.

      The Company recorded $179.5 million of other than temporary impairments of
fixed maturity securities for the year ended December 31, 2004. These
impairments relate primarily to: securities in the airline industry ($62.8
million), a manufacturer of parcel delivery vans ($28.0 million), private
placement securities related to secured lease obligations of a regional retail
food chain ($22.0 million), a holding in a privately held pharmaceutical company
($21.3 million), and one of the world's largest dairy companies ($17.5 million).


                                       61
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      The Company recorded losses due to other than temporary impairments of
other invested assets of $78.1 million for year ended December 31, 2004. These
impairments primarily relate to lease investments in the U.S. airline industry
($29.2 million) and an investment in a royalty stream ($25.5 million). There
were also $12.7 million in impairments on CBO and CDO equity for the period.
Equity in these CBOs and CDOs take the first loss risk in a pool of high yield
debt. We have a total remaining carrying value of $34.9 million and $60.0
million of CBO and CDO equity as of December 31, 2004 and December 31, 2003,
which is currently supported by expected cash flows.

      The Company also recognized losses on other than temporary impairments of
common stock of $6.1 million for the year ended December 31, 2004 as the result
of market values falling below cost for more than six months.

      The Company recorded a net loss of $63.7 million on mortgage loans for the
year ended December 31, 2004 (of which $17.6 million was losses on hedging
adjustments). Included in this loss is $65.7 million in impairments. These
impairments primarily relate to mortgages on a company that operates flour
milling facilities ($20.2 million), a refrigeration warehouse company ($21.5
million), and a commercial office property ($10.0 million).

      There were also gains of $107.4 million on the sale of equity securities
as part of our overall investment strategy of using equity gains to offset
credit losses in the long term, gains of $50.3 million from the sale of other
invested assets, and gains of $83.1 million resulting from the sale of real
estate for the year ended December 31, 2004. Net derivative activity resulted in
a gain of $40.6 million for the year ended December 31, 2004 resulting from a
slightly larger impact from interest rate changes on the Company's fair value of
hedged items in comparison to the changes in fair value of its derivatives
hedging those items and the change in the fair value of derivatives that do not
qualify for hedge accounting.

Realized Gains, Losses and Impairments on Disposals - Year Ended December 31,
2003

      Of the $95.6 million of realized losses on sales of fixed maturity
securities for the year ended December 31, 2003, there was a total of $28.8
million in credit losses. The significant credit losses for 2003 were $16.7
million of losses related to the sale of public bonds of a major health care
service provider and $4.9 million related to the sale of public bonds of a power
provider. All other sales were related to general portfolio management,
including the sale of a number of below investment grade bonds to maintain the
Company's exposure below 10% of invested assets on a statutory basis.

      The Company recorded $542.0 million of other than temporary impairments of
fixed maturity securities for the year ended December 31, 2003 (including
impairment losses of $517.3 million and $24.7 million of previously recognized
gains where the bond was part of a hedging relationship). These impairments
relate primarily to: securities in the dairy industry ($153.0 million),
securities in the airline industry ($73.5 million), and securities in the power
and energy industry ($69.3 million).

      The Company recorded losses due to other than temporary impairments of
other invested assets of $29.8 million for year ended December 31, 2003. These
impairments primarily related to an investment in a royalty stream ($11.5
million), a fund investment ($3.8 million) and a power holding company ($3.1
million). There were also $4.6 million in impairments on CBO and CDO equity for
the period. Equity in these CBOs and CDOs take the first loss risk in a pool of
high yield debt. These impairments are recognized using the guidance of EITF
99-20. At December 31, 2003 the Company had a total remaining carrying value of
$60.0 million of CBO and CDO equity, which was supported by expected cash flows.

      The Company also recognized losses on other than temporary impairments of
common stock of $27.8 million for the year ended December 31, 2003 as the result
of market values falling below cost for more than six months.

      The Company recorded a net loss of $28.8 million on mortgage loans for the
year ended December 31, 2003 (of which $63.7 million were losses on hedging
adjustments). Included were losses of $29.7 million associated with agricultural
mortgages.

       There were also gains of $102.8 million on the sale of equity securities
as part of our overall investment strategy of using equity gains to offset
credit losses in the long term, gains of $22.7 million from the sale of other
invested assets, and gains of $251.8 million resulting from the sale of real
estate for the year ended December 31, 2003. Net derivative activity resulted in
a gain of $118.2 million for the year ended December 31, 2003 resulting from a
slightly larger impact from interest rate changes on the Company's fair value of
hedged items in comparison to the changes in fair value of its derivatives
hedging those items and the change in the fair value of derivatives that do not
qualify for hedge accounting.


                                       62
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Liquidity and Capital Resources

      Liquidity describes the ability of a company to generate sufficient cash
flows to meet its immediate needs in order to facilitate its business
operations. John Hancock Financial Services, Inc. (the Company) is an insurance
holding company. The assets of the Company consist primarily of the outstanding
capital stock of the Life Company, John Hancock Canadian Holdings Limited and
investments in other subsidiaries both domestic and international. The Company's
cash flows primarily consist of dividends from its operating subsidiaries and
proceeds from the Company's debt offerings (see Note 8--Debt and Line of Credit
in the notes to the Company's consolidated financial statements) offset by
expenses and shareholder dividends. As a holding company, the Company's ability
to meet its cash requirements, including, but not limited to, paying interest on
any debt, paying expenses related to its affairs and paying dividends on its
common stock, substantially depends upon receiving dividends from its operating
subsidiaries.

Primary Operating Subsidiaries

      The Company's primary insurance operations are those of the Life Company,
and formerly, of Maritime Life. 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 dividend paying limit is
the greater of 10% of its statutory surplus or its prior calendar year's
statutory net gain from operations. 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.

      In January and December of 2003, the Commissioner of Insurance for the
Commonwealth of Massachusetts (the "Commissioner") approved dividends from the
Life Company to JHFS in the amount of $214.5 million. The Life Company paid
$100.0 million in cash in 2003, transferred property worth $14.5 million in
August 2003 and paid the final $100.0 million in cash in January 2004. Funds
from the dividends, together with the net proceeds from operations of the
Company were principally used to pay $101.3 million in dividends to JHFS common
shareholders. JHFS paid a dividend on its common stock of $0.35 per share on
December 11, 2003 to shareholders of record as of November 18, 2003. In 2004,
the Commissioner approved dividends from the Life Company to JHFS in the amount
of $200.0 million which were paid in 2004. JHFS paid no dividends to its
shareholders in 2004 prior to the merger with Manulife, or to Manulife after the
merger. None of the dividends paid were classified as extraordinary by state
regulators.

      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. Our
liquidity requirements relate principally to the liabilities associated with
various insurance, annuity, and structured investment products, and to the
funding of investments in new products, processes, and technology and general
operating expenses. Product liabilities include the payment of benefits under
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 Company's relative liquidity is reflected in its credit ratings
assigned by the Major credit rating agencies. At December 31, 2004, The
Company's insurance subsidiaries' financial strength / claims paying abilities
were all rated AA+ by Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc. (S&P), Aa3 by Moody's Investors Service (Moody's),
A++ by A.M. Best Company (AM Best) and AA by Fitch Ratings (Fitch). The
Company's senior unsecured debt rating was AA- from S&P, A3 from Moody's, a+
from AM Best and A+ from Fitch.

      The liquidity of our insurance operations is also related to the overall
quality of our investments. As of December 31, 2004, $42.851.4 million, or 90.0%
of the consolidated fixed maturity securities held by us and rated by S&P,
Moody's or the National Association of Insurance Commissioners were rated
investment grade (BBB- or higher by S&P, Baa3 or higher for Moody's, or 1 or 2
by the National Association of Insurance Commissioners). The remaining $4,737.2
million, or 10.0% of rated fixed maturity investments, were rated non-investment
grade. For additional discussion of our investment portfolio see the General
Account Investments section of 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


                                       63
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

guidelines for each portfolio based upon the return objectives, risk tolerance,
liquidity, and tax and regulatory requirements of the underlying products and
business segments.

Insurance Company Customer Accounts

      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,
                                                                         ------------------------------------------------
                                                                                  2004                     2003
                                                                         ------------------------------------------------
                                                                           Amount        %         Amount         %
                                                                         ------------------------------------------------
                                                                         (in millions)         (in millions)
<S>                                                                       <C>           <C>       <C>           <C>
Not subject to discretionary withdrawal provisions.....................   $ 25,962.5     54.6%    $ 28,961.0     55.2%
Subject to discretionary withdrawal adjustment:
With market value adjustment...........................................      1,156.0      2.4        2,109.7      4.0
At contract value......................................................      3,005.1      6.3        2,926.6      5.6
At fair value/ market value............................................     10,215.2     21.4       11,195.0     21.4
Subject to discretionary withdrawal at contract value
      less surrender charge............................................      7,307.1     15.3        7,219.3     13.8
                                                                         ------------------------------------------------
Total annuity reserves and deposit funds liability.....................   $ 47,645.9    100.0%    $ 52,411.6    100.0%
                                                                         ================================================
</TABLE>

      Individual life insurance policies are less susceptible to withdrawal than
are individual annuity contracts because policyholders may incur surrender
charges and undergo a new underwriting process in order to obtain a new
insurance policy. Annuity benefits under group annuity contracts are generally
not subject to early withdrawal. As indicated in the table above, there are 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 any
withdrawals, whether at book value or at market value, other than on a scheduled
maturity date. In addition, none of these obligations can be accelerated based
on any change in the Company's credit rating. The Company does not sell
contracts with put provisions.

      Individual life insurance policies (other than term life insurance)
generally increase in cash value 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, 2004, we had approximately $22.9 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 on the
portion of cash values loaned. The amount of policy loans has remained
consistent over the past three years at approximately $2.0 billion; $1.5 billion
of which are in the closed block at December 31, 2004.

      The Company's primary operating subsidiary is John Hancock Life Insurance
Company. 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, 2004, were above the ranges that would require
regulatory action.

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

Analysis of Consolidated Statements of Cash Flows

      To assist in the comparability of our cash flows, the following discussion
combines the predecessor period (January 1 through April 28, 2004) with the
successor period (April 29 through December 31, 2004) to present combined cash
flows for the year ended December 31, 2004.


                                       64
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Net cash provided by operating activities was $3,172.5 million, $3,052.7
million and $2,561.1 million, for the years ended December 31, 2004, 2003 and
2002, respectively. Cash flows from operating activities are affected by the
timing of premiums received, fees received and investment income. The $119.8
million increase in 2004 compared to 2003 resulted primarily from a $112.7
million increase in net investment income received and a $142.1 million decrease
in expenses offset by a $135.1 million decrease in premiums received. The $491.6
million increase in 2003 compared to 2002 resulted primarily from a $221.6
million increase in premiums received and a $151.5 million increase in net
investment income received offset by a $225.7 million increase in expenses.

      Net cash used in investing activities was $2,834.2 million, $3,649.6
million and $6,714.1 million for the years ended December 31, 2004, 2003 and
2002, respectively. Changes in the cash provided by investing activities
primarily relate to the management of the Company's investment portfolios and
the investment of excess cash generated by operating and financing activities.
Cash flows from investing activities include those from the purchase or sales of
product lines and asset management such as the sale of the Home Office
properties in 2003. In addition to a comprehensive asset-liability management
program that seeks to align the financial and risk attributes of the Company's
investment portfolio (including cash and short term investments) with those of
its liability contracts, we also maintain a minimum cash balance and monitors
available liquidity against estimated liquidity needs. All of this leads to a
liquidity policy we think is prudent and is expected to amply support liquidity
needs.

      The $815.4 million decrease in cash used in 2004 as compared to 2003
resulted from a $978.7 million reduction in net acquisitions of fixed maturities
and a $418.9 million reduction in net issuances of mortgage loans on real estate
and a $305.2 million decrease of net acquisitions in other investment categories
for the year ended December 31, 2004 as compared to the prior year, and a
non-recurring $887.6 million cash inflow from the sale of Home Office properties
in the first quarter of 2003. The decrease in net cash used in 2003 as compared
to 2002 resulted primarily from the $887.6 million cash inflow from the sale of
Home Office properties in the first quarter of 2003 and a $2,204.9 million
reduction in net acquisitions of fixed maturities during the year ended December
31, 2003 as compared to prior year.

      Net cash (used in) provided by financing activities was $(2,063.0)
million, $2,527.9 million and $4,029.9 million for the years ended December 31,
2004, 2003 and 2002, respectively. Changes in cash provided by financing
activities primarily relate to the execution of transactions with our customers
demonstrated by deposits and withdrawals under investment-type contracts and the
payment of the Company's annual dividend to shareholders. In addition, where
advantageous or otherwise necessary, the Company may issue equity securities or
debt, borrowing or re-pay corporate debt, acquire our stock on the market, or
pay dividends to shareholders.

      The $(4,590.9) million change in 2004 as compared to 2003 resulted from a
$2,978.5 million decrease in deposits, a $775.7 million increase in cash
payments made on withdrawals of investment-type contracts, a $480.5 million
decrease in funds provided by the Consumer Notes program initiated in the second
half of 2002 and a net reduction in the Company's commercial paper outstanding
of $223.5 million.

      The Company's ability to generate customer deposits in excess of
withdrawals is critical to our long-term growth. The $1,502.0 million decrease
in the 2003 as compared to 2002 resulted from a $1,453.0 million decrease in
deposits and a $1,492.2 million increase in cash payments made on withdrawals of
universal life insurance and investment-type contracts offset somewhat by $970.0
million in funds from the Consumer Notes program (initiated in the second half
of 2002), and a $373.2 million decline in treasury stock acquired due to the
suspension of activity under the stock repurchase program. Withdrawals on and
maturities of universal life insurance and investment-type contracts exceeded
deposits by $2,723.3 million for the year ended December 31, 2004, and deposits
exceeded withdrawals by $969.5 million and $3,914.7 million for the years ended
December 31, 2003 and 2002, respectively.

Lines of Credit, Debt and Guarantees

      At December 31, 2004 the Company had two separate committed lines of
credit totaling $1.5 billion: the first of $500 million, through a syndication
of banks including Fleet National Bank, JPMorgan Chase, Credit Suisse First
Boston, The Bank of New York, Barclays, The Bank of Nova Scotia, Wachovia, Royal
Bank of Canada, State Street Bank, Bank of America, Bank One, BNP Paribas,
Deutsche Bank, PNC Bank, Sovereign Bank, Westdeutsche Landesbank, Comerica Bank
and Northern Trust (the "external line of credit"); the second of $1.0 billion
with the Company's parent, Manulife (the "Manulife line of credit"). The
external line of credit agreement provides for a multi-year facility for $500
million (renewable in 2005). The external line of credit is available for
general corporate purposes. The external line of credit agreement has no
material adverse change clause, and includes, among others, the following
covenants: minimum requirements for JHFS shareholder's equity, maximum limit on


                                       65
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

the capitalization ratio and a negative pledge clause (with exceptions) as well
as limitations on subsidiary debt, none of which were triggered as of December
31, 2004. The external line of credit also contains cross-acceleration
provisions, none of which were triggered as of December 31, 2004. The fee
structure of the external line of credit is determined by the rating levels of
JHFS or the Life Company. To date, the Company has not borrowed any amounts
under the external lines of credit as of December 31, 2004. The Manulife line of
credit agreement provides for a 364-day credit facility for $1.0 billion.
Manulife 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, 2004. To date, the Company has not borrowed any amounts under the external
or Manulife lines of credit as of December 31, 2004.

      On November 29, 2001, JHFS sold, under its $1.0 billion shelf registration
statement, $500.0 million in 7-year senior unsecured notes at a coupon of 5.625%
with the proceeds used for general corporate purposes. Covenants contained in
this issue include, among others, limitations on the disposition of and liens on
the stock of the Life Company. This issue also contains cross-acceleration
provisions. The remaining capacity of the shelf registration is currently $500.0
million.

      As of December 31, 2004, we had $2,183.2 million of principal and interest
amounts of debt outstanding consisting of $528.2 million of medium-term bonds,
$516.7 million of surplus notes, $354.7 million of Canadian debt, $32.5 million
of other notes payable (excluding $144.1 million in non-recourse debt for
Signature Fruit and an Australian farm management subsidiary), a $295.3 million
note payable to MLI Resources, Inc., a related party, and $289.8 million in
commercial paper. Also not included in these amounts is the $22.1 million SFAS
No. 133 fair value adjustment to interest rate swaps held for the Surplus Notes.
During the year ended December 31, 2004, the Company issued in aggregate
$3,007.5 million in commercial paper, of which $289.8 million was outstanding at
December 31, 2004. In addition, the Company has outstanding $2,379.1 million of
consumer notes which are redeemable upon the death of the holder, subject to an
annual overall program redemption limitation of 1% of the aggregate securities
outstanding, or an individual redemption limitation of $200,000 of aggregate
principal, and mature at a various dates in the future. Covenants in this
program include, among others, limitations on liens. Coincident with the
acquisition of the Company's shares by Manulife, the Company merged with Jupiter
Merger Corporation (Jupiter), a subsidiary of Manulife, which was organized
solely for the purpose of effecting the merger with the Company. Prior to the
merger, Jupiter had a note payable to MLI Resources, Inc., an affiliated
Manulife entity, in the amount of $260.7 and held previously purchased shares of
the Company, which were cancelled upon the merger. The carrying value of this
note payable (now on JHFS' balance sheet) will fluctuate with changes in the USD
to CDN exchange rates and was $295.3 million at December 31, 2004. The Company
paid $5.2 million to Manulife under the terms of the promissory note during the
year ended December 31, 2004. These payments represent the May 2004, August 2004
and November 2004 payments due.

      $50 million in letters of credit for JH Reassurance Company, guaranteed by
the Company, are subject to rating triggers that require the posting of deposits
(within three business days) as additional collateral if the ratings of JHFS or
the Life Company fall below designated rating levels. Currently, JHFS and the
Life Company's ratings are several levels away from a triggering event for the
guaranteed letters of credit. Failure to make such deposit under one or more of
the guaranteed letters of credit could trigger the cross-acceleration provisions
in other financing agreements, including the line of credit referenced above.
Certain of these guaranteed letters of credit incorporate the financial
covenants from the line of credit as well as contain cross-default and
cross-acceleration provisions.

      The Company guarantees certain mortgage securitizations transactions JHFS
entered into with FNMA and FHLMC. In the course of business the Company enters
into guarantees which vary in nature and purpose and which are accounted for and
disclosed under accounting principles generally accepted in the U.S. specific to
the insurance industry. The Company has no material guarantees outstanding
outside the scope of insurance accounting at December 31, 2004.

      The Company has the following additional guarantees outstanding with
affiliates, related to market value annuity products in the Life Company and it
subsidiary John Hancock Variable Life Insurance Company (see Note 20-Information
Provided in Connection with Market Value Annuity of John Hancock Variable Life
Insurance Company) covering contracts with account values of $376.4 million, and
$354.7 million in senior unsecured notes payable issued by John Hancock Canadian
Corporation, guaranteed by the Company.

Off Balance Sheet Arrangements

      The Company has relationships with a number of entities which are not
consolidated into the Company's consolidated financial statements. These
entities include qualified special purpose entities (QSPEs) and other special
purpose entities. In the course of some of its business the Company transfers


                                       66
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

assets to, and in some cases, retains interests in QSPEs. The Company may also
purchase interests in QSPEs on the open market.

      The Company's primary use of QSPEs arises in its commercial mortgage
banking subsidiary. The Company's commercial mortgage banking subsidiary
originates commercial mortgages and sells them to QSPEs which then issue
mortgage backed securities (MBS). The Company engages in this activity to earn
fees during the origination process, and to generate realized gains during the
securitization process. The Company may purchase MBS from the QSPEs created in
its commercial mortgage banking subsidiary to generate net investment income.
The majority of the Company's MBS portfolio was purchased from unrelated QSPEs.

      These unconsolidated special purpose entities also include CDO funds we
manage (and may also invest in), which are considered variable interest entities
and are discussed in detail in Note 4 - Relationships with Variable Interest
Entities to our consolidated financial statements. The Company generates fee
income from the CDO funds we manage, and generates net investment income from
CDOs we invest in, whether we manage them or not.

      The Company receives Federal income tax benefits from certain investments
made through variable interest entities.

      These relationships also include credit and collateral support agreements
with FNMA and FHMLC, through which the Company securitized some of its mortgage
investments, which provided a potential source of liquidity to the Company.
These agreements are described in detail in Note 14 - Commitments, Guarantees
and Contingencies to our consolidated financial statements.

      The Company's risk of loss from these relationships is limited to its
investment in the unconsolidated entities. Consolidation of unconsolidated
accounts from these entities would inflate the Company's balance sheet but would
not be reflective of additional risk to the Company from these entities. In
each, there are no potential liabilities which might arise in the future as a
result of these relationships that would not be completely satisfied by the
assets of each entity.


                                       67
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Contractual Obligations

      The following table summarizes the Company's information about contractual
obligations by due date and expiration date as of December 31, 2004. Contractual
obligations of the Company are those obligations fixed by agreement as to dollar
amount and date of payment. These obligations are inputs into the Company's
asset liability management system described elsewhere in this document.

                 Contractual Obligations as of December 31, 2004

<TABLE>
<CAPTION>
                                                                                            Due within
                                                                        --------------------------------------------------
                                                                                                                More than
       Payments due under contractual obligations            Total        1 year      2-3 years    4-5 years     5 years
--------------------------------------------------------------------------------------------------------------------------
                                                                                     (in millions)
<S>                                                         <C>         <C>         <C>           <C>           <C>
Debt ....................................................   $ 2,035.9   $   427.5   $   322.9     $   502.4     $   783.1
Consumer notes ..........................................     2,368.7        22.1       224.5         144.6       1,977.5
GICs ....................................................     4,123.5     1,002.1     1,260.9         851.1       1,009.4
Funding agreements ......................................    11,276.1     2,547.0     3,746.1       3,242.2       1,740.8
Institutional structured settlements ....................     2,637.0        29.0        57.0          66.0       2,485.0
Annuity certain contracts ...............................     1,151.9       134.7       383.3         189.3         444.6
Investment commitments ..................................     1,554.2     1,554.2          --            --            --
Other insurance liabilities .............................          --          --          --            --            --
Capital lease obligations ...............................       201.2        14.1        28.1          28.3         130.7
Operating lease obligations .............................       507.4        68.8       136.7          96.8         205.1
Lines of credit .........................................       102.2       102.2          --            --            --
Standby letters of credit ...............................         6.1         6.1          --            --            --
Guarantees ..............................................        16.4        16.4          --            --            --
Other long-term obligations .............................       384.0       101.0       180.5         102.5            --
                                                            --------------------------------------------------------------
      Total payments due under contractual
      obligations .......................................   $26,364.7   $ 6,025.2   $ 6,340.0     $ 5,223.2     $ 8,776.2
                                                            =============================================================
</TABLE>

      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 to provide 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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      Capital Markets Risk Management. The Company maintains a disciplined,
comprehensive approach to managing capital market risks inherent in its business
and investment operations.

      To mitigate capital market 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 Life
Insurance Company's and its U.S. Life Insurance subsidiaries' implementation of
the 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 interest. Interest rate risk pertains to the change in
fair value that occurs 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.


                                       68
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      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, issuer, industry, geographical, and property-type
concentrations. Where possible, consideration of external measures of
creditworthiness, such as ratings assigned by nationally recognized rating
agencies such as Moody's and Standard & Poor's, 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, and (2) rating agencies' quality-specific cohort default data.
These tests have generally found the Company's aggregate experience to be
favorable relative to the external benchmarks and consistent with
priced-for-levels.

      The Company has a process in place that attempts to identify securities
that could potentially have an impairment that is other than temporary. This
process involves monitoring market events that could impact issuers' credit
ratings, business climate, management changes, acquisition, litigation and
government actions, and other similar factors. This process also involves
monitoring late payments, downgrades by rating agencies, key financial ratios,
financial statements, revenue forecasts and cash flow projections as indicators
of credit issues.

      At the end of each quarter, our Investment Review Committee reviews all
securities where market value is less than ninety percent of amortized cost for
three months or more to determine whether impairments need to be taken. This
committee includes the head of workouts, the head of each industry team, and the
head of portfolio management. The analysis focuses on each company's or
project's ability to service its debts in a timely fashion and the length of
time the security has been trading below cost. The results of the analysis are
reviewed by the Life Company's Committee of Finance, a subcommittee of the Life
Company's Board of Directors, quarterly. To supplement this process, a bi-annual
review is made of the entire fixed maturity portfolio to assess credit quality,
including a review of all impairments with the Life Company's Committee of
Finance.

      The Company considers and documents relevant facts and circumstances in
evaluating whether the impairment of a security is other than temporary.
Relevant facts and circumstances considered include (1) the length of time the
fair value has been below cost; (2) the financial position of the issuer,
including the current and future impact of any specific events; and (3) the
Company's ability and intent to hold the security to maturity or until it
recovers in value. To the extent the Company determines that a security is
deemed to be other than temporarily impaired the difference between amortized
cost and fair value would be charged to earnings.

      There are a number of significant risks and uncertainties inherent in the
process of monitoring impairments and determining if an impairment is other than
temporary. These risks and uncertainties include (1) the risk that our
assessment of an issuer's ability to meet all of its contractual obligations
will change based on changes in the credit characteristics of that issuer, (2)
the risk that the economic outlook will be worse than expected or have more of
an impact on the issuer than anticipated, (3) information, or fraudulent
financial statements, could be provided to our investment professionals who
determine the fair value estimates and other than temporary impairments and (4)
the risk that new information obtained by us or changes in other facts and
circumstances lead us to change our intent to hold the security to maturity or
until it recovers in value.

      Any of these situations could result in a charge to earnings in a future
period to the extent of the impairment charge recorded. Because the majority of
our portfolio is classified as available-for-sale and held at fair value with
the related unrealized gains (losses) recorded in shareholders' equity, the
charge to earnings should not have a significant impact on shareholders' equity.

      As of December 31, 2004 and 2003, the Company's fixed maturity portfolio
was comprised of 90.0% and 88.3% investment grade securities and 10.0% and 11.7%
below-investment-grade securities, respectively. 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 return for
higher expected returns. We believe that credit risk can be successfully managed
given our proprietary credit evaluation models and experienced personnel.

      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, Wealth Management 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


                                       69
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

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 approach involves a
targeted duration mismatch of zero, with an operational tolerance of less than
+/- 18 days, with other techniques 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 5-year duration
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 that illustrate the potential impact of
such events.

      We project asset and liability cash flows on guaranteed rate products 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 change in fair
value versus the base case. As of December 31, 2004 and 2003, the fair value of
fixed maturity securities and mortgage loans supporting duration managed
liabilities was approximately $ 33,181.0 million and $ 39,636.8 million,
respectively. Based on the information and assumptions we use in our duration
calculations in effect as of December 31, 2004, we estimate that a 100 basis
point immediate, parallel increase in interest rates ("rate shock") would have
no effect on the net fair value, or surplus, of our duration managed assets and
liabilities based on our targeted mismatch of zero, but could be -/+ $16.6
million based on our operational tolerance of 18 days.

      The risk management method for non-guaranteed rate products, such as whole
life insurance or single premium deferred annuities, is less formulaic, but more
complex, 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, 2004 and 2003, the fair value
of fixed maturity securities and mortgage loans supporting liabilities managed
under this modeling was approximately $ 36,011.3 million and $ 37,096.1 million,
respectively. A rate shock (as defined above) as of December 31, 2004 would
decrease the fair value of these assets by $ 1,437.5 million, which we estimate
would be offset by a comparable change in the fair value of the associated
liabilities, thus minimizing the impact on surplus.

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.

      As of January 1, 2001, SFAS No. 133 became effective for all companies
reporting under GAAP in the United States. Briefly stated, SFAS No. 133 requires
that all derivative instruments must be recorded as either assets or liabilities
on the Company's balance sheet, with quarterly recognition thereafter of changes
in derivative fair values through its income statement. The income effect of
derivatives that meet all requirements of a "qualified hedge" under SFAS No. 133
guidance may be offset, in part or in its entirety, by recognition of changes in
fair value on specifically identified underlying hedged-items. These
hedged-items must be identified at the inception of the hedge and may consist of
assets, liabilities, firm commitments or forecasted transactions. Depending upon
the designated form of the hedge (i.e., fair value or cash flow), changes in
fair value must either be recorded immediately through income or through
shareholders' equity (other comprehensive income) for subsequent amortization
into income.

      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 derivative positions hedging
interest rate risk as of December 31, 2004. 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.


                                       70
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

<TABLE>
<CAPTION>
                                                                      As of December 31, 2004
                                               ----------------------------------------------------------------------
                                                                Weighted-    -100 Basis   Fair Value    +100 Basis
                                                 Notional     Average Term      Point        As of        Point
                                                  Amount        (Years)      Change (2)    12/31/04     Change (2)
                                               ----------------------------------------------------------------------
                                                          (in millions, except for Weighted-Average Term)

<S>                                               <C>                  <C>        <C>          <C>         <C>
Interest rate swaps.........................      $ 32,801.9            3.6       $ 543.1      $ 12.3      $ (384.1)
CMT swaps...................................           227.6            9.1         (1.0)       (1.7)          (2.4)
Futures contracts (1).......................           172.8           14.2        (10.6)         1.2           13.9
Interest rate caps..........................         1,157.1            3.9           3.8        11.8           26.4
Interest rate floors........................         4,593.0            5.6         154.6        85.3           42.6
Swaptions...................................            30.0           20.4         (7.7)       (3.4)          (0.5)
                                               --------------                  --------------------------------------
     Totals.................................      $ 38,982.4            4.0       $ 682.2      $105.5      $ (304.1)
                                               ==============                  ======================================
</TABLE>

(1)   Represents the net value of open contracts as of December 31, 2004.
(2)   The selection of a 100 basis point immediate change in interest 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 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 (a) the 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.

Equity Risk

      Equity risk is the possibility that we will incur economic losses due to
adverse changes in a particular common stock or warrant that we hold in our
portfolio. As of December 31, 2004, the fair value of our equity securities
portfolio was $334.7 million. A hypothetical 15% decline in the December 31,
2004 value of the equity securities would result in an unrealized loss of
approximately $50.2 million. The selection of a 15% immediate change in the
value of equity securities 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. The fair value of common stock holdings will rise or fall with
equity market and company-specific trends. 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 the issuance of certain
foreign currency-denominated funding agreements sold to non-qualified
institutional investors in the international market. We apply currency swap
agreements to hedge the exchange risk inherent in our funding agreements
denominated in foreign currencies. We also own fixed maturity securities that
are denominated in foreign currencies. We use derivatives to hedge the foreign
currency risk of these securities (both interest and principal payments). At
December 31, 2004, the fair value of our foreign currency denominated fixed
maturity securities was approximately $1,082.6 million. The fair value of our
currency swap agreements at December 31, 2004 supporting foreign denominated
bonds was $(342.8) million.

      We estimate that as of December 31, 2004, a modeled 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.


                                       71
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

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.


                                       72
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC


Item 8. Financial Statements and Supplementary Data


               INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm...................... 74

Audited Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2004 (Company)
and 2003 (Predecessor Company)............................................... 75

Consolidated Statements of Income for the periods April 29, 2004 through
December 31, 2004 (Company) and January 1, 2004 through April 28, 2004
and the years ended December 31, 2003 and 2002 (Predecessor Company)......... 77

Consolidated Statements of Changes in Shareholder's Equity and
Comprehensive Income for the periods  April 29 2004 through
December 31, 2004 (Company) and January 1, 2004 through April 28, 2004
and the years ended December 31, 2003 and 2002 (Predecessor Company) ........ 78

Consolidated Statements of Cash Flows for the periods April 29, 2004 through
December 31, 2004 (Company) and January 1, 2004 through April 28, 2004
and the years ended December 31, 2003 and 2002 (Predecessor Company)......... 80

Notes to Consolidated Financial Statements................................... 82


                                       73
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC

             Report of Independent Registered Public Accounting Firm


The Board of Directors
John Hancock Financial Services, Inc.

We have audited the accompanying consolidated balance sheet of John Hancock
Financial Services, Inc. as of December 31, 2004, and the related consolidated
statements of income, changes in shareholder's equity and other comprehensive
income, and cash flows for the period April 29, 2004 through December 31, 2004.
We have also audited the consolidated balance sheet as of December 31, 2003 and
the related consolidated statements of income, changes in shareholder's equity
and other comprehensive income, and cash flows of the predecessor company for
the period January 1, 2004 through April 28, 2004 and for the years ended
December 31, 2003 and 2002. Our audits also include the financial statement
schedules listed in the Index at Item 15 (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 the standards of the Public Company
Accounting Oversight Board (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 consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and 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, 2004, and the consolidated results of
their operations and their cash flows for the period April 29, 2004 through
December 31, 2004, and the consolidated financial position of the predecessor
company at December 31, 2003 and the consolidated results of its operations and
its cash flows for the period January 1, 2004 through April 28, 2004 and for the
years ended December 31, 2003 and 2002, in conformity with U.S. generally
accepted accounting principles. 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.

As discussed in Note 2 to the financial statements, in 2004 the Company changed
its method of accounting for certain nontraditional long duration contracts and
for separate accounts. In 2003 the Company changed its method of accounting for
stock-based compensation, participating pension contracts and modified
coinsurance contracts.


Boston, Massachusetts
February 28, 2005


                                       74
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                     Predecessor
                                                                                      Company          Company
                                                                                      -------          -------
                                                                                    December 31,     December 31,
                                                                                        2004             2003
                                                                                    -----------------------------
                                                                                            (in millions)

<S>                                                                                 <C>              <C>
Assets
Investments
Fixed maturities:
   Held-to-maturity--at amortized cost (fair value: 2003--$1,523.0) .............           --       $  1,498.6
   Available-for-sale--at fair value (cost: 2004--$47,662.0;  2003--$48,896.8) ..   $ 48,491.0         51,887.0
   Trading securities--at fair value (cost: 2003--$40.7 ) .......................           --             42.2
Equity securities:
   Available-for-sale--at fair value (cost: 2004--$321.5; 2003--$665.8 ) ........        330.5            795.1
   Trading securities--at fair value (cost: 2004--$4.2; 2003--$435.3) ...........          4.2            448.4
Mortgage loans on real estate ...................................................     11,816.2         12,936.0
Real estate .....................................................................        277.2            195.0
Policy loans ....................................................................      2,012.0          2,117.9
Short-term investments ..........................................................          3.0            121.6
Other invested assets ...........................................................      3,381.6          3,011.3
                                                                                    ---------------------------
      Total Investments .........................................................     66,315.7         73,053.1
Cash and cash equivalents .......................................................      1,396.9          3,121.6
Accrued investment income .......................................................        684.6            756.0
Premiums and accounts receivable ................................................         67.3            273.6
Goodwill ........................................................................      3,063.2            345.0
Value of business acquired ......................................................      2,951.5            550.5
Intangible assets ...............................................................      1,348.5              6.3
Deferred policy acquisition costs ...............................................        228.3          4,301.0
Reinsurance recoverable .........................................................      1,176.3          2,095.5
Deferred tax asset ..............................................................        155.4               --
Other assets ....................................................................      5,507.9          3,081.7
Separate account assets .........................................................     18,753.0         24,121.9
                                                                                    ---------------------------
      Total Assets ..............................................................   $101,648.6       $111,706.2
                                                                                    ===========================
</TABLE>

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


                                       75
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                    CONSOLIDATED BALANCE SHEETS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                           Predecessor
                                                                                              Company        Company
                                                                                           ------------  -------------
                                                                                           December 31,   December 31,
                                                                                               2004           2003
                                                                                           ------------  -------------
                                                                                                   (in millions)

<S>                                                                                         <C>            <C>
Liabilities and Shareholder's Equity
Liabilities
Future policy benefits ................................................................     $ 42,962.8     $ 45,609.6
Policyholders' funds ..................................................................       20,191.2       22,728.1
Consumer notes ........................................................................        2,379.1        1,550.4
Unearned revenue ......................................................................           43.3        1,140.4
Unpaid claims and claim expense reserves ..............................................          187.8          346.2
Dividends payable to policyholders ....................................................          441.3          600.6
Short-term debt .......................................................................          427.5          485.3
Long-term debt ........................................................................        1,755.8        1,410.0
Income taxes ..........................................................................             --        1,813.4
Other liabilities .....................................................................        3,122.6        3,524.2
Separate account liabilities ..........................................................       18,753.0       24,121.9
                                                                                            -----------  ------------
      Total Liabilities ...............................................................       90,264.4      103,330.1

Minority interest .....................................................................           51.5          160.4

Commitments, guarantees and contingencies

Shareholder's Equity
Preferred stock; $0.01 par value, 1 share authorized and issued at December 31, 2004 ..             --             --
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding at
   December 31, 2004; 2.0 billion shares authorized, 319.8 million shares issued at
   December 31, 2003 ..................................................................             --            3.2
Additional paid in capital ............................................................       10,220.9        5,174.0
Retained earnings .....................................................................          467.9        2,318.7
Accumulated other comprehensive income ................................................          643.9        1,788.8
Treasury stock, at cost (30.0 million shares at December 31, 2003) ....................             --       (1,069.0)
                                                                                            -----------  ------------
      Total Shareholder's Equity ......................................................       11,332.7        8,215.7
                                                                                            -----------  ------------
      Total Liabilities and Shareholder's Equity ......................................     $101,648.6     $111,706.2
                                                                                            ===========  ============
</TABLE>

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


                                       76
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                Company                 Predecessor Company
                                                                             --------------  ---------------------------------------
                                                                                               Period
                                                                                                from
                                                                              Period from      January
                                                                             April 29, 2004    1, 2004       Year
                                                                                through        through      ended      Year ended
                                                                              December 31,    April 28,    December     December
                                                                                  2004          2004       31, 2003     31, 2002
                                                                             --------------  ---------------------------------------
                                                                                                  (in millions)

<S>                                                                             <C>          <C>           <C>           <C>
Revenues
      Premiums ................................................................ $1,871.2     $  916.6      $3,010.6      $2,695.8
      Universal life and investment-type product charges ......................    436.4        241.0         660.2         621.9
      Net investment income ...................................................  2,162.0      1,311.2       3,849.3       3,628.3
      Net realized investment and other gains (losses), net of
           related amortization of deferred policy acquisition costs,
           amounts credited to participating pension contractholders
           and the policyholder dividend obligation $(13.9), $(31.2), $55.3
           and $73.2, respectively) ...........................................      7.7         80.0          23.8        (448.5)
      Investment management revenues, commissions and other fees ..............    356.8        179.9         498.1         529.0
      Other revenue ...........................................................    175.4         88.3         271.9         242.1
                                                                                -------------------------------------------------
             Total revenues ...................................................  5,009.5      2,817.0       8,313.9       7,268.6

Benefits and expenses
      Benefits to policyholders, excluding amounts related to net realized
         investment and other gains (losses) credited to participating
         pension contractholders  and policyholder dividend obligation
         $(26.7), $(42.3), $61.7, and $35.2, respectively) ....................  2,858.1      1,612.2       4,857.6       4,538.9
      Other operating costs and expenses ......................................  1,135.3        524.3       1,409.0       1,291.0
      Amortization of deferred policy acquisition costs, and value of the
         business acquired, excluding amounts related to net realized
         investment and other gains(losses) $12.9, $11.1, ($6.4), and $38.0,
         respectively) ........................................................    170.1        139.8         343.1         337.8
      Dividends to policyholders ..............................................    329.4        156.7         548.8         569.2
                                                                                -------------------------------------------------
             Total benefits and expenses ......................................  4,492.9      2,433.0       7,158.5       6,736.9

Income from continuing operations before income taxes, discontinued
   operations and cumulative effect of accounting changes .....................    516.6        384.0       1,155.4         531.7
Income taxes ..................................................................    135.9        115.1         316.7          90.6
                                                                                -------------------------------------------------
Income from continuing operations before discontinued operations and
   cumulative effect of accounting change .....................................    380.7        268.9         838.7         441.1

Income from discontinued operations, net of income tax ........................     87.2         72.5         133.5          58.4
                                                                                -------------------------------------------------
Income before cumulative effect of accounting change ..........................    467.9        341.4         972.2         499.5

Cumulative effect of accounting change, net of income tax .....................       --         (4.3)       (166.2)           --
                                                                                -------------------------------------------------
Net income..................................................................... $  467.9     $  337.1      $  806.0       $ 499.5
                                                                                =================================================

</TABLE>

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


                                       77
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                                           Additional                Other                   Total
                                       Preferred  Common     Common   Retained   Comprehensive  Treasury  Shareholder's  Outstanding
                                         Stock     Stock     Stock    Earnings   Income (Loss)   Stock       Equity        Shares
                                       ---------------------------------------------------------------------------------------------
                                                       (in millions, except outstanding shares data in thousands)
<S>                                      <C>       <C>     <C>        <C>         <C>          <C>          <C>           <C>
Predecessor Company
-------------------
Balance at January 1, 2002                --       $3.2    $5,099.3   $1,206.7    $  228.0     $  (672.2)   $5,865.0      297,430.1

  Restricted stock issued............                           4.7                                              4.7          646.4
  Options exercised..................                          13.9                                             13.9          938.4
  Forfeitures of restricted stock....                          (0.3)                                            (0.3)         (11.4)
  Restricted stock amortization......                           5.0                                              5.0
  Issuance of shares for board
    compensation.....................                           0.3                                              0.3            7.5
  Tax benefit on option exercises:...                           5.0                                              5.0
  Comprehensive income:
    Net income.......................                                    499.5                                 499.5
    Other comprehensive
      income, net of tax:
      Net unrealized gains (losses)..                                                130.9                     130.9
      Foreign currency translation
         adjustment..................                                                 13.2                      13.2
      Minimum pension liability......                                                (24.3)                    (24.3)
      Net accumulated  gains
        (losses) on cash flow
        hedges.......................                                                175.4                     175.4
                                                                                  --------                  --------
  Comprehensive income...............                                                                          794.7
  Treasury stock acquired............                                                             (385.0)     (385.0)     (11,032.4)
  Dividends paid to shareholders.....                                    (92.2)                                (92.2)

                                       ---------------------------------------------------------------------------------------------
Balance at December 31, 2002.........     --       $3.2    $5,127.9   $1,614.0    $  523.2     $(1,057.2)   $6,211.1      287,978.6
                                       =============================================================================================

  Restricted stock issued............                          19.3                                             19.3        1,177.4
  Options exercised..................                          19.1                                             19.1          951.0
  Forfeitures of restricted stock....                          (0.1)                                            (0.1)          (4.9)
  Issuance of shares for board
    compensation.....................                           0.9                                              0.9           32.8
  Sale of stock to employees.........                           2.6                                              2.6           68.4
  Tax benefit on option exercises....                           4.3                                              4.3
  Comprehensive income:
    Net income.......................                                    806.0                                 806.0
    Other comprehensive income,
      net of tax:
      Net unrealized gains (losses)..                                              1,020.9                   1,020.9
      Foreign currency translation
        adjustment...................                                                137.9                     137.9
      Minimum pension liability......                                                (21.9)                    (21.9)
      Net accumulated  gains
        (losses) on cash flow
        hedges.......................                                                 28.8                      28.8
                                                                                  --------                  --------
  Comprehensive income...............                                                                        1,971.7
  Treasury stock acquired............                                                              (11.8)      (11.8)        (414.9)
  Dividends paid to shareholders.....                                   (101.3)                               (101.3)
  Change in accounting principle.....                                                 99.9                      99.9

                                       ---------------------------------------------------------------------------------------------
Balance at December 31, 2003.........     --       $3.2    $5,174.0   $2,318.7    $1,788.8     $(1,069.0)   $8,215.7      289,788.4
                                       =============================================================================================
</TABLE>

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


                                       78
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

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

<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                             Additional               Other         Total   Outstanding
                                          Preferred  Common   Paid In   Retained   Comprehensive  Treasury  Shareholder's   Common
                                            Stock    Stock    Capital   Earnings   Income (Loss)    Stock      Equity       Shares
                                          -----------------------------------------------------------------------------------------
                                                         (in millions except outstanding share data in thousands)
<S>                                          <C>   <C>     <C>         <C>         <C>          <C>         <C>          <C>
Predecessor Company
-------------------
Balance at January 1, 2004...............    --    $ 3.2   $ 5,174.0   $2,318.7    $ 1,788.8    $(1,069.0)  $ 8,215.7    289,788.4

Options exercised........................            0.1       216.4                                            216.5      6,548.8
Restricted stock issued..................                        6.9                                              6.9        328.3
Forfeitures of restricted stock..........                                                                                     (0.3)
Issuance of shares for board
   compensation..........................                        0.2                                              0.2          4.1
Treasury stock acquired..................                                                           (33.1)      (33.1)    (7,709.6)
Comprehensive income:
Net income...............................                                 337.1                                 337.1
Other comprehensive income, net of tax:
Net unrealized gains (losses)............                                              (86.8)                   (86.8)
Net accumulated gains (losses)
  on cash flow hedges....................                                              (40.7)                   (40.7)
Foreign currency translation
  adjustment.............................                                              (60.2)                   (60.2)
Minimum pension liability................                                                1.0                      1.0
                                                                                                             --------
Comprehensive income.....................                                                                       150.4

                                           ----------------------------------------------------------------------------------------
Balance at April 28, 2004................    --    $ 3.3   $ 5,397.5   $2,655.8    $ 1,602.1    $(1,102.1)  $ 8,556.6    288,959.7
                                           ========================================================================================
Acquisition by Manulife Financial
Corporation:
  Sale of shareholder's equity...........    --     (3.3)   (5,397.5)  (2,655.8)    (1,602.1)     1,102.1    (8,556.6)  (288,959.7)
  Manulife Financial Corporation
    purchase price.......................                   10,417.0                                         10,417.0          1.0
  Merger with Jupiter Merger
    Corporation..........................                     (260.2)                                          (260.2)
                                           ----------------------------------------------------------------------------------------
Balance at April 29, 2004................    --       --   $10,156.8         --           --           --   $10,156.8          1.0
                                           ========================================================================================
Company
-------
Balance at April 29, 2004................    --       --   $10,156.8         --           --           --   $10,156.8          1.0

Comprehensive income:
   Net income............................                              $  467.9                                 467.9
Other comprehensive income, net of tax:
  Net unrealized gains (losses)..........                                          $   413.5                    413.5
  Foreign currency translation
    adjustment...........................                                               16.3                     16.3
  Minimum pension liability..............                                              (11.0)                   (11.0)
  Net accumulated gains (losses)
    on cash flow hedges..................                                              225.1                    225.1
                                                                                                             --------
Comprehensive income.....................                                                                    11,268.6
Transfer of subsidiaries to affiliates...                       64.1                                             64.1

                                           ----------------------------------------------------------------------------------------
Balance at December 31, 2004.............    --       --   $10,220.9   $  467.9    $   643.9           --   $11,332.7          1.0
                                           ========================================================================================
</TABLE>

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


                                       79
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     Company              Predecessor Company
                                                                   -----------  --------------------------------------
                                                                   Period from  Period from
                                                                    April 29,    January 1,
                                                                       2004         2004
                                                                     through      through    Year Ended    Year Ended
                                                                   December 31,  April 28,  December 31,  December 31,
                                                                       2004         2004        2003          2002
                                                                   -----------  --------------------------------------
                                                                                      (in millions)
<S>                                                                <C>          <C>          <C>          <C>
Cash flows from operating activities:
   Net income ..................................................   $   467.9    $   337.1    $   806.0    $   499.5
     Adjustments to reconcile net income to net cash
     provided by operating activities:
        Amortization of premium (discount) - fixed maturities ..       431.9          0.7        (23.0)      (116.6)
        Net realized investment and other (gains) losses .......        (2.1)       (85.6)       (33.6)       454.7
        Change in accounting principles ........................          --        (37.0)       166.2           --
        Change in deferred policy acquisition costs ............      (314.0)       (58.4)      (418.1)      (344.5)
        Depreciation and amortization ..........................       199.5         23.7         54.1         59.9
        Net cash flows from trading securities .................      (134.5)        (6.7)      (175.4)         5.4
        Decrease (increase) in accrued investment income .......        85.7        (66.6)        29.9         (3.8)
        Decrease (increase) in premiums and accounts
          receivable ...........................................        10.1         21.1        (56.5)        36.7
        Increase (decrease) in other assets and other
        liabilities, net .......................................        66.8         32.7       (316.8)      (216.7)
        Increase in policy liabilities and accruals, net .......     1,146.0        581.4      3,045.4      2,122.7
        Increase (decrease) in income taxes ....................       340.5        132.3        (25.5)        63.8
                                                                   ---------    ---------    ---------    ---------

            Net cash provided by operating activities ..........     2,297.8        874.7      3,052.7      2,561.1

Cash flows from investing activities:
  Sales of:
     Fixed maturities available-for-sale .......................     1,914.2      2,849.2     12,101.7      5,838.0
     Equity securities available-for-sale ......................       300.3        229.8        431.3        370.2
     Real estate ...............................................         6.7         97.7        175.3        129.9
     Short-term investments and other invested assets ..........       568.0        133.4        523.2        460.1
     Home office properties ....................................          --           --        887.6           --
  Maturities, prepayments and scheduled redemptions of:
     Fixed maturities held-to-maturity .........................          --         41.2        227.5        216.6
     Fixed maturities available-for-sale .......................     3,306.3      1,593.5      3,618.9      2,901.2
     Short-term investments and other invested assets ..........        81.6        124.7        817.3        331.9
     Mortgage loans on real estate .............................     1,216.7        684.7      1,512.3      1,668.5
  Purchases of:
     Fixed maturities held-to-maturity .........................          --         (0.5)       (69.5)       (27.6)
     Fixed maturities available-for-sale .......................    (5,563.8)    (6,465.2)   (19,182.4)   (14,436.9)
     Equity securities available-for-sale ......................      (245.1)      (134.2)      (284.9)      (170.8)
     Real estate ...............................................      (117.6)        (6.9)       (40.9)       (14.1)
     Short-term investments and other invested assets ..........      (564.5)      (658.8)    (1,833.4)    (1,557.0)
  Mortgage loans on real estate issued .........................    (1,697.0)      (680.5)    (2,407.3)    (2,348.6)
  Net cash received (paid) related to acquisition/sale
     of businesses .............................................        35.0           --        (24.0)          --
  Other, net ...................................................       (31.1)       148.0       (102.3)       (75.5)
                                                                   ---------    ---------    ---------    ---------
            Net cash used in investing activities ..............      (790.3)    (2,043.9)    (3,649.6)    (6,714.1)
</TABLE>

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


                                       80
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                     Company              Predecessor Company
                                                                   -----------  --------------------------------------
                                                                   Period from  Period from
                                                                    April 29,    January 1,
                                                                       2004         2004
                                                                     through      through    Year Ended    Year Ended
                                                                   December 31,  April 28,  December 31,  December 31,
                                                                       2004         2004        2003          2002
                                                                   -----------  --------------------------------------
                                                                                      (in millions)
<S>                                                                <C>          <C>          <C>          <C>
Cash flows from financing activities:

  Acquisition of treasury stock ...............................          --     $  (33.1)    $  (11.8)    $ (385.0)
  Redemption of preferred stock ...............................    $ (125.8)          --       (101.3)       (92.2)
  Universal life and investment-type contract deposits ........     2,749.8      2,459.8      8,188.1      9,641.0
  Universal life and investment-type contract maturities and
     withdrawals ..............................................    (5,473.1)    (2,521.1)    (7,218.5)    (5,726.3)
  Issuance of preferred stock .................................          --           --           --         61.9
  Issuance of consumer notes ..................................       407.5        372.2      1,260.2        290.2
  Increase in bank deposits ...................................       108.4         93.6        293.9           --
  Issuance of short-term debt .................................        88.7           --        148.9         92.8
  Issuance of long-term debt ..................................         2.3          0.3           --         20.0
  Repayment of short-term debt ................................       (46.4)       (41.8)      (158.0)       (67.0)
  Repayment of long-term debt .................................       (11.5)        (1.2)        (5.5)       (54.9)
  Net decrease (increase) in commercial paper .................       179.8       (271.4)       131.9        249.4
                                                                   --------     --------     --------     --------

  Net cash (used in)  provided by financing activities ........    (2,120.3)        57.3      2,527.9      4,029.9
                                                                   --------     --------     --------     --------

  Net (decrease) increase in cash and cash equivalents ........      (612.8)    (1,111.9)     1,931.0       (123.1)

Cash and cash equivalents at beginning of period ..............     2,009.7      3,121.6      1,190.6      1,313.7
                                                                   --------     --------     --------     --------

Cash and cash equivalents at end of period ....................    $1,396.9     $2,009.7     $3,121.6     $1,190.6
                                                                   ========     ========     ========     ========
</TABLE>

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


                                       81
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Change of Control

      Effective April 28, 2004, Manulife Financial Corporation ("Manulife")
acquired all of the outstanding common shares of John Hancock Financial
Services, Inc. (JHFS or the Company) that were not already beneficially owned by
Manulife as general fund assets and JHFS became a wholly owned subsidiary of
Manulife (the "acquisition" or "merger"). The combined entity has a more
diversified product line and distribution capabilities and expects to have
improved operating efficiencies and a leading position across all its core
business lines. For additional information, refer to relevant John Hancock and
other related public filings with the U.S. SEC relating to the merger. In order
to more efficiently manage its corporate structure, on October 7, 2004 Manulife
transferred all of its shares in JHFS to John Hancock Holdings (Delaware) LLC -
a wholly-owned subsidiary of Manulife.

      Pursuant to the terms of the merger, the holders of JHFS common shares
received 1.1853 shares of Manulife stock for each JHFS common share.
Approximately 342 million Manulife common shares were issued at an ascribed
price of CDN $39.61 per share based on the volume weighted average closing stock
price of the common shares for the period from September 25, 2003 to September
30, 2003. In addition, all of the JHFS unvested stock options as of the date of
announcement of the merger on September 28, 2003 vested immediately prior to the
closing date and were exchanged for options exercisable for approximately 23
million Manulife common shares.

      The acquisition of the Company's shares by Manulife was effected through
the merger of the Company with Jupiter Merger Corporation (Jupiter), a
subsidiary of Manulife, which was organized solely for the purpose of effecting
the merger with the Company. Prior to the merger, Jupiter had a note payable to
MLI Resources Inc., an affiliated Manulife entity in the amount of $260.7
million in consideration for previously purchased shares of the Company, which
were cancelled upon merger.

      The merger was accounted for using the purchase method under Statement of
Financial Accounting Standards (SFAS) No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets". Under the purchase method of
accounting, the assets acquired and liabilities assumed were recorded at
estimated fair value at the date of merger and these values were "pushed down"
to the Company's financial statements in accordance with push down accounting
rules. The Company is in the process of completing the valuations of a portion
of the assets acquired and liabilities assumed; thus, the allocation of the
purchase price is subject to refinement.

      The following table summarizes the estimated fair values of the assets and
liabilities recorded as of April 28, 2004 (in millions):

      Assets:                                                       Fair Value
                                                                  --------------
                                                                   (in millions)
      Fixed maturity securities.................................     $ 54,016.1
      Equity securities.........................................        1,170.4
      Mortgage loans............................................       13,731.0
      Policy loans..............................................        2,122.2
      Other invested assets.....................................        3,659.5
      Goodwill..................................................        4,417.2
      Value of business acquired................................        3,886.0
      Intangible assets.........................................        1,488.9
      Deferred tax asset........................................          566.7
      Cash and cash equivalents.................................        2,009.4
      Reinsurance recoverable, net..............................        2,195.5
      Other assets acquired.....................................        3,569.9
      Separate account assets...................................       23,121.1
                                                                    -----------
                     Total assets acquired......................      115,953.9

      Liabilities:
      Policy liabilities........................................       75,818.2
      Other liabilities.........................................        6,597.6
      Separate accounts.........................................       23,121.1
                                                                    -----------
                    Total liabilities assumed...................      105,536.9

      Net assets acquired.......................................     $ 10,417.0
                                                                    ===========


                                       82
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Change of Control - (Continued)

      Goodwill of $4,417.2 million has been allocated to the Company's business
and geographic segments. (See Note 18-Goodwill and Other Intangible Assets). Of
the $4,417.2 million in goodwill, no material amount is expected to be
deductible for tax purposes. Value of business acquired is the present value of
estimated future profits of insurance policies in force related to businesses
acquired by Manulife, and has been allocated to the Company's business and
geographic segments. (See Note 18 - Goodwill and Other Intangible Assets).

      Aside from goodwill and value of business acquired, intangible assets of
$1,488.9 million resulting from the acquisition consists of the JHFS brand name,
distribution network, investment management contracts in the mutual funds
business and other investments management contracts in the institutional
investment advisory business. Refer to Note 18-- Goodwill and Other Intangible
Assets for a more complete discussion of these intangible assets.

Restructuring Costs

      Prior to the merger, the Company continued its Competitive Positioning
Project, which involved reducing costs and increasing future operating
efficiencies by consolidating portions of the Company's operations. The Project
consisted primarily of reducing staff in the home office and terminating certain
operations outside the home office. Following the acquisition of the Company by
Manulife on April 28, 2004, as previously discussed, Manulife developed a plan
to integrate the operations of the Company with its consolidated subsidiaries.
Manulife expects the restructuring to be substantially completed by the end of
2005. Restructuring costs of $85.1 million were recognized by the Company as
part of the purchase transaction and consist primarily of exit and consolidation
activities involving operations, certain compensation costs, and facilities. The
accruals for the restructuring costs are included in other liabilities on the
Company's Consolidated Balance Sheets and in other operating costs and expenses
on the consolidated income statements.

      The following details the amounts and status of restructuring costs (in
millions):

<TABLE>
<CAPTION>
                                                                      Amount Utilized
                     Pre-merger      Amount Utilized                   April 29, 2004
                     accrual at      January 1, 2004                      through        Accrual at
                     January 1,     through April 28,     Accrued at    December 31,    December 31,
 Type of Cost           2004              2004              merger          2004            2004
----------------------------------------------------------------------------------------------------
                                                  (in millions)
<S>                  <C>                 <C>                <C>            <C>             <C>
Personnel.........   $ 12.0              $ 3.3              $ 41.5         $ 9.6           $ 40.6
Facilities........       --                 --                43.6           7.8             35.8
--------------------------------------------------------------------------------------------------
   Total..........   $ 12.0              $ 3.3              $ 85.1         $17.4           $ 76.4
--------------------------------------------------------------------------------------------------
</TABLE>


                                       83
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies

      Business. John Hancock Financial Services, Inc. is a diversified financial
services organization that provides a broad range of insurance and investment
products and investment management and advisory services. Since April 28, 2004,
the Company operates as a subsidiary of Manulife, as a result of the merger. The
"John Hancock" name is Manulife's primary U.S. brand.

      Basis of Presentation. The accompanying financial statements as of
December 31, 2004 and for the period from April 29, 2004 to December 31, 2004
reflect the results of adjustments required under the purchase method of
accounting. The accompanying predecessor financial statements for periods prior
to the date of the merger are presented under the predecessor Company's
historical basis of accounting and do not reflect any adjustments that would be
required as a result of the merger with Manulife. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States 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. The Company's news
releases and other information are available on the internet at
www.jhancock.com. In addition, all of the Company's United States Securities and
Exchange Commission filings are available on the internet at www.sec.gov under
the name Hancock John Financial.

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

      The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned and or controlled subsidiaries. All
significant intercompany transactions and balances have been eliminated.

      Partnerships, joint venture interests and other equity investments in
which the Company does not have a controlling financial interest, but has
significant influence, are recorded using the equity method of accounting and
are included in other invested assets. Other entities in which the Company has a
less than controlling financial interest, whether variable interest entities
(VIEs) or not, are accounted for under guidance appropriate to each
relationship, whether the Company invests in their debt or equity securities,
issues funding agreements to them, manages them as investment advisor, or
performs other transactions with them or provides services to them. Please refer
to the Recent Accounting Pronouncements section below for a discussion of new
accounting guidance relative to VIEs.

      Discontinued operations. Pursuant to Manulife's rationalization of its
worldwide business operations along geographic lines, the Company's non-USA
operations were or will be transferred to Manulife's previously existing
subsidiaries in each region of the world.

      On December 29, 2004, the remaining operations, and substantially all of
the remaining assets and liabilities of the Maritime Life Assurance Company
(Maritime Life), which was formerly reported as the Company's Canada Segment,
were transferred to The Manufacturers Life Insurance Company (MLI), Manulife's
primary Canadian insurance subsidiary. Maritime Life's legal shell company
continues to be owned by the Company. Maritime Life's revenues, expenses and
resulting net income are presented in the Company's Consolidated Statements of
Income as income from discontinued operations for all periods presented.

      This transfer was recorded by the Company as a disposal of a business by
other than sale, i.e. as a transfer of a business between entities under common
control. No gain or loss was recognized in the Company's Consolidated Statements
of Income on this transfer. The excess of the proceeds over the net carrying
value of assts and liabilities transferred was accounted for as a capital
transfer to the Company from affiliates.


                                       84
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

      Proceeds to the Company of the transfer consisted primarily of $2,185.1 of
redeemable preferred stock of a subsidiary of Old Manufacturers Life, a wholly
owned subsidiary of Manulife. The subsidiary of Old Manufacturers Life then
redeemed its preferred shares by assigning a $2,081.3 million demand note
payable bearing interest at 2.97% payable annually, maturing December 29, 2005,
and a $103.9 million non-interest bearing demand note receivable, both from MLI.
On December 31, 2004, the Company drew down $85.6 million on the 2.97% demand
note. MFC then partially repaid the 2.97% demand note by issuing a $1,703.2
million demand note bearing interest at 3.01%, reducing the balance of the 2.97%
note to $293.7 million. These three notes receivable are included in other
assets on the Company's Consolidated Balance Sheets.

      Summarized financial data for these discontinued operations are presented
in the tables below:

<TABLE>
<CAPTION>
                                                         Period from     Period from
                                                          April 29        January 1
                                                           through         through      Year Ended     Year Ended
                                                         December 31,     April 28,    December 31,    December 31,
Income Statement Data                                        2004           2004          2003            2002
                                                         ---------------------------------------------------------
                                                                               (in millions)
<S>                                                       <C>             <C>          <C>             <C>
Revenue ...............................................   $1,522.0        $  738.5     $1,757.4        $1,209.5

Income before income taxes and cumulative effect
   of accounting change ...............................      123.9            43.9        193.5           104.5
Income taxes ..........................................      (36.7)          (12.7)       (60.0)          (46.1)
                                                          -----------------------------------------------------

Income before cumulative effect of accounting change ..       87.2            31.2        133.5            58.4
Cumulative effect of accounting change ................         --            41.3           --              --
                                                          -----------------------------------------------------

Net income from discontinued operations ...............   $   87.2        $   72.5     $  133.5        $   58.4
                                                          =====================================================
</TABLE>

Net assets transferred                                December 29,  December 31,
                                                          2004         2003
                                                     --------------------------
                                                            (in millions)
Net assets..........................................   $1,994.3      $1,002.6

      Recent Acquisition/Disposal Activity. The acquisitions described under the
table below 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 each date of acquisition. Each purchase
price was allocated to the assets acquired and the liabilities assumed based on
estimated fair values, with the excess, if any, of the applicable purchase price
over the estimated fair values of the acquired assets and liabilities recorded
as goodwill. These acquisitions were made by the Company in execution of its
plan to acquire businesses and products that have strategic value, meet its
earnings requirements and advance the growth of its current business.

      The disposals described under the table below were conducted in order to
execute the Company's strategy to focus resources on businesses in which it can
have a leadership position. The table below presents actual and proforma data
for comparative purposes for the periods indicated to demonstrate the proforma
effect of the acquisitions and disposals as if they occurred on January 1, 2002.

<TABLE>
<CAPTION>
                       Period from   Period from
                        April 29,     April 29,   Period from   Period from
                         through       through     January 1     January 1
                      December 31,  December 31,  through April through April
                          2004          2004        28, 2004      28, 2004       2003         2003        2002         2002
                        Proforma                    Proforma                   Proforma                 Proforma
                       (unaudited)                 (unaudited)                (unaudited)              (unaudited)
                     ---------------------------------------------------------------------------------------------------------
                                                                    (in millions)

<S>                     <C>           <C>          <C>           <C>           <C>         <C>          <C>          <C>
Revenue.............    $ 4,947.0     $ 5,009.5    $ 2,764.5     $ 2,817.0     $ 8,153.6   $ 8,313.9    $ 7,182.7    $ 7,268.6

Net Income..........    $   470.1     $   467.9    $   337.5     $   337.1     $   799.3   $   806.0    $   501.0    $   499.5
</TABLE>


                                       85
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

       Acquisitions:

       On July 8, 2003, the Maritime Life Insurance Company (Maritime Life),
formerly a majority owned Canadian subsidiary of the Company, completed its
purchase of the insurance business of Liberty Health, a Canadian division of
U.S.-based Liberty Mutual Insurance Company, through a reinsurance agreement for
approximately $97.5 million. Through the agreement, Maritime Life assumed the
entire business of Liberty Health, including its group life, group disability
and group health divisions, as well as its individual health insurance business.
There was no impact on the Company's results of operations from the acquired
insurance business during 2002 or the first six months of 2003.

      On December 31, 2002, the Company acquired the fixed universal life
insurance business of Allmerica Financial Corporation (Allmerica) through a
reinsurance agreement for approximately $104.3 million. There was no impact on
the Company's results of operations from the acquired insurance business during
2002.

      Disposals:

      On September 30, 2004, the Company's Singapore subsidiary, the John
Hancock Life Assurance Limited in Singapore (JHLAC) was transferred from the
Company to Manulife (Singapore) Private Limited, a wholly owned subsidiary of
Manulife, as part of Manulife's rationalization of its worldwide operations
along geographic lines. No gain or loss was recorded on this transfer of a
business between entities under common control.

      On June 19, 2003, the Company agreed to sell its group life insurance
business through a reinsurance agreement with Metropolitan Life Insurance
Company, Inc (MetLife). The Company is ceding all activity after May 1, 2003 to
MetLife. The transaction was recorded as of May 1, 2003, and closed November 4,
2003.

      Investments. At December 31, 2004, the Company classifies its debt
securities into one category: available-for-sale. 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 mandatorily
redeemable preferred stock and are classified as available-for-sale. Fixed
maturity investments classified as available-for-sale and are carried at fair
value. Unrealized gains and losses related to available-for-sale securities are
reflected in shareholder's equity, net of related amortization of deferred
policy acquisition costs, amounts credited to participating pension
contractholders, amounts credited to the policyholder dividend obligation, and
applicable taxes. Interest income is generally recognized on the accrual basis.
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, and such adjustments
are reported as a component of net realized investment and other gains (losses).
Gains and losses, both realized and unrealized, on fixed maturity securities
which were classified as trading are included in discontinued operations as part
of investment returns related to equity indexed universal life insurance
policies sold at Maritime Life.

      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 plus
anticipated future payments, and any resulting adjustment is included in net
investment income.


                                       86
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

      Equity securities include common stock and non-mandatorily redeemable
preferred stock. Equity securities that have readily determinable fair values
are carried at fair value. For equity securities that the Company classifies as
available-for-sale, unrealized gains and losses are reflected in shareholder's
equity, as described above for fixed maturity securities. Impairments in value
deemed to be other than temporary are reported as a component of net realized
investment and other gains (losses). Gains and losses, both realized and
unrealized, on equity securities which were classified as trading, are part of
investment returns related to equity indexed universal life insurance policies
sold at Maritime Life and are included in discontinued operations.

      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 is based on the collateral value of the
loan if the loan is collateral dependent. The Company estimates this level to be
adequate to absorb estimated probable credit losses that exist at the balance
sheet date. Any change to the valuation allowance for mortgage loans on real
estate is reported as a component of net realized investment and other 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 based on the collateral value.
Foreclosed real estate is 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 net realized investment and other 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 net realized investment and
other gains (losses). The Company does not depreciate real estate to be
disposed. The carrying value of real estate to be disposed of was $27.0 and
$28.5 million at December 31, 2004 and 2003, respectively and is reported in
real estate in the investment section of the Company's Consolidated Balance
Sheet. On March 14, 2003, the Company sold three of its Home Office properties
to Beacon Capital Partners for $910.0 million. See Note 9 - Sale/Leaseback
Transaction and Other Lease Obligations.

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

      Short-term investments are carried at amortized cost, which approximates
fair value.

      Net realized investment and other gains (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, amounts credited to
participating pension contractholder accounts, and amounts credited to the
policyholder dividend obligation.

      Derivative Financial Instruments. The Company uses various derivative
instruments to hedge and manage its exposure to changes in interest rate levels,
foreign exchange rates and equity market prices, and also to manage the duration
of assets and liabilities. All derivative instruments are carried on the
Company's Consolidated Balance Sheet at fair value.

      In certain cases, the Company uses hedge accounting as allowed by the
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, by designating derivative instruments as either fair
value hedges or cash flow hedges. For derivative instruments that are designated
and qualify as fair value hedges, any changes in fair value of the derivative
instruments as well as the offsetting changes in fair value of the hedged items
are recorded in net realized investment and other gains (losses). For fair value
hedges, when the derivative has been terminated, a final fair value change is
recorded in net realized investment and other gains (losses), as well as the
offsetting changes in fair value for the hedged item. At maturity, expiration or
sale of the hedged item, a final fair value change for the hedged item is
recorded in net realized investment and


                                       87
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

other gains (losses), as well as offsetting changes in fair value for the
derivative. Basis adjustments are amortized into income through net realized
investment and other gains (losses).

      For derivative instruments that are designated and qualify as cash flow
hedges, the effective portion of the change in fair value of the derivative
instrument is recorded in other comprehensive income, and then reclassified into
income when the hedged item affects income. When a cash flow hedge is
terminated, the effective portion of the accumulated derivative gain or loss
continues to be reported in other comprehensive income and then is reclassified
into income when the hedged item affects income. If it is determined that the
forecasted transaction is not probable of occurring, the accumulated other
comprehensive income is immediately recognized in earnings.

      Hedge effectiveness is assessed quarterly using a variety of techniques
including regression analysis and cumulative dollar offset. When it is
determined that a derivative is not effective as a hedge, the Company
discontinues hedge accounting. In certain cases, there is no hedge
ineffectiveness because the derivative instrument was constructed such that all
the terms of the derivative exactly match the hedged risk in the hedged item.

      In cases where the Company receives or pays a premium as consideration for
entering into a derivative instrument (i.e., interest rate caps and floors,
swaptions, and equity collars), the premium is amortized into investment income
over the term of the derivative instrument. The change in fair value of such
premiums (i.e., the inherent ineffectiveness of the derivative) is excluded from
the assessment of hedge effectiveness and is included in net realized investment
and other gains (losses). Changes in fair value of derivatives that are not
hedges are included in net realized investment and other gains (losses).

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

      Deferred Policy Acquisition Costs. Deferred policy acquisition costs (DAC)
are costs that vary with, and are related primarily to, the production of new
insurance business and have been deferred to the extent that they are deemed
recoverable. Such costs include sales commissions, certain costs of policy
issuance and underwriting, and certain agency expenses. The Company tests the
recoverability of its DAC quarterly with a model that uses data such as market
performance, lapse rates and expense levels. As of December 31, 2004, the
Company's DAC asset was deemed recoverable. Similarly, any amounts assessed as
initiation fees, or front-end loads, are recorded as unearned revenue. For
non-participating term life and long-term care insurance products, such costs
are amortized over the premium-paying period of the related policies using
assumptions consistent with those used in computing policy benefit reserves. For
participating traditional life insurance policies, such costs are amortized over
the life of the policies at a constant rate based on the present value of the
estimated gross margin amounts expected to be realized over the lives of the
policies. 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 policies and investment-type products, such costs and unearned
revenues are being amortized generally in proportion to the change in present
value of expected gross profits arising principally from surrender charges,
investment results and mortality and expense margins.

      In the development of expected gross profits, the Company is required to
estimate the growth in the policyholder account balances upon which certain
asset based fees are charged. In doing so, the Company assumes that, over the
long term, account balances will grow from investment performance. The rate of
growth takes into account the current fixed income/equity mix of account
balances as well as historical fixed income and equity investment returns. The
Company also assumes that historical variances from the long-term rate of
investment return will reverse over the next fifteen year period. The resulting
rates for the next fifteen years are reviewed for reasonableness, and they are
raised or lowered if they produce an annual growth rate that the Company
believes to be unreasonable.

      When DAC and unearned revenue are amortized in proportion to estimated
gross profits, the effects on the amortization of DAC and unearned revenues of
revisions to estimated gross margins and profits are reflected in earnings in
the period such revisions are made. Expected gross profits or expected gross
margins are discounted at periodically revised interest rates and are applied to
the remaining benefit period. At December 31, 2004, the average discount rate
was 5.0% for universal life insurance products. The total amortization period
was 30 years for both participating traditional life insurance products and
universal life products.

      As of September 30, 2002, the Company changed future assumptions with
respect to the expected gross profits in its variable life and variable annuity
businesses. First, the long-term growth rate assumption was lowered from 9%, to
8%, gross


                                       88
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

of fees. Second, the average growth rates were lowered for the next five years
from the mid-teens to 13%. Finally, the Company increased certain fee rates on
these policies (the variable series trust (VST) fees were increased). Total
amortization of DAC, including the acceleration of amortization of DAC from the
assumption changes mentioned above, was $170.1 million and $139.8 million for
the periods from April 29, 2004 through December 31, 2004 and from January 1,
2004 through April 28, 2004, respectively, and was $334.9 million and $ 334.0
million for the years ended December 31, 2003, and 2002, respectively.

      Amortization of DAC is allocated to: (1) net realized investment and other
gains (losses) for those products in which such gains (losses) have a direct
impact on the amortization of DAC; (2) unrealized investment gains and losses,
net of tax, to provide for the effect on the DAC 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.

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

      Reinsurance. The Company utilizes reinsurance agreements to provide for
greater diversification of business, allowing 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. The
Company remains liable to its policyholders to the extent that counterparties to
reinsurance ceded contracts do not meet their contractual obligations. Refer to
Note 12-Reinsurance for additional disclosures regarding this topic.

      Goodwill and Other Intangible Assets. In the merger with Manulife, the
Company de-recognized its intangible assets including goodwill, value of
business acquired (VOBA) and management contracts. Also, in the merger, the
Company recognized new non-amortizable intangible assets including goodwill,
brand name and investment management contracts, and recognized new amortizable
intangible assets including VOBA, distribution networks and other investment
management contracts. The Company accounts for all of these intangible assets in
accordance with Statement of Financial Standards No. 142 -- Goodwill and Other
Intangible Assets, including initial valuation, amortization or
non-amortization, and impairment testing for these intangible assets. Refer to
Note 18 -- Goodwill and Other Intangible Assets for a detailed discussion and
presentation of each of these new intangible assets.


                                       89
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

      Separate Accounts. Separate account assets and liabilities reported in the
Company's Consolidated Balance Sheets represent funds that are administered and
invested by the Company to meet specific investment objectives of the
contractholders. Net investment income and net realized investment and other
gains (losses) generally accrue directly to such contractholders who bear the
investment risk, subject, in some cases, to principal guarantees and minimum
guaranteed rates of income. The assets of each separate 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 net realized investment and other gains (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.

      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
5.5%. 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 policies.

      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 9.5% for life insurance
liabilities, from 4.2% to 6.5% for individual annuity liabilities and from 1.7%
to 11.3% for group annuity liabilities.

      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 5.0% to 6.6%.

      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.

      Policyholders' funds for universal life and investment-type products,
including guaranteed investment contracts and funding agreements, are equal to
the total of the policyholder account values before surrender charges,
additional reserves established to adjust for lower market interest rates as of
the merger date, and additional reserves established on certain guarantees
offered in certain variable annuity products. Policyholder account values
include deposits plus credited interest or change in investment value less
expense and mortality fees, as applicable, and withdrawals. Policy benefits that
are charged to expense and 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
8.0% for universal life insurance products and from 1.7% to 11.3% for investment
type products. Policy benefits charged to expense also include the change in the
additional reserve for fair value adjustments as of the merger date and certain
guarantees offered in certain investment type products.


                                       90
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

      Major components of policyholders' funds in the Company's Consolidated
Balance Sheets are summarized in the table below:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                                2004         2003
                                                              ---------------------
                                                                   (in millions)
<S>                                                           <C>         <C>
Liabilities for policyholders' funds
   Guaranteed investment contracts ........................   $ 3,691.0   $ 4,770.2
   U.S. funding agreements ................................       138.0       144.3
   Global funding agreements and Canadian institutional
      annuities backing medium-term notes .................    11,209.4    12,679.8
   Other investment-type contracts ........................     2,866.1     2,641.0
                                                              ---------   ---------
         Total liabilities for investment-type contracts ..    17,904.5    20,235.3
Liabilities for individual annuities ......................        80.0        60.5
Universal life and other reserves .........................     2,206.7     2,432.3
                                                              ---------   ---------
Total liabilities for policyholders' funds ................   $20,191.2   $22,728.1
                                                              =========   =========
</TABLE>

      Global Funding Agreements and Canadian Institutional Annuities. The
Company's domestic insurance subsidiary, the John Hancock Life Insurance Company
(the Life Company) has two distribution programs for global funding agreements
that back medium-term notes sold worldwide. The Company also had, before
December 29, 2004, another distribution program for Canadian institutional
annuities that back medium-term notes sold in Canada. This program was operated
through the Company's Canadian insurance subsidiary, The Maritime Life Assurance
Company (Maritime Life). This third program was transferred along with all of
the assets, liabilities and operations of Maritime Life, to The Manufacturers
Life Insurance Company (MLI), a Manulife Canadian subsidiary, on December 29,
2004. See Discontinued Operations above for more discussion of this transfer.

      Under these programs, global funding agreements (and, before the transfer
of Maritime to MLI, annuities) are purchased from the Company by special purpose
entities (SPEs) that fund their purchases with the proceeds from their issuance
of medium-term notes to investors. These SPEs pledge the global funding
agreements and annuities as security for the repayment of their medium-term
notes, but the notes are non-recourse to the Company and its subsidiaries. Under
these distribution programs, as of December 31, 2004 and 2003, the Company had
$11.3 billion and $12.9 billion, respectively, of global funding agreements and
annuities outstanding.

      These global funding agreements and annuities are investment products that
pay a stated rate of interest on the principal amount and repay the principal at
maturity. The global funding agreements may not be terminated or surrendered
prior to maturity. Claims for principal and interest under the global funding
agreements (which are issued by the Life Company) are afforded equal priority to
claims of life insurance and annuity policyholders under the insolvency
provisions of the Massachusetts Insurance Laws. Claims under the institutional
annuities (which were issued by Maritime Life) are afforded equal priority to
the claims of policyholders under the provisions of Canada's Winding-Up and
Restructuring Act. If a medium-term note sold world-wide under the first two
programs is denominated in a currency different from the currency of the related
global funding agreement or annuity, the Company's U.S. insurance subsidiary
also enters into a currency swap with the SPE, and a third party, to match
currencies. Similarly, the Company's U.S. insurance subsidiary may enter into an
interest rate swap with the SPE to match the interest rate characteristics of
the global funding agreement to those of the related medium-term note. All
medium-term notes issued under third program in Canada were denominated in
Canadian dollars, as were the institutional annuities. Maritime entered into
currency swaps with third parties to hedge currency risk of the annuity
payments.

      Under the first program, established in May 1998 for $2.5 billion, and
expanded to $7.5 billion in 1999, an SPE issued medium-term notes in Europe,
Asia and Australia. As of December 31, 2004 and 2003, there was $2.8 billion and
$3.8 billion, respectively, outstanding under this program. This SPE is not
consolidated in the Company's financial statements. The medium-term notes issued
by this SPE are included in policyholder funds in the Company's Consolidated
Balance Sheets.


                                       91
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

      Under the second program, established in June 2000, for $5.0 billion,
expanded in stages to $12.5 billion by June 2003, an SPE issued medium-term
notes in Europe, Asia, and to institutional investors in the United States. As
of December 31, 2004 and 2003, there was $8.5 billion and $8.7 billion,
respectively, outstanding under this program. This SPE is not consolidated in
the Company's Consolidated Financial Statements.

      Under the third program, established in December 2001, for $1.0 billion
(Cdn $1.5 billion), an SPE issued medium-term notes to investors in Canada. As
of December 31, 2003, there was $0.4 billion (Cdn $0.5 billion) outstanding
under this program. This SPE was not consolidated in the Company's Consolidated
Financial Statements before its transfer to MLI.

      At December 31, 2004, the annual contractual maturities of global funding
agreements backing medium term notes issued under these programs were as
follows: 2005--$2,547.0 million; 2006--$2,884.5 million; 2007--$861.6 million;
2008-- $1,488.2 million, 2009 -- $1,753.9 and thereafter--$1,741.0 million.

      Participating Insurance. Participating business represents approximately
100.0%, 80.9% and 81.6%, of the Company's traditional life insurance in force,
100.0%, 96.2% and 96.3%, of the number of traditional life insurance policies in
force, and 100.0%, 94.3% and 92.5%, of traditional life insurance premiums in
2004, 2003 and 2002, respectively.

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

      The amount of policyholders' dividends to be paid is approved annually by
the Life Company's Board of Directors and separately for Maritime Life products
by the Maritime Life Board of Directors.

      The determination of the amount of policyholders' 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 is based on management's 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.

      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 insurance 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.

      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.


                                       92
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

      Stock-Based Compensation. For stock option grants made to employees prior
to January 1, 2003, the Company applied the recognition and measurement
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," which resulted in no compensation expense recognized
for these stock option grants to employees. Prior to January 1, 2003 the Company
recognized compensation expense at the time of the grant or over the vesting
period for grants of non-vested stock to employees and non-employee board
members and grants of stock options to non-employee general agents and has
continued this practice. All options granted under those plans had an exercise
price equal to the market value of the Company's common stock on the date of
grant. Effective January 1, 2003, the Company adopted the fair value provisions
of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," the effect of which is to record compensation expense
for grants made subsequent to this date. The following table illustrates the pro
forma effect on net income as if the Company had applied the fair value
recognition provisions of SFAS No. 123 to all stock-based employee compensation.

      In the merger all of the JHFS unvested stock options as of the date of
announcement of the merger on September 28, 2003, vested immediately prior to
the closing date and were exchanged for options exercisable for approximately 23
million Manulife common shares. In addition, substantially all outstanding
grants of restricted stock as of the date of the announcement of the merger on
September 28, 2003, vested immediately prior to the closing date. The Company
granted approximately 29,000 shares of Manulife restricted stock subsequent to
the merger. Subsequent to the merger the Company continues to incur compensation
expense related to stock compensation issued by Manulife.

<TABLE>
<CAPTION>
                                                                 Period from April    Period from
                                                                 29, 2004 through   January 1, 2004    Year Ended        Year Ended
                                                                   December 31,      through April     December 31,    December 31,
                                                                       2004             28, 2004          2003             2002
                                                                 ------------------------------------------------------------------
                                                                                        (in millions)

<S>                                                                    <C>               <C>              <C>             <C>
Net income, as reported.........................................       $467.9            $337.1           $806.0          $499.5
Add: Stock-based employee compensation expense included in
   reported net income, net of related tax effects..............          4.6               5.4             14.4             3.5
Deduct: Total stock-based employee compensation expense
   determined under fair value method for all awards, net of
   related tax effects (unaudited)..............................          4.6               8.0             42.3            60.2
                                                                 ----------------------------------------------------------------
Pro forma net income (unaudited)................................       $467.9            $334.5           $778.1          $442.8
                                                                 ================================================================
</TABLE>

      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. Refer to Note 6 - Income Taxes for additional disclosures on
this topic.

      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 shareholder's equity. Gains or losses on foreign currency
transactions are reflected in earnings.


                                       93
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

Cumulative Effect of Accounting Changes

Statement of Position 03-1 - Accounting and Reporting by Insurance Enterprises
for Certain Nontraditional Long Duration Contracts and for Separate Accounts

      The Company adopted SOP 03-1 on January 1, 2004, which resulted in an
increase in shareholder's equity of $40.4 million (net of tax of $21.2 million).
The Company recorded a decrease in net income of $4.3 million (net of tax
benefit of $1.8 million) which is presented as the cumulative effect of an
accounting change, and an increase in other comprehensive income of $3.5 million
(net of tax of $1.9 million) on January 1, 2004. An additional increase of $41.3
million of net income, net of tax of $(21.1) million is recorded in discontinued
operations. Finally, in conjunction with the adoption of SOP 03-1 the Company
reclassified $933.8 million in separate account assets and liabilities to the
corresponding general account balance sheet accounts. See Recent Accounting
Pronouncements below for further discussion.

FASB Derivatives Implementation Group Issue No. B36--Embedded Derivatives:
Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit
Risk Exposures That Are Unrelated or Only Partially Related to the
Creditworthiness of the Obligor under Those Instruments (DIG B36)

      The Company adopted DIG B36 on October 1, 2003, which resulted in a
decrease in shareholder's equity of $66.3 million (net of tax of $35.7 million).
The Company recorded a reduction in net income of $166.2 million (net of tax of
$89.5 million) partially offset by an increase in other comprehensive income of
$99.9 million (net of tax of $53.8 million) which were recorded as the
cumulative effects of an accounting change, on October 1, 2003. For additional
discussion of DIG B-36, refer to the Recent Accounting Pronouncements section
below.

Recent Accounting Pronouncements

SFAS No. 123 (revised 2004) - Share Based Payment

      In December, 2004, the Financial Accounting Standards Board (the FASB)
issued SFAS No. 123 (revised 2004), "Share Based Payment" (SFAS 123R), which is
a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No.
123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and amends SFAS No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123(R) is similar to the approach described in Statement
123. However, Statement 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.

      The Company adopted the fair-value-based method of accounting for
share-based payments effective January 1, 2003 using the prospective method
described in Statement of Financial Accounting Standards (SFAS) No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure. The Company
uses the Black-Scholes-Merton option pricing model to estimate the value of
stock options granted to employees and expects to continue to use this model
upon our anticipated adoption of SFAS No. 123(R), on July 1, 2005.

      Because SFAS No. 123(R) must be applied not only to new awards but to
previously granted awards that are not fully vested on the effective date, and
because the Company adopted SFAS No. 123 using the prospective transition method
(which applied only to awards granted, modified or settled after the adoption
date), compensation cost for some previously granted awards that were not
recognized under SFAS No 123 will be recognized under Statement No. 123(R).
However, had we adopted SFAS No.123(R) in prior periods, the impact of that
standard would have approximated the impact of SFAS No. 123 as described above
in the disclosure of pro forma net income and earnings per share in Note 2 -
Significant Accounting Policies to our consolidated financial statements.


                                       94
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

         SFAS No. 123(R) also requires the benefits of tax deductions in excess
of recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot estimate what those
amounts will be in the future (because they depend upon, among other things,
when employees exercise stock options), the amount of operating cash flows
recognized for such excess tax deductions were $- million, $4.3 million, and
$5.0 million in 2004, 2003 and 2002, respectively.

FASB Staff Position 106-2 - Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003

      In May, 2004, the FASB issued FASB Staff Position 106-2 - "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug Improvement
and Modernization Act of 2003" (FSP 106-2). In accordance with FSP 106-2, the
Company recorded a $40.9 million reduction in the accumulated plan benefit
obligation as of the purchase accounting re-measurement date (April 28, 2004)
and a $1.6 million decrease in net periodic postretirement benefit costs for the
period April 29, 2004 through December 31, 2004.

      On December 8, 2003, President Bush signed into law a bill that expands
Medicare, primarily by adding a prescription drug benefit for Medicare-eligible
retirees starting in 2006. The Medicare Prescription Drug Improvement and
Modernization Act of 2003 provides for special tax-free subsidies to employers
that offer plans with qualifying drug coverages beginning in 2006. There are two
broad groups of retirees receiving employer-subsidized prescription drug
benefits from John Hancock. The first group, those who retired prior to January
1, 1992, receive a subsidy of between 90% and 100% of total cost. Since this
subsidy level will clearly meet Medicare's criteria for a qualifying drug
coverage, the Company anticipates that the benefits it pays after 2005 for
pre-1992 retirees will be lower as a result of the new Medicare provisions. In
accordance with FASB Staff Position FAS 106-2, the Company reflected a reduction
in liability for this group of $40.9 million as of the purchase accounting
remeasurement (April 28, 2004). With respect to the second group, those who
retired on or after January 1, 1992, the employer subsidy on prescription drug
benefits is capped and currently provides as low as 25% of total cost. Since
final regulations on determining whether a benefit meets the actuarial criteria
for qualifying drug coverage have not been issued by Medicare as of December 31,
2004, the Company will address the impact of the Act with respect to post-1991
retirees once these clarifying regulations have been issued.

FASB Interpretation No. 46 (revised December 2003) - Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51

      In December, 2003, the FASB re-issued Interpretation 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51," (FIN 46R) which
clarifies the consolidation accounting guidance of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," (ARB No. 51) to certain entities
for which controlling financial interests are not measurable by reference to
ownership of the equity of the entity. Such entities are known as variable
interest entities (VIEs).

      Controlling financial interests of a VIE are defined as exposure of a
party to the VIE to a majority of either the expected variable losses or
expected variable returns of the VIE, or both. Such party is the primary
beneficiary of the VIE and FIN 46R requires that the primary beneficiary of a
VIE consolidate the VIE. FIN 46R also requires certain disclosures for
significant relationships with VIEs, whether or not consolidation accounting is
either used or anticipated. The consolidation requirements of FIN 46R were
applied at December 31, 2003 for entities considered to be special purpose
entities (SPEs), and applied at March 31, 2004 for non-SPE entities.

      The Company categorized its FIN 46R consolidation candidates into three
categories- 1) collateralized debt obligation funds it manages (CDO funds or
CDOs), which are SPEs, 2) low-income housing properties (the Properties) which
are not SPEs, and 3) assorted other entities (Other Entities) which are not
SPEs. The Company has determined that it should not consolidate any of the CDO
funds, Properties or Other Entities, therefore the adoption of FIN 46R had no
impact on the Company's consolidated financial position, results of operations
or cash flows.


                                       95
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

      Additional liabilities recognized as a result of consolidating any VIEs
with which the Company is involved would not represent additional claims on the
general assets of the Company; rather, they would represent claims against
additional assets recognized by the Company as a result of consolidating the
VIEs. Conversely, additional assets recognized as a result of consolidating VIEs
would not represent additional assets which the Company could use to satisfy
claims against its general assets, rather they would be used only to settle
additional liabilities recognized as a result of consolidating the VIEs.

      Refer to Note 4--Relationships with Variable Interest Entities for a more
complete discussion of the Company's significant relationships with VIEs, their
assets and liabilities, and the Company's maximum exposure to loss as a result
of its involvement with them.

Statement of Position 03-1 - Accounting and Reporting by Insurance Enterprises
for Certain Nontraditional Long Duration Contracts and for Separate Accounts

      On July 7, 2003, the Accounting Standards Executive Committee (AcSEC) of
the American Institute of Certified Public Accountants (AICPA) issued Statement
of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long Duration Contracts and for Separate Accounts" (SOP 03-1).
SOP 03-1 provides guidance on a number of topics unique to insurance
enterprises, including separate account presentation, interest in separate
accounts, gains and losses on the transfer of assets from the general account to
a separate account, liability valuation, returns based on a contractually
referenced pool of assets or index, accounting for contracts that contain death
or other insurance benefit features, accounting for reinsurance and other
similar contracts, accounting for annuitization benefits, and sales inducements
to contractholders. Refer to Note 12- Certain Separate Accounts for additional
disclosures required by SOP 03-1. Refer to Cumulative Effect of Account Changes
above for presentation of impact of adoption.

SFAS No. 150 - Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity

      In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity" (SFAS
No. 150). SFAS No. 150 changes the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. It requires
that certain financial instruments be classified as liabilities on issuer
balance sheets, including those instruments that are issued in shares and are
mandatorily redeemable, those instruments that are not issued in shares but give
the issuer an obligation to repurchase previously issued equity shares, and
certain financial instruments that give the issuer the option of settling an
obligation by issuing more equity shares. The adoption of SFAS No. 150 had no
impact on the Company's consolidated financial position, results of operations
or cash flows.

SFAS No. 149 - Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities

      In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging
Activities" (SFAS No. 149). SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). In particular,
SFAS No. 149 clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative, clarifies when a derivative
contains a financing component, amends the definition of an underlying to
conform it to language used in FASB Interpretation No. 45--"Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" and amends certain other existing
pronouncements. SFAS No. 149 was effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. The adoption of SFAS No. 149 had no impact on the Company's
consolidated financial position, results of operations or cash flows.


                                       96
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

FASB Derivatives Implementation Group Issue No. B36--Embedded Derivatives:
Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit
Risk Exposures That Are Unrelated or Only Partially Related to the
Creditworthiness of the Obligor under Those Instruments

      In April 2003, the FASB's Derivatives Implementation Group (DIG) released
SFAS No. 133 Implementation Issue No. B36, "Embedded Derivatives: Modified
Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk
Exposures That Are Unrelated or Only Partially Related to the Creditworthiness
of the Obligor under Those Instruments" (DIG B36). DIG B36 addresses whether
SFAS No. 133 requires bifurcation of a debt instrument into a debt host contract
and an embedded derivative if the debt instrument incorporates both interest
rate risk and credit risk exposures that are unrelated or only partially related
to the creditworthiness of the issuer of that instrument. Under DIG B36,
modified coinsurance and coinsurance with funds withheld reinsurance agreements
as well as other types of receivables and payables where interest and/or other
investment results are determined by reference to a specific pool of assets or a
total return debt index are examples of arrangements containing embedded
derivatives requiring bifurcation under SFAS No. 133. Under SFAS No. 133,
bifurcation requires that the embedded derivative be held at fair value and that
changes in fair value be charged or credited to income. The effective date of
DIG B36 was October 1, 2003.

      On October 1, 2003, the Company adopted DIG B36 and determined that
certain of its reinsurance contracts and participating pension contracts contain
embedded derivatives. In accordance with DIG B36, the Company bifurcated each of
the contracts into its debt host and embedded derivative (total return swap) and
recorded the embedded derivative at fair value on the balance sheet with changes
in fair value recorded in income. In the case of the Company, DIG B36 results in
the establishment of derivative liabilities based on the fair value of all the
underlying assets of the respective contracts, including both the assets
recorded at amortized cost and the assets recorded at fair value on the balance
sheet. With respect to the underlying assets held at amortized cost, current
guidance does not permit adjustments to record the fair value of all of these
assets. However, the Company's implementation of DIG B36 required embedded
derivatives based on the fair value of those assets to be recorded in income.
The Company recorded derivative liabilities aggregating $255.7 million based on
the fair value of the assets underlying these contracts. Of this total
liability, $95.1 million related to assets held at amortized cost without any
adjustment recorded to recognize the change in the fair value of the asset.
Prior to the adoption of DIG B36, the Company had established, through other
comprehensive income, a reserve for its participating pension contracts to
recognize the impact on contractholder liabilities of the realization of
unrealized gains on assets backing those contracts. With the adoption of DIG
B36, this reserve is no longer required and is replaced by the recognition of
the fair value of the embedded derivative in income. The adoption of DIG B36
resulted in a decrease in shareholder's equity of $66.3 million (net of tax of
$35.7 million). The Company recorded a reduction in net income of $166.2 million
(net of tax of $89.5 million) partially offset by an increase in other
comprehensive income of $99.9 million (net of tax of $53.8 million) which were
recorded as the cumulative effects of an accounting change.

FASB Interpretation No. 45--Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others

      In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain types of
guarantees to be recorded by the guarantor as liabilities, at fair value. This
differs from previous practice, which generally required recognition of a
liability only when a potential loss was deemed to be probable and was
reasonably estimable in amount. FIN 45 does not apply to guarantees that are
accounted for under existing insurance accounting principles. FIN 45 requires
more extensive disclosures of certain other types of guarantees, including
certain categories of guarantees which are already accounted for under
specialized accounting principles, such as SFAS No. 133, even when the
likelihood of making any payments under the guarantee is remote.

      FIN 45's disclosure requirements are effective for financial statements of
interim or annual periods ending after December 31, 2002. Refer to Note
12--Commitments, Guarantees and Contingencies. Initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of FIN 45 had no impact
on the Company's consolidated financial position, results of operations or cash
flows.


                                       97
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Summary of Significant Accounting Policies - (continued)

SFAS No. 146--Accounting for Costs Associated with Exit or Disposal Activities

      In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires recognition
of a liability for exit or disposal costs, including restructuring costs, when
the liability is incurred rather than at the date of an entity's commitment to a
formal plan of action. SFAS No. 146 applies to one-time termination benefits
provided to current employees that are involuntarily terminated under the terms
of a one-time benefit arrangement. An ongoing benefit arrangement is presumed to
exist if a company has a past practice of providing similar benefits. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption of SFAS No. 146 had no impact on the Company's
consolidated financial position, results of operations or cash flows.

SFAS No. 142--Goodwill and Other Intangible Assets

      In January 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires that goodwill and other intangible
assets deemed to have indefinite lives no longer be amortized against earnings,
but instead be reviewed at least annually for impairment. Intangible assets with
definite lives will continue to be amortized over their useful lives. The
Company has performed the required initial impairment tests of goodwill and
management contracts as of September 30, 2003, based on the guidance in SFAS No.
142. The Company evaluated the goodwill and indefinite lived management
contracts of each reporting unit for impairment using valuations of reporting
units based on earnings and book value multiples and by reference to similar
multiples of publicly traded peers. No goodwill or management contract
impairments resulted from these required impairment tests.

      No impairment test was performed in 2004, because the Company's goodwill
was replaced with new goodwill as a result of the merger with Manulife on April
28, 2004. The Company's post-merger goodwill will be initially tested for
impairment in the second quarter of 2005.


                                       98
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Investments

      The following information summarizes the components of net investment
income and net realized investment and other gains (losses) (in millions):

<TABLE>
<CAPTION>
                                                                           Period from
                                                                             April 29      Period from
                                                                             through        January 1      Year Ended    Year Ended
                                                                           December 31,   through April   December 31,  December 31,
                                                                               2004         28, 2004          2003          2002
                                                                          ----------------------------------------------------------
<S>                                                                          <C>             <C>           <C>           <C>
Net investment income
   Fixed maturities ....................................................     $1,809.3        $1,083.0      $3,252.3      $3,042.4
   Equity securities ...................................................         10.8             1.8          22.2          11.5
   Mortgage loans on real estate .......................................        398.7           257.4         773.1         776.1
   Real estate .........................................................         21.5             5.5          57.9          72.3
   Policy loans ........................................................         78.6            38.9         124.0         120.7
   Short-term investments ..............................................         15.9             2.0          (1.6)          5.5
   Other ...............................................................        (67.3)          (25.6)       (189.1)       (174.1)
                                                                          -------------------------------------------------------
   Gross investment income .............................................      2,267.5         1,363.0       4,038.8       3,854.4

   Less investment expenses ............................................        105.5            51.8         189.5         226.1
                                                                          -------------------------------------------------------
         Net investment income .........................................     $2,162.0        $1,311.2      $3,849.3      $3,628.3
                                                                          =======================================================

<CAPTION>
                                                                           Period from
                                                                             April 29      Period from
                                                                             through        January 1      Year Ended    Year Ended
                                                                           December 31,   through April   December 31,  December 31,
                                                                               2004         28, 2004          2003          2002
                                                                          ----------------------------------------------------------
<S>                                                                          <C>             <C>           <C>           <C>
Net realized investment and other gains (losses), net of related
   amortization of deferred policy acquisition costs and value of
   the business acquired, amounts credited to the policyholder
   dividend obligation and amounts credited to participating pension
   contractholders
   Fixed maturities ....................................................     $    6.9        $  (26.3)     $ (390.8)     $ (658.7)
   Equity securities ...................................................         20.9            73.9          71.3         102.4
   Mortgage loans on real estate and real estate to be disposed of .....        (33.5)           50.4         206.0          (7.7)
   Derivatives and other invested assets ...............................        (10.1)           10.1          82.0          42.3
   Amortization adjustment for deferred policy acquisition costs
     and value of the business acquired ................................         12.9            11.1          (6.4)         38.0
   Amounts credited to participating pension contractholders ...........          8.1           (34.0)          3.2          23.3
   Amounts credited to the policyholder dividend obligation ............          2.5            (5.2)         58.5          11.9
                                                                          -------------------------------------------------------
Net realized investment and other gains (losses), net of related
    amortization of deferred policy acquisition costs and value of
    the business acquired, amounts credited to the policyholder
    dividend obligation and amounts credited to participating pension
    contractholders ....................................................     $    7.7        $   80.0      $   23.8      $ (448.5)
                                                                          =======================================================
</TABLE>

      Gross gains were realized on the sale of available-for-sale securities of
$177.0 million from April 29 through December 31, 2004, $212.7 million from
January 1 through April 28, 2004, $638.7 million in 2003 and $352.3 million in
2002, and gross losses were realized on the sale of available-for-sale
securities of $62.4 million from April 29 through December 31, 2004, $13.0
million from January 1 through April 28, 2004, $243.6 million in 2003 and $185.7
million in 2002.


                                       99
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Investments - (continued)

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

<TABLE>
<CAPTION>
                                                                                             December 31, 2004
                                                                       -------------------------------------------------------
                                                                                           Gross       Gross
                                                                                        Unrealized   Unrealized
                                                                        Amortized Cost     Gains       Losses      Fair Value
                                                                       -------------------------------------------------------
                                                                                              (in millions)
<S>                                                                         <C>             <C>         <C>         <C>
Available-for-Sale:
      Corporate securities.........................................         $36,875.3       $799.7      $ 64.1      $37,610.9
      Asset-backed & mortgage-backed securities....................           9,977.6        131.2        49.6       10,059.2
      Obligations of states and political subdivisions.............             290.9          0.9         1.7          290.1
      Debt securities issued by foreign governments................             174.3         11.6         0.1          185.8
      U.S. Treasury securities and obligations of U.S. government
         corporations and agencies.................................             343.9          1.6         0.5          345.0
                                                                       -------------------------------------------------------
      Fixed maturities available-for-sale total....................          47,662.0        945.0       116.0       48,491.0
      Equity securities............................................             321.5          9.7         0.7          330.5
                                                                       -------------------------------------------------------
      Total fixed maturities and equity securities
         available-for-sale .......................................         $47,983.5       $954.7      $116.7      $48,821.5
                                                                       =======================================================

<CAPTION>
                                                                                             December 31, 2003
                                                                       -------------------------------------------------------
                                                                                           Gross       Gross
                                                                                        Unrealized   Unrealized
                                                                        Amortized Cost     Gains       Losses      Fair Value
                                                                       -------------------------------------------------------
                                                                                              (in millions)
<S>                                                                        <C>           <C>           <C>         <C>
Held-to-Maturity:
      Corporate securities........................................         $  1,148.4    $   21.4      $   18.3    $ 1,151.5
      Mortgage-backed securities..................................              346.7        21.6           0.4        367.9
      Obligations of states and political subdivisions............                3.5         0.1            --          3.6
                                                                       -------------------------------------------------------
      Fixed maturities held-to-maturity total.....................         $  1,498.6    $   43.1      $   18.7    $ 1,523.0
                                                                       =======================================================
Available-for-Sale:
      Corporate securities........................................         $ 38,640.2    $2,891.4      $  310.2    $41,221.4
      Asset-backed & mortgage-backed securities...................            7,578.0       292.6         144.6      7,726.0
      Obligations of states and political subdivisions............              426.0        17.8           1.4        442.4
      Debt securities issued by foreign governments...............            1,955.6       243.5           2.3      2,196.8
      U.S. Treasury securities and obligations of U.S. government
         corporations and agencies................................              297.0         4.9           1.5        300.4
                                                                       -------------------------------------------------------
      Fixed maturities available-for-sale total...................           48,896.8     3,450.2         460.0     51,887.0
      Equity securities...........................................              665.8       133.9           4.6        795.1
                                                                       -------------------------------------------------------
      Total fixed maturities and equity securities
        available-for-sale........................................         $ 49,562.6    $3,584.1      $  464.6    $52,682.1
                                                                       =======================================================
</TABLE>


                                      100
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Investments - (continued)

      The amortized cost and fair value of fixed maturities at December 31,
2004, by contractual maturity, are shown below:

                                                  Amortized Cost    Fair Value
                                                 -------------------------------
                                                           (in millions)
Available-for-Sale:
Due in one year or less..........................   $  2,395.7       $  2,402.4
Due after one year through five years............     10,968.7         11,084.1
Due after five years through ten years...........     14,191.4         14,512.0
Due after ten years..............................     10,128.6         10,433.3
Mortgage-backed securities.......................      9,977.6         10,059.2
                                                 -------------------------------
      Total......................................   $ 47,662.0       $ 48,491.0
                                                 ===============================

      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.

      The change in net unrealized gains (losses) on trading securities that has
been included in earnings during 2004, 2003 and 2002 amounted to $14.6 million,
$5.8 million and $(5.9) million, respectively.

      The Company participates in a security lending program for the purpose of
enhancing income on securities held. At December 31, 2004 and 2003, $339.3
million and $426.9 million, respectively, of the Company's securities, at market
value, were on loan to various brokers/dealers, and were fully collateralized by
cash and highly liquid securities. The market value of the loaned securities is
monitored on a daily basis, and the collateral is maintained at a level of at
least 102% of the loaned securities' market value.

      For 2004, 2003 and 2002, net investment income passed through to
participating pension contractholders as interest credited to policyholders'
account balances amounted to $170.5 million, $161.7 million and $168.3 million,
respectively.

      Depreciation expense on investment real estate was $3.9 million, $3.1
million, and $4.4 million in 2004, 2003 and 2002, respectively. Accumulated
depreciation was $13.9 million and $45.3 million at December 31, 2004 and 2003,
respectively.

Analysis of unrealized losses on fixed maturity securities

      The Company has a process in place to identify securities that could
potentially have an impairment that is other than temporary. This process
involves monitoring market events that could impact issuers' credit ratings,
business climate, management changes, litigation and government actions, and
other similar factors. This process also involves monitoring late payments,
downgrades by rating agencies, key financial ratios, financial statements,
revenue forecasts and cash flow projections as indicators of credit issues.

      At the end of each quarter, our Investment Review Committee reviews all
securities where market value is less than ninety percent of amortized cost for
three months or more to determine whether impairments need to be taken. This
committee includes the head of workouts, the head of each industry team, the
head of portfolio management, and the Chief Credit Officer of Manulife. The
analysis focuses on each company's or project's ability to service its debts in
a timely fashion and the length of time the security has been trading below
amortized cost. The results of this analysis are reviewed by the Credit
Committee at Manulife. This committee includes Manulife's Chief Financial
Officer, Chief Investment Officer, Chief Risk Officer, Chief Credit Officer and
other senior management. This quarterly process includes a fresh assessment of
the credit quality of each investment in the entire fixed maturities portfolio.

      The Company considers relevant facts and circumstances in evaluating
whether the impairment of a security is other than temporary. Relevant facts and
circumstances considered include (1) the length of time the fair value has been
below cost; (2) the financial position of the issuer, including the current and
future impact of any specific events; and (3) the Company's ability and intent
to hold the security to maturity or until it recovers in value. To the extent
the Company determines that a security is deemed to be other than temporarily
impaired, the difference between amortized cost and fair value is be charged to
earnings.


                                      101
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Investments - (continued)

      There are a number of significant risks and uncertainties inherent in the
process of monitoring impairments and determining if an impairment is other than
temporary. These risks and uncertainties include (1) the risk that our
assessment of an issuer's ability to meet all of its contractual obligations
will change based on changes in the credit characteristics of that issuer, (2)
the risk that the economic outlook will be worse than expected or have more of
an impact on the issuer than anticipated, (3) the risk that fraudulent
information could be provided to our investment professionals who determine the
fair value estimates and other than temporary impairments, and (4) the risk that
new information obtained by us or changes in other facts and circumstances lead
us to change our intent to hold the security to maturity or until it recovers in
value. Any of these situations could result in a charge to earnings in a future
period.

      Summarized data for securities with unrealized losses, sorted by duration
of unrealized loss status, are presented in the table below.

<TABLE>
<CAPTION>
                                                                         As of December 31, 2004

                                             Less than 12 months            12 months or more                  Total
                                             -------------------            -----------------                  -----
                                           Carrying                      Carrying                     Carrying
                                           Value of                      Value of                     Value of
                                          Securities                    Securities                   Securities
                                             with                          with                         with
                                          Unrealized     Unrealized     Unrealized    Unrealized     Unrealized     Unrealized
Description of Securities:                   Loss          Losses          Loss         Losses          Loss          Losses
                                         ----------------------------------------------------------------------------------------
                                                                              (in millions)

<S>                                          <C>              <C>          <C>          <C>            <C>               <C>
US Treasury obligations and direct
    obligations of U.S. government
    agencies.........................        $   355.2        $   2.2       --            --           $   355.2         $   2.2

Federal agency mortgage backed
    securities.......................          3,214.9           49.6       --            --             3,214.9            49.6

Debt securities issued by foreign
    governments......................             10.3            0.1       --            --                10.3             0.1

Corporate bonds......................          7,407.6           64.1       --            --             7,407.6            64.1
                                         ----------------------------------------------------------------------------------------
Total debt securities................         10,988.0          116.0       --            --            10,988.0           116.0

Common stocks........................              4.8            0.7       --            --                 4.8             0.7
                                         ----------------------------------------------------------------------------------------
     Total...........................        $10,992.8        $ 116.7       --            --           $10,992.8         $ 116.7
                                         ========================================================================================
</TABLE>

      The aging of unrealized losses above reflects the mark to market of the
portfolio on April 28, 2004. Gross unrealized losses above include unrealized
losses from hedging adjustments. Gross unrealized losses from hedging
adjustments represent the amount of the unrealized loss that results from the
security being designated as a hedged item in a fair value hedge. When a
security is so designated, its cost basis is adjusted in response to movements
in interest rates. These adjustments, which are non-cash and reverse over time
as the asset and derivative mature, impact the amount of unrealized loss on a
security. The remaining portion of the gross unrealized loss represents the
impact of interest rates on the non-hedged portion of the portfolio and
unrealized losses due to creditworthiness on the total fixed maturity portfolio.

      At December 31, 2004 the fixed maturity securities had a total gross
unrealized loss of $116.0 million. Unrealized losses can be created by rising
interest rates or by rising credit concerns and hence widening credit spreads.
Credit concerns are apt to play a larger role in the unrealized loss on below
investment grade securities. Unrealized losses on investment grade securities
principally relate to changes in interest rates or changes in credit spreads
since the securities were acquired. Credit rating agencies' statistics indicate
that investment grade securities have been found to be less likely to develop
credit concerns. The gross unrealized loss on below investment grade fixed
maturity securities declined from $261.1 million at December 31, 2003 to $18.0
million at December 31, 2004 primarily due to the mark to market on the
portfolio as of April 28, 2004. The gross unrealized loss as of December 31,
2004 was largely due to interest rate changes since April 28, 2004.


                                      102
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Investments - (continued)

Mortgage loans on real estate

      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 of principal and interest due according to the
contractual terms of the loan agreement. 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 is based on the collateral value of the
loan if the loan is collateral dependent. This level is 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. Any change to the valuation allowance for mortgage loans on
real estate is reported as a component of net realized investment and other
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 based on the collateral value.
Foreclosed real estate is recorded at the fair value of the collateral at the
date of foreclosure, which establishes a new cost basis.

      Changes in the allowance for probable losses on mortgage loans on real
estate and real estate to be disposed of are summarized below.

<TABLE>
<CAPTION>
                                                Balance at                                     Balance at
                                            Beginning of Period    Additions    Deductions    End of Period
                                            ----------------------------------------------------------------
                                                                     (in millions)
<S>                                               <C>               <C>           <C>             <C>
April 29 through December 31, 2004
      Mortgage loans on real estate ....          $ 84.2            $ 45.4        $ 84.3          $ 45.3
      Real estate to be disposed of ....              --                --            --              --
                                            ----------------------------------------------------------------
            Total ......................          $ 84.2            $ 45.4        $ 84.3          $ 45.3
                                            ================================================================

January 1 through April 28, 2004
      Mortgage loans on real estate ....          $ 66.2            $ 23.3        $  5.3          $ 84.2
      Real estate to be disposed of ....              --                --            --              --
                                            ----------------------------------------------------------------
            Total ......................          $ 66.2            $ 23.3        $  5.3          $ 84.2
                                            ================================================================

Year ended December 31, 2003
      Mortgage loans on real estate ....          $ 62.0            $ 56.6        $ 52.4          $ 66.2
      Real estate to be disposed of ....             2.8               0.6           3.4              --
                                            ----------------------------------------------------------------
            Total ......................          $ 64.8            $ 57.2        $ 55.8          $ 66.2
                                            ================================================================

Year ended December 31, 2002
      Mortgage loans on real estate ....          $113.7            $  7.8        $ 59.5          $ 62.0
      Real estate to be disposed of ....            83.6              32.4         113.2             2.8
                                            ----------------------------------------------------------------
            Total ......................          $197.3            $ 40.2        $172.7          $ 64.8
                                            ================================================================
</TABLE>

      At December 31, 2004 and 2003, 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:

                                                             December 31
                                                     ---------------------------
                                                       2004              2003
                                                     ---------------------------
                                                            (in millions)
Impaired mortgage loans on real estate with
  provision for losses.............................   $163.3            $ 127.6
Provision for losses...............................    (45.3)             (37.5)
                                                     ---------------------------
Net impaired mortgage loans on real estate.........   $118.0            $  90.1
                                                     ===========================


                                      103
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Investments - (continued)

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

                                                       Years Ended December 31,
                                                        2004     2003     2002
                                                       -----------------------
                                                             (in millions)
Average recorded investment in impaired loans.......   $145.5   $ 94.3   $83.2
Interest income recognized on impaired loans........      7.3      3.4     5.0

      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 mortgage loans aggregated $107.3 million and $87.8 million as
of December 31, 2004 and 2003, 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:

                                                      Years Ended December 31,
                                                       2004       2003     2002
                                                    ----------------------------
                                                            (in millions)
Expected..........................................    $10.1       $7.6     $4.8
Actual............................................      8.7        7.2      4.7

      At December 31, 2004, 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................................         $ 1,645.9    East North Central..............................    $ 1,242.0
Hotels....................................             437.6    East South Central..............................        473.7
Industrial................................           1,008.2    Middle Atlantic.................................      1,690.1
Office buildings..........................           2,414.4    Mountain........................................        752.1
Retail....................................           2,684.9    New England.....................................        932.5
Multi-Family..............................               0.7    Pacific.........................................      2,549.0
Mixed Use.................................             438.3    South Atlantic..................................      2,554.1
Agricultural..............................           2,951.9    West North Central..............................        408.4
Other.....................................             279.6    West South Central..............................        983.3
                                                                Canada/Other....................................        276.3
Allowance for losses......................             (45.3)   Allowance for losses............................        (45.3)
                                               ---------------                                                    -------------
      Total...............................         $11,816.2          Total.....................................    $11,816.2
                                               ===============                                                    =============
</TABLE>

      Mortgage loans with outstanding principal balances of $127.0 million, and
bonds with amortized cost of $164.0 million were non-income producing for the
year ended December 31, 2004. There was no non-income producing real estate for
the year ended December 31, 2004.


                                      104
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Investments - (continued)

      Securitization activity

      The Company originates commercial mortgages and sells them to Commercial
Mortgage Backed Securities Trusts (Trusts), and in certain cases, retains
servicing rights to the mortgages sold. These Trusts are QSPEs in accordance
with SFAS No. 140 and therefore, as transferor of financial assets to these
Trusts, the Company is prohibited from using consolidation accounting for its
relationships with them. During 2004, 2003, and 2002, the Company sold $124.7
million, $529.8 million, and $343.5 million of commercial mortgage loans in
securitization transactions, respectively, for which it received net proceeds of
$125.0 million, $541.4 million, and $345.2 million, respectively, from which it
recognized pre-tax gains of $0.3 million, $12.0 million, and $1.9 million,
respectively, and from which it retained servicing assets of (none for 2004),
$0.4 million, and $0.3 million, respectively. The Company's mortgage servicing
assets were valued, in the aggregate, at $1.6 million, and $4.7 million at
December 31, 2004 and 2003, respectively.

      During December, 2003, the Company securitized $277.6 million of below
investment grade corporate bonds, all of which were previously owned by the
Company, by transferring them to a trust, Signature QSPE, Limited (the Trust),
which the Company sponsored. The Trust is a QSPE in accordance with SFAS No.
140, and as transferor of assets to the Trust, the Company is prohibited from
consolidating the Trust. The Company retained $140.0 million of notes issued by
the Trust which were rated A1, and which are recorded as fixed maturities
available for sale on the Company's Consolidated Balance Sheets, and retained
$12.7 million of equity issued by the QSPE, which is unrated, and which is
recorded in other invested assets on the Company's Consolidated Balance Sheets.
The Company received net proceeds of $124.9 million, representing the proceeds
from sales of notes issued by the Trust to unrelated parties, and the Company
recorded a realized gain of $10.8 million on these proceeds. The Company
recognized no servicing assets as a result of this securitization. All of the
assets transferred from the Company to the trust were performing assets; none of
the transferred assets were delinquent or in default. No similar securitization
was performed in 2004.

         The Company values retained security interests in securitizations, at
time of issue and subsequently, using the same pricing methods as it uses for
its existing investment portfolio. Fair value prices are obtained from an
independent pricing service when available, and if not available 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.
Refer to Note 17 - Fair Value of Financial Instruments below for further
discussion of the Company's fair value methodologies. The Company values
servicing rights by estimating future cash flows from the servicing assets using
discount rates that approximate market rates.

      Equity method investments

      Investments in other assets, which include unconsolidated joint ventures,
partnerships, and limited liability corporations, accounted for using the equity
method of accounting totaled $2,488.6 million and $2,003.9 million at December
31, 2004 and 2003, respectively. Total combined assets of such investments were
$15,539.3 million and $15,800.4 million (consisting primarily of investments),
and total combined liabilities were $3,557.4 million and $2,146.6 million
(including $1,386.8 million and $1,216.3 million of debt) at December 31, 2004
and 2003, respectively. Total combined revenues and expenses of these
investments in 2004 were $1,416.7 million and $773.5 million, respectively,
resulting in $643.2 million of total combined income from operations. Total
combined revenues and expenses in 2003 were $1,305.1 million and $1,054.3
million, respectively, resulting in $250.8 million of total combined income from
operations. Total combined revenues and expenses in 2002 were $1,002.9 million
and $1,212.3 million, respectively, resulting in $209.3 million of total
combined loss from operations. Depending on the timing of receipt of audited
financial statements of these other assets, the above financial data may be up
to one year in arrears. Net investment income on investments accounted for using
the equity method of accounting totaled $124.1 million for the period from April
28, 2004 through December 31, 2004 and $74.3 million for the period from January
1, 2004 through April 28, 2004. Net investment income on investments accounted
for using the equity method of accounting totaled $140.9 million and $66.8
million in 2003 and 2002, respectively.


                                      105
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Relationships with Variable Interest Entities

      The Company has relationships with various types of special purpose
entities (SPEs) and other entities, some of which are variable interest entities
(VIEs), in accordance with FIN 46R, as discussed in Note 2--Summary of
Significant Accounting Policies. Presented below are discussions of the
Company's significant relationships with them, the Company's conclusions about
whether the Company should consolidate them, and certain summarized financial
information for them.

      As explained in Note 2--Summary of Significant Accounting Policies,
additional liabilities recognized as a result of consolidating any VIEs with
which the Company is involved would not represent additional claims on the
general assets of the Company; rather, they would represent claims against
additional assets recognized by the Company as a result of consolidating the
VIEs. These additional liabilities would be non-recourse to the general assets
of the Company. Conversely, additional assets recognized as a result of
consolidating these VIEs would not represent additional assets which the Company
could use to satisfy claims against its general assets, rather they would be
used only to settle additional liabilities recognized as a result of
consolidating the VIEs.

      Collateralized Debt Obligation Funds (CDOs). Since 1996, the Company has
acted as investment manager to certain asset backed investment vehicles,
commonly known as collateralized debt obligation funds (CDOs). The Company also
invests in the debt and/or equity of these CDOs, and in the debt and/or equity
of CDOs managed by others. CDOs raise capital by issuing debt and equity
securities, and use their capital to invest in portfolios of interest bearing
securities. The returns from a CDO's portfolio of investments are used by the
CDO to finance its operations including paying interest on its debt and paying
advisory fees and other expenses. Any net income or net loss is shared by the
CDO's equity owners and, in certain circumstances where the Company manages the
CDO, positive investment experience is shared by the Company through variable
performance management fees. Any net losses in excess of the CDO equity are
borne by the debt owners in ascending order of subordination. Owners of
securities issued by CDOs that are managed by the Company have no recourse to
the Company's assets in the event of default by the CDO. The Company's risk of
loss from any CDO it manages, or in which it invests, is limited to its
investment in the CDO.


                                      106
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Relationships with Variable Interest Entities - (continued)

      In accordance with previous consolidation accounting principles (now
superceded by FIN 46R), the Company formerly consolidated a CDO only if the
Company owned a majority of the CDO's equity. The Company is now required to
consolidate a CDO when, in accordance with FIN 46R, the CDO is deemed to be a
VIE, but only if the Company is deemed to be the primary beneficiary of the CDO.
For those CDOs which are not deemed to be VIEs, the Company determines its
consolidation status by considering the control relationships among the equity
owners of the CDOs. The Company has determined whether each CDO should be
considered a VIE, and while most are VIEs, some are not. The Company has
determined that it is not the primary beneficiary of any CDO which is a VIE, and
for those that are not VIEs, the Company also does not have controlling
financial interests. Therefore, the Company does not use consolidation
accounting for any of the CDOs which it manages.

      The Company believes that its relationships with its managed CDOs are
collectively significant, and accordingly provides, in the tables below, summary
financial data for all these CDOs and data relating to the Company's maximum
exposure to loss as a result of its relationships with them. The Company has
determined that it is not the primary beneficiary of any CDO in which it invests
and does not manage and thus will not be required to consolidate any of them,
and considers that its relationships with them are not collectively significant,
therefore the Company does not disclose data for them. Credit ratings are
provided by nationally recognized credit rating agencies, and relate to the debt
issued by the CDOs in which the Company has invested.

 Total size of Company-Managed CDOs (1)                        December 31,
                                                         2004             2003
                                                       -------------------------
                                                              (in millions)

Total assets ...................................        $3,775.9        $4,922.2
                                                        ========        ========
Total debt .....................................         3,707.9        $4,158.2
Total other liabilities ........................             9.0           712.0
                                                        --------        --------
Total liabilities ..............................         3,716.9         4,870.2
Total equity ...................................            59.0            52.0
                                                        --------        --------
Total liabilities and equity ...................        $3,775.9        $4,922.2
                                                        ========        ========

(1)   The reduction in size of the Company-Managed CDOs is primarily due to the
      liquidation, at maturity, of Declaration Funding 1 LTD, in May 2004.

<TABLE>
<CAPTION>
Maximum exposure of the Company to losses from                                      December 31,
Company-Managed CDOs                                                         2004                    2003
                                                                      ------------------------------------------
                                                                            (in millions, except percents)
<S>                                                                   <C>          <C>        <C>          <C>
Investment in tranches of Company managed CDOs, by credit rating
(Moody's/Standard & Poors):
Aaa/AAA ........................................................      $160.2      61.2 %      $201.0        35.6%
Aa1/AA+ ........................................................        62.7        24.0        75.7        13.4
Baa2/BBB .......................................................          --          --       218.0        38.8
B2 .............................................................          --          --         8.0         1.4
B3/B- ..........................................................         7.5         2.9          --          --
Caa1/CCC+ ......................................................        10.6         4.0        13.2         2.3
Not rated (equity) .............................................        20.6         7.9        48.1         8.5
                                                                      ------       -----      ------       -----
  Total Company exposure .......................................      $261.6       100.0%     $564.0       100.0%
                                                                      ======       =====      ======       =====
</TABLE>

      Low-Income Housing Properties. Since 1995, the Company has generated
income tax benefits by investing in apartment properties (the Properties) that
qualify for low income housing and/or historic tax credits. The Company
initially invested in the Properties directly, but now primarily invests
indirectly via limited partnership real estate investment funds (the Funds),
which are consolidated into the Company's financial statements. The Properties
are organized as limited partnerships or limited liability companies each having
a managing general partner or a managing member. The Company is usually the sole
limited partner or investor member in each Property; it is not the general
partner or managing member in any Property.


                                      107
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Relationships with Variable Interest Entities - (continued)

      The Properties typically raise additional capital by qualifying for
long-term debt, which at times is guaranteed or otherwise subsidized by Federal
or state agencies, or by Fannie Mae. In certain cases, the Company invests in
the mortgages of the Properties. The Company's maximum loss in relation to the
Properties is limited to its equity investment in the Properties, future equity
commitments made, and where the Company is the mortgagor, the outstanding
balance of the mortgages originated for the Properties, and outstanding mortgage
commitments the Company has made to the Properties. The Company receives Federal
income tax credits in recognition of its investment in each of the Properties
for a period of ten years. In some cases, the Company receives distributions
from the Properties which are based on a portion of the Property cash flows.

      The Company has determined that it is not the primary beneficiary of any
Property, so the Company does not use consolidation accounting for any of them.
The Company believes that its relationships with the Properties are significant,
and accordingly, the disclosures in the tables below are provided. The tables
below present summary financial data for the Properties, and data relating to
the Company's maximum exposure to loss as a result of its relationships with
them.

Total size of the Properties (1)
                                                               December 31,
                                                           2004            2003
                                                        ------------------------
                                                              (in millions)

Total assets .......................................      $1,103.9      $  982.7
                                                          ========      ========
Total debt .........................................      $  669.9      $  576.3
Total other liabilities ............................         103.3         116.6
                                                          --------      --------
Total liabilities ..................................         773.2         692.9
Total equity .......................................         330.7         289.8
                                                          --------      --------
Total liabilities and equity .......................      $1,103.9      $  982.7
                                                          ========      ========

(1)   Property level data reported above is reported with three month delays due
      to the delayed availability of financial statements of the Funds.

Maximum exposure of the Company to losses from the Properties
                                                                  December 31,
                                                              2004         2003
                                                             -------------------
                                                                 (in millions)

Equity investment in the Properties (1) ...................   $323.2      $291.0
Outstanding equity capital commitments to the Properties ..     90.9       108.2
Carrying value of mortgages for the Properties ............     67.1        62.8
Outstanding mortgage commitments to the Properties ........      0.9         5.1
                                                              ------      ------
Total Company exposure ....................................   $482.1      $467.1
                                                              ======      ======

(1)   Equity investment in the Properties above is reported with three month
      delays due to the delayed availability of financial statements of the
      Funds.

      Other Entities. The Company has investment relationships with a disparate
group of entities (Other Entities), which result from the Company's direct
investment in their debt and/or equity. This category includes energy investment
partnerships, investment funds organized as limited partnerships, and businesses
which have undergone debt restructurings and reorganizations and various other
relationships. The Company has determined that for each of these Other Entities
which are VIEs, the Company is not the primary beneficiary, and should not use
consolidation accounting for them. The Company believes that its relationships
with the Other Entities are not significant, and is accordingly not providing
summary financial data for them, or data relating to the Company's maximum
exposure to loss as a result of its relationships with them. These potential
losses are generally limited to amounts invested, which are included on the
Company's Consolidated Balance Sheets in the appropriate investment categories.


                                      108
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Relationships with Variable Interest Entities - (continued)

Since 2001, the Company has been involved with Arclight Energy Partner Fund I,
L.P. (Arclight), which is a private equity fund which invests in the electric
power, utility and energy industry sectors. The Company is a limited partner
investor, owning approximately 55.0% of Arclight's partners' capital at December
31, 2004. The Company's potential losses in relation to Arclight are limited to
its investment in Arclight. As of September 30, 2004, the most recent date for
which data is available, Arclight had total assets of $825.4 million, $0.8
million of liabilities, and $824.6 million of partners' capital. The Company has
determined that it is not the primary beneficiary of this entity and accordingly
does not need to consolidate Arclight.

Note 5 -- Derivatives and Hedging Instruments

      The fair values of derivative instruments classified as assets at December
31, 2004 and 2003 were $1,167.4 million and $1,168.9 million, respectively, and
appear on the consolidated balance sheet in other assets. The fair values of
derivative instruments classified as liabilities at December 31, 2004 and 2003
were $1,148.7 million and $1,277.3 million, respectively, and appear on the
consolidated balance sheet in other liabilities. The fair values of derivative
instruments, identified as embedded derivatives in participating pension
contracts pursuant to DIG B36, classified as liabilities and appear on the in
policyholders' funds at December 31, 2004 and 2003 were $48.6 million and $225.6
million, respectively.

      Fair Value Hedges. The Company uses interest rate futures contracts and
interest rate swap agreements as part of its overall strategies of managing the
duration of assets and liabilities or the average life of certain asset
portfolios to specified targets. 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). The net differential to be
paid or received on interest rate swap agreements is accrued and recognized as a
component of net investment income.

      The Company also manages interest rate exposure by using interest rate
swap agreements to modify certain liabilities, such as fixed rate debt and
Constant Maturity Treasuries (CMT) indexed liabilities, by converting them to a
LIBOR-based floating rate.

      The Company enters into purchased interest rate cap agreements, cancelable
interest rate swap agreements, and written swaptions to manage the interest rate
exposure of options that are embedded in certain assets and liabilities. A
written swaption obligates the Company to enter into an interest rate agreement
on the expiration date contingent on future interest rates. Purchased 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).
Amounts earned on interest rate cap and floor agreements and swaptions are
recorded as an adjustment to net investment income.

      The Company uses equity collar agreements to reduce its equity market
exposure with respect to certain common stock investments that the Company
holds. A collar consists of a written call option that limits the Company's
potential for gain from appreciation in the stock price as well as a purchased
put option that limits the Company's potential for loss from a decline in the
stock price.

      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 net differential to be paid or received
on currency rate swap agreements is accrued and recognized as a component of net
investment income.

      For the period January 1, 2004 through April 28, 2004, the Company
recognized net gains of $4.4 million related to the ineffective portion of its
fair value hedges, and net losses of $3.8 million related to the portion of the
hedging instruments that were excluded from the assessment of hedge
effectiveness. For the period April 29, 2004 through December 31, 2004, the
Company recognized net losses of $38.5 million related to the ineffective
portion of its fair value hedges, and net gains of $1.1 million related to the
portion of the hedging instruments that were excluded from the assessment of
hedge effectiveness. For the year ended December 31, 2003, the Company
recognized net losses of $5.8 million related to the ineffective portion of its
fair value hedges, and net losses of $1.5 million related to the portion of the
hedging instruments that were excluded from the assessment of hedge
effectiveness. These amounts are recorded in net realized investment and other
gains and losses.

      Cash Flow Hedges. The Company uses forward starting interest rate swap
agreements to hedge the variable cash flows associated with future fixed income
asset acquisitions, which will support the Company's long-term care and life


                                      109
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 5 -- Derivatives and Hedging Instruments - (continued)

insurance businesses. These agreements will reduce the impact of future interest
rate changes on the cost of acquiring adequate assets to support the investment
income assumptions used in pricing these products. During the periods in the
future when the acquired assets are held by the Company, the accumulated gain or
loss will be amortized into investment income as a yield adjustment on the
assets.

      The Company also uses interest rate swap agreements to hedge the variable
cash flows associated with payments that it will make on certain funding
agreements issued by the company. Amounts are reclassified from other
comprehensive income as a yield adjustment when the payments are made.

      For the period January 1, 2004 through April 28, 2004, the Company
recognized losses of $4.8 million related to the ineffective portion of its cash
flow hedges. For the period April 29, 2004 through December 31, 2004 the Company
recorded gains of $7.7 million related to the ineffective portion of its cash
flow hedges. These amounts are recorded in net realized investment and other
gains and losses. For the year ended December 31, 2004, all of the Company's
hedged forecast transactions qualified as cash flow hedges.

      For the period January 1, 2004 through April 28, 2004, a net gain of $1.2
million was reclassified from other accumulated comprehensive income to
earnings. For the period April 29, 2004 through December 31, 2004, the Company
reclassified no gains or losses from other accumulated comprehensive income to
earnings. It is anticipated that approximately $1.3 million will be reclassified
from other accumulated comprehensive income to earnings within the next twelve
months. The maximum length for which variable cash flows are hedged is 24 years.

      For the year ended December 31, 2004, none of the Company's cash flow
hedges were discontinued because it was probable that the original forecasted
transactions would not occur by the end of the originally specified time period
documented at inception of the hedging relationship.

      For the period January 1, 2004 through April 28, 2004, losses of $40.7
million (net of tax of $21.8 million) representing the effective portion of the
change in fair value of derivative instruments designated as cash flow hedges
were added to accumulated other comprehensive income, resulting in a balance of
$182.6 million (net of tax of $99.6 million) respectively. For the period April
29, 2004 through December 31, 2004, gains of $225.1 million (net of tax of
$100.6 million) representing the effective portion of the change in fair value
of derivative instruments designated as cash flow hedges were added to
accumulated other comprehensive income, resulting in a balance of $225.1 million
(net of tax of $100.6 million) at December 31, 2004. For the year ended December
31, 2003 gains of $28.7 million, net of tax of $15.5 million, representing the
effective portion of the change in fair value of derivative instruments
designated as cash flow hedges were added to accumulated other comprehensive
income, resulting in balances of $223.3 million, net of tax of $120.3 million.

      Derivatives Not Designated as Hedging Instruments. The Company enters into
interest rate swap agreements, cancelable interest rate swap agreements, total
return swaps, interest rate futures contracts, credit default swaps and interest
rate cap and floor agreements to manage exposure to interest rates as described
above under Fair Value Hedges, without designating the derivatives as hedging
instruments.

      In addition the Company used interest rate floor agreements to hedge the
interest rate risk associated with minimum interest rate guarantees in certain
of its life insurance and annuity businesses, without designating the
derivatives as hedging instruments.


                                      110
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Income Taxes

      The Company files a life/non-life insurance company consolidated Federal
income tax return. The life insurance company sub-group includes three domestic
life insurance companies (John Hancock Life Insurance Company, (the Life
Company), John Hancock Variable Life Insurance Company and Manulife Insurance
Company , (formerly Investors Partner 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 insurance company
subgroup consists of John Hancock Financial Services, Inc., John Hancock
Subsidiaries, LLC and John Hancock International Holdings, Inc.

      The Company has unremitted foreign earnings from its foreign subsidiaries,
predominantly Canadian, which are permanently reinvested under FASB Statement
No. 109. If the unremitted earnings at December 31, 2004 were distributed, there
would be an incremental U.S. tax of approximately $410.0 million after foreign
tax credits.

      Income before income taxes, discontinued operations and cumulative effect
of accounting changes includes the following:

<TABLE>
<CAPTION>
                                                         April 29 through     January 1
                                                           December 31,   through April 28,
                                                               2004              2004           2003          2002
                                                         ----------------------------------------------------------
                                                                                  (in millions)
<S>                                                          <C>               <C>           <C>           <C>
Domestic .............................................       $  499.8          $  382.0      $1,141.3      $  523.7

Foreign ..............................................           16.8               2.0          14.1           8.0
                                                         ----------------------------------------------------------
Income before income taxes, discontinued operations
   and cumulative effect of accounting changes .......       $  516.6          $  384.0      $1,155.4      $  531.7
                                                         ==========================================================
</TABLE>

      The components of income taxes were as follows:

                               April 29         January 1
                                through          through
                           December 31, 2004  April 28, 2004     2003      2002
                           -----------------------------------------------------
                                                 (in millions)
Current taxes:
Federal ..................       $ 56.8           $(34.3)      $147.7    $ 47.2
Foreign ..................          7.7              1.1          3.9       2.0
State ....................          3.0              1.5          4.6       4.6
                             ---------------------------------------------------
Total current taxes ......         67.5            (31.7)       156.2      53.8
Deferred taxes:
Federal ..................         73.4            149.8        167.1      42.8
Foreign ..................         (0.6)            (0.8)         0.1       0.7
State ....................         (4.4)            (2.2)        (6.7)     (6.7)
                             ---------------------------------------------------
   Total deferred taxes ..         68.4            146.8        160.5      36.8
                             ---------------------------------------------------
Total income taxes .......       $135.9           $115.1       $316.7    $ 90.6
                             ===================================================


                                      111
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Income Taxes - (continued)

      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:

                                      April 29      January 1
                                      through        through
                                    December 31,    April 28,
                                        2004          2004      2003      2002
                                    --------------------------------------------
                                                     (in millions)
Tax at 35%.......................      $180.8       $134.4     $404.4    $186.1
Add (deduct):
Prior year taxes.................        16.1          2.3        4.7      (6.6)
Tax credits......................       (37.9)       (18.6)     (50.2)    (36.4)
Foreign taxes....................         1.3           --        1.4       2.0
Tax exempt investment income.....        (7.3)        (4.2)     (20.7)    (35.6)
Lease income.....................       (24.5)        (2.4)      (9.7)    (25.5)
Other............................         7.4          3.6      (13.2)      6.6
                                    --------------------------------------------
      Total income taxes.........      $135.9       $115.1     $316.7     $90.6
                                    ============================================

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

                                                              December 31,
                                                          2004           2003
                                                       ------------------------
                                                                (in millions)
Deferred tax assets:
Policy reserve adjustments ..........................   $1,008.9      $   562.9
Dividends payable to policyholders ..................      253.0           99.6
Interest ............................................       56.6           40.2
Other employee benefits .............................      176.9          174.9
GAAP basis in excess of tax basis of investments ....      519.2          217.7
Unearned premium ....................................        5.8          275.8
Deferred policy acquisition costs ...................      140.6             --
Pension plan expense ................................       57.7             --
Other ...............................................       10.1          238.0
                                                       ------------------------
      Total deferred tax assets .....................    2,228.8        1,609.1
Deferred tax liabilities:
Deferred policy acquisition costs ...................         --        1,237.2
Pension plan expense ................................         --           49.1
Depreciation ........................................       33.7           68.5
Basis in partnerships ...............................      108.9           72.6
Market discount on bonds ............................      147.9           20.0
Lease income ........................................       71.5        1,041.4
Value of business acquired ..........................    1,217.0           34.5
Unrealized gains ....................................      221.4          826.7
Merger expenses .....................................      209.9             --
                                                       ------------------------
      Total deferred tax liabilities ................    2,010.3        3,350.0
                                                       ------------------------
      Net deferred tax assets (liabilities) .........   $  218.5      $(1,740.9)
                                                       ========================

      The Company made income tax payments of $40.6 million, $177.2 million and
$65.2 million in 2004, 2003 and 2002, respectively.


                                      112
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 7 -- Closed Block

      As of February 1, 2000, the Company established a closed block for the
benefit of certain classes of individual or joint traditional participating
whole life insurance policies for which the Company had a dividend scale payable
in 1999 and individual term life insurance policies that were in force on
February 1, 2000. Assets were allocated to the closed block in an amount that,
together with anticipated revenues from policies included in the closed block,
was reasonably sufficient to support such business, including provision for
payment of benefits, direct asset acquisition and disposition costs, and taxes,
and for continuation of dividend scales payable in 1999, assuming experience
underlying such dividend scales continues. Assets allocated to the closed block
inure solely to the benefit of the holders of the policies included in the
closed block and will not revert to the benefit of the shareholders of the
Company. No reallocation, transfer, borrowing, or lending of assets can be made
between the closed block and other portions of the Company's general account,
any of its separate accounts, or any affiliate of the Company without prior
approval of the Massachusetts Division of Insurance.

      If, over time, the aggregate performance of the closed block assets and
policies is better than was assumed in funding the closed block, dividends to
policyholders will be increased. If, over time, the aggregate performance of the
closed block assets and policies is less favorable than was assumed in the
funding, dividends to policyholders will be reduced.

      The assets and liabilities allocated to the closed block are recorded in
the Company's financial statements on the same basis as other similar assets and
liabilities. The carrying amount of closed block liabilities in excess of the
carrying amount of closed block assets at the date of demutualization (adjusted
to eliminate the impact of related amounts in accumulated other comprehensive
income) represents the maximum future earnings from the assets and liabilities
designated to the closed block that can be recognized in income over the period
the policies in the closed block remain in force. The Company has developed an
actuarial calculation of the timing of such maximum future shareholder earnings,
and this is the basis of the policyholder dividend obligation.

      If actual cumulative earnings are greater than expected cumulative
earnings, only expected earnings will be recognized in income. Actual cumulative
earnings in excess of expected cumulative earnings represents undistributed
accumulated earnings attributable to policyholders, which are recorded as a
policyholder dividend obligation because the excess will be paid to closed block
policyholders as an additional policyholder dividend unless otherwise offset by
future performance of the closed block that is less favorable than originally
expected. If actual cumulative performance is less favorable than expected, only
actual earnings will be recognized in income.

      The principal cash flow items that affect the amount of closed block
assets and liabilities are premiums, net investment income, purchases and sales
of investments, policyholders' benefits, policyholder dividends, premium taxes,
guaranty fund assessments, and income taxes. The principal income and expense
items excluded from the closed block are management and maintenance expenses,
commissions and net investment income and realized investment gains and losses
of investment assets outside the closed block that support the closed block
business, all of which enter into the determination of total gross margins of
closed block policies for the purpose of the amortization of deferred
acquisition costs. The amounts shown in the following tables for assets,
liabilities, revenues and expenses of the closed block are those that enter into
the determination of amounts that are to be paid to policyholders.


                                      113
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 7 -- Closed Block - (continued)

      The following tables set forth certain summarized financial information
relating to the closed block as of the dates indicated:

<TABLE>
<CAPTION>
                                                                                                         December 31,
                                                                                                      2004           2003
                                                                                                   ------------------------
                                                                                                           (in millions)
<S>                                                                                                <C>            <C>
Liabilities
Future policy benefits .......................................................................     $10,759.5      $10,690.6
Policyholder dividend obligation .............................................................         540.1          400.0
Policyholders' funds .........................................................................       1,506.7        1,511.9
Policyholder dividends payable ...............................................................         419.3          413.1
Other closed block liabilities ...............................................................          64.4           37.4
                                                                                                   ------------------------
           Total closed block liabilities ....................................................     $13,290.0      $13,053.0
                                                                                                   ========================
Assets
Investments
Fixed maturities:
     Held-to-maturity--at amortized cost (fair value: 2003--$69.6) ...........................            --      $    66.0
     Available-for-sale--at fair value (cost: 2004--$6,474.1; 2003--$5,847.6) ................     $ 6,585.6        6,271.1
Equity securities:
     Available-for-sale--at fair value (cost: 2004--$7.0; 2003--$9.1) ........................           7.0            9.1
Mortgage loans on real estate ................................................................       1,662.0        1,577.9
Policy loans .................................................................................       1,534.3        1,554.0
Short-term investments .......................................................................            --            1.2
Other invested assets ........................................................................         324.3          230.6
                                                                                                   ------------------------
           Total investments .................................................................      10,113.2        9,709.9
                                                                                                   ========================

Cash and cash equivalents ....................................................................         142.9          248.3
Accrued investment income ....................................................................         140.2          145.1
Other closed block assets ....................................................................         317.2          308.6
                                                                                                   ------------------------
           Total closed block assets .........................................................     $10,713.5      $10,411.9
                                                                                                   ========================
Excess of reported closed block liabilities over assets designated to the closed block .......     $ 2,576.5      $ 2,641.1
Portion of above representing other comprehensive income:
     Unrealized appreciation (depreciation), net of tax of $(39.7) million and $(148.0)
        million at 2004 and 2003, respectively ...............................................          74.3          275.3
     Allocated to the policyholder dividend obligation, net of tax $40.1 million and $148.1
        million at 2004 and 2003, respectively ...............................................         (74.4)        (275.1)
                                                                                                   ------------------------
           Total .............................................................................          (0.1)           0.2
                                                                                                   ------------------------
     Maximum future earnings to be recognized from closed block assets and liabilities .......     $ 2,576.4      $ 2,641.3
                                                                                                   ========================
Change in the policyholder dividend obligation:
Balance at beginning of period ...............................................................     $   400.0      $   288.9
Purchase accounting fair value adjustment ....................................................         208.4
Impact on net income before income taxes .....................................................         (68.4)         (57.9)
Unrealized investment gains (losses) .........................................................           0.1          169.0
                                                                                                   ------------------------
           Balance at end of period ..........................................................     $   540.1      $   400.0
                                                                                                   ========================
</TABLE>


                                      114
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 7 -- Closed Block - (continued)

<TABLE>
<CAPTION>
                                                                                    Period from
                                                                                      April 29      Period from
                                                                                      through        January 1
                                                                                    December 31,   through April
                                                                                        2004          28, 2004        2003
                                                                                  -------------------------------------------
                                                                                                (in millions)
<S>                                                                                    <C>            <C>          <C>
Change in the policyholder dividend obligation:
Balance at beginning of period..............................................           $308.8         $400.0       $ 288.9
Purchase accounting fair value adjustment...................................            208.4             --            --
Impact on net income before income taxes....................................            (91.8)          23.4         (57.9)
Unrealized investment gains (losses)........................................            114.7         (114.6)        169.0
                                                                                  -------------------------------------------
Balance at end of period....................................................           $540.1        $ 308.8       $ 400.0
                                                                                  ===========================================
</TABLE>

<TABLE>
<CAPTION>
                                                                              Period from    Period from
                                                                               April 29,      January 1
                                                                                through        through
                                                                              December 31,    April 28,
                                                                                  2004          2004          2003         2002
                                                                              ---------------------------------------------------
                                                                                                (in millions)
<S>                                                                            <C>           <C>           <C>           <C>
Revenues
Premiums .................................................................     $  573.2      $  278.0      $  915.7      $  969.9
Net investment income ....................................................        348.0         208.4         648.2         663.9
Net realized investment and other gains (losses), net of amounts
   credited to the policyholder dividend obligation of $8.1 million
   for the period April 29, through December 31, 2004; $(33.7) million
   for the period January 1 through April 28, 2004; and $(58.2) million
   and $(11.9) million, for the years ended December 31, 2003
   and 2002, respectively ................................................          1.3         (35.7)         (4.5)         (5.2)
Other closed block revenues ..............................................           --          (0.2)         (0.1)          0.1
                                                                               --------      --------      --------      --------
      Total closed block revenues ........................................        922.5         450.5       1,559.3       1,628.7
                                                                               ========      ========      ========      ========
Benefits and Expenses
Benefits to policyholders ................................................        636.0         310.9         982.0       1,057.6
Change in the policyholder dividend obligation ...........................        (85.2)        (11.2)         (2.4)        (60.2)
Other closed block operating costs and expenses ..........................         (3.4)          0.9          (3.0)         (5.2)
Dividends to policyholders ...............................................        285.1         141.1         449.5         489.7
                                                                               --------      --------      --------      --------
Total benefits and expenses ..............................................        832.5         441.7       1,426.1       1,481.9
                                                                               ========      ========      ========      ========

Closed block revenues, net of closed block benefits and expenses,
   before income taxes ...................................................         90.0           8.8         133.2         146.8
Income taxes, net of amounts credited to the policyholder dividend
   obligation of $1.7 million for the period April 29, through
   December 31, 2004; $0.6 million for the period January 1 through
   April 28, 2004; and $2.1 million and $1.3 million, for the years
   ended December 31, 2003 and 2002  respectively ........................         31.6           2.3          45.6          50.0
                                                                               --------      --------      --------      --------
Closed block revenues, net of closed block benefits and expenses,
   and income taxes ......................................................     $   58.4      $    6.5      $   87.6      $   96.8
                                                                               ========      ========      ========      ========
</TABLE>


                                      115
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 7 -- Closed Block - (continued)

      Maximum future earnings from closed block assets and liabilities:

                                                       Years Ended December 31,
                                                          2004           2003
                                                     ---------------------------
                                                             (in millions)
Beginning of period..............................        $2,641.3      $2,728.9
End of period....................................         2,576.4       2,641.3
                                                     ---------------------------
Change during period.............................        $  (64.9)     $  (87.6)
                                                     ===========================

Note 8 -- Debt and Line of Credit

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

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                 2004          2003
                                                                                ---------------------
                                                                                    (in millions)
<S>                                                                             <C>          <C>
Short-term debt:
      Commercial paper .....................................................    $  289.8     $  381.3
      Current maturities of long-term debt .................................       137.7        104.0
                                                                                --------     --------
            Total short-term debt ..........................................       427.5        485.3
                                                                                --------     --------
Long-term debt:
      Surplus Notes, 7.38%, maturing in 2024 ...............................       516.7        447.6
      Bonds payable, 5.625%, maturing in 2008 ..............................       528.2        499.0
      Notes payable, interest ranging from 6.496% to 12.1%, due in
         varying amounts to 2012 ...........................................       826.5        472.9
                                                                                --------     --------
            Total long-term debt ...........................................     1,871.4      1,419.5
Less current maturities ....................................................      (137.7)      (104.0)
                                                                                --------     --------
Long-term debt .............................................................     1,733.7      1,315.5
                                                                                --------     --------
Total long and short-term debt related to interest swaps(1) ................     2,161.2      1,800.8
Fair value adjustments related to interest rate swaps(1) ...................        22.1         94.5
                                                                                --------     --------
Total long and short-term debt after fair value adjustments ................    $2,183.3     $1,895.3
                                                                                ========     ========
Consumer notes:
      Notes payable, interest ranging from 1.75% to 6.25%, due in varying
         amounts to 2032 ...................................................    $2,379.1     $1,550.4
                                                                                ========     ========
</TABLE>

--------------
(1)   As part of its interest rate management, the Company uses interest rate
      swaps to convert the interest expense on the Surplus Notes from fixed to
      variable. Under SFAS No. 133, these swaps are designated as fair value
      hedges, which results in the carrying value of the notes being adjusted
      for changes in fair value.

Short term debt

      The Company issues commercial paper primarily to meet working capital
needs. The Company had commercial paper with a book value of $289.8 million and
a face value of $290.0 million outstanding at December 31, 2004. The
weighted-average interest rate for outstanding commercial paper at December 31,
2004 was 2.41%. The weighted-average life for outstanding commercial paper at
December 31, 2004 was approximately 13 days. Commercial paper borrowing
arrangements are supported by a syndicated line of credit. The Company had
commercial paper with a book value of $381.3 million and a face value of $382.0
million outstanding at December 31, 2003. The weighted-average interest rate for
outstanding commercial paper at December 31, 2003 was 1.18%. The
weighted-average life for outstanding commercial paper at December 31, 2003 was
approximately 33 days.

Long term debt

      The issuance of Surplus Notes by the Life Company was approved by the
Massachusetts Commissioner of Insurance, and any payment of interest or
principal on the Surplus Notes requires the prior approval of the Massachusetts
Commissioner of Insurance. The bonds payable consist of 7-year senior unsecured
registered notes at a coupon of 5.625% issued by the parent insurance holding
company, JHFS, with the proceeds used for general corporate purposes. Covenants
contained in this issue include, among others, limitations on the disposition of
and liens on the stock of the Life Company, the Company's primary operations
subsidiary. This issue also contains cross acceleration provisions. The issuance
of bonds payable was


                                      116
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 8 -- Debt and Line of Credit - (continued)

made pursuant to a $1.0 billion effective shelf registration statement, the
remaining capacity of the shelf registration is $500.0 million at December 31,
2004. The notes payable consists of debt issued by various operating
subsidiaries of the Company of which $327.4 million was outstanding at December
31, 2004 at John Hancock Canadian Corporation, a subsidiary of the Company, and
is fully guaranteed by the Company. The note payable is a $260.7 million
promissory note payable to a subsidiary of Manulife, which matures February 10,
2007, and bears interest at a rate of 0.25% over the 90-day Canadian Bankers
Acceptance Rate, and is payable quarterly.

      At December 31, 2004 the Company had two separate committed lines of
credit: one of $500 million, through a syndication of banks including Fleet
National Bank, JPMorgan Chase, Credit Suisse First Boston, The Bank of New York,
Barclays, The Bank of Nova Scotia, Wachovia, Royal Bank of Canada, State Street
Bank, Bank of America, Bank One, BNP Paribas, Deutsche Bank, PNC Bank, Sovereign
Bank, Westdeutsche Landesbank, Comerica Bank and Northern Trust (the "external
line of credit"); the second of $1.0 billion with the Company's parent, Manulife
(the "Manulife line of credit"). The external line of credit agreement provides
for a multi-year facility for $500 million (renewable in 2005). The external
line of credit is available for general corporate purposes. The external line of
credit agreement has no material adverse change clause, and includes, among
others, the following covenants: minimum requirements for JHFS shareholder's
equity, maximum limit on the capitalization ratio and a negative pledge clause
(with exceptions) as well as limitations on subsidiary debt, none of which were
triggered as of December 31, 2004. The external line of credit also contains
cross-acceleration provisions, none of which were triggered as of December 31,
2004. The fee structure of the external line of credit is determined by the
rating levels of JHFS or the Life Company. To date, the Company has not borrowed
any amounts under the external lines of credit as of December 31, 2004.

      The Manulife line of credit agreement provides for a 364-day credit
facility for $1.0 billion. Manulife 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, 2004. To date, we have not borrowed any amounts
under the external or Manulife lines of credit as of December 31, 2004.

      Aggregate maturities of long-term debt represent the enumerated
obligations owed pursuant to respective agreements therefore are not equivalent
to the U.S. GAAP carrying amount and are as follows: 2005--$137.7 million;
2006--$16.0 million; 2007--$306.9 million; 2008-- $501.2 million; 2009--$1.2
million and thereafter--$783.1 million.

      Interest expense on debt, included in other operating costs and expenses,
was $70.5 million and $32.3 million for the period April 29 through December 31,
2004 and January 1 through April 28, 2004, respectively. Interest expense on
debt, included in other operating costs and expenses, was $99.4 million and
$98.6 million 2003 and 2002, respectively. Interest paid amounted to $90.0
million and $21.1 million for the period April 29 through December 31, 2004 and
January 1 through April 28, 2004, respectively. Interest paid amounted to $96.2
million in 2003 and $89.6 million in 2002.

      Consumer Notes. The Life Company issues consumer notes through its
SignatureNotes program. SignatureNotes is an investment product sold through a
broker-dealer network to retail customers in the form of publicly traded fixed
and/or floating rate securities. SignatureNotes are issued weekly with a variety
of maturities, interest rates, and call provisions. SignatureNotes may be
redeemed upon the death of the holder, subject to an annual overall program
redemption limitation of 1% of the aggregate securities outstanding, or
$1,000,000, or an individual redemption limitation of $200,000 of aggregate
principal.

      Aggregate maturities of consumer notes are as follows: 2005--$22.1
million; 2006--$80.5 million; 2007--$144.0 million; 2008--$106.3 million;
2009--$38.2 million; and thereafter--$1,977.5 million.

      Interest expense on consumer notes, included in benefits to policyholders,
was $100.8 million in 2004, $39.0 million in 2003 and $2.5 million in 2002.
Interest paid amounted to $90.1 million in 2004, $29.8 million in 2003 and $1.4
million in 2002.


                                      117
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 9 -- Sale/Leaseback Transaction and Other Lease Obligations

      On March 14, 2003, the Company sold three of its Home Office complex
properties to Beacon Capital Partners for $910.0 million. As part of the
transaction, the Company entered into a long-term lease of the space it now
occupies in those buildings and plans on continuing to use them as its corporate
headquarters. As a result of the sale-leaseback transaction, the Company
recognized a current realized gain of $233.8 million and a deferred profit of
$247.7 million. A capital lease obligation of $90.0 million was recorded for one
of the properties, which has a 15 year market-based lease term. The other two
properties have operating market-based leases which range from 5 to 12 years.
The Company also provided Beacon Capital Partners with a long-term sublease on
the Company's parking garage. This sublease was terminated in April 2004, when
the Company sold the parking garage to Beacon Capital Partners. The Company
recognized a gain on the sale of the garage of $74.2 million. The Company has a
cancelable market rate lease for parking spaces at the garage.

      The future minimum lease payments payable by year and in the aggregate,
under the capital lease and under non-cancelable operating leases are presented
below:

<TABLE>
<CAPTION>
                                                                             Non-cancelable
                                                                               Operating
                                                              Capital Lease      Leases
                                                              -----------------------------
                                                                      (in millions)
<S>                                                              <C>             <C>
      2005...............................................        $   8.8         $42.0
      2006...............................................            8.8          42.0
      2007 ..............................................            8.8          37.1
      2008...............................................            8.8          34.1
      2009 ..............................................            8.8          31.0
      Thereafter ........................................           79.9         123.6
                                                                 -------       -------
      Total minimum lease payments ......................          123.9        $309.8
                                                                               =======
      Amounts representing interest .....................          (45.8)
                                                                 -------
      Present value of net minimum lease payments........           78.1
      Current portion of capital lease obligation........           (8.8)
                                                                 -------
      Present value of non-current portion of
        net minimum lease payments ......................        $  69.3
                                                                 =======
</TABLE>

Note 10 -- Related Party Transactions

      The Company provides certain administrative and asset management services
to its pension plans and employee welfare trust (the Plans). Fees paid to the
Company for these services were $6.4 million, $5.7 million and $7.2 million
during the years ended December 31, 2004, 2003 and 2002, respectively.

      The Company, in the ordinary course of business, invests funds deposited
with it by customers and manages the resulting invested assets for growth and
income for customers. From time to time, successful investment strategies of the
Company may attract deposits from affiliates of the Company. At December 31,
2004, the Company managed approximately $58.5 million of investments for
Manulife affiliates which generated market-based revenue for the Company.

      To effect the efficiencies of the merger with Manulife, the Company has an
arrangement with Manulife to share the cost of certain corporate services
including, among others, personnel, property facilities, catastrophic
reinsurance coverage, and directors' and officers insurance. In addition,
synergies of sales agents are being found whereby the Company has an arrangement
for the compensation of its sales agents for cross-selling products of Manulife
affiliates. Operational efficiencies identified in the merger are subject to a
service agreement between the Company's primary operating subsidiary, John
Hancock Life Insurance Company (the Life Company), and its affiliate Manulife
U.S.A., a U.S.-based life insurance subsidiary of Manulife, whereby the Company
is obligated to provide certain services in support of Manulife U.S.A's
business. Further, under the service agreement Manulife U.S.A. is obligated to
provide compensation to the Company for services provided. Through December 31,
2004, there had not been a material level of business transacted under the
service agreement and no material receivable is owed to the Company at period
end.


                                      118
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 10 -- Related Party Transactions - (continued)

      There are two Service Agreements, both effective as of April 28, 2004,
between the Life Company and The Manufacturers Life Insurance Company (U.S.A.)
which on January 1, 2005 changed its name to John Hancock Life insurance Company
(U.S.A.) ("John Hancock USA"). Under the one agreement the Life Company provides
services to John Hancock USA, and under the other John Hancock USA provides
services to the Life Company. In both cases the Provider of the services can
also employ a "Provider Affiliate" to provide services. In the case of the
service agreement where the Life Company provides services to John Hancock USA,
a "Provider Affiliate" means JHFS and its direct and indirect subsidiaries,
except for John Hancock USA. As of December 31, 2004, the Company has an accrued
payable of $9.8 million for these service agreements. John Hancock USA paid
$15.3 million and Manulife New York paid $0.9 million to Signator for
Commissions on Manulife product sales.

      Prior to its merger with Manulife, the Company reinsured certain portions
of its closed block with Manulife. During the fourth quarter of 2004, the Life
Company entered into an additional agreement covering closed block policies with
a Manulife affiliate. The Company entered into these reinsurance contracts in
order to facilitate its statutory capital management process. Both the original
and the revised reinsurance contracts are primarily written on a modified
coinsurance basis where the related financial assets remain invested at the
Company. The closed block reinsurance agreement is a financial reinsurance
agreement and does not meet the risk transfer definition for U.S. GAAP reporting
purposes. The agreement is accounted for under deposit accounting with only the
reinsurance risk fee being reported on the consolidated statements of income.
The Company's Consolidated Financial Statements do not report reinsurance ceded
premiums or reinsurance recoverable. The Company's Consolidated Financial
Statements report a risk fee that was paid to the Manulife reinsurance companies
for year 2004. This appears in other operating costs and expenses in the
Consolidated Statements of Income and was $1.5 million for the period the
Company operated as a subsidiary of Manulife, April 29, 2004 through December
31, 2004.

      The acquisition of the Company's shares by Manulife was effected through
the merger of the Company with Jupiter Merger Corporation (Jupiter), a
subsidiary of Manulife, which was organized solely for the purpose of effecting
the merger with the Company. Prior to the merger, Jupiter had a note payable to
MLI Resources, Inc., an affiliated Manulife entity, in the amount of $260.7
million in consideration for previously purchased shares of the Company, which
were cancelled upon merger. Subsequent to the merger, the Company included in
other liabilities a $260.7 million promissory note payable to a subsidiary of
Manulife, which matures February 10, 2007, and bears interest at a rate of 0.25%
over the 90-day Canadian Bankers Acceptance Rate, and is payable quarterly. The
Company paid $5.2 million to Manulife under the terms of the promissory note for
the post merger period April 29, 2004 through ended December 31, 2004.

      Manulife has a liquidity pool in which a subsidiary of the Company has
invested its excess cash. The resulting economies of scale allow Manulife to
earn a spread over the amount it pays the subsidiary and allows the Company's
subsidiary to earn improved returns on its excess cash. At December 31, 2004 the
balance outstanding was $17.5 million and is included in other assets on the
Company's Consolidated Balance Sheets. No such arrangement existed at December
31, 2003.

Transfer of Certain International Subsidiaries to Affiliates

      Pursuant to Manulife's rationalization of its worldwide business
operations along geographic lines, the Company's non-USA operations were or will
be transferred to Manulife's previously existing subsidiaries in each region of
the world. The transfers below were recorded by the Company as disposals of
businesses by other than sale, i.e. as disposals of business between entities
under common control. No gains or losses were recorded on these transfers. The
differences between the proceeds and the net carrying values of assets and
liabilities transferred was accounted for as capital transfers between the
Company and the respective Manulife subsidiary.

      On December 29, 2004, the remaining operations, assets, and liabilities of
the Maritime Life Assurance Company (Maritime Life), which was formerly reported
as the Company's Canada Segment, were transferred to The Manufacturers Life
Insurance Company (MLI), Manulife's primary Canadian insurance subsidiary.
Proceeds to the Company of the transfer were in the form of notes receivable
from affiliates, which are included in other assets on the Company's
Consolidated Balance Sheets. Maritime's net income is reflected in the Company's
Consolidated Statements of Income as income from discontinued operations for all
periods presented.


                                      119
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 10 -- Related Party Transactions - (continued)

      Subsequent to the merger with Manulife the Company transferred John
Hancock International Holdings' (JHIH) operations in Singapore, the Philippines,
Thailand and its Asian regional office to Manulife subsidiaries in corresponding
nations and locations. Proceeds to the Company of these transfers were in the
form of cash.

      Summarized financial data for these transfers are presented in the table
below (in millions):

      Net assets transferred.................................      $ 2,090.4
      Proceeds received......................................        2,154.5
                                                               --------------
      Capital transferred....................................      $    64.1
                                                               ==============

      On December 31, 2004, the Company had $2,100.8 million in notes receivable
from affiliates. These notes were received pursuant to the transfer of Maritime
Life to MLI. The first note receivable, payable by MFC, in the amount of
$1,703.2 million bears interest at 3.01%. The second note receivable, payable by
MLI, in the amount of $293.7 million bears interest at 2.97%. The notes
receivable from MFC and MLI are due on December 29, 2005, but may be extended
one year by the borrower. The third note receivable, payable by MLI, in the
amount of $103.9 million is a non-interest bearing demand note. These notes
receivable are included in other assets on the Company's Consolidated Balance
Sheets.

Event Subsequent

      On March 8, 2005 the Company borrowed $320.0 million from Manufacturer's
Hungarian Holdings Limited (MHHL) for capital planning purposes. The note
payable to MHHL bears interest at a rate of LIBOR plus 25 basis points, is
payable quarterly commencing March 28, 2005 and is due March 8, 2006. The
Company will include the note payable to MHHL in debt on its Consolidated
Balance Sheets.

Note 11 -- Minority Interests

      At December 31, 2004, minority interests consist of preferred stock issued
by Maritime Life and an outside equity interest in a consolidated investment
partnership. The assets, liabilities, revenues, expenses and earnings of the
investment partnership are consolidated in the Company's financial statements.
As part of aligning business with geographic similarities the Company
transferred the operations, assets and liabilities of its Canada Segment
consisting primarily of Maritime Life to MLI on December 29, 2004, see further
discussion of the transfer in Note 2 - Summary of Significant Accounting
Policies and Note 10- Related Party Transactions.

      Maritime Life's Series A Cumulative Redeemable Preferred Stock and Series
1, Non-Cumulative Redeemable Second Preferred Shares were redeemed in the
transfer of the Company's Canada Segment to MLI and therefore were not part of
the Company's minority interests at December 31, 2004. Maritime Life's
Non-Cumulative Redeemable Second Preferred Shares, Series 3 (Series 3 Preferred
Shares) was partially redeemed in the transfer of the Company's Canada Segment
to MLI; seventy-five percent, or $46.4 million, of this issue remains in the
Company's minority interests, or at December 31, 2004.

      Maritime's Life's Series 3 Preferred Shares was issued on December 13,
2002 as non cumulative redeemable preferred shares at a price of Cdn. $25 per
share. Dividends on the Series 3 Preferred Shares are payable quarterly, through
December 31, 2007, at a rate of Cdn. $0.38125 per preferred share, or 6.1% per
annum. The Series 3 Preferred Shares are nonvoting and redeemable at Maritime
Life's sole option any time on or after December 31, 2007 at Cdn. $26 per
preferred share, on or after December 31, 2008 at Cdn. $25.75 per preferred
share, on or after December 31, 2009 at Cdn. $25.50 per preferred


                                      120
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 11 -- Minority Interests - (continued)

share, on or after December 31, 2010 at Cdn. $25.25 per preferred share and on
or after December 31, 2011 at Cdn. $25.00 per preferred share.

      The minority interest in the equity of the consolidated investment
partnership reflects the original equity investment by minority investors in the
consolidated investment partnership, along with their proportional share of the
results of operations of the partnership.

Note 12 -- Reinsurance

      The effect of reinsurance on life, health and annuity premiums written and
earned was as follows:

<TABLE>
<CAPTION>
                                  April 29 through         January 1 through
                                  December 31, 2004          April 28, 2004
                                      Premiums                  Premiums               2003 Premiums            2002 Premiums
                                 --------------------------------------------------------------------------------------------------
                                  Written     Earned       Written     Earned       Written      Earned       Written       Earned
                                 --------------------------------------------------------------------------------------------------
                                                                        (in millions)

<S>                              <C>         <C>          <C>         <C>          <C>          <C>          <C>          <C>
Direct ......................    $1,701.8    $1,709.4     $  895.6    $  885.5     $2,893.2     $2,890.4     $2,652.4     $2,648.0

Assumed .....................       484.3       484.3        192.8       192.8        690.9        690.9        469.3        469.3

Ceded .......................      (322.5)     (322.5)      (161.7)     (161.7)      (570.7)      (570.7)      (421.5)      (421.5)
                                 -------------------------------------------------------------------------------------------------

Net life, health
   and annuity premiums .....    $1,863.6    $1,871.2     $  926.7    $  916.6     $3,013.4     $3,010.6     $2,700.2     $2,695.8
                                 =================================================================================================
</TABLE>

      For the period January 1 through April 28, and April 29 through December
31, 2004, benefits to policyholders under life, health and annuity ceded
reinsurance contracts were $117.4 million and $234.2 million, respectively. For
the years ended December 31, 2003 and 2002, benefits to policyholders under
life, health and annuity ceded reinsurance contracts were $351.4 million and
$549.6 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. The
Company remains liable to its policyholders to the extent that UNICARE does not
meet its contractual obligations under the coinsurance agreement.

       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.


                                      121
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- 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 funded
qualified and unfunded non-qualified defined benefit and qualified defined
contribution pension plans. Through the non-qualified defined benefit plans, the
Company provides supplemental pension benefits to employees with salaries and/or
pension benefits in excess of the qualified plan limits under applicable law.
Prior to 2002, pension benefits under the defined benefit plans were also based
on years of service and final average compensation (generally during the three
years prior to retirement). In 2001, the defined benefit pension plans were
amended to a cash balance basis under which benefits are based on career average
compensation. Under grandfathering rules, employees within 5 years of early
retirement eligibility or employees over age 40 and with at least 10 years of
service will receive pension benefits based on the greater of the benefit from
the cash balance basis or the prior final average salary basis. This amendment
became effective on January 1, 2002.

      Benefits related to the defined benefit pension plans paid to employees
and retirees were $80.6 million for the period January 1 through April 28, 2004
and $128.9 million for the period April 29 through December 31, 2004. Benefits
related to the defined benefit pension plans paid to employees and retirees were
$167.7 million and $161.0 million in 2003, and 2002, respectively.

      The Company uses a December 31 measurement date.

      Defined contribution plans include the Investment Incentive Plan and the
Savings and Investment Plan. The expense for defined contribution plans was $9.0
million, $9.6 million, and $10.4 million in 2004, 2003 and 2002, respectively.

      In addition to the Company defined benefit pension plans, the Company has
employee welfare plans for medical and life insurance covering most of its
retired employees and general agency personnel. Substantially all employees may
become eligible for these benefits if they reach certain age and service
requirements while employed by the Company. The postretirement health care
coverages are contributory based 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 the number of years of service. Dental
insurance is provided to eligible pre-January 1, 1992 retired employees.

      On December 8, 2003, President Bush signed into law a bill that expands
Medicare, primarily by adding a prescription drug benefit for Medicare-eligible
retirees starting in 2006. The Medicare Prescription Drug Improvement and
Modernization Act of 2003 provides for special tax-free subsidies to employers
that offer plans with qualifying drug coverages beginning in 2006. There are two
broad groups of retirees receiving employer-subsidized prescription drug
benefits from John Hancock. The first group, those who retired prior to January
1, 1992, receive a subsidy of between 90% and 100% of total cost. Since this
subsidy level will clearly meet Medicare's criteria for a qualifying drug
coverage, the Company anticipates that the benefits it pays after 2005 for pre
1992 retirees will be lower as a result of the new Medicare provisions. In
accordance with FASB Staff Position FAS 106-2, the Company reflected a reduction
in liability for this group of $40.9 million as of the purchase accounting
remeasurement (April 28, 2004). With respect to the second group, those who
retired on or after January 1, 1992, the employer subsidy on prescription drug
benefits is capped and currently provides as low as 25% of total cost. Since
final regulations on determining whether a benefit meets the actual criteria for
qualifying drug coverage have not been issued by Medicare as of December 31,
2004, the Company will address the impact of the Act with respect to post-1991
retirees once these clarifying regulations have been issued.


                                      122
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Pension Benefit Plans and Other Postretirement Benefit Plans -
(continued)

Obligations and Funded Status:

<TABLE>
<CAPTION>
                                                                                         Other Postretirement
                                                                   Pension Benefits            Benefits
                                                                           Years Ended December 31,
                                                                 --------------------------------------------
                                                                   2004        2003        2004        2003
                                                                 --------------------------------------------
                                                                                 (in millions)
<S>                                                              <C>         <C>         <C>         <C>
Change in benefit obligation:
Benefit obligation at beginning of year ................         $2,293.4    $2,097.6    $  625.0    $  591.6
Transfer subsidiary to affiliate .......................           (118.6)         --        (9.6)         --
Service cost ...........................................             22.3        28.2         1.4         1.6
Interest cost ..........................................            128.2       136.3        36.3        35.7
Amendments .............................................               --          --          --       (54.3)
Actuarial loss .........................................            126.4       169.1        54.0        97.0
Translation  loss ......................................               --        17.2          --         1.6
Benefits paid ..........................................           (209.5)     (171.5)      (51.1)      (44.2)
Curtailment ............................................               --          --          --        (0.8)
Acquisitions/ settlements ..............................               --        16.5          --        (3.2)
                                                                 --------------------------------------------
Benefit obligation at end of year ......................         $2,242.2    $2,293.4    $  656.0    $  625.0
                                                                 ============================================

Change in plan assets:
Fair value of plan assets at beginning of year .........         $2,218.1    $1,938.4    $  237.0    $  204.2
Transfer subsidiary to affiliate .......................           (116.9)         --          --          --
Actual return on plan assets ...........................            259.5       391.1        22.3        44.8
Employer contribution ..................................             53.9        15.3        51.1        32.3
Employee contribution ..................................               --          --         5.4         4.2
Benefits paid ..........................................           (209.5)     (171.5)      (56.5)      (48.5)
Translation gain .......................................               --        18.2          --          --
Acquisitions/ settlements ..............................               --        26.6          --          --
                                                                 --------------------------------------------
Fair value of plan assets at end of year ...............         $2,205.1    $2,218.1    $  259.3    $  237.0
                                                                 ============================================

Funded status ..........................................         $  (37.1)   $  (75.3)   $ (396.7)   $ (388.0)
Unrecognized actuarial (gain) loss .....................            (71.7)      421.7        23.3       157.5
Unrecognized prior service cost ........................               --        55.0          --       (81.2)
Unrecognized net transition asset ......................               --        (5.1)         --          --
                                                                 --------------------------------------------
Prepaid (accrued) benefit cost .........................         $ (108.8)   $  396.3    $ (373.4)   $ (311.7)
                                                                 ============================================

Amounts recognized in the Company's Consolidated
  Balance Sheets:
Prepaid benefit cost ...................................         $  154.1    $  586.7
Accrued benefit liability including minimum liability ..           (279.9)     (330.0)
Intangible asset .......................................               --         0.1
Accumulated other comprehensive income .................             17.0       139.5
                                                                 --------------------
Net amount recognized ..................................         $ (108.8)   $  396.3
                                                                 ====================
</TABLE>

The accumulated benefit obligations for all defined benefit pension plans was
$2,126.2 million and $2,181.3 million at December 31, 2004 and 2003,
respectively and is included in other liabilities on the Company's Consolidated
Balance Sheets.


                                      123
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Pension Benefit Plans and Other Postretirement Benefit Plans -
(continued)

Information for pension plans with accumulated benefit obligations in excess of
plan assets:

                                                      Years Ended December 31,
                                                    ----------------------------
                                                      2004                2003
                                                    ----------------------------
                                                           (in millions)
Projected benefit obligation.....................    $376.5              $391.2
Accumulated benefit obligation...................     355.3               367.5
Fair value of plan assets........................       4.3                38.3

Components of Net Periodic Benefit cost:

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                       -------------------------------------------------------------------------------
                                                    Pension Benefits                  Other Postretirement Benefits
                                       -------------------------------------------------------------------------------
                                                           April 29                 January 1    April 29
                                         January 1         through                   through      through
                                          through          December                 April 28,    December
                                       April 28, 2004      31, 2004      2003         2004       31, 2004       2003
                                       -------------------------------------------------------------------------------
                                                                       (in millions)
<S>                                       <C>               <C>         <C>         <C>           <C>         <C>
Service cost ........................     $  7.5            $ 14.8      $ 25.9      $  0.5        $  0.9      $  1.6
Interest cost .......................       43.2              85.0       130.5        11.8          24.5        35.3
Expected return on plan assets ......      (58.8)           (115.1)     (155.8)       (6.9)        (13.9)      (17.4)
Amortization of transition asset ....         --                --         0.1          --            --          --
Amortization of prior service cost ..        2.2                --         7.4        (2.5)           --        (6.6)
Recognized actuarial gain (loss) ....        8.3                --        29.7         4.2            --         6.9
                                       -----------------------------------------------------------------------------
Net periodic benefit (credit) cost ..     $  2.4            $(15.3)     $ 37.8      $  7.1        $ 11.5      $ 19.8
                                       =============================================================================
</TABLE>

Additional Information:

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                      ---------------------------------------------------------
                                                                                                Other
                                                                                           Postretirement
                                                               Pension Benefits                Benefits
                                                      -----------------------------------  --------------------
                                                       January 1    April 29
                                                        through     through
                                                       April 28,    December
                                                          2004      31, 2004     2003        2004     2003
                                                      ---------------------------------------------------------
                                                                           (in millions)
<S>                                                     <C>        <C>           <C>          <C>       <C>
Increase in minimum liabilities included in
  other comprehensive income ......................     $ (5.6)    $ (107.7)     $25.8        N/A       N/A
</TABLE>


                                      124
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Pension Benefit Plans and Other Postretirement Benefit Plans -
(continued)

Assumptions:

Weighted-average assumptions used to determine benefit obligation:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,

                                                                                     Other
                                                                                 Postretirement
                                                        Pension Benefits            Benefits
                                                        2004         2003        2004      2003
                                                       ------------------------------------------
<S>                                                     <C>          <C>        <C>       <C>
Discount rate...................................        5.75%        6.25%      5.75%      6.25%
Rate of compensation increase...................        4.00%        3.00%       N/A        N/A
Health care trend rate for following year.......                                10.50%    11.00%
Ultimate trend rate.............................                                5.00%      5.25%
Year ultimate rate reached......................                                 2016      2010
</TABLE>

Weighted-average assumptions used to determine net periodic benefit cost:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,

                                                                                     Other
                                                                                 Postretirement
                                                        Pension Benefits            Benefits
                                                        2004         2003        2004      2003
                                                       ------------------------------------------
<S>                                                     <C>          <C>        <C>       <C>
Discount rate........................................   6.25%        6.75%      6.00%      6.75%
Expected long-term return on plan assets.............   8.50%        8.75%      8.75%      8.75%
Rate of compensation increase........................   3.00%        3.50%       N/A        N/A
Health care trend rate for following year............                           11.00%    10.00%
Ultimate trend rate..................................                           5.00%      5.25%
Year ultimate rate reached...........................                            2016      2008
</TABLE>

      The Company generally determines the assumed long-term rate of return on
plan assets based on the rate expected to be earned for plan assets. The asset
mix based on the long-term investment policy and range of target allocation
percentages of the plans, and the Capital Asset Pricing Model are used as part
of that determination. Current conditions and published commentary/guidance from
United States Securities and Exchange Commission staff suggestions are also
considered.


                                      125
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Pension Benefit Plans and Other Postretirement Benefit Plans -
(continued)

      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  service and interest costs in 2004.......................        $ 1.7             $ (1.5)
Effect on postretirement benefit obligations as of December 31, 2004......         28.2              (24.9)
</TABLE>

Plan Assets

      The Company's weighted-average asset allocations for its plans at December
31, 2004 and 2003, by asset category are as follows:

                                                               Pension
                                                             Plan Assets
                                                           at December 31,
                                                    ----------------------------
                                                        2004             2003
                                                    ----------------------------
Asset Category:
Equity securities................................         65%              69%
Fixed maturity  securities.......................         25               24
Real estate......................................          2                2
Other............................................          8                5
                                                    -------------   ------------
         Total...................................        100%             100%
                                                    =============   ============

      The target allocations for assets of the Company's pension plans is
summarized below for major asset categories. Asset Category:

Equity securities...........................................     50% - 80%
Fixed maturity  securities..................................     25% - 35%
Real estate.................................................      1% - 5%
Other.......................................................      -% - 15%

       The plans did not own any of the common stock of Manulife at December 31,
2004 and did not own any of the common stock of the Company at December 31,
2003.

      Other postretirement benefit plan weighted-average asset allocations at
December 31, 2004, and 2003, by asset category are as follows:

                                                          Other Postretirement
                                                                Benefits
                                                               Plan Assets
                                                             at December 31,
                                                          --------------------
                                                           2004         2003
                                                          --------------------
Asset Category:
Equity securities....................................       61%          61%
Fixed maturity securities............................       39           38
Real estate..........................................       --           --
Other................................................       --            1
                                                          --------------------
         Total.......................................      100%         100%
                                                          ====================


                                      126
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Pension Benefit Plans and Other Postretirement Benefit Plans -
(continued)

      Plan assets for other post retirement benefits for non-union employees are
comprised of an irrevocable health insurance contract and a 401(h) account under
the pension plan. The plan assets for other postretirement benefits for other
employees are held in a 401(h) account under the pension plan. The plan assets
underlying the insurance contract have target allocations of approximately 60%
equity securities and 40% fixed maturity securities. The plan assets in the
401(h) account are invested on a combined basis with the assets of the Company's
defined benefit pension plans.

Cash Flows

      Contributions. The Company's funding policy for its qualified defined
benefit plans is to contribute annually an amount at least equal to the minimum
annual contribution required under the Employee Retirement Income Security Act
(ERISA) and other applicable laws, and, generally, not greater than the maximum
amount that can be deducted for Federal income tax purposes. In 2004, $2.3
million was contributed to these qualified plans and no contributions were made
in 2003. The entire $2.3 million was contributed to only one plan to ensure that
the plan's assets continued to exceed the plan's Accumulated Benefit Obligation.
Funding policy for the Company's non-qualified defined benefit plans is to
contribute the amount of the benefit payments made during the year. In 2004 and
2003, $51.6 million and $14.5 million, respectively, were contributed to three
non-qualified plans. In 2005, the Company expects to contribute approximately
$4.7 million to its qualified pension plans and approximately $64.3 million to
its non-qualified pension plans.

      The Company's policy is to fund its other post retirement benefits in
amounts at or below the annual tax qualified limits.

Projections for benefit payments for the next ten years are as follows:

Projected Employer Pension Benefits Payment

               Year         Total Qualified     Total Non-Qualified      Total
           ---------------------------------------------------------------------
                                         (in millions)
               2005             $ 146.8               $ 64.3           $ 211.1
               2006               134.8                 22.0             156.8
               2007               135.8                 23.1             158.9
               2008               135.7                 23.5             159.2
               2009               136.6                 22.4             159.0
             2010-2014            707.9                108.7             816.6

Projected Employer OPEB Benefits Payment (includes future service accruals)

                                                Net of Medicare
               Year        Gross Payments       Part D Subsidy      Net Payments
           ---------------------------------------------------------------------
                                        (in millions)
               2005            $ 53.5                    --           $ 53.5
               2006              55.6                $ (4.0)            51.6
               2007              56.5                  (4.1)            52.4
               2008              57.2                  (4.2)            53.0
               2009              57.5                  (4.2)            53.3
             2010-2014          285.1                 (20.6)           264.5


                                      127
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 13 -- Pension Benefit Plans and Other Postretirement Benefit Plans -
(continued)

      The information that follows shows supplemental information for the
Company's defined benefit pension plans. Certain key summary data is shown
separately for qualified plans and non-qualified plans.

Obligations and Funded Status:

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                             ---------------------------------------------------------------------------------
                                                               2004                                     2003
                                             ---------------------------------------------------------------------------------
                                                                               (in millions)
                                               Qualified   Non-Qualified                 Qualified   Non-Qualified
                                                 Plans         Plans         Total         Plans         Plans        Total
                                             ---------------------------------------------------------------------------------
<S>                                             <C>          <C>           <C>           <C>           <C>           <C>
Benefit obligation at the end of year .....     $1,865.7     $  376.5      $2,242.2      $1,945.3      $  348.1      $2,293.4
Fair value of plan assets at end of year ..      2,200.8          4.3       2,205.1       2,212.0           6.1       2,218.1
Funded status (assets less obligations) ...        335.1       (372.2)        (37.1)        266.7        (342.0)        (75.3)
Unrecognized net actuarial  loss (gain) ...        (99.0)        27.3         (71.7)        256.8         164.9         421.7
Unrecognized prior service cost ...........           --           --            --          65.9         (10.9)         55.0
Unrecognized transition asset .............           --           --            --          (5.1)           --          (5.1)
                                             --------------------------------------------------------------------------------
Prepaid (accrued) benefit cost ............     $  236.1     $ (344.9)     $ (108.8)     $  584.3      $ (188.0)     $  396.3
                                             ================================================================================

Amounts recognized in the Company's
  Consolidated Balance Sheets:
Prepaid benefit cost ......................     $  236.1     $  (82.0)     $  154.1      $  586.7            --      $  586.7
Accrued benefit liability including
   minimum liability ......................           --       (279.9)       (279.9)         (9.0)     $ (321.0)       (330.0)
Intangible asset ..........................           --           --            --            --           0.1           0.1
Accumulated other comprehensive income ....           --         17.0          17.0           6.6         132.9         139.5
                                             --------------------------------------------------------------------------------
Net amount recognized .....................     $  236.1     $ (344.9)     $ (108.8)     $  584.3      $ (188.0)     $  396.3
                                             ================================================================================

Components of net periodic benefit cost:

Service cost ..............................     $   19.7     $    2.6      $   22.3      $   24.1      $    1.8      $   25.9
Interest cost .............................        107.2         21.0         128.2         111.0          19.5         130.5
Expected return on plan assets ............       (173.7)        (0.2)       (173.9)       (155.6)         (0.2)       (155.8)
Amortization of transition asset ..........           --           --            --            --           0.1           0.1
Amortization of prior service cost ........          2.2           --           2.2           7.5          (0.1)          7.4
Recognized actuarial gain .................          3.9          4.4           8.3          20.1           9.6          29.7
                                             --------------------------------------------------------------------------------
Net periodic benefit (credit) cost ........     $  (40.7)    $   27.8      $  (12.9)     $    7.1      $   30.7      $   37.8
                                             ================================================================================
</TABLE>


                                      128
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 14 -- Commitments, Guarantees, Contingencies and Legal Proceedings

      Commitments. The Company has extended commitments to purchase fixed
maturity investments, preferred and common stock and other invested assets and
to issue mortgage loans on real estate totaling $323.5 million, $42.0 million,
$443.7 million and $558.8 million, respectively, at December 31, 2004. If
funded, loans related to real estate mortgages would be fully collateralized by
the mortgaged properties. The Company monitors the creditworthiness of borrowers
under long-term bond commitments and requires collateral as deemed necessary.
The estimated fair values of the commitments described above aggregate $1.4
billion at December 31, 2004. The majority of these commitments expire in 2005.

      Guarantees. In the course of business the Company enters into guarantees
which vary in nature and purpose and which are accounted for and disclosed under
accounting principles generally accepted in the U.S. specific to the insurance
industry. The Company has no material guarantees outstanding outside the scope
of insurance accounting at December 31, 2004.

      Contingencies. 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 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. During 2004, the Company received additional information about its
exposure and recognized an additional charge of $92.4 million, after tax, as its
current best estimate of its exposure as of December 31, 2004.

      Legal Proceedings. We are regularly involved in litigation, both as a
defendant and as a plaintiff. The litigation naming us as a defendant ordinarily
involves our activities as a provider of insurance protection and wealth
management products, as well as an investment adviser, employer and taxpayer. In
addition, state regulatory bodies, state attorneys general, the United States
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. and other government and regulatory bodies regularly make
inquiries and, from time to time, require the production of information or
conduct examinations concerning our compliance with, among other things,
insurance laws, securities laws, and laws governing the activities of
broker-dealers. As with many other companies in the financial services industry,
we have been requested or required by such government and regulatory authorities
to provide information with respect to market timing and late trading of mutual
funds and sales compensation and broker-dealer practices, including with respect
to mutual funds underlying variable life and annuity products. It is believed
that these inquiries are similar to those made to many financial service
companies by various agencies into practices, policies and procedures relating
to trading in mutual fund shares and sales compensation and broker-dealer
practices. We intend to continue to cooperate fully with government and
regulatory authorities in connection with their respective inquiries. We do not
believe that the conclusion of any current legal or regulatory matters, either
individually or in the aggregate, will have a material adverse effect on our
financial condition or results of operations.


                                      129
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 15 -- Shareholder's Equity

      (a) Preferred and Common Stock. Effective April 28, 2004, Manulife
acquired all the outstanding common shares of the Company that were not already
beneficially owned by Manulife as general fund assets and the Company became a
wholly owned subsidiary of Manulife. See Note 1 - Change of Control for
additional discussion of the merger. In the merger, the Company was
recapitalized with two classes of stock outstanding: one class of preferred
stock with $.01 par value and 1 (one) share authorized and issued; one class of
common stock with $.01 par value and 1,000 shares authorized and issued.

      Prior to the merger with Manulife, on June 8, 2001, the Company, using a
"shelf registration," registered $1.0 billion in debt securities, preferred
stock, common stock, warrants, stock purchase contracts and stock purchase
units. On November 29, 2001 the Company sold, under the $1.0 billion shelf,
$500.0 million in 7-year senior unsecured notes at a coupon of 5.625% with the
proceeds used for general corporate purposes. This shelf registration remained
effective at December 31, 2004.

      (b) Other Comprehensive Income. The components of accumulated other
comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                        Net
                                                     Unrealized   Net Accumulated   Foreign Currency   Minimum    Accumulated Other
                                                       Gains     Gains (losses) on     Translation     Pension      Comprehensive
                                                      (Losses)    Cash Flow Hedges     Adjustment     Liability        Income
                                                    -------------------------------------------------------------------------------
                                                                                     (in millions)
<S>                                                    <C>               <C>              <C>            <C>            <C>
Balance at December 31, 2001 .....................     $327.4            $ 19.1           $(80.7)        $(37.8)        $228.0
Gross unrealized gains (losses) (net of
  deferred income tax of $76.1 million) ..........      168.1                --               --             --          168.1
Reclassification adjustment for gains (losses),
  realized in net income (net of deferred
  income tax of $63.7 million) ...................      118.4                --               --             --          118.4
Adjustment for participating group annuity
  contracts (net of deferred income tax
  benefit of $14.6 million) ......................      (27.2)               --               --             --          (27.2)
Adjustment for deferred policy acquisition
  costs and value of business acquired
  (net of deferred income tax benefit of
  $31.1 million) .................................      (57.7)               --               --             --          (57.7)
Adjustment for policyholder dividend
  obligation (net of income tax benefit of
  $38.0 million) .................................      (70.7)               --               --             --          (70.7)
                                                    --------------------------------------------------------------------------
Net unrealized gains (losses) ....................      130.9                --               --             --          130.9
Net accumulated gains (losses) on cash flow
  hedges (net of income tax expense of
  $94.5 million) .................................         --             175.4               --             --          175.4
Foreign currency translation adjustment ..........         --                --             13.2             --           13.2
Minimum pension liability (net of deferred
  income tax benefit of $13.2 million) ...........         --                --               --          (24.3)         (24.3)
                                                    --------------------------------------------------------------------------
Balance at December 31, 2002 .....................     $458.3            $194.5           $(67.5)        $(62.1)        $523.2
                                                    ==========================================================================
</TABLE>


                                      130
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 15 -- Shareholder's Equity - (continued)

<TABLE>
<CAPTION>
                                                        Net
                                                     Unrealized   Net Accumulated   Foreign Currency   Minimum    Accumulated Other
                                                       Gains     Gains (losses) on     Translation     Pension      Comprehensive
                                                      (Losses)    Cash Flow Hedges     Adjustment     Liability        Income
                                                    -------------------------------------------------------------------------------
                                                                                     (in millions)
<S>                                                    <C>             <C>            <C>             <C>             <C>
Balance at December 31, 2002 ....................      $  458.3        $  194.5       $  (67.5)       $  (62.1)       $  523.2

Gross unrealized gains (losses) (net of
  deferred income tax of $571.4  million) .......       1,067.0              --             --              --         1,067.0
Reclassification adjustment for gains
  (losses), realized in net income (net of
  deferred income tax of $138.3 million) ........         256.8              --             --              --           256.8
Adjustment for participating group annuity
  contracts (net of deferred income tax
  benefit of $22.0 million) .....................         (40.9)             --             --              --           (40.9)
Adjustment for deferred policy acquisition
  costs and value of business acquired
  (net of deferred income tax benefit of
  $81.7 million) ................................        (152.2)             --             --              --          (152.2)
Adjustment for policyholder dividend
  obligation (net of income tax benefit
  of $59.2 million) .............................        (109.8)             --             --              --          (109.8)
                                                    ---------------------------------------------------------------------------
Net unrealized gains (losses) ...................       1,020.9              --             --              --         1,020.9
Net accumulated gains (losses) on cash flow
  hedges (net of income tax expense of
  $15.5 million) ................................            --            28.8             --              --            28.8
Foreign currency translation adjustment .........            --              --          137.9              --           137.9
Minimum pension liability (net of deferred
  income tax benefit of $11.6  million) .........            --              --             --           (21.9)          (21.9)
Change in accounting principle (net of income
  tax expense of $53.8 million) .................          99.9              --             --              --            99.9
                                                    ---------------------------------------------------------------------------
Balance at December 31, 2003 ....................      $1,579.1        $  223.3       $   70.4        $  (84.0)       $1,788.8
                                                    ===========================================================================
</TABLE>


                                      131
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 15 -- Shareholder's Equity - (continued)

<TABLE>
<CAPTION>
                                                        Net
                                                     Unrealized   Net Accumulated   Foreign Currency   Minimum    Accumulated Other
                                                       Gains     Gains (losses) on     Translation     Pension      Comprehensive
                                                      (Losses)    Cash Flow Hedges     Adjustment     Liability        Income
                                                    -------------------------------------------------------------------------------
                                                                                     (in millions)
<S>                                                   <C>              <C>             <C>             <C>            <C>
Balance at  December 31, 2003 ....................    $ 1,579.1        $  223.3        $   70.4        $  (84.0)      $ 1,788.8
Gross unrealized gains (losses) (net of
  deferred income tax benefit of
  $240.2 million) ................................       (459.3)             --              --              --          (459.3)
Reclassification adjustment for gains
  (losses), realized in net income (net of
  deferred income tax of $69.9 million) ..........        129.8              --              --              --           129.8
Adjustment for participating group annuity
  contracts (net of deferred income tax of
  $7.1 million) ..................................         13.1              --              --              --            13.1
Adjustment for deferred policy acquisition
  costs and value of business acquired (net
  of deferred income tax of $83.8 million) .......        155.5              --              --              --           155.5
Adjustment for policyholder dividend
  obligation (net of income tax of
  $39.9 million) .................................         74.1              --              --              --            74.1
                                                    ----------------------------------------------------------------------------
Net unrealized gains (losses) ....................        (86.8)             --              --              --           (86.8)
Net accumulated gains (losses) on cash flow
  hedges (net of income tax benefit of
  $21.8 million) .................................           --           (40.7)             --              --           (40.7)
Foreign currency translation adjustment ..........           --              --           (60.2)             --           (60.2)
Minimum pension liability (net of deferred
  income tax of $0.4  million) ...................           --              --              --             1.0             1.0
                                                    ----------------------------------------------------------------------------
Balance at April 28, 2004 ........................    $ 1,492.3        $  182.6        $   10.2        $  (83.0)      $ 1,602.1
                                                    ============================================================================

Acquisition by Manulife Financial Corporation:
  Sale of other comprehensive income .............    $(1,492.3)       $ (182.6)       $  (10.2)       $   83.0       $(1,602.1)
                                                    ----------------------------------------------------------------------------
Balance at April 29, 2004 ........................           --              --              --              --              --
                                                    ============================================================================

Balance at April 29, 2004 ........................           --              --              --              --              --
Gross unrealized gains (losses) (net of
  deferred income tax of $253.1 million) .........    $   472.5              --              --              --       $   472.5
Reclassification adjustment for gains
  (losses), realized in net income (net of
  deferred income tax of $40.1 million) ..........         74.5              --              --              --            74.5
Adjustment for deferred policy acquisition
  costs and value of business acquired (net
  of deferred income tax benefit of
  $31.7 million) .................................        (58.9)             --              --              --           (58.9)
Adjustment for policyholder dividend
  obligation (net of income tax benefit of
  $40.1 million) .................................        (74.6)             --              --              --           (74.6)
                                                    ----------------------------------------------------------------------------
Net unrealized gains (losses) ....................        413.5              --              --              --           413.5
Net accumulated gains (losses) on cash flow
  hedges (net of income tax expense of
  $100.6 million) ................................           --        $  225.1              --              --           225.1
Foreign currency translation adjustment ..........           --              --        $   16.3              --            16.3
Maximum pension liability (net of deferred
  income tax expense of $6.0 million) ............           --              --              --        $  (11.0)          (11.0)
                                                    ----------------------------------------------------------------------------
Balance at December 31, 2004 .....................    $   413.5        $  225.1        $   16.3        $  (11.0)      $   643.9
                                                    ============================================================================
</TABLE>


                                      132
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 15 -- Shareholder's Equity - (continued)

      Net unrealized investment gains (losses), included in the Company's
Consolidated Balance Sheets as a component of shareholder's equity, are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                         2004        2003        2002
                                                                                     ------------------------------------
                                                                                                (in millions)
<S>                                                                                    <C>         <C>         <C>
Balance, end of year comprised of:
  Unrealized investment gains (losses) on:
    Fixed maturity securities....................................................      $ 828.4     $ 2,990.2   $ 1,092.3
    Equity investments...........................................................          9.0         129.3        47.5
    Derivatives and other........................................................          2.8          90.0        36.2
                                                                                     ------------------------------------
Total............................................................................        840.2       3,209.5     1,176.0
                                                                                     ------------------------------------
  Amounts of unrealized investment (gains) losses attributable to:
    Participating group annuity contracts........................................           --            --       (90.8)
    Deferred policy acquisition cost and value of business acquired..............        (90.6)       (380.8)     (146.9)
    Policyholder dividend obligation.............................................       (114.7)       (422.9)     (253.9)
    Deferred Federal income taxes................................................       (221.4)       (826.7)     (226.1)
                                                                                     ------------------------------------
Total............................................................................       (426.7)     (1,630.4)     (717.7)
                                                                                     ------------------------------------
Net unrealized investment gains..................................................      $ 413.5     $ 1,579.1    $  458.3
                                                                                     ------------------------------------
</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. For
the Life Company, the Commonwealth of Massachusetts only recognizes statutory
accounting practices prescribed or permitted by Massachusetts insurance
regulations and laws. The National Association of Insurance Commissioners'
"Accounting Practices and Procedures" manual (NAIC SAP) has been adopted as a
component of prescribed or permitted practices by Massachusetts. The
Commissioner of Insurance has the right to permit other specific practices that
deviate from prescribed practices, otherwise known as permitted practices.


                                      133
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 15 -- Shareholder's Equity - (continued)

      From time to time the Company has requested permission from the
Commonwealth of Massachusetts Division of Insurance (the Division) for a
permitted accounting practice. The Company currently has one permitted practices
which relate to an admitted asset for an after-tax ceding commission in the
acquisition of the fixed universal life insurance business of Allmerica
Financial.

      On December 31, 2002, the Company entered into indemnity coinsurance
agreements, under which it assumed 100% of the liabilities for the fixed
universal life insurance blocks of Allmerica Financial Life Insurance and
Annuity Company and First Allmerica Financial Life Insurance Company. The
Division provided the Company approval to record the after-tax ceding commission
of $37.8 million, $51.1 million and $60.5 million on the purchase as goodwill at
December 31, 2004, 2003 and 2002, respectively. This amount will be amortized
over a ten year period. The impact on statutory net income was an amortization
expense of $12.4 million and $9.3 million in 2004 and 2003, respectively. There
was no amortization expense in 2002. As a result of this permitted practice, the
Company's reported capital and surplus for the 2004, 2003 and 2002 reporting
periods was increased by $37.8 million, $51.1 million and $60.5 million,
respectively.

      There are no other material permitted practices.

      Statutory net income and surplus in the table below include the accounts
of the John Hancock Life Insurance Company.

                                                  2004        2003        2002
                                                --------------------------------
                                                         (in millions)
Statutory net income.........................   $  481.9    $  441.7    $  210.4
Statutory capital and surplus................    4,084.5     3,789.9     3,524.1

      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 16 -- Segment Information

      As a result of Manulife's merger of the Company, see Note 1- Change of
Control, the Company renamed and reorganized certain businesses within its
operating segments to better align the Company with its new parent, Manulife.
The Company renamed the Asset Gathering Segment as the Wealth Management Segment
and the Maritime Life Segment was renamed the Canada Segment. On December 29,
2004, the Canada Segment, whose primary business was the operations of Maritime
Life, was transferred to The Manufacturers Life Insurance Company (MLI),
Manulife's primary Canadian insurance subsidiary; see Note 2 - Summary of
Significant Accounting Policy. Canada Segment's net income is reflected in the
Company's Consolidated Statements of Income as income from discontinued
operations for all periods presented. No gain or loss was recorded in the
Company's Consolidated Income Statements on this transfer of a business between
entities under common control. The remaining Canada Segment notes receivable,
equity and interest earned on the notes receivable are reported in the Corporate
and Other Segment. Further efforts at reorganization of JHFS included the
movement of the Institutional Investment Management Segment to the Corporate and
Other Segment. Other realignments include moving Signator Investors, Inc. our
agent sales organization, from Wealth Management to Protection, and group life,
retail discontinued operations, discontinued health insurance operations and
creditor from Corporate and Other to Protection. Direct Foreign Operations (DFO)
and International Group Plans (IGP) remain in international operations and John
Hancock Accident remains in our non-core business in our Corporate and Other
Segment while in Manulife's segment results DFO will be reported in Asia, and
IGP and John Hancock Accident will be reported in Reinsurance. On September 30,
2004, the Company's Singapore subsidiary, the John Hancock Life Assurance
Limited in Singapore (JHLAC), a DFO subsidiary, was transferred from the Company
to Manulife (Singapore) Private Limited, a wholly owned subsidiary of Manulife;
see Note 2 - Summary of Significant Accounting Policy. No gain or loss was
recorded in the Company's Consolidated Income Statements on this transfer of a
business between entities under common control. The financial results for all
periods have been reclassified to conform to the current period presentation.


                                      134
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Segment Information - (continued)

      During the majority of 2004, the Company operated in the following five
business segments: two segments primarily served retail customers, one segment
served institutional customers, one segment served primarily Canadian retail and
group customers and our fifth segment was the Corporate and Other Segment, which
includes our institutional advisory business, the remaining international
operations, and the corporate account. Our retail segments are the Protection
Segment and the Wealth Management Segment, previously called Asset Gathering.
Our institutional segment is the Guaranteed and Structured Financial Products
Segment (G&SFP). As previously discussed, the Canada Segment was transferred to
an affiliated entity on December 29, 2004 and is presented in the discussion
below as a disposed operation. In addition, in January 2005, the Company
announced the transfer of the G&SFP Segment to the Wealth Management Segment
with an intended focus on retail customers in the future. G&SFP is presented as
its own operating segment for the discussion of 2004 results below. See below
for a more detail description of the Company's reportable segments.

      Prior to the merger, the Company operated in the following six business
segments: two segments served primarily domestic retail customers, two segments
served primarily domestic institutional customers, one segment served primarily
Canadian retail and group customers and our sixth segment was the Corporate and
Other Segment, which included our remaining international operations, the
corporate account and run-off from several discontinued business lines. Our
retail segments were the Protection Segment and the Asset Gathering Segment. Our
institutional segments were the Guaranteed and Structured Financial Products
(G&SFP) Segment and the Investment Management Segment. Our Canada Segment,
previously the Maritime Life Segment, consisted primarily of the financial
results of our former Canadian operating subsidiary, Maritime Life. For
additional information about the Company's pre-acquisition business segments,
please refer to the Company's 2003 Form 10-K.

      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.

      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 individual 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.

      Wealth Management 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, institutional advisory accounts and privately
managed accounts. This segment distributes its products through distribution
channels including insurance agents and brokers affiliated with the Company,
securities brokerage firms, financial planners, pension plan sponsors, pension
plan consultants and banks.

      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. The segment's
consumer notes program distributes primarily through brokers affiliated with the
Company and securities brokerage firms. The segment's new banking products
distribute primarily through the broker-dealer network to the retail investors.
In addition, in January 2005, the Company announced the transfer of the G&SFP
Segment to the Wealth Management Segment.

      Corporate and Other Segment. Primarily consists of the Company's remaining
international insurance operations, certain corporate operations, the
institutional investment management business 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.


                                      135
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Segment Information - (continued)

      Subsequent to the merger, the Company changed its methodology for
determining how much capital is needed to support its operating segments and
redeployed capital according to the new methodology. As part of this process,
the Company moved certain tax preferenced investments from the operating
segments to the Corporate and Other Segment. These steps were taken as part of
the alignment of the Company's investment and capital allocation processes with
those of its parent, and they could have a material impact on each operating
segment's investment income and net income in future periods.

      The accounting policies of the segments are the same as those described in
Note 2 - 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.

      The following table summarizes selected financial information by segment
for the periods and dates indicated. Included in the Protection Segment for all
periods presented are the assets, liabilities, revenues and expenses of the
closed block. For additional information on the closed block see Note 7 - Closed
Block in the notes to the consolidated financial statements.


                                      136
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Segment Information - (continued)

      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):

<TABLE>
<CAPTION>
                                                                           Wealth                    Corporate
                                                            Protection   Management       G&SFP      and Other    Consolidated
                                                            -----------------------------------------------------------------
<S>                                                         <C>           <C>           <C>           <C>           <C>
For the period from April 29 though December 31, 2004
Revenues:
Revenues from external customers .......................    $ 1,729.9     $   350.0     $   159.4     $   600.5     $  2,839.8
Net investment income ..................................        884.3         417.9         844.4          15.4        2,162.0
Net realized investment and other gains (losses) .......         (4.0)        (19.4)         29.1           2.0            7.7
Inter-segment revenues .................................           --           0.9           0.4          (1.3)            --
                                                            ------------------------------------------------------------------
Revenues ...............................................    $ 2,610.2     $   749.4     $ 1,033.3     $   616.6     $  5,009.5
                                                            ==================================================================
Net Income:
Income from continuing operations ......................    $   259.1     $   136.8     $   128.7     $  (143.9)    $    380.7
Income from discontinued operations ....................           --            --           1.5          85.7           87.2
                                                            ------------------------------------------------------------------
Net income .............................................    $   259.1     $   136.8     $   130.2     $   (58.2)    $    467.9
                                                            ==================================================================
Supplemental Information:
Equity in net income of investees accounted
  for by the equity method .............................    $    35.8     $    14.4     $    45.5     $    31.8     $    127.5
Carrying amount of investments accounted
  for under the equity method ..........................        768.8         316.2         685.2         721.2        2,491.4
Amortization of deferred policy acquisition costs
  and value of business acquired, excluding amounts
  related to net realized investment and other
  gains (losses) .......................................         80.9          53.0          38.8          (2.6)         170.1
Interest expense .......................................          0.2            --            --          70.3           70.5
Income tax expense .....................................        137.9          60.8          53.3        (116.1)         135.9
Segment assets .........................................    $41,051.5     $19,545.1     $34,610.4     $ 6,441.6      101,648.6
Net Realized Investment and Other Gains
  (Losses) Data:
Net realized investment and other gains (losses) .......    $   (20.3)    $   (24.1)    $    64.0     $     1.9     $     21.5
Plus amortization of deferred policy acquisition
  costs  and value of business acquired related to
  net realized investment and other gains (losses)  ....          8.2           4.7            --            --           12.9
Less amounts credited to participating pension
  contractholder accounts ..............................           --            --         (34.9)          0.1          (34.8)
Add amounts credited to the policyholder
  dividend obligation ..................................          8.1            --            --            --            8.1
                                                            ------------------------------------------------------------------
Net realized investment and other gains (losses),
  net of related amortization of deferred policy
  acquisition costs, value of business acquired
  amounts credited to participating pension
  contractholders and amounts credited to the
  policyholder dividend obligation--per consolidated
  financial statements .................................    $    (4.0)    $   (19.4)    $    29.1     $     2.0     $      7.7
                                                            ==================================================================
</TABLE>


                                      137
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Segment Information - (continued)

<TABLE>
<CAPTION>
                                                                           Wealth                  Corporate
                                                            Protection   Management     G&SFP      and Other   Consolidated
                                                            ---------------------------------------------------------------
<S>                                                         <C>          <C>          <C>          <C>          <C>
For the period from January 1 though April 28, 2004
Revenues:
Revenues from external customers .......................    $  901.8     $  116.6     $  124.3     $  283.1     $1,425.8
Net investment income ..................................       496.4        237.5        533.8         43.5      1,311.2
Inter-segment revenues .................................          --          0.4          0.2         (0.6)          --
Net realized investment and other gains (losses) .......       (13.1)        (1.5)        (9.0)       103.6         80.0
                                                            ---------------------------------------------------------------
Revenues ...............................................    $1,385.1     $  353.0     $  649.3     $  429.6     $2,817.0
                                                            ===============================================================
Net Income:
Income from continuing operations ......................        98.7         52.2         79.3         38.7        268.9
Income from discontinued operations ....................          --           --          1.8         70.7         72.5
Cumulative effect of accounting change
  net of income tax ....................................        (0.9)        (2.7)         0.4         (1.1)        (4.3)
                                                            ---------------------------------------------------------------
Net income .............................................    $   97.8     $   49.5     $   81.5     $  108.3     $  337.1
                                                            ===============================================================
Supplemental Information:
Equity in net income of investees accounted
  for by the equity method .............................    $   11.4     $    3.1     $   11.5     $   45.1     $   71.1
Amortization of deferred policy acquisition costs and
  value of business acquired, excluding amounts
  related to net realized investment and other
  gains (losses) .......................................        83.6         50.0         (0.1)         6.3        139.8
Interest expense .......................................          --           --           --         25.3         25.3
Income tax expense .....................................        47.0         25.5         30.6         12.0        115.1
Net Realized Investment and Other Gains
  (Losses) Data:
Net realized investment and other gains (losses) .......    $   14.0     $   (5.7)    $   (0.8)    $  103.7     $  111.2
Plus amortization of deferred policy acquisition
  costs and value of business acquired related to net
  realized investment and other gains (losses) .........         6.9          4.2           --           --         11.1
Less amounts credited to participating pension
  contractholder accounts ..............................          --           --         (8.2)        (0.1)        (8.3)
Add amounts credited to the policyholder
  dividend obligation ..................................       (34.0)          --           --           --        (34.0)
                                                            ---------------------------------------------------------------
Net realized investment and other gains (losses),
  net of related amortization of deferred policy
  acquisition costs, value of business acquired,
  amounts credited to participating pension
  contractholders and amounts credited to the
  policyholder dividend obligation--per
  consolidated financial statements ....................    $  (13.1)    $   (1.5)    $   (9.0)    $  103.6     $   80.0
                                                            ===============================================================
</TABLE>


                                      138
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Segment Information - (continued)

<TABLE>
<CAPTION>
                                                                           Wealth                  Corporate
                                                            Protection   Management     G&SFP      and Other   Consolidated
                                                            ---------------------------------------------------------------
<S>                                                         <C>          <C>          <C>          <C>          <C>
2003
Revenues:
Revenues from external customers .......................    $ 2,593.2     $   413.0   $   525.3    $   909.3    $  4,440.8
Net investment income ..................................      1,461.7         709.4     1,679.2         (1.0)      3,849.3
Inter-segment revenues .................................           --           1.2         0.7         (1.9)           --
Net realized investment and other gains (losses) .......        (27.2)        (47.0)     (216.4)       314.4          23.8
                                                            --------------------------------------------------------------
Revenues ...............................................    $ 4,027.7     $ 1,076.6   $ 1,988.8    $ 1,220.8    $  8,313.9
                                                            ==============================================================
Net Income:
Income from continuing operations ......................    $   341.6     $   162.4   $   186.7    $   148.0    $    838.7
Income from discontinued operations ....................           --            --        (0.9)       134.4         133.5
Cumulative effect of accounting change net of tax ......         (6.2)         (4.5)     (155.5)          --        (166.2)
                                                            --------------------------------------------------------------
Net income .............................................    $   335.4     $   157.9   $    30.3    $   282.4    $    806.0
                                                            ==============================================================
Supplemental Information:
Equity in net income of investees accounted
  for by the equity method .............................    $    31.0     $    16.9   $    57.9    $    35.1    $    140.9
Carrying amount of investments accounted
  3for under the equity method .........................        410.2         249.2       586.1        758.4       2,003.9
Amortization of deferred policy acquisition costs and
  value of business acquired, excluding amounts
  related to net realized investment and other
  gains (losses) .......................................        224.7         111.4         2.3          4.7         343.1
Interest expense .......................................          0.2            --          --         82.0          82.2
Income tax expense .....................................        168.8          73.2        69.6          5.1         316.7
Segment assets .........................................    $36,528.0     $18,704.7   $36,791.9    $19,681.6    $111,706.2
Net Realized Investment and Other Gains
  (Losses) Data:
Net realized investment and other gains (losses) .......    $   (93.0)    $   (33.3)  $  (219.6)   $   314.4    $    (31.5)
Plus amortization of deferred policy acquisition
  costs related to net realized investment and other
  gains (losses) .......................................          7.3         (13.7)         --           --          (6.4)
Less amounts credited to participating pension
  contractholder accounts ..............................           --            --         3.2           --           3.2
Add amounts credited to the policyholder dividend
  obligation ...........................................         58.5            --          --           --          58.5
                                                            --------------------------------------------------------------
Net realized investment and other gains (losses),
  net of related amortization of deferred policy
  acquisition costs, amounts credited to
  participating pension contractholders and
  amounts credited to the policyholder dividend
  obligation--per consolidated financial statements ....    $   (27.2)    $   (47.0)  $  (216.4)   $   314.4    $     23.8
                                                            ==============================================================
</TABLE>


                                      139
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Segment Information - (continued)

<TABLE>
<CAPTION>
                                                                           Wealth                  Corporate
                                                            Protection   Management     G&SFP      and Other   Consolidated
                                                            ---------------------------------------------------------------
<S>                                                         <C>          <C>          <C>          <C>          <C>
2002
Revenues:
Revenues from external customers .......................    $ 2,599.3    $   397.2    $   352.8    $   739.5    $ 4,088.8
Net investment income ..................................      1,355.0        575.0      1,704.7         (6.4)     3,628.3
Inter-segment revenues .................................           --          1.1           --         (1.1)          --
Net realized investment and other gains (losses) .......        (65.9)       (42.8)      (313.6)       (26.2)      (448.5)
                                                            -------------------------------------------------------------
Revenues ...............................................    $ 3,888.4    $   930.5    $ 1,743.9    $   705.8    $ 7,268.6
                                                            =============================================================
Net Income:
Income from continuing operations ......................    $   255.6    $    97.0    $    84.3    $     4.2    $   441.1
Income from discontinued operations ....................           --           --         (1.5)        59.9         58.4
                                                            -------------------------------------------------------------
Net income .............................................    $   255.6    $    97.0    $    82.8    $    64.1    $   499.5
                                                            =============================================================
Supplemental Information:
Equity in net income of investees accounted
  for by the equity method .............................    $    17.9    $     8.7    $    34.5    $     5.7    $    66.8
Carrying amount of investments accounted
  for under the equity method ..........................        213.0        137.5        387.3        706.6      1,444.4
Amortization of deferred policy acquisition costs and
  value of business acquired, excluding amounts
  related to net realized investment and other
  gains (losses) .......................................        190.8        140.5          2.2          4.3        337.8
Interest expense .......................................          0.5          0.5           --         80.0         81.0
Income tax expense .....................................        140.2         41.2         26.0       (116.8)        90.6
Segment assets .........................................    $32,262.0    $16,037.9    $34,396.7    $15,167.5    $97,864.1
Net Realized Investment and Other Gains
  (Losses) Data:
Net realized investment and other gains (losses) .......    $   (87.6)   $   (71.0)   $  (336.9)   $   (26.2)   $  (521.7)
Plus amortization of deferred policy acquisition
  costs and value of business acquired related to net
  realized investment and other gains (losses) .........          9.8         28.2           --           --         38.0
Less amounts credited to participating pension
   contractholder accounts .............................           --           --         23.3           --         23.3
Add amounts credited to the policyholder
   dividend obligation .................................         11.9           --           --           --         11.9
                                                            -------------------------------------------------------------
Net realized investment and other gains (losses),
  net of related amortization of deferred policy
  acquisition costs, value of business acquired,
  amounts credited to participating pension
  contractholders and amounts credited to the
  policyholder dividend obligation--per consolidated
  financial statements .................................    $   (65.9)   $   (42.8)   $  (313.6)   $   (26.2)   $  (448.5)
                                                            =============================================================
</TABLE>


                                      140
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 16 -- Segment Information - (continued)

      The Company operates primarily in the United States, and until December 29
2004, in Canada and the Pacific Rim (including 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,
                                                                                     Discontinued
                                                                                    Operations and
                                                       Long-lived                Cumulative Effect of
                                           Revenues      Assets         Assets    Accounting Changes
                                          -----------------------------------------------------------
                                                               (in millions)
<S>                                       <C>           <C>           <C>             <C>
April 29 through December 31, 2004
United States ........................    $  4,639.9    $    254.0    $ 99,349.3      $    499.0
Canada ...............................           0.5            --       2,013.6             0.8
Foreign--other .......................         369.1           0.3         285.7            16.8
                                          ------------------------------------------------------
                                          $  5,009.5    $    254.3    $101,648.6      $    516.6
                                          ======================================================
January 1 through April 28, 2004
United States ........................    $  2,654.8    $    280.8    $ 96,529.2      $    380.7
Canada ...............................           0.1          79.9      14,427.2             1.3
Foreign--other .......................         162.1           3.2       1,058.3             2.0
                                          ------------------------------------------------------
                                          $  2,817.0    $    363.9    $112,014.7      $    384.0
                                          ======================================================
2003
United States ........................    $  7,759.4    $    284.4    $ 95,810.2      $  1,140.0
Canada ...............................          20.2          86.4      14,921.8             1.3
Foreign--other .......................         534.3           3.6         974.2            14.1
                                          ------------------------------------------------------
                                          $  8,313.9    $    374.4    $111,706.2      $  1,155.4
                                          ======================================================
2002
United States ........................    $  6,840.0    $    184.2    $ 86,018.5      $    523.0
Canada ...............................          18.2          58.1      11,047.6             0.7
Foreign--other .......................         410.4           3.9         798.0             8.0
                                          ------------------------------------------------------
                                          $  7,268.6    $    246.2    $ 97,864.1      $    531.7
                                          ======================================================
</TABLE>

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


                                      141
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 17 -- 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 below 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 below.

      Methods and assumptions used by the Company to determine the fair values
      of financial instruments included the following:

         For fixed maturity securities, (including redeemable preferred stocks)
         fair values are obtained from external pricing services where
         available, broker dealer quotes are used for thinly traded securities
         and a spread pricing matrix is used when price quotes are not
         available, which typically is the case for our private placement
         securities. The spread pricing matrix is based on credit quality,
         country of issue, market sector and average investment life and is
         created for these dimensions through brokers' estimates of public
         spreads derived from their respective publications. At the end of each
         quarter, our Investment Review Committee reviews all securities where
         market value is less than ninety percent of amortized cost for three
         months or more to determine whether impairments need to be taken. This
         committee includes the head of workouts, the head of each industry
         team, the head of portfolio management, and the Credit Chief Officer of
         Manulife. The analysis focuses on each company's or project's ability
         to service its debts in a timely fashion and the length of time the
         security has been trading below amortized cost. The results of this
         analysis are reviewed by the Credit Committee at Manulife. This
         committee includes Manulife's Chief Financial Officer, Chief Investment
         Officer, Chief Risk Officer, Chief Credit Officer and other senior
         management. This quarterly process includes a fresh assessment of the
         credit quality of each investment in the entire fixed maturities
         portfolio.

         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 value 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 values for
         commercial paper and short-term borrowings approximate fair value.

         Fair values for the Company's guaranteed investment contracts, consumer
         notes, 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 account value adjusted for current market interest
         rates. 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
         outstanding commitment.


                                      142
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 17 -- Fair Value of Financial Instruments - (continued)

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

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                              -------------------------------------------------------
                                                                         2004                        2003
                                                               Carrying                    Carrying
                                                                Value       Fair Value       Value       Fair Value
                                                              -------------------------------------------------------
                                                                                   (in millions)
<S>                                                            <C>           <C>           <C>           <C>
Assets:
Fixed maturities:
      Held-to-maturity ...................................            --            --     $ 1,498.6     $ 1,523.0
      Available-for-sale .................................     $48,491.0     $48,491.0      51,887.0      51,887.0
      Trading securities .................................            --            --          42.2          42.2
Equity securities:
      Available-for-sale .................................         330.5         330.5         795.1         795.1
      Trading securities .................................           4.2           4.2         448.4         448.4
Mortgage loans on real estate ............................      11,816.2      11,896.7      12,936.0      13,979.5
Policy loans .............................................       2,012.0       2,012.0       2,117.9       2,117.9
Short-term investments ...................................           3.0           3.0         121.6         121.6
Cash and cash equivalents ................................       1,396.9       1,396.9       3,121.6       3,121.6
Derivatives:
      Futures contracts, net .............................           1.1           1.1           0.5           0.5
      Interest rate swap agreements ......................         341.1         341.1         190.5         190.5
      Interest rate swap CMT .............................            --            --           0.7           0.7
      Interest rate cap agreements .......................          11.8          11.8          28.2          28.2
      Interest rate floor agreements .....................          85.3          85.3          76.0          76.0
      Currency rate swap agreements ......................         899.7         899.7         790.3         790.3
      Foreign exchange forward ...........................            --            --           4.4           4.4
      Credit default swaps ...............................           0.9           0.9           1.9           1.9
      Equity collar agreements ...........................            --            --           2.0           2.0
      Equity options .....................................            --            --           1.2           1.2
      Equity swaps .......................................            --            --           0.1           0.1
Liabilities:
Consumer notes ...........................................       2,379.1       2,360.9       1,550.4       1,473.0
Debt .....................................................       2,183.3       2,214.6       1,895.3       2,025.8
Guaranteed investment contracts and funding agreements ...      14,643.0      14,689.9      17,540.9      17,550.5
Fixed rate deferred and immediate annuities ..............      11,047.7      11,067.8      10,336.0      10,602.9
Supplementary contracts without life contingencies .......          78.0          69.0          56.6          61.6
Derivatives:
      Futures contracts, net .............................            --            --           0.2           0.2
      Interest rate swap agreements ......................         449.9         449.9         842.2         842.2
      Interest rate swaption agreements ..................           3.4           3.4           2.6           2.6
      Currency rate swap agreements ......................         858.9         858.9         677.1         677.1
      Credit default swaps ...............................           2.5           2.5           1.4           1.4
Commitments ..............................................            --       1,428.2            --       2,494.0
</TABLE>


                                      143
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 18 -- Goodwill and Other Intangible Assets

      The Company recognized several intangible assets during Manulife's merger
with the Company, and subsequently derecognized intangible assets belonging to
its Canadian and Asian subsidiaries which were transferred to Manulife's
respective Canadian and Asian operations. See Note 1 - Change of Control for
additional discussion of the Merger and see Note 2- Summary of Significant
Accounting Policies for additional discussion of the transfers.

      Unamortizable assets include goodwill, brand name and investment
management contracts. Goodwill is the excess of the cost to Manulife over the
fair value of the Company's identifiable net assets acquired by Manulife in the
recent merger. Brand name is the fair value of the Company's trademark and trade
name acquired by Manulife in the recent merger. Investment management contracts
are the fair values of the investment management relationships between the
Company and each of the mutual funds managed by the Company acquired by Manulife
in the recent merger.

      Amortizable assets include value of business acquired (VOBA), distribution
networks and other investment management contracts. VOBA is the present value of
estimated future profits of insurance policies in force related to businesses
acquired by Manulife in the recent merger. VOBA had weighted average lives
ranging from 6 to 17 years for various insurance businesses at the merger.
Distribution networks are values assigned to the Company's networks of sales
agents and producers responsible for procuring business acquired by Manulife in
the recent merger. Distribution networks had weighted average lives of 21 years
at the merger. Other investment management contracts are the values assigned to
the Company's individual and group benefit contracts managed by its Canadian
subsidiary, as well as contracts managed by its wealth management segment and
several investment groups in its corporate segment acquired by Manulife in the
recent merger. At December 31, 2004, other investment management contracts
remaining after the Company's transfers of its Canadian and Asian businesses are
those in the Wealth Management and Corporate and Other Segments. Other
investment management contracts had weighted average lives of 9 years at the
merger. Collectively, these amortizable intangible assets had a weighted average
life of 15 years at the merger.

      Brand name, distribution networks, and other investment management
contracts were initially recognized at the time of the acquisition of the
Company by Manulife in the recent merger. Goodwill, investment management
contracts and VOBA were expanded in scope and size as a result of the merger.

      The Company will test unamortizable intangible assets for impairment on an
annual basis, and also in response to any events which suggest that these assets
may be impaired (triggering events). Amortizable intangible assets will be
tested only in response to triggering events. The Company will test goodwill
using the two-step impairment testing program set forth in SFAS No. 142
"Goodwill and Other Intangible Assets." The Company's other intangible assets
will be evaluated by comparing their fair values to their current carrying
values whenever they are tested. Impairments will be recorded whenever an
intangible asset's fair value is deemed to be less than its carrying value.


                                      144
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 18 -- Goodwill and Other Intangible Assets - (continued)

      The following tables set forth certain summarized financial information
relating to the Company's intangible assets as of the dates and periods
indicated.

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                                              Gross Carrying      Amortization     Net Carrying
                                                                  Amount       and Other Changes      Amount
                                                              -------------------------------------------------
                                                                                (in millions)
<S>                                                              <C>                <C>             <C>
December 31, 2004
     Unamortizable intangible assets
              Goodwill .....................................     $3,098.3           $  (35.1)       $3,063.2
              Brand name ...................................        600.0                 --           600.0
              Investment management contracts ..............        292.9                 --           292.9
     Amortizable intangible assets:
              Distribution networks ........................        397.2               (0.7)          396.5
              Other investment management contracts ........         61.7               (2.6)           59.1
              VOBA .........................................      3,124.9             (173.4)        2,951.5
December 31, 2003
      Unamortizable intangible assets:
              Goodwill .....................................     $  424.5           $  (79.5)       $  345.0
              Mutual fund investment management contracts ..         13.3               (7.0)            6.3
      Amortizable intangible assets:
              VOBA .........................................        585.1              (34.6)          550.5
</TABLE>

<TABLE>
<CAPTION>
                                                                         Period from
                                                                           April 29   Period from
                                                                           through     January 1
                                                                           December  through April
                                                                           31, 2004     28, 2004      2003     2002
                                                                         -------------------------------------------
<S>                                                                         <C>          <C>        <C>      <C>
Aggregate amortization expense                                                            (in millions)
Distribution networks, net of tax of $ 0.2 million, $ -- million,
  $--million and $-- million, respectively .............................    $ 0.5           --         --       --
Other management contract amortization, net of tax of $ 0.9 million,
  $ -- million, $--million and,  $--million, respectively ..............      1.7           --         --       --
VOBA, net of tax of $45.4 million,  $2.2 million, $1.4 million and
  $0.4 million, respectively ...........................................     84.4        $ 4.0      $ 3.0    $ 0.9
                                                                           -----------------------------------------
Aggregate amortization expense, net of tax of $ 46.5 million,
  $2.2 million, $ 1.4 million and $0.4 million, respectively ...........    $86.6        $ 4.0      $ 3.0    $ 0.9
                                                                           =========================================
</TABLE>


                                      145
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 18 -- Goodwill and Other Intangible Assets - (continued)

<TABLE>
<CAPTION>
                                                                                              Tax      Net
                                                                                             Effect  Expense
                                                                                            ------------------
                                                                                               (in millions)
<S>                                                                                          <C>       <C>
Estimated future aggregate amortization expense for the years ending December 31,
      2005..............................................................................     $ 72.2    $ 134.1
      2006..............................................................................       66.7      123.9
      2007..............................................................................       59.3      110.1
      2008..............................................................................       52.8       98.1
      2009..............................................................................       49.7       92.2
</TABLE>

      The following tables present the continuity of each of the Company's
unamortizable and amortizable intangible assets for the periods presented.

   Unamortizable intangible assets:

<TABLE>
<CAPTION>
                                                                                                 Corporate
                                                            Wealth                                  And
                                           Protection     Management       G&SFP      Canada       Other     Consolidated
                                          --------------------------------------------------------------------------------
                                                                          (in millions)

<S>                                          <C>            <C>              <C>       <C>          <C>         <C>
Goodwill:
Balance at January 1, 2004..........         $ 66.1         $ 42.1           --        $ 236.4      $ 0.4       $  345.0

Other adjustments (1).................           --             --           --          (13.0)        --          (13.0)
                                          -------------------------------------------------------------------------------
Balance at April 28, 2004...........         $ 66.1         $ 42.1           --        $ 223.4      $ 0.4       $  332.0
                                          ===============================================================================
</TABLE>

(1)   JHFS's Canada segment was transferred to MLI in 2004. Other adjustments
      include foreign currency translation adjustment of $(13.0) million.

<TABLE>
<CAPTION>
                                                                                               Corporate
                                                            Wealth                                And
                                           Protection     Management     G&SFP      Canada       Other     Consolidated
                                          ------------------------------------------------------------------------------
                                                                        (in millions)
<S>                                          <C>           <C>            <C>       <C>          <C>          <C>
Goodwill:
Balance at April 29, 2004 ......             $   66.1      $   42.1        --       $  223.4     $    0.4     $  332.0
Goodwill derecognized (1) ......                (66.1)        (42.1)       --         (223.4)        (0.4)      (332.0)
Goodwill recognized (2) ........              1,842.3       1,040.0        --        1,318.9        216.0      4,417.2
Other adjustments (3) ..........                   --            --        --       (1,318.9)       (35.1)    (1,354.0)
                                          ------------------------------------------------------------------------------
Balance at December 31, 2004 ...             $1,842.3      $1,040.0        --             --     $  180.9     $3,063.2
                                          ==============================================================================
</TABLE>

(1)   Goodwill derecognized in the purchase transaction with Manulife.
(2)   Goodwill recognized in the purchase transaction with Manulife. JHFS's
      Canada segment was transferred to MLI in 2004.
(3)   Also, certain Asian operations, included in Corporate and Other, were
      transferred to Manulife's Asian subsidiaries in 2004.


                                      146
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 18 -- Goodwill and Other Intangible Assets - (continued)

Unamortizable intangible assets - (continued):

<TABLE>
<CAPTION>
                                                                                          Corporate
                                                       Wealth                                And
                                      Protection     Management     G&SFP      Canada       Other     Consolidated
                                     ------------------------------------------------------------------------------
                                                                        (in millions)
<S>                                    <C>            <C>            <C>      <C>          <C>          <C>
Balance at January 1, 2003 .....       $ 66.1         $ 42.1         --       $146.0       $  0.4       $254.6
Other adjustments (1) ..........           --             --         --         90.4           --         90.4
                                     ------------------------------------------------------------------------------
Balance at December 31, 2003 ...       $ 66.1         $ 42.1         --       $236.4       $  0.4       $345.0
                                     ==============================================================================
</TABLE>

(1)   JHFS's Canada segment was transferred to MLI in 2004. Other adjustments
      include $57.1 million goodwill recognized in Canada segment's acquisition
      of Liberty Health, and $33.3 foreign currency translation adjustment.

<TABLE>
<CAPTION>
                                                                                          Corporate
                                                       Wealth                                And
                                      Protection     Management     G&SFP      Canada       Other     Consolidated
                                     ------------------------------------------------------------------------------
                                                                   (in millions)
<S>                                    <C>              <C>            <C>        <C>      <C>          <C>
Brand name:
Balance at January 1, 2004 .....           --               --         --         --           --           --
Brand name recognized (1) ......       $364.4           $209.0         --         --       $ 26.6       $600.0
                                     -------------------------------------------------------------------------------
Balance at December 31, 2004 ...       $364.4           $209.0         --         --       $ 26.6       $600.0
                                     ===============================================================================
</TABLE>

(1)   Brand name recognized in the purchase transaction with Manulife.

<TABLE>
<CAPTION>
                                                                                              Corporate
                                                           Wealth                                And
                                          Protection     Management     G&SFP      Canada       Other     Consolidated
                                         ------------------------------------------------------------------------------
                                                                       (in millions)
<S>                                            <C>          <C>           <C>        <C>          <C>        <C>
Investment management contracts:
Balance at January 1, 2004 .........           --           $  6.3        --         --           --         $  6.3
Investment management contracts
  derecognized (1) .................           --             (6.3)       --         --           --           (6.3)
Investment management contracts
  recognized (2) ...................           --            292.9        --         --           --          292.9
Other adjustments ..................           --               --        --         --           --             --
                                          ------------------------------------------------------------------------------
Balance at December 31, 2004 .......           --           $292.9        --         --           --         $292.9
                                          ==============================================================================
</TABLE>

(1)   Investment management contracts derecognized in the purchase transaction
      with Manulife.
(2)   Investment management contracts recognized in the purchase transaction
      with Manulife.

<TABLE>
<CAPTION>
                                                                                              Corporate
                                                           Wealth                                And
                                          Protection     Management     G&SFP      Canada       Other     Consolidated
                                         ------------------------------------------------------------------------------
                                                                       (in millions)
<S>                                          <C>           <C>            <C>         <C>         <C>         <C>
Investment management contracts:
Balance at January 1, 2003..........         --            $ 5.2          --          --          --          $ 5.2
Acquisitions(1).....................         --              1.1          --          --          --            1.1
                                       ---------------------------------------------------------------------------------
Balance at December 31, 2003........         --            $ 6.3          --          --          --          $ 6.3
                                        ================================================================================
</TABLE>

(1)  This increase results from JH Fund's purchases of the mutual fund
     investment management contracts for the US Global Leaders Fund, Classic
     Value Fund, and Large Cap Select Fund in 2003.


                                      147
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 18 -- Goodwill and Other Intangible Assets - (continued)

Amortizable intangible assets:

<TABLE>
<CAPTION>
                                                                                               Corporate
                                                            Wealth                                And
                                           Protection     Management     G&SFP      Canada       Other     Consolidated
                                          ------------------------------------------------------------------------------
                                                                        (in millions)
<S>                                         <C>            <C>           <C>        <C>          <C>       <C>
Distribution networks:
Balance at January 1, 2004 ..............         --           --         --            --        --           --
Distribution networks recognized (1) ....     $308.6       $ 88.6         --        $ 59.9        --       $457.1
Amortization ............................       (0.7)          --         --            --        --         (0.7)
Other adjustments (2) ...................         --           --         --        $(59.9)       --        (59.9)
                                           -----------------------------------------------------------------------------
Balance at December 31, 2004 ............     $307.9       $ 88.6         --            --        --       $396.5
                                           =============================================================================
</TABLE>

(1)   Distribution networks recognized in the purchase transaction with
      Manulife.
(2)   JHFS's Canada segment was transferred to MLI in 2004. For these
      discontinued operations, the amortization expense for the period was
      $(2.0) million and the foreign currency translation adjustment was $ 8.5
      million.

<TABLE>
<CAPTION>
                                                                                         Corporate
                                                      Wealth                                And
                                     Protection     Management     G&SFP      Canada       Other     Consolidated
                                    ------------------------------------------------------------------------------
                                                                  (in millions)
<S>                                     <C>         <C>            <C>         <C>         <C>         <C>
Other investment management
contracts:
Balance at January 1, 2004 .....         --             --          --             --          --          --
Other investment management
  contracts recognized (1) .....         --         $ 20.3          --         $ 77.2      $ 41.4      $138.9
Amortization ...................         --           (0.8)         --             --        (1.8)       (2.6)
Other adjustments (2) ..........         --             --          --         $(77.2)         --       (77.2)
                                    ------------------------------------------------------------------------------
Balance at December 31, 2004 ...         --         $ 19.5          --             --      $ 39.6      $ 59.1
                                    ==============================================================================
</TABLE>

(1)   Other investment management contracts recognized in the purchase
      transaction with Manulife.
(2)   JHFS's Canada segment was transferred to MLI in 2004. For these
      discontinued operations, the amortization expense for the period was $
      (4.5) million, and the foreign currency translation adjustment was $ 10.4
      million.

<TABLE>
<CAPTION>
                                                                                           Corporate
                                                        Wealth                                And
                                       Protection     Management     G&SFP      Canada       Other     Consolidated
                                      ------------------------------------------------------------------------------
                                                                      (in millions)
<S>                                      <C>           <C>            <C>      <C>         <C>          <C>
VOBA:
VOBA balance at January 1, 2004 ....     $232.8          --           --       $317.7          --       $550.5
Amortization .......................       (6.2)         --           --           --          --         (6.2)
Adjustment to unrealized gains on
  securities available for sale ....        5.5          --           --           --          --          5.5
Other adjustments (1)(2) ...........       (1.4)         --           --        (74.1)         --        (75.5)
                                      ------------------------------------------------------------------------------
VOBA balance at April 28, 2004 .....     $230.7          --           --       $243.6          --       $474.3
                                      ==============================================================================
</TABLE>

(1)   VOBA existing prior to the merger with Manulife related to the acquisition
      of the fixed universal life insurance business of Allmerica was adjusted
      to reflect adjustments to the purchase equation.
(2)   Other adjustments to the Canadian segment included $ (2.6) million
      amortization expense for the period, $ 4.8 million adjustment to
      unrealized gains on securities available for sale, foreign currency
      translation adjustment of $ (15.6) million, and $ (60.7) million
      adjustment to VOBA as a result of the adoption of AICPA SOP 03-1.


                                      148
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 18 -- Goodwill and Other Intangible Assets - (continued)

<TABLE>
<CAPTION>
                                                                                           Corporate
                                                        Wealth                                And
                                       Protection     Management     G&SFP      Canada       Other     Consolidated
                                      ------------------------------------------------------------------------------
                                                                        (in millions)
<S>                                     <C>             <C>          <C>         <C>           <C>         <C>
VOBA:
Balance at April 29, 2004 ...........     $  230.7            --           --    $  243.6          --     $  474.3
VOBA derecognized (1) ...............       (230.7)           --           --      (243.6)         --       (474.3)
                                                                                                                 $
VOBA recognized (2) .................      2,402.2      $  474.9     $  247.8       756.3      $  4.8      3,886.0
Amortization ........................        (44.5)        (47.1)       (38.1)         --          --       (129.7)
Adjustment to unrealized gains on
   securities available for sale ....        (22.3)        (21.4)          --          --          --        (43.7)
Other adjustments (3)(4) ............           --            --           --      (756.3)       (4.8)      (761.1)
                                      ------------------------------------------------------------------------------
Balance at December 31, 2004 ........     $2,335.4      $  406.4     $  209.7          --          --     $2,951.5
                                      ==============================================================================
</TABLE>

(1)   VOBA derecognized in the purchase transaction with Manulife.
(2)   VOBA recognized in the purchase transaction with Manulife.
(3)   JHFS's Canada segment was transferred to MLI in the fourth quarter of
      2004. For these discontinued operations, the amortization expense was
      $(23.3) million for the period, and the foreign currency translation
      adjustment was $104.0 million.
(4)   JHFS' Singapore insurance operations (JH Singapore), included in Corporate
      and Other, were transferred to Manulife Singapore in 2004. The
      amortization expense related with these discontinued operations was $(0.2)
      million for the period.

<TABLE>
<CAPTION>
                                                                                           Corporate
                                                        Wealth                                And
                                       Protection     Management     G&SFP      Canada       Other     Consolidated
                                      ------------------------------------------------------------------------------
                                                                        (in millions)
<S>                                       <C>             <C>        <C>        <C>           <C>       <C>
VOBA:
Balance at January 1, 2003 ..........     $244.1          --         --         $237.6         --       $481.7
Amortization ........................      (12.7)         --         --             --         --        (12.7)
Adjustment to unrealized gains on
   securities available for sale ....       (2.8)         --         --             --         --         (2.8)
Other adjustments (1)(2) ............        4.2          --         --           80.1         --         84.3
                                      ------------------------------------------------------------------------------
Balance at December 31, 2003 ........     $232.8          --         --         $317.7         --       $550.5
                                      ==============================================================================
</TABLE>

(1)   An adjustment of $4.2 million was made to previously recorded VOBA
      relating to the acquisition of the fixed universal life insurance business
      of Allmerica, to reflect refinements in methods and assumptions
      implemented upon finalization of transition.
(2)   Other adjustments to the Canadian segment included $8.3 million
      amortization expense for the period, $25.4 million VOBA recognized in its
      acquisition of Liberty Health, $(9.3) million adjustment to unrealized
      gains on securities available for sale, and foreign currency translation
      adjustment of $55.7 million.


                                      149
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 19 -- Certain Separate Accounts

      The Company issues variable annuity contracts through its separate
accounts for which investment income and investment gains and losses accrue
directly to, and investment risk is borne by, the contract holder (traditional
variable annuities). The Company also issues variable life insurance and
variable annuity contracts which contain certain guarantees (variable contracts
with guarantees) which are discussed more fully below.

     During 2004 and 2003, there were no gains or losses on transfers of assets
from the general account to the separate account. The assets supporting the
variable portion of both traditional variable annuities and variable contracts
with guarantees are carried at fair value and reported as summary total separate
account assets with an equivalent summary total reported for liabilities.
Amounts assessed against the contractholders for mortality, administrative, and
other services are included in revenue and changes in liabilities for minimum
guarantees are included in policyholder benefits in the Company's Statements of
Income. Separate account net investment income, net investment gains and losses,
and the related liability changes are offset within the same line items in the
Company's Statements of Income.

      The deposits related to the variable life insurance contracts are invested
in separate accounts and the Company guarantees a specified death benefit if
certain specified premiums are paid by the policyholder, regardless of separate
account performance.

      In 2004, the Company transferred its Canada segment to MLI. Therefore the
Canada segment's separate account assets and various guarantees are not included
in the Company's 2004 year end balances, but included in the Company's 2003 year
end balances.

      At December 31, 2004 and December 31, 2003, the Company had the following
variable life contracts with guarantees. For guarantees of amounts in the event
of death, the net amount at risk is defined as the excess of the initial sum
insured over the current sum insured for fixed premium variable life contracts,
and, for other variable life contracts, is equal to the sum insured when the
account value is assumed to be zero and the policy is still in force.

                                                   December 31,   December 31,
                                                       2004           2003
                                                   ---------------------------
                                                   (in millions, except for age)
Life contracts with guaranteed benefits
  In the event of death
  Account value...................................   $ 6,899.0      $ 6,249.4
  Net amount at risk related to deposits .........       117.5          106.2
  Average attained age of contractholders ........        44             46

      The variable annuity contracts are issued through separate accounts and
the Company contractually guarantees to the contract holder either (a) return of
no less than total deposits made to the contract less any partial withdrawals,
(b) total deposits made to the contract less any partial withdrawals plus a
minimum return, (c) the highest contract value on a specified anniversary date
minus any withdrawals following the contract anniversary or (d) a combination
benefit of (b) and (c) above. Most business issued after May 2003 has a
proportional partial withdrawal benefit instead of a dollar-for-dollar
relationship. These variable annuity contract guarantees include benefits that
are payable in the event of death or annuitization, or at specified dates during
the accumulation period.

      At December 31, 2004 and December 31, 2003, the Company had the following
variable contracts with guarantees. The Company's variable annuity contracts
with guarantees may offer more than one type of guarantee in each contract;
therefore, the amounts listed are not mutually exclusive. For guarantees of
amounts in the event of death, the net amount at risk is defined as the current
guaranteed minimum death benefit in excess of the current account balance at the
balance sheet date. For guarantees of amounts at annuitization, the net amount
at risk is defined as the present value of the minimum guaranteed annuity
payments available to the contract holder determined in accordance with the
terms of the contract in excess of the current account balance. For guarantees
of accumulation balances, the net amount at risk is defined as the guaranteed
minimum accumulation balance minus the current account balance.


                                      150
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 19 -- Certain Separate Accounts - (continued)

<TABLE>
<CAPTION>
                                                                2004              2003
                                                       ------------------------------------
                                                    (in millions, except for ages and percents)
<S>                                                           <C>               <C>
Return of net deposits
In the event of death
  Account value .................................             $3,273.7          $6,776.9
  Net amount at risk ............................                121.5             359.9
  Average attained age of contractholders .......                   64                58

Return of net deposits plus a minimum return
In the event of death
  Account value .................................             $  985.2          $1,051.7
  Net amount at risk ............................                212.9             230.7
  Average attained age of contractholders .......                   65                63
  Guaranteed minimum return rate ................                   5%                5%
Accumulation at specified date
  Account value .................................                   --          $  636.0
  Net amount at risk ............................                   --              20.3
  Average attained age of contractholders .......                   --                55
  Range of guaranteed minimum return rates ......                   --                --
At annuitization
  Account value .................................             $  212.0          $  169.4
  Net amount at risk ............................                 21.0                --
  Average attained age of contractholders .......                   59                57
  Range of guaranteed minimum return rates ......                 4-5%              4-5%

Highest specified anniversary account value minus
  withdrawals post anniversary
In the event of death
  Account value .................................             $1,177.0          $3,959.3
  Net amount at risk ............................                139.2             566.2
  Average attained age of contractholders .......                   63                56
</TABLE>


                                      151
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 19 -- Certain Separate Accounts - (continued)

      Account balances of variable contracts with guarantees were invested in
variable separate accounts in various mutual funds which included foreign and
domestic equities and bonds as shown below:

                                                              December 31,
                                                          2004            2003
                                                       -------------------------
Type of Fund                                                 (in millions)

Domestic Equity - Growth Funds .................       $ 3,031.6       $ 3,409.0
Domestic Bond Funds ............................         2,211.2         2,737.9
Domestic Equity - Growth & Income Funds ........         2,348.1         2,341.2
Balanced Investment Funds ......................         2,103.5         2,840.5
Domestic Equity - Value Funds ..................         1,097.8           865.0
Canadian Equity Funds ..........................              --         1,555.3
International Equity Funds .....................           902.9           853.2
International Bond Funds .......................           119.4           107.3
Hedge Funds ....................................            31.8            22.7
                                                       ---------       ---------
 Total .........................................       $11,846.3       $14,732.1
                                                       =========       =========

The following table summarizes the liabilities for guarantees on variable
contracts reflected in the general account:

<TABLE>
<CAPTION>
                                                        Guaranteed        Guaranteed
                                                       Minimum Death    Minimum Income
                                                      Benefit (GMDB)    Benefit (GMIB)      Totals
                                                      ------------------------------------------------
                                                                      (in millions)
<S>                                                       <C>                <C>           <C>
Balance at January 1, 2004.........................       $ 32.9             $ 1.0         $ 33.9
Incurred guarantee benefits .......................          5.1               0.0            5.1
Fair value adjustment at Manulife acquisition......          7.9               0.6            8.5
Paid guarantee benefits ...........................         (8.7)              0.0           (8.7)
                                                      ------------------------------------------------
Balance at December 31, 2004.......................       $ 37.2             $ 1.6         $ 38.8
                                                      ================================================
</TABLE>

      The GMDB liability is determined each period end by estimating the
expected value of death benefits in excess of the projected account balance and
recognizing the excess ratably over the accumulation period based on total
expected assessments. The Company regularly evaluates estimates used and adjusts
the additional liability balance, with a related charge or credit to benefit
expense, if actual experience or other evidence suggests that earlier
assumptions should be revised. The following assumptions and methodology were
used to determine the GMDB liability at December 31, 2004.

o     Data used included 200 and 1,000 (for annuity and life contracts,
      respectively) stochastically generated investment performance scenarios.

o     Volatility assumptions depended on mix of investments by contract type and
      ranged between 13.8% (life products) and 19% (annuity products).

o     Life products used purchase GAAP mortality, lapse, mean investment
      performance, and discount rate assumptions included in the related
      deferred acquisition cost (DAC) and value of business acquired (VOBA)
      models which varied by product.


                                      152
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 19 -- Certain Separate Accounts - (continued)

o     Mean investment performance assumption for annuity contracts was 8.67%.

o     Annuity mortality was assumed to be 100% of the Annuity 2000 Table for the
      Life Company annuities and 100% of the a-83 Basic Table for Maritime
      annuities.

o     Annuity lapse rates vary by contract type and duration and range from 1%
      to 20%.

o     Annuity discount rate was 6.5%.

      The guaranteed minimum income benefit (GMIB) liability represents the
expected value of the annuitization benefits in excess of the projected account
balance at the date of annuitization, recognizing the excess ratably over the
accumulation period based on total expected assessments. The Company regularly
evaluates estimates used and adjusts the additional liability balance, with a
related charge or credit to benefit expense, if actual experience or other
evidence suggests that earlier assumptions should be revised. The guaranteed
minimum accumulation benefit (GMAB) liability is determined each period end by
calculating the highest investment value occurring ten or more years prior to
each contract's maturity, applying the guaranteed rates of 75% or 100% depending
upon the type of contract and adjusting the results proportionately for any new
deposits or withdrawals within the final ten years to maturity.


                                      153
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company

      The following condensed consolidating financial statements are provided in
compliance with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and in accordance with Rule 12h-5 of the Commission.

      John Hancock Variable Life Insurance Company (the Variable Company) is a
wholly-owned subsidiary of JHFS. The Variable Company sells deferred annuity
contracts, which are registered products with the Commission and which feature a
market value adjustment. As of December 31, 2004, JHFS provides a full and
unconditional guarantee of the Variable Company's obligation to pay amounts due
to contractholders on surrender, withdrawal or annuitization of the Variable
Company's deferred annuity contracts' market value adjustment interest. In
addition, JHFS guarantees all Variable Company's future issues of deferred
annuity contracts with market value adjustments.

      JHFS is an insurance holding company. The assets of JHFS consist primarily
of the outstanding capital stock of the Life Company and certain international
subsidiaries. JHFS' cash flow primarily consists of dividends from its operating
subsidiaries and proceeds from debt offerings (see Note 8--Debt and Line of
Credit) offset by expenses, shareholder dividends and stock repurchases. As a
holding company, the Company's ability to meet its cash requirements, including,
but not limited to, paying interest on any debt, paying expenses related to its
affairs, paying dividends on its common stock and any board of directors
approved repurchase of its common stock pursuant to the board of director's
approved plan, substantially depends upon dividends from its operating
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, which pays dividends to JHFS, is limited to the
greatest of 10% of its statutory surplus or its prior calendar year's statutory
net gain from operations. 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, might also be commercially domiciled in New York. If so, dividend
payments would 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.


                                      154
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

                     CONDENSED CONSOLIDATING BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         John Hancock
                                                           John Hancock  Variable Life                                Consolidated
                                                             Financial     Insurance                                  John Hancock
                                                             Services       Company         Other                      Financial
                                                            (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                           ------------------------------------------------------------------------
                                                                                         (in millions)
<S>                                                          <C>           <C>            <C>           <C>             <C>
December 31, 2004
Assets:
Invested assets .........................................    $     18.4    $  5,439.3     $ 60,311.7    $    546.3      $ 66,315.7
Cash and cash equivalents ...............................           7.5          85.7        1,289.1          14.6         1,396.9
Investment in unconsolidated subsidiaries ...............      12,452.5         135.2             --     (12,587.7)             --
Other assets ............................................         110.5       2,170.6       12,889.3          12.6        15,183.0
Separate account assets .................................            --       7,335.7       11,417.3            --        18,753.0
                                                            ----------------------------------------------------------------------
      Total Assets ......................................    $ 12,588.9    $ 15,166.5     $ 85,907.4    $(12,014.2)     $101,648.6
                                                            ======================================================================
Liabilities:
Insurance liabilities and Consumer Notes ................            --    $  5,415.8     $ 60,360.6    $    429.1      $ 66,205.5
Debt ....................................................    $  1,113.3            --        1,070.0            --         2,183.3
Other liabilities .......................................         142.9         380.3        2,590.2           9.2         3,122.6
Separate account liabilities ............................            --       7,335.7       11,417.3            --        18,753.0
                                                            ----------------------------------------------------------------------
      Total Liabilities .................................       1,256.2      13,131.8       75,438.1         438.3        90,264.4

Preferred shareholder's equity in subsidiary
  companies .............................................            --            --           51.5            --            51.5
Shareholder's equity(1) .................................      11,332.7       2,034.7       10,417.8     (12,452.5)       11,332.7
                                                            ----------------------------------------------------------------------
      Total Liabilities, Preferred Shareholder's
        Equity in Subsidiary Companies and
        Shareholder's Equity(1) .........................    $ 12,588.9    $ 15,166.5     $ 85,907.4    $(12,014.2)     $101,648.6
                                                            ======================================================================

December 31, 2003
Assets:
Invested assets .........................................    $      5.0    $  4,810.2     $ 67,704.9    $    533.0      $ 73,053.1
Cash and cash equivalents ...............................          17.6          49.4        3,036.3          18.3         3,121.6
Investment in unconsolidated subsidiaries ...............       9,045.1         124.6             --      (9,169.7)             --
Other assets ............................................         161.5       1,581.7        9,875.6        (209.2)       11,409.6
Separate account assets .................................            --       6,881.9       17,240.0            --        24,121.9
                                                            ----------------------------------------------------------------------
      Total Assets ......................................    $  9,229.2    $ 13,447.8     $ 97,856.8    $ (8,827.6)     $111,706.2
                                                            ======================================================================
Liabilities:
Insurance liabilities and Consumer Notes ................            --    $  4,715.0     $ 66,822.2    $    438.1      $ 71,975.3
Debt ....................................................    $    975.3            --        1,015.0         (95.0)        1,895.3
Other liabilities .......................................          38.2         598.1        4,826.9        (125.6)        5,337.6
Separate account liabilities ............................            --       6,881.9       17,240.0            --        24,121.9
                                                            ----------------------------------------------------------------------
      Total Liabilities .................................       1,013.5      12,195.0       89,940.1         217.5       103,330.1

Preferred shareholder's equity in subsidiary companies ..            --            --          160.4            --           160.4
Shareholder's equity(1) .................................       8,215.7       1,252.8        7,792.3      (9,045.1)        8,215.7
                                                            ----------------------------------------------------------------------
      Total Liabilities, Preferred Shareholder's
        Equity in Subsidiary Companies and
        Shareholder's Equity(1) .........................    $  9,229.2    $ 13,447.8     $ 97,856.8    $ (8,827.6)     $111,706.2
                                                            ======================================================================
</TABLE>

1)    Shareholder's equity includes preferred stock of JHFS at $0.01 par value,
      1 share authorized, issued and outstanding and common stock of JHFS at
      $0.01 par value, 1,000 shares authorized, issued and outstanding at
      December 31, 2004; 2.0 billion shares authorized, 319.8 million shares
      issued at December 31, 2003, and JHFS treasury stock at a cost of $1,069.0
      or 30.0 millions shares at December 31, 2003.


                                      155
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

           CONDENSED CONSOLIDATING STATEMENTS OF INCOME - (CONTINUED)

<TABLE>
<CAPTION>
                                                                         John Hancock
                                                           John Hancock  Variable Life                                Consolidated
                                                             Financial     Insurance                                  John Hancock
                                                             Services       Company         Other                      Financial
                                                            (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                           ------------------------------------------------------------------------
                                                                                         (in millions)
<S>                                                          <C>             <C>           <C>           <C>              <C>
For the Period from April 29
  through December 31, 2004
Revenues
      Premiums .......................................             --        $   49.2      $1,820.8      $   1.2          $1,871.2
      Universal life and investment-type
         product charges .............................             --           248.0         187.9          0.5             436.4
      Net investment income ..........................       $    0.4           176.7       1,967.0         17.9           2,162.0
      Net realized investment and other
         gains (losses), net .........................             --           (12.8)         22.9         (2.4)              7.7
      Investment management revenues,
         commissions and other fees ..................             --              --         356.8           --             356.8
      Other revenue ..................................             --              --         175.4           --             175.4
                                                          ------------------------------------------------------------------------
      Total revenues .................................            0.4           461.1       4,530.8         17.2           5,009.5
                                                          ------------------------------------------------------------------------
Benefits and expenses
      Benefits to policyholders ......................             --           209.7       2,635.2         13.2           2,858.1
      Other operating costs and expenses .............           81.9            79.5         974.0         (0.1)          1,135.3
      Amortization of deferred policy
         acquisition costs and value of
         business acquired ...........................             --            21.4         148.0          0.7             170.1
      Dividends to policyholders .....................             --            12.8         316.6           --             329.4
                                                          ------------------------------------------------------------------------
      Total benefits and expenses ....................           81.9           323.4       4,073.8         13.8           4,492.9
                                                          ------------------------------------------------------------------------
Income (loss) before income taxes ....................          (81.5)          137.7         457.0          3.4             516.6
Income taxes .........................................          (21.3)           46.5         109.5          1.2             135.9
                                                          ------------------------------------------------------------------------
      Net income (loss) after taxes ..................          (60.2)           91.2         347.5          2.2             380.7
Equity in the net income of
  unconsolidated subsidiaries ........................          528.1             2.2            --       (530.3)               --
                                                          ------------------------------------------------------------------------
Net income before discontinued operations ............          467.9            93.4         347.5       (528.1)            380.7
Discontinued operations ..............................             --              --          87.2           --              87.2
                                                          ------------------------------------------------------------------------
Net income ...........................................       $  467.9        $   93.4      $  434.7      $(528.1)         $  467.9
                                                          ========================================================================
</TABLE>


                                      156
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

                  CONDENSED CONSOLIDATING STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                         John Hancock
                                                           John Hancock  Variable Life                                Consolidated
                                                             Financial     Insurance                                  John Hancock
                                                             Services       Company         Other                      Financial
                                                            (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                           ------------------------------------------------------------------------
                                                                                         (in millions)
<S>                                                          <C>           <C>           <C>           <C>             <C>
For the period from January 1
  through April 28, 2004
Revenues
      Premiums .......................................             --      $   26.4      $  891.2      $   (1.0)       $  916.6
      Universal life and investment-type
         product charges .............................             --         132.2         108.6           0.2           241.0
      Net investment income ..........................       $    0.1         101.9       1,198.2          11.0         1,311.2
      Net realized investment and other
         gains (losses), net .........................             --          (1.4)         81.1           0.3            80.0
      Investment management revenues,
         commissions and other fees ..................             --            --         179.9            --           179.9
      Other revenue ..................................             --           0.1          88.2            --            88.3
                                                           ------------------------------------------------------------------------
      Total revenues .................................            0.1         259.2       2,547.2          10.5         2,817.0
                                                           ------------------------------------------------------------------------
Benefits and expenses
      Benefits to policyholders ......................             --         121.2       1,484.5           6.5         1,612.2
      Other operating costs and expenses .............           65.8          36.1         422.1           0.3           524.3
      Amortization of deferred policy
         acquisition costs and value of
         business acquired ...........................             --          33.0         106.8            --           139.8
      Dividends to policyholders .....................             --           6.2         150.5            --           156.7
                                                           ------------------------------------------------------------------------
      Total benefits and expenses ....................           65.8         196.5       2,163.9           6.8         2,433.0
                                                           ------------------------------------------------------------------------
Income (loss) before income taxes
  and cumulative effect of accounting change .........          (65.7)         62.7         383.3           3.7           384.0

Income taxes .........................................          (17.1)         20.6         110.4           1.2           115.1
                                                           ------------------------------------------------------------------------
Net income (loss) before cumulative
  effect of accounting change ........................          (48.6)         42.1         272.9           2.5           268.9
Cumulative effect of accounting
  change, net of tax .................................             --          (3.0)         (1.3)           --            (4.3)
Equity in the net income of
  unconsolidated subsidiaries ........................          385.7           2.5            --        (388.2)             --
                                                           ------------------------------------------------------------------------
Net income before discontinued operations ............          337.1          41.6         271.6        (385.7)          264.6
Discontinued operations ..............................             --            --          72.5            --            72.5
                                                           ------------------------------------------------------------------------
Net income ...........................................       $  337.1      $   41.6      $  344.1      $ (385.7)       $  337.1
                                                           ========================================================================
</TABLE>


                                      157
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

           CONDENSED CONSOLIDATING STATEMENTS OF INCOME - (CONTINUED)

<TABLE>
<CAPTION>
                                                                         John Hancock
                                                           John Hancock  Variable Life                                Consolidated
                                                             Financial     Insurance                                  John Hancock
                                                             Services       Company         Other                      Financial
                                                            (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                           ------------------------------------------------------------------------
                                                                                         (in millions)
<S>                                                          <C>           <C>             <C>             <C>             <C>
For the Year Ended December 31, 2003
Revenues
      Premiums .......................................             --      $   66.6        $2,943.4        $    0.6        $3,010.6
      Universal life and investment-type
         product charges .............................             --         366.9           292.5             0.8           660.2
      Net investment income ..........................       $    0.2         281.8         3,532.8            34.5         3,849.3
      Net realized investment and other
         gains (losses), net .........................             --         (21.4)           48.6            (3.4)           23.8
      Investment management revenues,
         commissions and other fees ..................             --            --           498.1              --           498.1
      Other revenue ..................................             --           0.2           271.7              --           271.9
                                                           ------------------------------------------------------------------------
      Total revenues .................................            0.2         694.1         7,587.1            32.5         8,313.9
                                                           ------------------------------------------------------------------------
Benefits and expenses
      Benefits to policyholders ......................             --         316.8         4,519.7            21.1         4,857.6
      Other operating costs and expenses .............           49.7          94.7         1,262.9             1.7         1,409.0
      Amortization of deferred policy
         acquisition costs and value of
         business acquired ...........................             --         104.7           238.3             0.1           343.1
      Dividends to policyholders .....................             --          17.5           531.3              --           548.8
                                                           ------------------------------------------------------------------------
      Total benefits and expenses ....................           49.7         533.7         6,552.2            22.9         7,158.5
                                                           ------------------------------------------------------------------------
Income (loss) before income taxes ....................          (49.5)        160.4         1,034.9             9.6         1,155.4
Income taxes .........................................          (24.0)         52.6           284.9             3.2           316.7
                                                           ------------------------------------------------------------------------
      Net income (loss) after taxes ..................          (25.5)        107.8           750.0             6.4           838.7
Cumulative effect of accounting changes,
   net of income tax .................................             --          (6.5)         (159.7)             --          (166.2)
Equity in the net income of
   unconsolidated subsidiaries .......................          831.5           6.4              --          (837.9)             --
                                                           ------------------------------------------------------------------------
Net income before discontinued operations.............          806.0         107.7           590.3          (831.5)          672.5
Discontinued operations ..............................             --            --           133.5              --           133.5
                                                           ------------------------------------------------------------------------
Net income ...........................................       $  806.0      $  107.7        $  723.8        $ (831.5)       $  806.0
                                                           ========================================================================
</TABLE>


                                      158
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

           CONDENSED CONSOLIDATING STATEMENTS OF INCOME - (CONTINUED)

<TABLE>
<CAPTION>
                                                                         John Hancock
                                                           John Hancock  Variable Life                                Consolidated
                                                             Financial     Insurance                                  John Hancock
                                                             Services       Company         Other                      Financial
                                                            (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                           ------------------------------------------------------------------------
                                                                                         (in millions)
<S>                                                          <C>           <C>            <C>              <C>           <C>
For the Year Ended December 31, 2002
Revenues
      Premiums .........................................           --      $   58.0       $   2,637.3      $    0.5      $2,695.8
      Universal life and investment-type
         product charges ...............................           --         355.2             265.9           0.8         621.9
      Net investment income ............................     $    0.8         234.3           3,357.4          35.8       3,628.3
      Net realized investment and other
         gains (losses), net ...........................           --         (26.5)           (427.7)          5.7        (448.5)
      Investment management revenues,
         commissions and other fees ....................           --            --             529.0            --         529.0
      Other revenue ....................................          0.1           1.2             240.7           0.1         242.1
                                                           ----------------------------------------------------------------------
      Total revenues ...................................          0.9         622.2           6,602.6          42.9       7,268.6
                                                           ----------------------------------------------------------------------
Benefits and expenses
      Benefits to policyholders ........................           --         320.5           4,194.8          23.6       4,538.9
      Other operating costs and expenses ...............         57.5          67.5           1,164.5           1.5       1,291.0
      Amortization of deferred policy
         acquisition costs and value of
         business acquired .............................           --          59.9             277.8           0.1         337.8
      Dividends to policyholders .......................           --          18.8             550.4            --         569.2
                                                           ----------------------------------------------------------------------
      Total benefits and expenses ......................         57.5         466.7           6,187.5          25.2       6,736.9
                                                           ----------------------------------------------------------------------
Income (loss) before income taxes ......................        (56.6)        155.5             415.1          17.7         531.7
Income taxes ...........................................        (25.6)         52.3              57.8           6.1          90.6
                                                           ----------------------------------------------------------------------
      Net income (loss) after taxes ....................        (31.0)        103.2             357.3          11.6         441.1
Equity in the net income of unconsolidated
   subsidiaries ........................................        530.5          11.6                --        (542.1)           --
                                                           ----------------------------------------------------------------------
Net income before discontinued operations ..............        499.5         114.8             357.3        (530.5)        441.1
Discontinued operations ................................           --            --              58.4            --          58.4
                                                           ----------------------------------------------------------------------
Net income .............................................     $  499.5      $  114.8          $  415.7      $ (530.5)     $  499.5
                                                           ======================================================================
</TABLE>


                                      159
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       John Hancock
                                                         John Hancock  Variable Life                                Consolidated
                                                           Financial     Insurance                                  John Hancock
                                                           Services       Company         Other                      Financial
                                                          (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                         ------------------------------------------------------------------------
                                                                                       (in millions)
<S>                                                       <C>            <C>            <C>            <C>                <C>
For the period from April 29 through
  December 31, 2004
Cash flows from operating activities
Net income ...........................................    $  467.9       $   93.4       $  434.7       $ (528.1)          $  467.9
Adjustments to reconcile net income to net cash
  (used in) provided by operating activities:
      Amortization of discount-fixed maturities ......          --           48.7          386.5           (3.3)             431.9
      Equity in net income of unconsolidated
        subsidiaries .................................      (528.1)          (2.2)            --          530.3                 --
      Net realized investment and other losses .......          --           12.8          (17.3)           2.4               (2.1)
      Change in deferred policy acquisition costs ....          --         (106.9)        (207.1)            --             (314.0)
      Depreciation and amortization ..................        10.3           20.8          168.1            0.3              199.5
      Net cash flows from trading securities .........          --             --         (134.5)            --             (134.5)
      Increase in accrued investment income ..........          --           26.2           57.5            2.0               85.7
      (Increase) decrease in premiums and accounts
        receivable ...................................        (0.5)          (3.5)          14.4           (0.3)              10.1
      (Increase) decrease in other assets and
        other liabilities, net .......................      (214.5)          42.2          331.6          (92.5)              66.8
      Increase in policy liabilities and
        accruals, net ................................          --           57.2        1,075.0           13.8            1,146.0
      (Decrease) increase in income taxes ............       (18.4)          21.8          338.2           (1.1)             340.5
                                                          ------------------------------------------------------------------------
Net cash (used in) provided by operating activities ..      (283.3)         210.5        2,447.1          (76.5)           2,297.8
                                                          ------------------------------------------------------------------------
Cash flows from investing activities:
Sales of:
      Fixed maturities available-for-sale ............          --          191.6        1,705.7           16.9            1,914.2
      Equity securities available-for-sale ...........          --           24.3          274.1            1.9              300.3
      Real estate ....................................          --             --            6.7             --                6.7
      Short term investments and other invested
        assets .......................................          --           29.6          536.6            1.8              568.0
Maturities, prepayments, and scheduled
  redemptions of:
      Fixed maturities available-for-sale ............          --          154.4        3,131.3           20.6            3,306.3
      Short term investments and other
        invested assets ..............................          --             --           81.6             --               81.6
      Mortgage loans on real estate ..................          --           48.1        1,163.1            5.5            1,216.7
Purchases of:
      Fixed maturities available-for-sale ............         0.6         (630.2)      (4,897.3)         (36.9)          (5,563.8)
      Equity securities available-for-sale ...........          --          (13.7)        (230.9)          (0.5)            (245.1)
      Real estate ....................................          --             --         (117.6)            --             (117.6)
      Short term investments and other
        invested assets ..............................          --          (22.5)        (540.5)          (1.5)            (564.5)
Mortgage loans on real estate issued .................          --         (144.9)      (1,535.7)         (16.4)          (1,697.0)
Net cash paid related to acquisition of business .....        35.0             --             --             --               35.0
Other, net ...........................................          --           (1.7)         (38.1)           8.7              (31.1)
Capital contributed to unconsolidated subsidiaries ...       (30.7)            --             --           30.7                 --
Dividends received from unconsolidated subsidiaries ..       200.2             --             --         (200.2)                --
                                                          ------------------------------------------------------------------------
Net cash provided by (used in) investing activities ..    $  205.1       $ (365.0)      $ (461.0)      $ (169.4)          $ (790.3)
                                                          ------------------------------------------------------------------------
</TABLE>


                                      160
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

         CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                       John Hancock
                                                         John Hancock  Variable Life                                Consolidated
                                                           Financial     Insurance                                  John Hancock
                                                           Services       Company         Other                      Financial
                                                          (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                         ------------------------------------------------------------------------
                                                                                       (in millions)
<S>                                                         <C>           <C>         <C>                <C>        <C>
For the period from April 29 through December 31, 2004
Cash flows from financing activities:
      Capital contributions paid by parent ............            --            --    $     30.7        $  (30.7)           --
      Redemption of preferred stock ...................            --            --        (125.8)             --    $   (125.8)
      Dividends paid to parent ........................            --            --        (200.2)          200.2            --
      Universal life and investment-type contract
        deposits ......................................            --      $  639.9       2,109.9              --       2,749.8
      Universal life and investment-type contract
        maturities and withdrawals ....................            --        (320.5)     (5,133.3)          (19.3)     (5,473.1)
      Issuance of consumer notes ......................            --            --         407.5              --         407.5
      Increase in bank deposits .......................            --            --         108.4              --         108.4
      Issuance of  short-term debt ....................            --            --          88.7              --          88.7
      Repayment of short-term debt ....................            --         (80.0)        (46.4)           80.0         (46.4)
      Issuance of long-term debt ......................            --            --           2.3              --           2.3
      Repayment of long-term debt .....................      $  (95.0)           --         (11.5)           95.0         (11.5)
      Net decrease in commercial paper ................         179.8            --            --              --         179.8
                                                         ----------------------------------------------------------------------
Net cash  provided by (used in) financing activities ..          84.8         239.4      (2,769.7)          325.2      (2,120.3)

      Net increase (decrease) in cash and cash
        equivalents ...................................           6.6          84.9        (783.6)           79.3        (612.8)
Cash and cash equivalents at beginning of year.........           0.9           0.8       2,072.7           (64.7)      2,009.7
                                                         ----------------------------------------------------------------------
Cash and cash equivalents at end of year...............      $    7.5      $   85.7    $  1,289.1        $   14.6    $  1,396.9
                                                         ======================================================================
</TABLE>


                                      161
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

         CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                       John Hancock
                                                         John Hancock  Variable Life                                Consolidated
                                                           Financial     Insurance                                  John Hancock
                                                           Services       Company         Other                      Financial
                                                          (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                         ------------------------------------------------------------------------
                                                                                       (in millions)
<S>                                                        <C>           <C>           <C>             <C>           <C>
For the period from January 1 through April 28, 2004
Cash flows from operating activities
Net income .........................................       $  337.1      $   41.6      $  344.1        $ (385.7)     $  337.1
Adjustments to reconcile net income to net
  cash provided by operating activities:
      Amortization of discount-fixed maturities ....             --          (4.3)          5.2            (0.2)          0.7
      Equity in net income of unconsolidated
        subsidiaries ...............................         (385.7)         (2.5)           --           388.2            --
      Net realized investment and other losses .....             --           1.4         (86.7)           (0.3)        (85.6)
      Change in accounting principle ...............             --           3.0         (40.0)             --         (37.0)
      Change in deferred policy acquisition
        costs ......................................             --          (9.6)        (48.8)             --         (58.4)
      Depreciation and amortization ................            0.4           0.5          22.5             0.3          23.7
      Net cash flows from trading securities .......             --            --          (6.7)             --          (6.7)
      Increase in accrued investment income ........             --         (13.1)        (53.1)           (0.4)        (66.6)
      Increase in premiums and accounts
        receivable .................................             --           0.4          20.3             0.4          21.1
      Increase in other assets and other
        liabilities, net ...........................          264.3         (58.6)       (184.2)           11.2          32.7
      Increase in policy liabilities and
        accruals, net ..............................             --          42.8         532.6             6.0         581.4
      (Decrease) increase in income taxes ..........           (7.3)          4.2         130.6             4.8         132.3
                                                         ------------------------------------------------------------------------
Net cash provided by operating activities ..........          208.8           5.8         635.8            24.3         874.7
                                                         ------------------------------------------------------------------------
Cash flows from investing activities:
Sales of:
      Fixed maturities available-for-sale ..........             --          83.3       2,760.4             5.5       2,849.2
      Equity securities available-for-sale .........             --          14.9         214.9              --         229.8
      Real estate ..................................             --           2.1          95.6              --          97.7
      Short term investments and other invested
        assets .....................................            5.0           6.0         121.4             1.0         133.4
Maturities, prepayments, and scheduled
  redemptions of:
      Fixed maturities held-to-maturity ............             --           0.3          40.7             0.2          41.2
      Fixed maturities available-for-sale ..........             --          81.9       1,487.9            23.7       1,593.5
      Short term investments and other invested
        assets .....................................             --          10.1         114.6              --         124.7
      Mortgage loans on real estate ................             --          22.6         658.5             3.6         684.7
Purchases of:
      Fixed maturities held-to-maturity ............             --            --          (0.5)             --          (0.5)
      Fixed maturities available-for-sale ..........          (19.0)       (213.5)     (6,190.2)          (42.5)     (6,465.2)
      Equity securities available-for-sale .........             --         (17.9)       (116.3)             --        (134.2)
      Real estate ..................................             --          (0.1)         (6.8)             --          (6.9)
      Short term investments and other invested
        assets .....................................             --        (198.7)       (459.2)           (0.9)       (658.8)
Mortgage loans on real estate issued ...............             --         (54.4)       (620.5)           (5.6)       (680.5)
Other, net .........................................             --         (72.4)        223.3            (2.9)        148.0
Capital contributed to unconsolidated
   subsidiaries .... ...............................           (7.0)           --            --             7.0            --
Dividends received from unconsolidated
   subsidiaries ....................................          100.0            --            --          (100.0)           --
                                                         ------------------------------------------------------------------------
Net cash provided by (used in) investing
  activities ......................................        $   79.0      $ (335.8)     $(1,676.2)      $ (110.9)     $(2,043.9)
                                                         ------------------------------------------------------------------------
</TABLE>


                                      162
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

         CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                       John Hancock
                                                         John Hancock  Variable Life                                Consolidated
                                                           Financial     Insurance                                  John Hancock
                                                           Services       Company         Other                      Financial
                                                          (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                         ------------------------------------------------------------------------
                                                                                       (in millions)
<S>                                                           <C>          <C>          <C>            <C>          <C>
For the period from January 1 through April 28, 2004
Cash flows from financing activities:
      Capital contributions paid by parent .............            --           --     $    7.0       $   (7.0)          --
      Acquisition of treasury stock ....................      $  (33.1)          --           --             --     $  (33.1)
      Dividends paid on common stock ...................            --           --       (100.0)         100.0           --
      Universal life and investment-type
        contract deposits ..............................            --     $  400.4      2,059.4             --      2,459.8
      Universal life and investment-type
        contract maturities and withdrawals ............            --       (199.0)    (2,312.7)          (9.4)    (2,521.1)
      Issuance of consumer notes .......................            --           --        372.2             --        372.2
      Increase in bank deposits ........................            --           --         93.6             --         93.6
      Issuance of short-term debt ......................            --         88.0           --          (88.0)          --
      Repayment of short-term debt .....................            --         (8.0)       (41.8)           8.0        (41.8)
      Issuance of long-term debt .......................            --           --          0.3             --          0.3
      Repayment of long-term debt ......................            --           --         (1.2)            --         (1.2)
      Net decrease in commercial paper .................        (271.4)          --           --             --       (271.4)
                                                         ------------------------------------------------------------------------
Net cash (used in) provided by financing activities ....        (304.5)       281.4         76.8            3.6         57.3
      Net decrease in cash and cash equivalents ........         (16.7)       (48.6)      (963.6)         (83.0)    (1,111.9)
Cash and cash equivalents at beginning of year .........          17.6         49.4      3,036.3           18.3      3,121.6
                                                         ------------------------------------------------------------------------
Cash and cash equivalents at end of year ...............      $    0.9     $    0.8     $2,072.7       $  (64.7)    $2,009.7
                                                         ========================================================================
</TABLE>


                                      163
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

         CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                       John Hancock
                                                         John Hancock  Variable Life                                Consolidated
                                                           Financial     Insurance                                  John Hancock
                                                           Services       Company         Other                      Financial
                                                          (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                         ------------------------------------------------------------------------
                                                                                       (in millions)
<S>                                                          <C>         <C>           <C>            <C>           <C>
For the Year Ended December 31, 2003
Cash flows from operating activities
Net income .............................................     $   806.0   $   107.7     $   723.8      $  (831.5)    $   806.0
Adjustments to reconcile net income to net cash
  provided by operating activities:
      Amortization of discount-fixed maturities ........            --       (10.7)        (12.3)            --         (23.0)
      Equity in net income of unconsolidated
        subsidiaries ...................................        (831.5)       (6.4)           --          837.9            --
      Net realized investment and other losses
        (gains) ........................................            --        21.4         (58.4)           3.4         (33.6)
      Change in accounting principle ...................            --          --         166.2             --         166.2
      Change in deferred policy acquisition costs ......            --       (49.7)       (368.5)           0.1        (418.1)
      Depreciation and amortization ....................           1.6         1.8          50.7             --          54.1
      Net cash flows from trading securities ...........            --          --        (175.4)            --        (175.4)
      (Increase) decrease in accrued investment
        income .........................................            --        (1.1)         30.0            1.0          29.9
      Decrease (increase) in premiums and
        accounts receivable ............................           3.8        (1.0)        (59.6)           0.3         (56.5)
      Decrease (increase) in other assets and other
        liabilities, net ...............................          59.9       (64.1)       (314.8)           2.2        (316.8)
      Increase in policy liabilities and accruals,
        net ............................................            --       198.1       2,828.8           18.5       3,045.4
      (Decrease )increase in income taxes ..............         (36.3)       36.0         (24.3)          (0.9)        (25.5)
                                                         ------------------------------------------------------------------------
Net cash provided by operating activities ..............           3.5       232.0       2,786.2           31.0       3,052.7
                                                         ------------------------------------------------------------------------
Cash flows from investing activities:
Sales of:
      Fixed maturities available-for-sale ..............            --       660.3      11,411.6           29.8      12,101.7
      Equity securities available-for-sale .............            --        35.3         393.0            3.0         431.3
      Real estate ......................................            --         5.8         169.5             --         175.3
      Short term investments and other invested
        assets .........................................            --        31.6         491.6             --         523.2
      Home office properties ...........................            --          --         887.6             --         887.6
Maturities, prepayments, and scheduled redemptions of:
      Fixed maturities held-to-maturity ................            --         3.1         223.4            1.0         227.5
      Fixed maturities available-for-sale ..............            --       196.3       3,377.8           44.8       3,618.9
      Short term investments and other invested
        assets .........................................            --         0.1         817.2             --         817.3
      Mortgage loans on real estate ....................            --        86.7       1,409.4           16.2       1,512.3
Purchases of:
      Fixed maturities held-to-maturity ................            --        (1.1)        (68.4)            --         (69.5)
      Fixed maturities available-for-sale ..............            --    (1,568.7)    (17,557.4)         (56.3)    (19,182.4)
      Equity securities available-for-sale .............            --       (60.4)       (224.5)            --        (284.9)
      Real estate ......................................            --        (0.2)        (40.7)            --         (40.9)
      Short term investments and other invested
        assets .........................................          (5.0)      (91.0)     (1,734.5)          (2.9)     (1,833.4)
Mortgage loans on real estate issued ...................            --      (305.3)     (2,085.9)         (16.1)     (2,407.3)
Net cash paid related to acquisition/sale of
  businesses ...........................................            --          --         (24.0)            --         (24.0)
Other, net .............................................            --        (8.9)        (91.3)          (2.1)       (102.3)
Capital contributed to unconsolidated subsidiaries .....        (114.3)         --            --          114.3            --
Dividends received from unconsolidated subsidiaries ....         100.0          --            --         (100.0)           --
                                                         ------------------------------------------------------------------------
Net cash (used in) provided by investing activities ....     $   (19.3)  $(1,016.4)    $(2,645.6)     $    31.7     $(3,649.6)
                                                         ------------------------------------------------------------------------
</TABLE>


                                      164
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

         CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                       John Hancock
                                                         John Hancock  Variable Life                                Consolidated
                                                           Financial     Insurance                                  John Hancock
                                                           Services       Company         Other                      Financial
                                                          (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                         ------------------------------------------------------------------------
                                                                                       (in millions)
<S>                                                         <C>          <C>            <C>            <C>            <C>
For the Year Ended December 31, 2003
Cash flows from financing activities:
      Capital contributions paid by parent ..............         --           --       $  114.3       $ (114.3)            --
      Acquisition of treasury stock .....................   $  (11.8)          --             --             --       $  (11.8)
      Dividends paid on common stock ....................     (101.3)          --             --             --         (101.3)
      Dividends paid to parent ..........................         --           --         (100.0)         100.0             --
      Universal life and investment-type contract
        deposits ........................................         --     $1,097.2        7,090.9             --        8,188.1
      Universal life and investment-type contract
        maturities and withdrawals ......................         --       (464.1)      (6,722.1)         (32.3)      (7,218.5)
      Issuance of consumer notes ........................         --           --        1,260.2             --        1,260.2
      Increase in bank deposits .........................         --           --          293.9             --          293.9
      Issuance of short-term debt .......................         --        196.6          148.9         (196.6)         148.9
      Repayment of short-term debt ......................         --       (196.6)        (158.0)         196.6         (158.0)
      Repayment of long-term debt .......................         --           --           (5.5)            --           (5.5)
            Net increase in commercial paper ............      131.9           --             --             --          131.9
                                                         ------------------------------------------------------------------------
Net cash provided by (used in) financing activities .....       18.8        633.1        1,922.6          (46.6)       2,527.9
      Net increase (decrease) in cash and cash
        equivalents .....................................        3.0       (151.3)       2,063.2           16.1        1,931.0
Cash and cash equivalents at beginning of year ..........       14.6        200.7          973.1            2.2        1,190.6
                                                         ------------------------------------------------------------------------
Cash and cash equivalents at end of year ................   $   17.6     $   49.4       $3,036.3       $   18.3       $3,121.6
                                                         ------------------------------------------------------------------------
</TABLE>


                                      165
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

         CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                        John Hancock
                                                          John Hancock  Variable Life                                Consolidated
                                                            Financial     Insurance                                  John Hancock
                                                            Services       Company         Other                      Financial
                                                           (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                          ------------------------------------------------------------------------
                                                                                        (in millions)
<S>                                                        <C>           <C>             <C>           <C>           <C>
For the Year Ended December 31, 2002
Cash flows from operating activities
Net income ..............................................  $   499.5     $   114.8       $   415.7     $  (530.5)    $   499.5
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
      Amortization of discount-fixed maturities .........         --           0.3          (116.3)         (0.6)       (116.6)
      Equity in net income of unconsolidated
        subsidiaries ....................................     (530.5)        (11.6)             --         542.1            --
      Net realized investment and other (gains) losses ..         --          26.5           433.9          (5.7)        454.7
      Change in deferred policy acquisition costs .......         --        (124.7)         (219.9)          0.1        (344.5)
      Depreciation and amortization .....................        0.7           0.2            57.9           1.1          59.9
      Net cash flows from trading securities ............         --            --             5.4            --           5.4
      (Increase) decrease in accrued investment income ..         --          (9.0)            5.5          (0.3)         (3.8)
      Decrease in premiums and accounts receivable ......         --           8.3            28.0           0.4          36.7
      Decrease (increase) in other assets and other
        liabilities, net ................................       63.4         (23.1)         (317.1)         60.1        (216.7)
      (Decrease) increase  in policy liabilities and
        accruals, net ...................................         --         (77.1)        2,176.0          23.8       2,122.7
      Increase (decrease) in income taxes ...............       15.4          33.9            14.9          (0.4)         63.8
                                                          ------------------------------------------------------------------------
Net cash provided by (used in) operating activities .....       48.5         (61.5)        2,484.0          90.1       2,561.1
Cash flows from investing activities:
Sales of:
      Fixed maturities available-for-sale ...............         --         432.0         5,377.8          28.2       5,838.0
      Equity securities available-for-sale ..............         --           6.2           362.8           1.2         370.2
      Real estate .......................................         --           0.3           129.6            --         129.9
      Short term investments and other invested assets ..         --            --           460.1            --         460.1
Maturities, prepayments, and scheduled redemptions of:
      Fixed maturities held-to-maturity .................         --           2.3           213.4           0.9         216.6
      Fixed maturities available-for-sale ...............         --         126.5         2,745.5          29.2       2,901.2
      Short term investments and other invested assets ..         --          22.1           307.0           2.8         331.9
      Mortgage loans on real estate .....................         --          59.6         1,577.8          31.1       1,668.5
Purchases of:
      Fixed maturities held-to-maturity .................         --          (3.0)          (24.5)         (0.1)        (27.6)
      Fixed maturities available-for-sale ...............         --      (1,098.9)      (13,262.4)        (75.6)    (14,436.9)
      Equity securities available-for-sale ..............         --          (3.5)         (166.9)         (0.4)       (170.8)
      Real estate .......................................         --          (0.1)          (14.0)           --         (14.1)
      Short term investments and other invested assets ..         --         (65.3)       (1,483.7)         (8.0)     (1,557.0)
Mortgage loans on real estate issued ....................         --        (150.5)       (2,178.2)        (19.9)     (2,348.6)
Other, net ..............................................         --         (23.3)          (65.4)         13.2         (75.5)
Capital contributed to unconsolidated subsidiaries ......      (91.5)           --              --          91.5            --
Dividends received from unconsolidated subsidiaries .....      111.0            --              --        (111.0)           --
                                                          ------------------------------------------------------------------------
Net cash provided by (used in) investing activities .....  $    19.5     $  (695.6)      $(6,021.1)    $   (16.9)    $(6,714.1)
                                                          ------------------------------------------------------------------------
</TABLE>


                                      166
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 20 -- Information Provided in Connection with Market Value Annuity of John
Hancock Variable Life Insurance Company - (continued)

         CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                       John Hancock
                                                         John Hancock  Variable Life                                Consolidated
                                                           Financial     Insurance                                  John Hancock
                                                           Services       Company         Other                      Financial
                                                          (Guarantor)    (Issuer)     Subsidiaries   Eliminations  Services, Inc.
                                                         ------------------------------------------------------------------------
                                                                                       (in millions)

<S>                                                         <C>          <C>            <C>            <C>          <C>
Cash flows from financing activities:
      Capital contributions paid by parent ...........            --           --       $   91.5       $  (91.5)          --
      Acquisition of treasury stock ..................      $ (385.0)          --             --             --     $ (385.0)
      Dividends paid on common stock .................         (92.2)          --         (111.0)         111.0        (92.2)
      Universal life and investment-type contract
        deposits .....................................            --     $1,232.1        8,408.9             --      9,641.0
      Universal life and investment-type contract
        maturities and withdrawals ...................            --       (382.7)      (5,311.1)         (32.5)    (5,726.3)
      Issuance of preferred stock ....................            --           --           61.9             --         61.9
      Issuance of consumer notes .....................            --           --          290.2             --        290.2
      Issuance of long-term debt .....................          65.0           --           20.0          (65.0)        20.0
      Issuance of short-term debt ....................            --           --           92.8             --         92.8
      Repayment of short-term debt ...................            --           --          (67.0)            --        (67.0)
      Repayment of long-term debt ....................            --           --          (54.9)            --        (54.9)
            Net increase in commercial paper .........         249.4           --             --             --        249.4
                                                         ------------------------------------------------------------------------
Net cash (used in) provided by financing activities ..        (162.8)       849.4        3,421.3          (78.0)     4,029.9
                                                         ------------------------------------------------------------------------
      Net (decrease) increase in cash and cash
        equivalents ..................................         (94.8)        92.3         (115.8)          (4.8)      (123.1)
Cash and cash equivalents at beginning of year .......         109.4        108.4        1,088.9            7.0      1,313.7
                                                         ------------------------------------------------------------------------
Cash and cash equivalents at end of year .............      $   14.6     $  200.7       $  973.1       $    2.2     $1,190.6
                                                         ========================================================================
</TABLE>


                                      167
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 21 -- Subsequent Events

      As a result of integration of operations between the Company and its
parent, Manulife, the Company is in negotiations to sell its China operations.
The Company is divesting itself of its operations in China to accommodate
Chinese law, which allows only one license per Company. Manulife had an
operation in China prior to the merger with John Hancock.


                                      168
<PAGE>


                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

      None.

Item 9A. Controls and Procedures

      An evaluation was carried out under the supervision and with the
participation of the Company's management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended). Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures were
effective as of the end of the period covered by this report.

      No change in the Company's internal control over financial reporting (as
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended)
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.

Item 9B. Other Information

      None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

      Omitted.

Item 11. Executive Compensation

      Omitted.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

      Omitted.

Item 13. Certain Relationships and Related Transactions

      Omitted.


                                      169
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Item 14. Principal Accountant Fees and Services

      Ernst & Young LLP has been selected by the Board to audit the consolidated
financial statements of the Company for fiscal year 2004.

      The following table sets forth the approximate aggregate fees billed by
the Company's independent auditors for professional services in 2004 and 2003:

                                               2004               2003
                                          ----------------   ---------------
Audit Fees (1) ........................   $   7,739,961      $   10,378,348
Audit-Related Fees (2) ................              --           1,982,891
Tax Fees (3) ..........................          73,300             417,800
All Other Fees (4) ....................              --              15,000

----------
(1) The fees in this category were for professional services rendered in
connection with (i) the audit of the Company's annual financial statements set
forth in the Company's Annual Report on Form 10-K, (ii) the review of the
Company's quarterly financial statements set forth in the Company's Quarterly
Reports on Form 10-Q, (iii) audits of the Company's subsidiaries and separate
accounts that are required by statute or regulation, and (iv) services that
generally only the Company's independent auditors reasonably can provide, such
as comfort letters, consents and agreed upon procedures reports.

(2) In 2003, the fees in this category were for professional services rendered
in connection with (i) assistance provided in the review of other auditor's work
papers in connection with merger due diligence, (ii) internal control reviews,
(iii) assistance provided in evaluating the Company's exposure to certain
reinsurance arrangements.

(3) The fees in this category were for professional services rendered in
connection with tax strategy assistance and tax compliance services.

(4) In 2003, the fees in this category were for professional services rendered
in connection with assistance provided related to an actuarial model and
process.

Manulife's Audit and Risk Management Committee reviews all requests for proposed
audit or permitted non-audit services to be provided by the Company's
independent auditor under the Audit and Risk Management Committee's Protocol for
Approval of Audit and Permitted Non-Audit Services. Under this Protocol, the
Audit and Risk Management Committee annually reviews and pre-approves recurring
audit and non-audit services that are identifiable for the coming year. The
Protocol also requires that any audit or non-audit services that are proposed
during the year be approved by the Audit and Risk Management Committee, or by a
member of the Audit and Risk Management Committee appointed by the Audit and
Risk Management Committee.

PART IV

Item 15. Exhibits and Financial Statement Schedules

      (a) Documents filed as part of this report.

      1. Financial Statements (See Item 8. Financial Statements and
           Supplementary Data)
             Report of Ernst & Young LLP, Independent Auditors
             Consolidated Financial Statements
                  Balance Sheets
                  Statements of Income
                  Statements of Changes in Shareholders' Equity and
                     Comprehensive Income
                  Statements of Cash Flows
                  Notes to Consolidated Financial Statements

      2. Financial Statement Schedules
           Schedule I--Summary of Investments--Other Than Investments in Related
             Parties
           Schedule II--Condensed Financial Information of Registrant (Parent
             Only)
           Schedule III--Supplementary Insurance Information
           Schedule IV--Reinsurance

      Note: All other financial statement schedules are omitted because they are
         inapplicable.


                                      170
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      3. Exhibits.

Exhibit
Number                                 Description
------                                 -----------

2.1        Plan of Reorganization (1)

2.1.1      Agreement and Plan of Merger, dated as of September 28, 2003, by
           and among Manulife Financial Corporation, John Hancock Financial
           Services, Inc. and Jupiter Merger Corporation, a Delaware
           corporation and a direct wholly-owned subsidiary of Manulife
           ("Merger Co.") (2)

2.2        Purchase and Sale Agreement between John Hancock Life Insurance
           Company, as seller, and Beacon Capital Strategic Partners, as
           purchaser, for the sale of certain John Hancock home office
           properties. (3)

3.1        Restated Certificate of Incorporation of John Hancock Financial
           Services, Inc. (1)

3.1.1      Certificate of Merger, Including Restated Certificate of
           Incorporation of JHFS (4)

3.2        Amended and Restated By-Laws of John Hancock Financial Services,
           Inc. (As Adopted on July 1 ,2004)(4)

10.1        Third Amendment dated as of July 25, 2003 to the $1,000,000,000
           Credit Agreement dated as of August 3, 2000, as amended, among
           John Hancock Financial Services, Inc., John Hancock Life Insurance
           Company, The Banks listed therein, Fleet National Bank, as
           Co-Administrative Agent, JPMorgan Chase Bank, as Co-Administrative
           Agent, Citicorp USA, Inc., as Syndication Agent, The Bank of New
           York, as Documentation Agent (364-Day Revolver) and Wachovia Bank,
           National Association as Documentation Agent (364-Day Revolver),
           Fleet Securities, Inc., and J.P. Morgan Securities, Inc., as Joint
           Bookrunners and Joint Lead Arrangers (5)

10.3       Fiscal Agency Agreement, dated as of February 25, 1994 by and
           between John Hancock Mutual Life Insurance Company, as Issuer, and
           First National Bank of Boston, as Fiscal Agent(1)

10.4       Reinsurance Agreement, dated as of July 30, 1992 by and between
           John Hancock Mutual Life Insurance Company and Provident Life and
           Accident Insurance Company (1)

10.5       Reinsurance Agreement, dated as of July 30, 1992 by and between
           John Hancock Mutual Life Insurance Company and Provident Life and
           Accident Insurance Company (1)

10.6       Coinsurance Agreement, dated as of March 1, 1997 by and between
           John Hancock Mutual Life Insurance Company and UNICARE Life &
           Health Insurance Company (1)

10.7       Letter of Credit Agreement, dated as of January 2, 1997 by and
           among John Hancock Mutual Life Insurance Company, Banks named
           therein and Morgan Guaranty Trust Company of New York as Issuing
           Bank and Agent (1)

23.1       Consent of Ernst & Young LLP (10)

31.1       Chief Executive Officer Certification Pursuant to Rules 13a-14 and
           15d-14 of the Securities Exchange Act of 1934. (10)

31.2       Chief Financial Officer Certification Pursuant to Rules 13a-14 and
           15d-14 of the Securities Exchange Act of 1934. (10)

32.1       Chief Executive Officer certification pursuant to 18 U.S.C.
           Section 350, as adopted by Section 906 of the Sarbanes-Oxley Act
           of 2002. (10)

32.2       Chief Financial Officer certification pursuant to 18 U.S.C.
           Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act
           of 2002. (10)


                                      171
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

The principal amount of debt outstanding under each instrument (excepting those
listed above) defining the rights of holders of our long-term debt does not
exceed ten percent (10%) of our total assets on a consolidated basis. The
Company agrees to furnish the SEC, upon request, a copy of each instrument
defining the rights of holders of our long-term debt.

Any exhibit not included with this Form 10-K when furnished to any shareholder
of record will be furnished to such shareholder upon written request and payment
of up to $.25 per page plus postage. Such requests should be directed to John
Hancock Financial Services, Inc., Corporate Secretary, John Hancock Place, Post
Office Box 111, Boston, Massachusetts 02117.

----------
(1)   Previously filed as an exhibit to John Hancock Financial Services, Inc.'s
      S-1 Registration Statement (file no. 333-87271), and incorporated by
      reference herein.
(2)   Previously filed as an exhibit to John Hancock Financial Services, Inc.'s
      current report on Form 8-K filed with the Securities and Exchange
      Commission on October 1, 2003, and incorporated by reference herein.
(3)   Previously filed as an exhibit to John Hancock Financial Services, Inc.'s
      quarterly report on Form 10-Q for the quarter ended March 31, 2003, and
      incorporated by reference herein
(4)   Previously filed as an exhibit to John Hancock Financial Services, Inc.'s
      quarterly report on Form 10-Q for the quarter ended June 30, 2004, and
      incorporated by reference herein.
(5)   Previously filed as an exhibit to John Hancock Financial Services, Inc.'s
      quarterly report on Form 10-Q for the quarter ended June 30, 2003, and
      incorporated by reference herein.

      b.    The Exhibits listed above are included as exhibits to this Form
            10-K.


                                      172
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                     SCHEDULE I -- SUMMARY OF INVESTMENTS --
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                             As of December 31, 2004

c.

<TABLE>
<CAPTION>
Column A                                                                                 Column B     Column C      Column D
---------                                                                                --------     --------      --------
                                                                                                                   Amount at
                                                                                                                     Which
                                                                                                                  Shown in the
                                                                                                                  Consolidated
Type of Investment                                                                       Cost(2)        Value    Balance Sheet
------------------                                                                       -------        -----    -------------
                                                                                                    (in millions)
<S>                                                                                     <C>           <C>           <C>
Fixed maturity securities, available-for-sale:
Bonds:
United States government and government agencies and authorities ...................    $    365.3    $    366.5    $    366.5
States, municipalities and political subdivisions ..................................         606.8         594.6         594.6
Foreign governments ................................................................         622.6         634.9         634.9
Public utilities ...................................................................       4,699.8       4,812.6       4,812.6
Convertibles and bonds with warrants attached ......................................          83.3          85.4          85.4
All other corporate bonds ..........................................................      40,391.0      41,082.8      41,082.8
Certificates of deposits ...........................................................          11.8          11.8          11.8
Redeemable preferred stock .........................................................         881.4         902.4         902.4
                                                                                     -----------------------------------------
Total fixed maturity securities, available-for-sale ................................    $ 47,662.0    $ 48,491.0    $ 48,491.0
                                                                                     =========================================
Equity securities, available-for-sale:
Common stocks:
Public utilities ...................................................................            --            --            --
Banks, trust and insurance companies ...............................................            --            --            --
Industrial, miscellaneous and all other ............................................    $    303.6    $    312.6     $   312.6
Non-redeemable preferred stock .....................................................          17.9          17.9          17.9
                                                                                     -----------------------------------------
Total equity securities, available-for-sale ........................................    $    321.5    $    330.5     $   330.5
                                                                                     =========================================
Fixed maturity securities, held-to-maturity:
Bonds
United States government and government agencies and authorities ...................            --            --            --
States, municipalities and political subdivisions ..................................            --            --            --
Foreign governments ................................................................            --            --            --
Public utilities ...................................................................            --            --            --
Convertibles and bonds with warrants attached ......................................            --            --            --
All other corporate bonds ..........................................................            --            --            --
Certificates of deposits ...........................................................            --            --            --
Redeemable preferred stock .........................................................            --            --            --
                                                                                     -----------------------------------------
Total fixed maturity securities, held-to-maturity ..................................            --            --            --
                                                                                     =========================================
</TABLE>

The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      173
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                     SCHEDULE I -- SUMMARY OF INVESTMENTS --
            OTHER THAN INVESTMENTS IN RELATED PARTIES -- (CONTINUED)
                             As of December 31, 2004

<TABLE>
<CAPTION>
Column A                                                                               Column B       Column C      Column D
--------                                                                               --------       --------      --------
                                                                                                                    Amount at
                                                                                                                      Which
                                                                                                                  Shown in the
                                                                                                                  Consolidated
Type of Investment                                                                      Cost(2)        Value      Balance Sheet
------------------                                                                      -------        -----      -------------
                                                                                                   (in millions)
<S>                                                                                  <C>             <C>             <C>
Fixed maturity securities, trading:
Bonds:
All other corporate bonds .....................................................              --              --              --
                                                                                  ---------------------------------------------
Total fixed maturity securities, trading ......................................              --              --              --
                                                                                  ---------------------------------------------
Equity securities, trading:
Common stocks:
Public utilities ..............................................................              --              --              --
Banks, trust and insurance companies ..........................................              --              --              --
Industrial, miscellaneous and all other .......................................      $      4.2      $      4.2      $      4.2
Non-redeemable preferred stock ................................................              --              --              --
                                                                                  ---------------------------------------------
Total equity securities, trading ..............................................             4.2             4.2             4.2
                                                                                  ---------------------------------------------
Mortgage loans on real estate, net(1) .........................................        11,861.5            XXXX        11,816.2
Real estate, net:
Investment properties(1) ......................................................           291.1            XXXX           277.2
Acquired in satisfaction of debt(1) ...........................................              --            XXXX              --
Policy loans ..................................................................         2,012.0            XXXX         2,012.0
Other long-term investments ...................................................         3,381.6            XXXX         3,381.6
Short-term investments ........................................................             3.0            XXXX             3.0
                                                                                  ---------------------------------------------
Total investments .............................................................      $ 65,536.9      $ 48,825.7      $ 66,315.7
                                                                                  =============================================
</TABLE>

----------
(1)   Difference between Column B and Column D is primarily due to valuation
      allowances and accumulated depreciation of real estate. See notes to the
      consolidated financial statements.
(2)   Difference between Column B and Column C is primarily due to operating
      gains (losses) of investments in limited partnerships.

The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      174
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                 SCHEDULE II -- CONDENSED FINANCIAL INFORMATION
                           OF REGISTRANT (Parent Only)
                                  BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                                    ------------
                                                                                                  2004        2003
                                                                                                  ----        ----
                                                                                                    (in millions)
<S>                                                                                           <C>           <C>
Assets
Investments:
Short-term investments ...................................................................    $     18.4    $      5.0
Investment in unconsolidated subsidiaries ................................................      12,452.5       9,045.1
                                                                                              ------------------------
      Total Investments ..................................................................      12,470.9       9,050.1
Cash and cash equivalents ................................................................           7.5          17.6
Accounts receivable ......................................................................           3.5           3.0
Dividend receivable from unconsolidated subsidiary .......................................            --         100.0
Income taxes receivable ..................................................................         103.4          35.1
Other assets .............................................................................           3.6          23.4
                                                                                              ------------------------
      Total Assets .......................................................................    $ 12,588.9    $  9,229.2
                                                                                              ========================
Liabilities and Shareholders' Equity
Liabilities:
Interest payable .........................................................................           3.3           2.5
Dividends payable to shareholders ........................................................           8.3          19.0
Other liabilities ........................................................................         131.3          16.7
Short-term debt ..........................................................................         289.8         381.3
Long-term debt ...........................................................................         823.5         594.0
                                                                                              ------------------------
      Total Liabilities ..................................................................       1,256.2       1,013.5
Shareholder's Equity:
Preferred stock; $0.01 par value, 1 share authorized and issued at December 31, 2004 .....            --            --
Common stock, $.01 par value; 1,000 shares authorized, issued and outstanding at
   December 31, 2004; 2.0 billion shares authorized; 319.8 million shares issued at
   December 31, 2003 .....................................................................            --           3.2
Additional paid in capital ...............................................................      10,220.9       5,174.0
Retained earnings ........................................................................         467.9       2,318.7
Accumulated other comprehensive income ...................................................         643.9       1,788.8
Treasury stock, at cost (30.0 million shares at December 31, 2003 ........................            --      (1,069.0)
                                                                                              ------------------------
      Total Shareholder's Equity .........................................................      11,332.7       8,215.7
                                                                                              ------------------------
      Total Liabilities and Shareholder's Equity .........................................    $ 12,588.9    $  9,229.2
                                                                                              ========================
</TABLE>

The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      175
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                 SCHEDULE II -- CONDENSED FINANCIAL INFORMATION
                           OF REGISTRANT (Parent Only)
                               STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                    April 29     January 1
                                                                     through      Through
                                                                   December 31,  April 29,
                                                                       2004       2004          2003
                                                                  -----------------------------------
                                                                              (in millions)
<S>                                                               <C>           <C>           <C>
Revenues
      Net investment income .................................     $   0.4       $   0.1       $   0.2
      Other revenue .........................................          --            --            --
                                                                  -----------------------------------
            Total revenues ..................................         0.4           0.1           0.2
Benefits and expenses
      Other operating costs and expenses ....................        81.9          65.8          49.7
                                                                  -----------------------------------
            Total benefits and expenses .....................        81.9          65.8          49.7
Loss before income taxes ....................................       (81.5)        (65.7)        (49.5)
Income taxes ................................................       (21.3)        (17.1)        (24.0)
                                                                  -----------------------------------
Net loss after taxes ........................................       (60.2)        (48.6)        (25.5)
Equity in the net income of unconsolidated subsidiaries .....       528.1         385.7         831.5
                                                                  -----------------------------------
Net income ..................................................     $ 467.9       $ 337.1       $ 806.0
                                                                  ===================================
</TABLE>

The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      176
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                 SCHEDULE II -- CONDENSED FINANCIAL INFORMATION
                           OF REGISTRANT (Parent Only)
                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                  April 29  January 1
                                                                                                  through    through
                                                                                                  December  April 29,
                                                                                                  31, 2004    2004       2003
                                                                                               -------------------------------
                                                                                                         (in millions)

<S>                                                                                              <C>        <C>        <C>
Net income ...................................................................................   $ 467.9    $ 337.1    $ 806.0
      Adjustments to reconcile net income to net cash provided by operating
         activities:
            Depreciation and amortization ....................................................      10.3        0.4        1.6
            Equity in the undistributed net income of unconsolidated subsidiaries ............    (528.1)    (385.7)    (831.5)
            Amounts received from unconsolidated subsidiaries related to stock option plans ..        --         --       46.1
            Decrease in accounts receivable ..................................................      (0.5)        --        3.8
            Increase (decrease) in other assets and liabilities, net .........................    (214.5)     264.3       10.8
            Increase (decrease) in interest payable ..........................................                   --       (0.2)
            Increase in dividends payable to shareholders ....................................                   --        3.2
            Decrease in income taxes receivable ..............................................     (18.4)      (7.3)     (36.3)
                                                                                               -------------------------------
                    Net cash (used in) provided by operating activities ......................    (283.3)     208.8        3.5
Cash flows from investing activities:
      Net cash paid related to acquisition of the business ...................................      35.0         --         --
      Purchase of fixed maturities available-for -sale .......................................       0.6      (19.0)        --
      Capital contributed to unconsolidated subsidiaries .....................................     (30.7)      (7.0)    (114.3)
      Dividends received from unconsolidated subsidiaries ....................................     200.2      100.0      100.0
      Purchase of short-term investments .....................................................        --        5.0       (5.0)
                                                                                               -------------------------------
                    Net cash provided by (used in) investing activities ......................     205.1       79.0      (19.3)
Cash flows from financing activities:
      Acquisition of treasury stock ..........................................................        --      (33.1)     (11.8)
      Dividends paid on common stock .........................................................        --         --     (101.3)
      Net increase (decrease) in commercial paper ............................................     179.8     (271.4)     131.9
      Issuance of long-term debt .............................................................        --         --         --
      Repayment of long-term debt ............................................................     (95.0)        --         --
                                                                                               -------------------------------
                    Net cash provided by (used in) financing activities ......................      84.8     (304.5)      18.8
                                                                                               -------------------------------
                    Net increase (decrease) in cash and cash equivalents .....................       6.6      (16.7)       3.0
Cash and cash equivalents at beginning of period .............................................       0.9       17.6       14.6
                                                                                               -------------------------------
Cash and cash equivalents at the end of period ...............................................   $   7.5    $   0.9    $  17.6
                                                                                               ================================
</TABLE>

The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      177
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                     SCHEDULE III -- SUPPLEMENTARY INSURANCE
               INFORMATION As of December 31, 2004, 2003 and 2002
                      and for each of the years then ended
                                  (in millions)

<TABLE>
<CAPTION>
                                                                     Future Policy                  Other Policy
                                                                   Benefits, Losses,                 Claims and
                                                 Deferred Policy       Claims and       Unearned      Benefits
Segment                                         Acquisition Costs    Loss Expenses    Premiums(1)    Payable(1)      Premium Revenue
-------                                         -----------------    -------------    -----------    ----------      ---------------
<S>                                                <C>               <C>              <C>              <C>              <C>
2004:
      Protection ..............................    $   244.4         $26,381.1        $    43.3        $   182.5        $ 2,039.2
      Wealth Management (2) ...................        (16.7)         11,640.4               --              0.1             10.0
      Guaranteed & Structured Financial
         Products .............................          0.6          27,919.8               --              4.6            231.0
      Corporate & Other .......................           --              33.1               --              0.6            507.6
                                               ----------------------------------------------------------------------------------
            Total .............................    $   228.3         $65,974.4        $    43.3        $   187.8        $ 2,787.8
                                               ==================================================================================
2003:
      Protection ..............................    $ 3,120.6         $23,593.5        $   333.3        $   163.1        $ 2,003.8
      Asset Gathering .........................        634.7          10,850.8               --              0.1             35.3
      Guaranteed & Structured Financial
         Products .............................          7.8          28,343.0             73.6              2.7            466.3
      Corporate & Other .......................        537.9           7,701.4            733.5            180.3            505.2
                                               ----------------------------------------------------------------------------------
            Total .............................    $ 4,301.0         $70,488.7        $ 1,140.4        $   346.2        $ 3,010.6
                                               ==================================================================================
2002:
      Protection ..............................    $ 2,919.7         $21,489.2        $   300.3        $   157.2        $ 1,982.1
      Asset Gathering .........................        681.2           8,952.8               --              0.1             29.3
      Guaranteed & Structured Financial
         Products .............................          8.6          27,076.6             68.6              2.9            295.9
      Corporate & Other .......................        386.8           6,068.7            526.9             45.4            388.5
                                               ----------------------------------------------------------------------------------
            Total .............................    $ 3,996.3         $63,587.3        $   895.8        $   205.6        $ 2,695.8
                                               ==================================================================================
</TABLE>

----------
(1)   Unearned premiums and other policy claims and benefits payable are
      included in these amounts.
(2)   Formerly referred to as the Asset Gathering Segment prior to the merger
      with Manulife April 28, 2004.

The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      178
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                     SCHEDULE III -- SUPPLEMENTARY INSURANCE
               INFORMATION -- (CONTINUED) As of December 31, 2004,
               2003 and 2002 and for each of the years then ended
                                  (in millions)

<TABLE>
<CAPTION>
                                                                                                Amortization of
                                                                                                Deferred Policy
                                                                                               Acquisition Costs,
                                                                                                  and Value of
                                                                               Benefits,       Business Acquired
                                                                                Claims,        Excluding Amounts
                                                                              Losses, and   Related to Net Realized       Other
                                                           Net Investment     Settlement      Investment and Other      Operating
Segment                                                       Income(2)        Expenses          Gains (Losses)        Expenses(3)
-------                                                       ---------        --------          --------------        -----------
<S>                                                            <C>            <C>                   <C>                 <C>
2004:
      Protection .........................................     $ 1,380.7      $ 2,384.9             $   164.5           $   451.8
      Wealth Management (4) ..............................         655.4          398.2                 103.0               325.8
      Guaranteed & Structured Financial Products .........       1,378.2        1,259.9                  38.7                68.4
      Corporate & Other ..................................          58.9          427.3                   3.7               813.6
                                                          -----------------------------------------------------------------------
            Total ........................................     $ 3,473.2      $ 4,470.3             $   309.9           $ 1,659.6
                                                          =======================================================================

2003:
      Protection .........................................     $ 1,461.7      $ 2,318.7             $   224.7           $   502.7
      Asset Gathering ....................................         709.4          500.7                 111.4               228.2
      Guaranteed & Structured Financial Products .........       1,679.2        1,603.8                   2.3                86.1
      Corporate & Other ..................................          (1.0)         434.4                   4.7               592.0
                                                          -----------------------------------------------------------------------
            Total ........................................     $ 3,849.3      $ 4,857.6             $   343.1           $ 1,409.0
                                                          =======================================================================
2002:
      Protection .........................................     $ 1,355.0      $ 2,237.9             $   190.8           $   551.4
      Asset Gathering ....................................         575.0          446.7                 140.5               205.2
      Guaranteed & Structured Financial Products .........       1,704.7        1,519.2                   2.2                65.0
      Corporate & Other ..................................          (6.4)         335.1                   4.3               469.4
                                                          -----------------------------------------------------------------------
            Total ........................................     $ 3,628.3      $ 4,538.9             $   337.8           $ 1,291.0
                                                          =======================================================================
</TABLE>

----------
(3)   Allocations of net investment income and certain operating expenses are
      based on a number of assumptions and estimates, and reported operating
      results would change by segment if different methods were applied.
(4)   Formerly referred to as the Asset Gathering Segment prior to the merger
      with Manulife April 28, 2004.


The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      179
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                           SCHEDULE IV -- REINSURANCE
   As of December 31, 2004, 2003 and 2002 and for each of the years then ended
                                  (in millions)

<TABLE>
<CAPTION>
                                                                                                                       Percentage of
                                                             Gross       Ceded to Other    Assumed from        Net       Amount
                                                             Amount         Companies    Other Companies     Amount   Assumed to Net
                                                             ------         ---------    ---------------     ------   --------------
<S>                                                         <C>            <C>             <C>            <C>                  <C>
2004:
      Life insurance in force .........................     $255,940.2     $226,330.7      $145,837.1     $175,446.6           83.1%
                                                            ========================================================
      Premiums:
      Life insurance ..................................        1,691.6          478.3           478.8        1,692.1           28.3%
      Accident and health insurance ...................          903.3            5.9           198.3        1,095.7           18.1%
                                                            --------------------------------------------------------
            Total .....................................     $  2,594.9     $    484.2      $    677.1     $  2,787.8           24.3%
                                                            ========================================================
2003:
      Life insurance in force .........................     $460,501.6     $287,432.4        75,965.3      249,034.5           30.5%
                                                            ========================================================
      Premiums:
      Life insurance ..................................     $  2,114.0          562.7           492.1        2,043.4           24.1%
      Accident and health insurance ...................          776.4            8.0           198.8          967.2           20.6%
                                                            --------------------------------------------------------
            Total .....................................     $  2,890.4     $    570.7      $    690.9     $  3,010.6           22.9%
                                                            ========================================================
2002:
      Life insurance in force .........................     $437,358.5     $231,138.6      $ 34,544.8     $240,764.7           14.3%
                                                            ========================================================
      Premiums:
      Life insurance ..................................     $  2,028.3     $    425.7      $    305.4     $  1,908.0           16.0%
      Accident and health insurance ...................          619.7           (4.2)          163.9          787.8           20.8%
                                                            --------------------------------------------------------
            Total .....................................     $  2,648.0     $    421.5      $    469.3     $  2,695.8           17.4%
                                                            ========================================================
</TABLE>

      Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities and excludes
deposits on investment products and the universal life insurance products.

The condensed financial information should be read in conjunction with the
audited consolidated financial statements and notes thereto.


                                      180
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                             JOHN HANCOCK FINANCIAL SERVICES, INC.

Date: March 16, 2005          By: /s/ MARC COSTANTINI
                                  -----------------------------------
                                      Marc Costantini
                                      Senior Vice President and Chief
                                      Financial Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

           Signature                     Title                         Date
           ---------                     -----                         ----

/S/ JOHN D. DESPREZ III    President, Chief Executive Officer     March 16, 2005
-----------------------    and Director (Principal Executive
John D. DesPrez III                     Officer)


/S/ MARC CONSTANTINI        Senior Vice President and Chief       March 16, 2005
--------------------          Financial Officer (Principal
Marc Constantini           Financial and Accounting Officer)


/S/ JAMES M. BENSON         Senior Executive Vice President       March 16, 2005
--------------------                 and Director
James M. Benson

/S/ JONATHAN CHIEL          Executive Vice President, General     March 16, 2005
------------------                Counsel and Director
Jonathan Chiel

/S/ DOMINIC D'ALESSANDRO          Chairman of the Board           March 16, 2005
------------------------
Dominic D'Alessandro

/S/ DONALD A. GULOIEN        Senior Executive Vice President,     March 16, 2005
---------------------          Chief Investment Officer and
Donald A. Guloien                       Director


/S/ PETER H. RUBENOVITCH   Senior Executive Vice President and    March 16, 2005
------------------------                 Director
Peter H. Rubenovitch


                                      181