PROXY CIRCULAR AND 2005 ANNUAL REPORT THIS DOCUMENT INCLUDES: Notice of Meeting Proxy Circular 2005 Annual Report Manulife Financial Corporation Annual Meeting May 4, 2006 IMPORTANT INFORMATION FOR SHAREHOLDERS. Your participation is important. Please take a minute to vote. KEY PERFORMANCE MEASURES Basic Earnings Shareholders’ Return on Common per Common Share Net Income Shareholders' Equity (C$) (C$ millions) (per cent) 159 ,378 ,539 2.22 2.90 3.33 3.65 4.11 4.5 3,500 1, 1 1 2,550 3,294 20 15.1 16.2 17.7 13.7 14.1 4.0 3,000 3.5 15 2,500 3.0 2.5 2,000 10 2.0 1,500 1.5 1,000 5 1.0 500 0.5 0.0 0 0 2001 20022003 2004 2005 2001 20022003 2004 2005 2001 20022003 2004 2005 ❚ Basic earnings per common share ❚ Record shareholders’ net income of ❚ Return on common shareholders’ equity increased by 13 per cent over 2004 to $3,294 million, a 29 per cent increase of 14.1 per cent compared to 13.7 per a record of $4.11 per share. over last year. cent for 2004. ❚ Continued strong track record of growth ❚ Twelfth consecutive year of record ❚ In 2004, the John Hancock transaction with a five year annual compound growth earnings. significantly increased the capital base rate of 13 per cent. and resulted in a lower ROE. Results have improved consistently since that time with a fourth quarter ROE of 15.5 per cent in 2005. Premiums and Funds Under Deposits Management Capital (C$ billions) (C$ billions) (C$ millions) 70 26.0 30.0 31.0 50.4 61.5 400 138.3 142.7 154.2 347.4 372.3 30,000 11,577 12,037 12,068 28,135 28,353 350 60 25,000 300 50 20,000 250 40 200 15,000 30 150 10,000 20 100 5,000 10 50 0 0 0 2001 20022003 2004 2005 2001 20022003 2004 2005 2001 20022003 2004 2005 ❚ Premiums and deposits were $61 billion, ❚ Funds under management of $372.3 ❚ Total capital of $28.4 billion, up one per up 22 per cent over 2004 and almost billion, an increase of $24.9 billion over cent from 2004 as benefit of earnings and double 2003 due to merger with John 2004. Strong growth in segregated issue of preferred shares was largely Hancock. funds partially offset by negative impact offset by shareholder dividends, share ❚ Segregated fund deposits up 27 per cent of currency and institutional redemptions buybacks and negative impact of currency over 2004 due to record sales of variable in G&SFP. movements. annuities. ❚ In 2004, funds under management more ❚ Significant increase in 2004 from 2003 than doubled from 2003 due to merger was primarily as a result of the John with John Hancock. Hancock merger. Our Values Our P.R.I.D.E. values guide everything we do – from strategic planning to day-to-day decision-making, to the manner in which we treat our customers and other stakeholders. Professionalism We will be recognized as having professional standards. Our employees and agents will possess superior knowledge and skill, for the benefit of our customers. Real Value to Our Customers We are here to satisfy our customers. By providing the highest quality products, services, advice and sustainable value, we will ensure our customers receive excellent solutions to meet their individual needs. Integrity All of our dealings are characterized by the highest levels of honesty and fairness. We develop trust by maintaining the highest ethical practices. Demonstrated Financial Strength Our customers depend on us to be here in the future to meet our financial promises. We earn this faith by maintaining uncompromised claims paying ability, a healthy earnings stream, and superior investment performance results, consistent with a prudent investment management philosophy. Employer of Choice Our employees will determine our future success. In order to attract and retain the best and brightest employees, we will invest in the development of our human resources and reward superior performance. Ratings Financial strength is a key factor in generating new business, maintaining and expanding distribution relations and providing a base for expansion, acquisitions and growth. As at December 31, 2005, Manulife Financial had capital of C$28.4 billion, including C$23.3 billion of common shareholders’ equity. Manufacturers Life’s financial strength and claims paying ratings are among the strongest in the insurance industry. Rating agency Rating A.M. Best A++ (1st of 16 categories) Dominion Bond Rating Service IC-1 (1st of 5 categories) FitchRatings AA+ (2nd of 24 categories) Moody’s Aa2 (3rd of 21 categories) Standard & Poor’s AA+ (2nd of 21 categories) Cautionary Statement concerning Forward-Looking Statements This document includes forward-looking statements within the meaning of the ‘‘safe harbour’’ provisions of Canadian provincial securities laws and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, the Company’s objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and generally can be identified by the use of words such as ‘‘may’’, ‘‘will’’, ‘‘could’’, ‘‘would’’, ‘‘suspect’’, ‘‘outlook’’, ‘‘expect’’, ‘‘intend’’, ‘‘estimate’’, ‘‘anticipate’’, ‘‘believe’’, ‘‘plan’’, ‘‘forecast’’ and ‘‘continue’’ (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results of the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve inherent risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include, but are not limited to: business competition; maintenance of financial ratings; general economic conditions and market factors including stock market and real estate market performance and fluctuations in interest rates and currency values; the variation between actual claims experience under insurance policies and initial claims estimates; changes in government regulations or in tax laws; unfavourable resolution of litigation involving the Company; the Company’s ability to complete strategic acquisitions and to integrate acquisitions; reliance on third parties that may be unable to fulfill obligations or perform services; political conditions and developments; the timely development and introduction of new products and services; unexpected changes in consumer spending and saving habits; natural disasters such as hurricanes or tsunamis; public health emergencies, such as an influenza pandemic; international conflicts and other developments including those relating to terrorist activities; and the Company’s success in anticipating and managing the risks associated with those events. Additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, may be found under ‘‘Risk Management’’ and ‘‘Critical Accounting and Actuarial Policies’’ in Management’s Discussion and Analysis for the year ended December 31, 2005 and elsewhere in the Company’s filings with Canadian and U.S. securities regulators. The Company does not undertake to update any forward-looking statements. Table of Contents Section 1 Notice of Annual Meeting and Proxy Circular 2 Invitation to Shareholders 3 Message to Shareholders 7 Notice of Annual Meeting of Shareholders of Manulife Financial Corporation 8 Business of the Annual Meeting 9 How to Vote 10 Q&A on Voting at the Annual Meeting 12 Board of Directors 18 Board of Directors’ Compensation 20 Report of the Corporate Governance and Nominating Committee 22 Report of the Audit and Risk Management Committee 24 Report of the Conduct Review and Ethics Committee 25 Report of the Management Resources and Compensation Committee 26 Report on Executive Compensation 33 Performance Graph 33 Supplemental Shareholder Return 34 Statement of Executive Compensation 36 Pension Plans 40 Supplemental Information – Total Compensation and Performance of Named Executive Officers 46 Securities Authorized for Issuance Under Equity Compensation Plans 47 Directors’ and Executive Officers’ Indebtedness 47 Directors’ and Officers’ Insurance 47 Directors’ Approval 47 Additional Information 48 Schedule ‘‘A’’ – Statement of Corporate Governance Practices Section 2 2005 Annual Report 56 Management’s Discussion and Analysis 93 Management’s and Auditor’s Reports 95 Consolidated Financial Statements 100 Notes to the Consolidated Financial Statements 146 Source of Earnings 148 Embedded Value 150 Principal Subsidiaries 152 Officer Listing 153 Office Listing 154 Shareholder Information NOTE: Information contained in, or otherwise accessible through, websites mentioned in the Notice of Annual Meeting and Proxy Circular and the 2005 Annual Report does not form a part of this document. All references in this document to websites are inactive textual references only. Table of Contents 1 Invitation to Shareholders Dear Shareholder: On behalf of the Board of Directors, management and employees, we invite our common shareholders to attend the Annual Meeting (the ‘‘Meeting’’) of Manulife Financial Corporation (the ‘‘Company’’) on May 4, 2006 at 11:00 a.m. Eastern Standard Time. This Meeting will be combined with the Annual Meeting of policyholders and the shareholder of The Manufacturers Life Insurance Company (‘‘Manufacturers Life’’). We have combined the Proxy Circular and the Annual Report into a single document in order to communicate with you in a convenient, cost-effective and meaningful format. The President’s Message to shareholders, reporting on highlights of the past year and our vision for the Company, as well as the Key Performance Measures, appear at the beginning of the document. We hope you will find the attached materials informative and easy to follow. The business to be considered at the Meeting is described in the Notice of Annual Meeting.