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Name Title John Hancock Investments Date. Three things to know about today’s bond market With interest rates near historic lows, rate increases could.

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Presentation on theme: "Name Title John Hancock Investments Date. Three things to know about today’s bond market With interest rates near historic lows, rate increases could."— Presentation transcript:

1 Name Title John Hancock Investments Date

2 Three things to know about today’s bond market With interest rates near historic lows, rate increases could lead to big losses Pursuing higher income through longer duration is a risky proposition Declining interest rates have driven bond returns higher for more than 20 years Source: John Hancock Investments,

3 RECESSION 12/07─6/09 RECESSION 3/01─11/01 Source: U.S. Department of the Treasury and Federal Reserve Bank of St. Louis, as of 12/31/14. For illustrative purposes only. The benchmark for short-term lending, the federal funds rate is periodically set by the Federal Reserve Board and reflects the interest rate banks charge each other for overnight loans. Past performance does not guarantee future results. Please see slide 17 for complete definitions. At today’s levels, interest rates can’t get much lower Declining interest rates have driven bond returns higher for more than 20 years year U.S. TreasuriesFederal funds rate % DEC 1994 Mexican peso crisis OCT 1997 Asian currency crisis DEC 1998 President Clinton impeached AUG 2005 Hurricane Katrina MAR─MAY 2003 Iraq invasion MAR 2000 Tech bubble bursts SEP 2001 Sept. 11 terrorist attacks SEP─NOV 2008 Lehman Brothers bankruptcy, QE1 DEC 2001, JUL 2002 Enron, WorldCom bankruptcies DEC 2009 European sovereign debt crisis begins MAY 2013 Fed tapering comments SEP 2012 QE3 AUG 2011 U.S. debt downgraded MAR 2012 Greece defaults OCT 2010 QE2 MAR 2011 Tsunami hits Japan AUG─SEP 1998 Long-Term Capital Management collapse

4 Because the income offered today is so low, it could take years for coupon payments to make up for any capital losses With interest rates near historic lows, rate increases could lead to big losses bondholders could lose more than of their portfolios’ value If rates rise 3% over the course of 3 years According to one study: 2 22% 4 Source: Welton Investment Corporation, “When Bonds Fall: How Risky Are Bonds if Interest Rates Rise?” 2012.

5 A long duration strategy could be risky Pursuing higher income through longer duration is a risky proposition Source: Barclays Capital, John Hancock Research, as of 12/31/14. Duration measures the sensitivity of the price of bonds to a change in interest rates. It is not possible to invest directly in an index. Past performance does not guarantee future results. Please see slide 17 for complete definitions. Barclays U.S. Aggregate Bond Index 10-year U.S. Treasuries 3 5 −10 −20 −30

6 The Fed injected nearly $500B into the markets in 2014 to help keep interest rates low What happens to interest rates without the Fed’s purchases propping up demand? 6 Source: U.S. Federal Reserve, as of 12/31/14. U.S. Federal Reserve balance sheet (in trillions)

7 Look beyond the mainstream for new opportunities Growth of $100,000 through various interest-rate cycles Periods of rising rates are highlighted below Source: Morningstar Direct and Western Asset Management Company, as of 12/31/14. The rising-rate periods included in the illustration above are 9/30/98–5/31/00, 5/30/03–6/29/07, 12/31/08–4/30/10, and 7/31/12–12/31/13, the four longest periods of broad interest-rate increases during the past 20 years. It is not possible to invest directly in an index. Past performance does not guarantee future results. Please see slide 17 for complete definitions. OCT 1998−MAY 2000 Change in: Fed funds rate+0.69% 10-year U.S. Treasuries+1.85% Best/worst returns: Emerging-market debt19.58% 10-year U.S. Treasuries─3.12% AUG 2012−DEC 2013 Change in: Fed funds rate─0.06% 10-year U.S. Treasuries+1.53% Best/worst returns: High-yield bonds9.68% 10-year U.S. Treasuries─6.11% Emerging-market debt High-yield bonds 10-year U.S. Treasuries Core U.S. bonds Mortgage-backed securities Short-term credit Floating-rate notes $339,288 $271,468 $266,398 $268,919 $246,493 $245,910 $498,275 7 $600, , , , , ,000 Not all sectors of the bond market are dependent on declining rates to generate returns JUN 2003−JUN 2007 Change in: Fed funds rate+4.03% 10-year U.S. Treasuries+1.66% Best/worst returns: High-yield bonds9.86% 10-year U.S. Treasuries0.75% JAN 2009−APR 2010 Change in: Fed funds rate+0.06% 10-year U.S. Treasuries+1.44% Best/worst returns: High-yield bonds49.16% 10-year U.S. Treasuries─6.46%

8 Expand your fixed-income horizons Sectors beyond the mainstream have tended to outperform in rising-rate environments and they generally offer higher yields as well High-yield bonds Debt issued by lower credit quality companies, typically less sensitive to interest rates and driven more by corporate fundamentals 6.52%6.61% Floating-rate notes Interest payments on these bank loans made to corporations float along with interest rates, paying higher coupons as rates rise 6.24%5.87% Emerging-market debt Debt issued by governments and corporations within developing economies, often buttressed by strong demographic trends, such as growing consumer classes 6.09%5.75% Short-term credit Bonds with shorter maturities are less sensitive to rising rates since bondholders can expect to have their principal repaid relatively soon 4.29%1.80% Mortgage-backed securities Income payments to these bonds are derived from pools of mortgages, and as housing fundamentals improve, the risk of defaults tends to decrease 3.48%2.60% Core U.S. bonds U.S. investment-grade bonds dominated by government securities whose returns are driven by rate movements 3.18%2.25% 10-year U.S. Treasuries Some of the most heavily traded securities in the world, 10-year U.S. Treasuries are the de facto proxy for intermediate-term interest rates ─3.75%2.17% Source: Morningstar Direct and Western Asset Management Company, as of 12/31/14. It is not possible to invest directly in an index. Past performance does not guarantee future results. Please see slide 17 for complete definitions. 1 The rising-rate periods included in the illustration above are 9/30/98−5/31/00, 5/30/03−6/29/07, 12/31/08−4/30/10, and 7/31/12−12/31/13, the four longest periods of broad interest-rate increases during the past 20 years. Annualized return during rising rates 1 Yield 8

9 Not all bond market sectors move in unison Low and negative correlation is the key to building a diversified portfolio Floating-rate notes─0.01─0.45 High-yield bonds 0.26─0.22 Emerging-market debt Short-term credit Mortgage-backed securities Core U.S. bonds Source: Morningstar Direct, as of 12/31/14. Correlation is a statistical measure that describes how investments move in relation to each other, which ranges from –1.00 to The closer the number is to 1.00 or –1.00, the more closely the two investments are related. Diversification does not guarantee investment returns and does not eliminate risk of loss. It is not possible to invest directly in an index. Past performance does not guarantee future results. Please see slide 17 for complete definitions. 10-year U.S. Treasuries Barclays U.S. Aggregate Bond Index 10-year correlation as of 12/31/14 9

10 Income generation 2.25%3.39% Average duration 5.55 years4.64 years 10-year annualized return 4.71%5.40% Standard deviation 2 (three years) 2.66%2.63% Ending value of $100,000 invested 10 years ago (rebalanced quarterly) $158,423$169,272 Broadening your fixed-income portfolio can help you avoid concentrated risks Diversified bond portfolio Traditional index-oriented portfolio Performance results A diversified fixed-income portfolio produced higher returns with lower duration Core U.S. bonds Emerging-market debt High-yield bonds Mortgage-backed securities Floating-rate notes Short-term credit Source: Morningstar Direct, as of 12/31/14. For illustrative purposes only. Diversification does not guarantee investment returns and does not eliminate risk of loss. It is not possible to invest directly in an index. Past performance does not guarantee future results. Please see slide 17 for complete definitions. 2 Standard deviation measures performance fluctuation—generally, the higher the standard deviation, the greater the expected volatility. 10

11 The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Returns for periods shorter than one year are cumulative, and results for other share classes will vary. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance cited, and can be found at jhinvestments.com or by calling A range of fixed-income investment options John Hancock Bond Fund (JHNBX) Managed by John Hancock Asset Management Why this fund? This high-quality core bond holding offers broad diversification across sectors, while actively managing yield-curve positioning and overall risk exposure. Average annual total returns as of 12/31/14 3 (%) 1 year3 year5 year Life of fund 11/9/73 Class A (without sales charge) Class A (with 4% maximum sales charge) Net expense ratio (what you pay): 0.93% 4 Gross expense ratio: 0.98% 3 Returns for Class A shares have been adjusted to reflect the reduction in the maximum sales charge from 4.5% to 4.0%, effective 2/3/14. 4 Represents the effect of a fee waiver and/or expense reimbursement through 9/30/15 for Class A shares, and is subject to change. 11

12 The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Returns for periods shorter than one year are cumulative, and results for other share classes will vary. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance cited, and can be found at jhinvestments.com or by calling A range of fixed-income investment options John Hancock Core High Yield Fund 5 (JYIAX) Managed by John Hancock Asset Management Why this fund? This high-yield fund uses a value-oriented philosophy, combining top-down and bottom-up analysis to identify opportunities while also managing risk. Average annual total returns as of 12/31/14 6 (%) 1 year3 year5 year Life of fund 4/30/09 Class A (without sales charge) Class A (with 4% maximum sales charge) ‒ Expense ratio (what you pay): 1.14% 5 Prior to 3/12/12, John Hancock Core High Yield Fund was not open to investments from the general public. 6 Returns for Class A shares have been adjusted to reflect the reduction in the maximum sales charge from 4.5% to 4.0%, effective 2/3/14. 12

13 The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Returns for periods shorter than one year are cumulative, and results for other share classes will vary. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance cited, and can be found at jhinvestments.com or by calling A range of fixed-income investment options John Hancock Emerging Markets Debt Fund (JMKAX) Managed by John Hancock Asset Management Why this fund? This fund combines investments in sovereign and corporate debt from emerging- market countries where the managers believe improving economic fundamentals and favorable demographic trends provide attractive opportunities. Average annual total returns as of 12/31/14 7 (%) 1 year3 year5 year Life of fund 1/4/10 Class A (without sales charge) Class A (with 4% maximum sales charge) Expense ratio (what you pay): 1.30% 7 Returns for Class A shares have been adjusted to reflect the reduction in the maximum sales charge from 4.5% to 4.0%, effective 2/3/14. 13

14 A range of fixed-income investment options The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Returns for periods shorter than one year are cumulative, and results for other share classes will vary. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance cited, and can be found at jhinvestments.com or by calling John Hancock Floating Rate Income Fund (JFIAX) Managed by Western Asset Management Company Why this fund? The management team uses rigorous fundamental research to identify the most attractive opportunities in floating-rate loans, a unique asset class that can help reduce a portfolio’s interest-rate sensitivity. Average annual total returns as of 12/31/14 8 (%) 1 year3 year5 year Life of fund 1/2/08 Class A (without sales charge) ‒ Class A (with 2.5% maximum sales charge) ‒ Expense ratio (what you pay): 1.16% 8 Returns for Class A shares have been adjusted to reflect the reduction in the maximum sales charge from 3.0% to 2.5%, effective 2/3/14. 14

15 9 Returns for Class A shares have been adjusted to reflect the reduction in the maximum sales charge from 4.5% to 2.5%, effective 2/3/14. A range of fixed-income investment options The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Returns for periods shorter than one year are cumulative, and results for other share classes will vary. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance cited, and can be found at jhinvestments.com or by calling John Hancock Short Duration Credit Opportunities Fund (JMBAX) Managed by Stone Harbor Investment Partners Why this fund? The fund’s flexible strategy can help diversify a core fixed-income portfolio, and the low duration target may help hedge against rising interest rates. Average annual total returns as of 12/31/14 9 (%) 1 year3 year5 year Life of fund 11/2/09 Class A (without sales charge) Class A (with 2.5% maximum sales charge) ‒ Expense ratio (what you pay): 1.17% 15

16 The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Returns for periods shorter than one year are cumulative, and results for other share classes will vary. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance cited, and can be found at jhinvestments.com or by calling A range of fixed-income investment options 10 The inception date for John Hancock Strategic Income Opportunities Fund’s oldest class of shares, Class NAV shares, is 4/28/06. Its Class A shares were first offered on 1/4/10. Returns prior to this date are those of Class NAV shares that have been recalculated to apply the gross fees and expenses of Class A shares. Returns for Class A shares have been adjusted to reflect the reduction in the maximum sales charge from 4.5% to 4.0%, effective 2/3/ Represents the effect of a fee waiver and/or expense reimbursement through 12/31/15 for Class A shares, and is subject to change. John Hancock Strategic Income Opportunities Fund (JIPAX) Managed by John Hancock Asset Management Why this fund? This flexible multi-sector fixed-income fund invests in a variety of global credit sectors to pursue current income and seek to maximize total return. Average annual total returns as of 12/31/14 10 (%) 1 year3 year5 year Life of fund 4/28/06 Class A (without sales charge) Class A (with 4% maximum sales charge) Net expense ratio (what you pay): 1.11% 11 Gross expense ratio: 1.13% 16

17 Index and term definitions 10-year U.S. Treasuries are measured by the Bank of America Merrill Lynch 10-Year U.S. Treasury Index, a one-security index comprising the most recently issued 10-year U.S. Treasury note. The index is rebalanced monthly. In order to qualify for inclusion, a 10-year note must be auctioned on or before the third business day before the last business day of the month. Barclays U.S. Aggregate Bond Index tracks the performance of U.S. investment-grade bonds in government, asset-backed, and corporate debt markets. Core U.S. bonds are represented by the Barclays U.S. Aggregate Bond Index, which tracks the performance of U.S. investment- grade bonds in government, asset-backed, and corporate debt markets. Emerging-market debt is represented by the J.P. Morgan Emerging Markets Bond Index (EMBI) Global Diversified Index, which tracks the performance of U.S. dollar-denominated Brady bonds, Eurobonds, and traded loans issued by sovereign and quasisovereign entities. The index caps its exposure to countries with larger amounts of outstanding debt. Floating-rate notes are measured by the S&P/LSTA Leveraged Loan Index, which tracks returns in the leveraged loan market and captures a broad cross section of the U.S. leveraged loan market, including dollar-denominated, U.S.-syndicated loans to overseas issuers and excluding those in default. High-yield bonds are measured by the Bank of America Merrill Lynch U.S. High Yield Master II Index, which tracks the performance of globally issued, U.S. dollar-denominated high-yield bonds. Mortgage-backed securities are measured by the Barclays U.S. Mortgage-Backed Securities Index, an unmanaged index comprising 15- and 30-year fixed-rate securities backed by the mortgage pools of Ginnie Mae, Freddie Mac, and Fannie Mae. Short-term credit is measured by the Barclays 1–5 Year U.S. Credit Index, which tracks the performance of U.S. government and international, U.S. dollar-denominated, investment-grade corporate bonds with maturities between one and five years. It is not possible to invest directly in an index. Past performance does not guarantee future results. 17

18 A word about risk Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if a creditor is unable or unwilling to make principal or interest payments. A fund concentrated in one sector or that holds a limited number of securities may fluctuate more than a diversified fund. Investments in higher-yielding, lower-rated securities include a higher risk of default. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. Certain market conditions, including reduced trading volume, heightened volatility, and rising interest rates, may impair liquidity, the ability of a fund to sell securities or close derivative positions at advantageous prices. The issuer or grantor of a security, or counterparty to a transaction, may be unable or unwilling to make principal, interest, or settlement payments. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment, and their value may fluctuate in response to the market’s perception of issuer creditworthiness. Currency transactions are impacted by fluctuations in exchange rates, which may adversely affect the U.S. dollar value of a fund’s investments. The use of hedging and derivatives could produce disproportionate gains or losses and may increase costs. The distribution rate and income amounts reflect past amounts distributed and may not be indicative of future rates or income amounts. Loan participations and assignments involve special types of risks, including credit risk, interest-rate risk, counterparty risk, liquidity risk, and the risks of being a lender. The distribution amounts paid by the fund generally depend on the amount of income and/or dividends received by the fund’s investments. The fund may not be able to pay distributions or may have to reduce its distribution level if the amount of such income and/or dividends received from its investment declines. Frequent trading may increase fund transaction costs and increase taxable distributions. Therefore, distribution rates and income amounts can change at any time. For additional information on these and other risk considerations, please see the funds’ prospectuses. 18

19 John Hancock Funds, LLC ▪ Member FINRA, SIPC 601 Congress Street ▪ Boston, MA ▪ ▪ jhinvestments.com NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. NOT INSURED BY ANY GOVERNMENT AGENCY. A fund’s investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the fund. To obtain a prospectus, contact your financial professional, call John Hancock Investments at , or visit our website at jhinvestments.com. Please read the prospectus carefully before investing or sending money. MF216877PIFIPPT 2/15


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