DIVERSIFIED ALTERNATIVES COMMENTARY MANAGED BY: PACIFIC LIFE FUND ADVISORS LLC

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1 PACIFIC FUNDS SM MANAGED BY: PACIFIC LIFE FUND ADVISORS LLC PLALX Class A Class C Advisor Class 147 PLCLX 347 PLDLX 047 Market Review Most broad markets closed 2015 on a relatively benign note; however, the year was filled with divergent themes that generated volatility across markets throughout the period. These themes resulted in large return dispersion among various asset classes. Opposing actions taken by major central banks remained a prevalent focus throughout the year. The Bank of Japan (BoJ) continued to provide additional stimulus throughout 2015 to extend life support for the struggling Japanese economy. The European Central Bank (ECB) also took aggressive measures to rebuild confidence in Europe. These policies contrasted with that of the Federal Reserve (Fed), which ended its quantitative easing (bond buying) program in 2014 and raised interest rates for the first time in nearly a decade in December. These divergent actions have been pushing the U.S. dollar higher since mid An appreciating U.S. dollar, in turn, has far-reaching implications including downward pressure on commodity prices and added pressure on foreign entities that issue dollar-denominated bonds. While the rising U.S. dollar may have contributed to falling commodity prices, other factors compounded the impact. China, which was a massive consumer of raw materials, has been steadily moving away from manufacturing to a services-focused economy (see Figure 1). As a result, China has considerably pared back infrastructure and property investments, which meant less demand for commodities such as crude oil. While decreased demand for commodities contributed to the downturn in energy prices, persistent oversupply of crude oil continued exerting negative pressure on prices, too. Fracking activity led U.S. oil production to nearly double in about three years. Faced with this, Saudi Arabia has been reluctant to pull back production as it attempts to maintain its market share. The resulting game of chicken brought crude prices below $40 a barrel, a level unseen in more than a decade. Figure 1. China s Gross Domestic Product (GDP) Composition Percentage of GDP Services (% of GDP) Manufacturing (% of GDP) Services (% of GDP) Manufacturing (% of GDP) Source: The World Bank, as of December 31, 2014, Data released December Energy companies in Brazil and China were among the biggest sellers of bonds denominated in the U.S. dollar. Plunging crude oil prices and concerns over rising U.S. rates and currency created major hurdles for energy producers, especially those based in emerging markets. Anxieties over debt default concerns as well as the slowdown in China and its impact on the rest of the world rattled global markets, which even swayed the Fed to postpone the liftoff date for rate hikes. The broad bond market (as defined by the Barclays U.S. Aggregate Bond Index) returned 0.57% and 0.55% for the quarter and trailing 1-year period, respectively. Long-term Treasury bonds lagged short-term bonds during the fourth quarter as the 10-year Treasury yield crept up. Amid concerns over defaults and liquidity, investment-grade credit outperformed high-yield bonds for the quarter and the trailing 12-month period. Spreads, which move in the opposite direction to prices, continued to climb higher over the past two quarters, hurting high-yield bonds and bank loans. No bank guarantee Not a deposit May lose value Not FDIC/NCUA insured Not insured by any federal government agency 1/16 W A 1 of 5

2 Domestic equities popped back into positive territory during the fourth quarter, however. The S&P 500 index gained 7.04% and 1.38% during the quarter and trailing 12-month period, respectively. Large-cap stocks outpaced small-cap stocks for the quarter and the trailing 1-year period, and growth stocks continued to outperform value stocks for the fourth quarter and the trailing 12-month period. Healthcare and Information Technology sectors performed well for the quarter and the year as mergers and acquisitions (M&A) activity flourished in those sectors. On the other hand, the Energy sector continued to struggle due to depressed crude oil prices. International equities ended the year with the MSCI EAFE Index slightly down ( 0.81%) for the year but up 4.71% during the fourth quarter. While foreign equities performed relatively well during the first half of the year, the third quarter was particularly challenging for global stocks as investors exhibited elevated concerns over the contracting manufacturing activity in China. This angst especially challenged emerging-market equities, which were among the worst-performing asset classes for the year. The MSCI Emerging Markets Index tumbled 14.92% over the 12-month period ending December 31, Developed market equities fared much better with Japanese stocks contributing positively to performance for the year as well as the fourth quarter due to supportive government policies. Fund Performance The Fund returned 2.37% during the fourth quarter of 2015 and 0.61% over the trailing 12-month period Performance Review The PF Equity Long/Short Fund, PF Global Absolute Return Fund, and PF Currency Strategies Fund were the top contributors to performance over both the fourth quarter and the year. The PF Equity Long/Short Fund continued to deliver solid results since it was added late April The PF Global Absolute Return Fund benefited from its long position to the U.S. dollar and a short position against various emerging-market currencies. The positive performance of the PF Currency Strategy Fund likewise stemmed from an overweight to the U.S. dollar. While exposure to emerging-markets equity and debt added to returns for the quarter, it was the largest detractor over the trailing 12-month period. Although the exposure to these asset classes dragged down returns throughout the year, the underlying managers outperformed their respective benchmarks. For example, the PF Emerging Markets Fund outperformed the MSCI Emerging Markets Index by more than 100 basis points over the trailing 12-month period. Much of this stemmed from solid stock selection in Chinese and Indian companies. Outlook Global markets show both underlying strength and signs of fragility, which emphasizes the need for diversification, diligence, and determination to make it through volatile bouts. The Fed s decision to move ahead with the rate hike can largely be seen as a vote of confidence in the U.S. economic recovery as the other leg of the Fed s dual mandate, namely inflation, has been consistently below its official target of 2%. We expect that the run-up in the value of the U.S. dollar is largely done, although monetary stimulus in Europe and Japan might still push the dollar higher. A weakening European currency should also provide a continued boost to the recovering EU economy through stronger exports, and in turn should bolster the ongoing market expansion overseas. Our outlook for equities, both domestically and abroad, is for continued but modest expansion with double-digit returns far more difficult to achieve. We see earnings modestly expanding here in the U.S. with a tailwind for the Financials sector as rising rates provide more interest margin. The Energy sector once again looks to be the most troubling because the prospect for continued low oil prices puts pressure on the the balance sheets of many shaleoil businesses that have thrived on easy and cheap capital. International developed markets look more favorable as economic momentum gathers on all fronts and central bankers remain committed to stimulus. For performance data current to the most recent month-end, call Pacific Funds at (800) , option 2 or go to Performance data quoted represents past performance, which does not guarantee future results. Current performance may be lower or higher than the performance quoted. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. 2 of 5

3 We believe emerging markets, however, will remain pressured as investors continue to focus on challenges in China s manufacturing sector. While a slowdown in Chinese growth is likely given that the positive momentum of the Chinese Services sector is not expected to keep up with the contraction in manufacturing, we see volatility stemming more from the handling of the renminbi and the stock markets by Chinese officials. More broadly, we see emerging markets pressured primarily from a slowing in China and anticipated impacts on commodity and oil exporters. It appears 2016 may be another challenging year for bond investors, as rising rates cause the see-saw effect of bond losses. We see the biggest challenge in investment-grade bonds at the short and long end of the yield curve, leaving the belly of the curve as the cleanest dirty shirt. We anticipate opportunity for credit investors in high-yield and bank loans, but emphasize diligence and do not discount liquidity and default concerns as energy companies continue to weigh on the sector. 3 of 5

4 Total Returns Class A (12/31/15) Total Returns (%) 3-Month Year-to-Date 1-Year Annualized Total Returns (%) Life of Fund 12/31/13 2% 1% % % -2% (1.48) -3% -4% (3.29) -5% -6% (4.95) Class A NAV (4.95) Class A MOP Citigroup 1-Month U.S. T-Bill Index 1 1 Citigroup 1-Month U.S. T-Bill Index is a market value-weighted index of public obligations of the U.S. Treasury with maturities of one month. The index is unmanaged and cannot be invested in directly. Actual inception for the index existed prior to 12/31/13. Net annual operating expenses for Class A are 1.87% and total expenses are 1.87%. Returns reflect reinvestment of dividends and distributions. Returns shown at net asset value (NAV) have all distributions reinvested. If a sales charge had been deducted, the results would have been lower. Returns shown at maximum offering price (MOP) for Class A shares reflect payment of the maximum sales charge. When a sales charge is illustrated, it is applied at the beginning of the period. Gross annual operating expenses reflect the total annual operating expenses paid by each fund. Net operating expenses reflect waivers, reductions, and reimbursements. Gross operating expenses and net operating expenses are sourced from the prospectus dated 8/1/15. There is no guarantee that the investment advisor will continue to cap expenses after the expiration date. Class A shares have a maximum 5.50% sales charge. Where a sales charge is illustrated, it is applied at the beginning of the period. Please visit our website at for performance of other share classes. Please see the prospectus for more information. For performance data current to the most recent month-end, call Pacific Funds at (800) , option 2 or go to Performance data quoted represents past performance, which does not guarantee future results. Current performance may be lower or higher than the performance quoted. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. 4 of 5

5 You should carefully consider an investment s goals, risks, charges, strategies, and expenses. This and other information about Pacific Funds are in the prospectus and/or applicable summary prospectus available from your financial advisor or by calling (800) , option 2. Read the prospectus and/or summary prospectus carefully before investing. All investing involves risk, including the possible loss of the principal amount invested. Equity securities tend to go up or down in value, sometimes rapidly and unpredictably, in response to many factors, including a company s historical and prospective earnings, the value of its assets, general economic conditions, interest rates, investor perceptions, and market liquidity. Large-capitalization companies tend to have more stable prices than small- or mid-capitalization companies, but are still subject to equity securities risk, and their prices may not rise as much as the prices of companies with smaller market capitalizations. Generally, stocks of small-cap companies may be riskier and more volatile than those of larger, more established companies. Growth companies have the potential for above-average or rapid growth but may be subject to greater price volatility risk than investments in undervalued companies. There is a risk that the determination that a stock is undervalued is not correct or is not recognized in the market. Non-traditional or alternative investment performance may be correlated with traditional equity and fixed-income investments over short- or longer-term periods, resulting in a lessened diversification effect and increased volatility when included in a portfolio as part of an asset allocation strategy. Investments in foreign markets are subject to currency fluctuations, political changes, and less liquidity than U.S. investments. Currency exposure subjects a portfolio to changes in the rates of exchange between currencies, which may result in increased volatility. Bank loans and high-yield/high-risk bonds involve risk of default on interest and principal payments or price changes due to changes in credit quality of the borrower, among other risks. The value can be more volatile due to increased sensitivity to adverse issuer, political, regulatory, market, or economic developments. The Fund is also subject to liquidity risk (the risk that certain investments may be difficult to purchase and sell in adverse market conditions) and credit risk (the risk an issuer may be unable or unwilling to meet its financial obligations). Engaging in short sales of securities (a security sold short in anticipation of purchasing the same security at a later date at a lower price) that an underlying fund does not own subjects it to the risks associated with those securities, including price volatility risk and leverage risk, among others. Derivatives can be complex instruments that may experience sudden changes in price and liquidity may be difficult to value, sell, or unwind and may be leveraged, which can cause very large swings in value. Debt securities are affected by changes in interest rates, with longer durations or fixed interest rates being more sensitive to changes in interest rates, making them generally more volatile than debt securities with shorter durations or floating or adjustable interest rates. Emerging market securities tend to be more volatile than those in developed countries. Please see the prospectus for a detailed description of these and other risks associated with Pacific Funds Diversified Alternatives. Asset allocation and diversification do not guarantee future results, ensure a profit or protect against loss. A fund-of-funds is subject to asset allocation risk. Although diversification among asset classes can help reduce volatility over the long term, this assumes that asset classes do not move in tandem and that positive returns in one or more asset classes will help offset negative returns in other asset classes. A fund-of-funds does not guarantee gains and may incur losses and/or experience volatility, particularly during periods of broad market declines. There is also a risk that you could achieve better returns by investing in an individual fund or multiple funds representing a single asset class rather than using asset allocation. A fund-of-funds is subject to its own expenses along with the expenses of the underlying funds. It is typically exposed to the same risks as the underlying funds in which it invests in proportion to the allocation of assets among those underlying funds. Each underlying fund has its own investment goal, strategy and risks, and are not available for individual purchase. The prospectuses for the underlying funds are available at Although some funds may have names or investment objectives that resemble other mutual funds managed by the same money manager, Pacific Funds may not have the same underlying holdings or performance as the other mutual funds. Investment results may be higher or lower. Third-party trademarks and service marks are the property of their respective owners. Pacific Life Fund Advisors LLC (PLFA), a wholly owned subsidiary of Pacific Life Insurance Company, is the investment adviser to Pacific Funds Diversified Alternatives. PLFA also does business under the name Pacific Asset Management and manages certain Pacific Funds under that name. This commentary reflects the views of the portfolio managers through 12/31/15. PLFA s views are subject to change as market and other conditions warrant. No forecasts are guaranteed. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector or index. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Pacific Funds Diversified Alternatives is offered by Pacific Funds. Pacific Funds are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA), and are available through licensed third parties. Pacific Funds refers to Pacific Funds Series Trust. W A 5 of 5 Mailing address: P.O. Box 9768, Providence, RI (800) , Option 2