Semiannual Report December 31, 2017

Transcription

1 PIMCO ETF Trust Semiannual Report December 31, 2017 Index Exchange-Traded Funds PIMCO 1-3 Year U.S. Treasury Index Exchange-Traded Fund PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund PIMCO Broad U.S. TIPS Index Exchange-Traded Fund PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund Actively-Managed Exchange-Traded Funds PIMCO Active Bond Exchange-Traded Fund PIMCO Enhanced Low Duration Active Exchange-Traded Fund PIMCO Enhanced Short Maturity Active Exchange-Traded Fund PIMCO Intermediate Municipal Bond Active Exchange-Traded Fund PIMCO Short Term Municipal Bond Active Exchange-Traded Fund

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3 Table of Contents Page Chairman s Letter 2 Important Information About the Funds 4 Expense Examples 18 Financial Highlights 20 Statements of Assets and Liabilities 24 Statements of Operations 26 Statements of Changes in Net Assets 28 Statements of Cash Flows 32 Notes to Financial Statements 83 Glossary 106 Approval of Investment Management Agreement 107 Fund Fund Summary Schedule of Investments PIMCO 1-3 Year U.S. Treasury Index Exchange-Traded Fund 6 33 PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund 7 34 PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund 8 35 PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund 9 36 PIMCO Broad U.S. TIPS Index Exchange-Traded Fund PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund PIMCO Active Bond Exchange-Traded Fund* PIMCO Enhanced Low Duration Active Exchange-Traded Fund** PIMCO Enhanced Short Maturity Active Exchange-Traded Fund PIMCO Intermediate Municipal Bond Active Exchange-Traded Fund PIMCO Short Term Municipal Bond Active Exchange-Traded Fund This material is authorized for use only when preceded or accompanied by the current PIMCO ETF Trust prospectus.

4 Chairman s Letter Dear Shareholder, Please find enclosed the Semiannual Report for the PIMCO ETF Trust covering the six-month reporting period ended December 31, The following pages contain specific details about the investment performance of each Fund and a discussion of the factors that most affected performance over the reporting period. Highlights of the financial markets during the six-month reporting period include: During the reporting period, geopolitical concerns remained an investor focus but the global economy provided a solid fundamental backdrop with robust consumer confidence in both the eurozone and the U.S. This environment gave room for developed market central banks to adopt a more dovish taper. The European Central Bank ( ECB ), for example, announced a tapering in its monthly asset purchases, but President Mario Draghi emphasized the ECB s accommodative stance overall. In September, the Federal Reserve ( Fed ) provided details on its plan to unwind its balance sheet and kept rates on hold through its November meeting, but raised the Federal Funds Rate in December by 0.25% to a range of 1.25% to 1.50% (marking the third rate increase during 2017, following rate increases in March and in June). The Bank of England ( BOE ) raised its policy rate and suggested reduced stimulus on the horizon and the Bank of Canada ( BOC ) raised interest rates twice after a seven year gap. Furthermore, President Xi Jinping was extended a second five-year term following the 19 th National Party Congress in China, while Japan s Prime Minister Shinzo Abe won a decisive victory in snap elections. As a result, many developed market yield curves flattened over the reporting period as front-end rates moved higher alongside less accommodative monetary policy. In the U.S., solid growth momentum and the Fed s three rate hikes throughout the year pushed the two-year yield to its highest level in nearly a decade. In turn, this drove the spread between two-year and 10-year rates to its narrowest level since November Front-end yields also moved higher in the U.K. and Canada as the BOE and BOC both raised policy rates for the first time in years. U.S. Treasuries, as represented by the Bloomberg Barclays U.S. Treasury Index, returned 0.43% for the reporting period. Yields rose across the majority of the yield curve through 10-year maturities, but declined across 20- and 30-year maturities. The benchmark 10-year U.S. Treasury note yielded 2.40% at the end of the reporting period, up from 2.31% on June 30, The Bloomberg Barclays U.S. Aggregate Index, a widely used index of U.S. investment-grade bonds, returned 1.24% for the reporting period. Global stock markets reached new highs as increasingly solid economic data, rising corporate earnings and non-restrictive central bank policy underpinned robust risk sentiment. U.S. equities, as represented by the S&P 500 Index, returned 11.42% over the reporting period. Developed market equities outside the U.S. and Canada, as represented by the MSCI EAFE Net Dividend Index (USD Hedged) and the MSCI EAFE Net Dividend Index (USD Unhedged), returned 7.92% and 9.86%, respectively, over the reporting period. Japanese equities, as represented by the Nikkei 225 Index (in JPY), returned 14.63% over the reporting period and European equities, as represented by the MSCI Europe Index (in EUR), returned 3.34% over the reporting period. EM equities, as represented by the MSCI Emerging Markets Index (Net Dividends in USD), returned 15.92% over the reporting period as fundamentals remained healthy in select economies. Emerging markets benefited from broad-based and synchronized global growth, robust liquidity conditions, rising commodity prices, and a weak U.S. dollar. If you have any questions regarding the PIMCO ETF Trust, please contact your financial adviser, or call one of our shareholder associates at ETF. We also invite you to visit our website at to learn more about PIMCO ETFs. 2 PIMCO ETF TRUST

5 Thank you for the assets you have placed with us. We deeply value your trust, and we work diligently to meet your broad investment needs. Sincerely, Brent R. Harris Chairman of the Board, PIMCO ETF Trust February 21, 2018 Past performance is no guarantee of future results. Unless otherwise noted, index returns reflect the reinvestment of income distributions and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an unmanaged index. SEMIANNUAL REPORT DECEMBER 31,

6 Important Information About the Funds PIMCO ETF Trust (the Trust ) is an open-end management investment company that includes the PIMCO 1-3 Year U.S. Treasury Index Exchange-Traded Fund, PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund, PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund, PIMCO 15+ Year U.S. TIPS Index Exchange- Traded Fund, PIMCO Broad U.S. TIPS Index Exchange-Traded Fund, PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund, and PIMCO Investment Grade Corporate Bond Index Exchange- Traded Fund, which are exchange-traded funds ( ETFs ) that seek to provide total return that closely corresponds, before fees and expenses, to the total return of a specified index (collectively, the Index Funds ). Each Index Fund employs a representative sampling strategy in seeking to achieve its investment objective. In using this strategy, PIMCO seeks to invest in a combination of instruments such that the portfolio effectively provides exposure to the underlying index. An Index Fund may not track its underlying index with the same degree of accuracy as a fund that replicates the composition and weighting of the underlying index. The PIMCO Active Bond Exchange-Traded Fund, PIMCO Enhanced Low Duration Active Exchange-Traded Fund, PIMCO Enhanced Short Maturity Active Exchange-Traded Fund, PIMCO Intermediate Municipal Bond Active Exchange-Traded Fund and PIMCO Short Term Municipal Bond Active Exchange-Traded Fund, unlike the Index Funds, are actively managed ETFs that do not seek to track the performance of a specified index (collectively, the Active Funds and together with the Index Funds, a Fund or the Funds ). Shares of the Funds will be listed and traded at market prices on NYSE Arca, Inc. ( NYSE Arca ) and other secondary markets. The market price for each Fund s shares may be different from the Fund s net asset value ( NAV ). Each Fund issues and redeems shares at its NAV only in blocks of a specified number of shares ( Creation Units ). Only certain large institutional investors may purchase or redeem Creation Units directly with the Funds at NAV ( Authorized Participants ). These transactions are in exchange for certain securities similar to a Fund s portfolio and/or cash. Except when aggregated in Creation Units, shares of a Fund are not redeemable securities. Shareholders who are not Authorized Participants may not redeem shares from the Funds at NAV. We believe that bond funds have an important role to play in a welldiversified investment portfolio. It is important to note, however, that in an environment where interest rates may trend upward, rising rates would negatively impact the performance of most bond funds, and fixed income securities and other instruments held by the Funds are likely to decrease in value. A wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions, etc.). In addition, changes in interest rates can be sudden and unpredictable, and there is no guarantee that management will anticipate such movement accurately. The Funds may lose money as a result of movements in interest rates. As of the date of this report, interest rates in the U.S. and many parts of the world, including certain European countries, are at or near historically low levels. As such, bond funds may currently face an increased exposure to the risks associated with a rising interest rate environment. This is especially true as the Fed ended its quantitative easing program in October 2014 and has begun, and may continue, to raise interest rates. To the extent the Fed continues to raise interest rates, there is a risk that rates across the financial system may rise. Further, while bond markets have steadily grown over the past three decades, dealer inventories of corporate bonds are near historic lows in relation to market size. As a result, there has been a significant reduction in the ability of dealers to make markets. Bond funds and individual bonds with a longer duration (a measure used to determine the sensitivity of a security s price to changes in interest rates) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities or funds with shorter durations. All of the factors mentioned above, individually or collectively, could lead to increased volatility and/or lower liquidity in the fixed income markets or negatively impact a Fund s performance or cause a Fund to incur losses. As a result, there could be increased sales of shares which could further reduce the market price for a Fund s shares. The Funds may be subject to various risks as described in each Fund s prospectus and in the Principal Risks in the Notes to Financial Statements. The geographical classification of foreign (non-u.s.) securities in this report are classified by the country of incorporation of a holding. In certain instances, a security s country of incorporation may be different from its country of economic exposure. On each individual Fund Summary page in this Shareholder Report, the Average Annual Total Return table and Cumulative Returns chart measure performance assuming that any dividend and capital gain distributions were reinvested. Returns do not reflect the deduction of taxes that a shareholder would pay on: (i) Fund distributions; or (ii) the sale of Fund shares. Each Fund s performance is measured against the performance of at least one broad-based securities market index ( benchmark index ). A Fund s past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future. There is no assurance that any Fund, including any Fund that has experienced high or unusual performance for one or more periods, will experience similar levels of performance in the future. High performance is defined as a significant increase in either 1) a Fund s total return in excess of that of the Fund s benchmark between reporting periods or 2) a Fund s total return in excess of the Fund s historical returns between reporting periods. Unusual performance is defined as a significant change in a Fund s performance as compared to one or more previous reporting periods. 4 PIMCO ETF TRUST

7 The following table discloses the inception dates of each Fund along with each Fund s diversification status as of period end: Fund Name Fund Inception Diversification Status PIMCO 1-3 Year U.S. Treasury Index Exchange-Traded Fund 06/01/09 Diversified PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund 10/30/09 Diversified PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund 08/20/09 Diversified PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund 09/03/09 Diversified PIMCO Broad U.S. TIPS Index Exchange-Traded Fund 09/03/09 Diversified PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund 06/16/11 Diversified PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund 09/20/10 Diversified PIMCO Active Bond Exchange-Traded Fund 02/29/12 Diversified PIMCO Enhanced Low Duration Active Exchange-Traded Fund 01/22/14 Diversified PIMCO Enhanced Short Maturity Active Exchange-Traded Fund 11/16/09 Diversified PIMCO Intermediate Municipal Bond Active Exchange-Traded Fund 11/30/09 Diversified PIMCO Short Term Municipal Bond Active Exchange-Traded Fund 02/01/10 Diversified An investment in a Fund is not a bank deposit and is not guaranteed or insured by the Federal Deposit Insurance Corporation ( FDIC ) or any other government agency. It is possible to lose money on investments in the Funds. The Trustees are responsible generally for overseeing the management of the Trust. The Trustees authorize the Trust to enter into service agreements with the Adviser, the Distributor, the Administrator and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Trust and the Funds. Shareholders are not parties to or third-party beneficiaries of such service agreements. Neither a Fund s prospectus nor a Fund s summary prospectus, the Trust s Statement of Additional Information ( SAI ), any contracts filed as exhibits to the Trust s registration statement, nor any other communications, disclosure documents or regulatory filings (including this report) from or on behalf of the Trust or a Fund creates a contract between or among any shareholder of a Fund, on the one hand, and the Trust, a Fund, a service provider to the Trust or a Fund, and/or the Trustees or officers of the Trust, on the other hand. The Trustees (or the Trust and its officers, service providers or other delegates acting under authority of the Trustees) may amend the most recent prospectus or use a new prospectus, summary prospectus or SAI with respect to a Fund or the Trust, and/or amend, file and/or issue any other communications, disclosure documents or regulatory filings, and may amend or enter into any contracts to which the Trust or a Fund is a party, and interpret the investment objective(s), policies, restrictions and contractual provisions applicable to any Fund, without shareholder input or approval, except in circumstances in which shareholder approval is specifically required by law (such as changes to fundamental investment policies) or where a shareholder approval requirement is specifically disclosed in the Trust s then-current prospectus or SAI. The Index Funds may make available a complete schedule of portfolio holdings and the percentages they represent of the Index Fund s net assets. On each business day, before commencement of trading on NYSE Arca, each Active Fund will disclose on the identities and quantities of the Active Fund s portfolio holdings that will form the basis for the Active Fund s calculation of NAV at the end of the business day. The frequency at which the daily market prices were at a discount or premium to each Fund s NAV is disclosed on Please see Disclosure of Portfolio Holdings in the SAI for information about the availability of the complete schedule of each Fund s holdings. Fund fact sheets provide additional information regarding a Fund and may be requested by calling (888) 400-4ETF and are available on the Fund s website at PIMCO has adopted written proxy voting policies and procedures ( Proxy Policy ) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. The Proxy Policy has been adopted by the Trust as the policies and procedures that PIMCO will use when voting proxies on behalf of the Funds. A description of the policies and procedures that PIMCO uses to vote proxies relating to portfolio securities of each Fund, and information about how each Fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, are available without charge, upon request, by calling the Trust at (888) 400-4ETF, on the Funds website at and on the Securities and Exchange Commission s ( SEC ) website at The Trust files a complete schedule of each Fund s holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. A copy of the Funds Form N-Q is available on the SEC s website at and may be reviewed and copied at the SEC s Public Reference Room in Washington, D.C. A copy of the Funds Form N-Q is also available without charge, upon request, by calling the Trust at (888) 400-4ETF and on the Funds website at Information on the operation of the Public Reference Room may be obtained by calling SEC SEMIANNUAL REPORT DECEMBER 31,

8 PIMCO 1-3 Year U.S. Treasury Index Exchange-Traded Fund Cumulative Returns Through December 31, 2017 $ (in thousands) 06/09 09/13 12/17 INDEX $10,823 FUND S NET ASSET $10,716 FUND S PRICE $10,707 $10,000 invested at the end of the month when the Fund commenced operations. Average Annual Total Return for the period ended December 31, 2017 Allocation Breakdown as of 12/31/2017 U.S. Treasury Obligations 99.5% Short-Term Instruments 0.5% % of Investments, at value. Allocation Breakdown and % of Investments exclude securities sold short and financial derivative instruments, if any. 6 Months* 1 Year 5 Year Fund Inception (06/01/2009) PIMCO 1-3 Year U.S. Treasury Index Exchange- Traded Fund (Based on Net Asset Value) (0.10)% 0.27% 0.43% 0.80% PIMCO 1-3 Year U.S. Treasury Index Exchange- Traded Fund (At Market Price) (1) (0.14)% 0.23% 0.43% 0.80% ICE BofAML 1-3 Year U.S. Treasury Index ± (0.01)% 0.42% 0.56% 0.92% All Fund returns are net of fees and expenses. * Cumulative return. Market Returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at market price and NAV, respectively. (1) The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that the Fund s NAV is calculated. ± The ICE BofAML 1-3 Year U.S. Treasury Index is an unmanaged index comprised of U.S. Treasury securities, other than inflation-protection securities and STRIPS, with at least $1 billion in outstanding face value and a remaining term to final maturity of at least one year and less than three years. It is not possible to invest directly in an unmanaged index. Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed by authorized participants. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Differences in the Fund s performance versus the index and related attribution information with respect to particular categories of securities or individual positions may be attributable, in part, to differences in the pricing methodologies used by the Fund and the index. Performance data current to the most recent month-end is available at or via (888) 400-4ETF. The Fund s total annual operating expense ratio in effect as of period end was 0.15%. Details regarding any changes to the Fund s operating expenses, subsequent to period end, can be found in the Fund s current prospectus, as supplemented. Ticker Symbol - TUZ Investment Objective and Strategy Overview PIMCO 1-3 Year U.S. Treasury Index Exchange- Traded Fund seeks to provide total return that closely corresponds, before fees and expenses, to the total return of the ICE BofAML 1-3 Year US Treasury Index (the Underlying Index ), by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities ( Component Securities ) of the Underlying Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or privatesector entities. The Fund employs a representative sampling strategy in seeking to achieve its investment objective. In using this strategy, PIMCO seeks to invest in a combination of Component Securities and other instruments, or in Component Securities but in different proportions as compared to the weighting of the Underlying Index, such that the portfolio effectively provides exposure to the Underlying Index. In using a representative sampling strategy, the Fund may not track its Underlying Index with the same degree of accuracy as a fund that replicates the composition and weighting of the Underlying Index. Fund strategies may change from time to time. Please refer to the Fund s current prospectus for more information regarding the Fund s strategy. Fund Insights at NAV The following affected performance during the reporting period:» Yields in the one- to three-year segment of the U.S. Treasury yield curve rose, negatively impacting the price return of both the Fund and the Underlying Index. Returns due to income contributed to performance for both the Fund and the Underlying Index. The net result was negative absolute performance for both the Fund and the Underlying Index. 6 PIMCO ETF TRUST

9 PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund Ticker Symbol - ZROZ Cumulative Returns Through December 31, 2017 $ (in thousands) 0 10/09 11/13 12/17 INDEX $20,788 FUND S PRICE $20,630 FUND S NET ASSET $20,606 $10,000 invested at the end of the month when the Fund commenced operations. Average Annual Total Return for the period ended December 31, 2017 Allocation Breakdown as of 12/31/2017 U.S. Treasury Obligations 100.0% % of Investments, at value. Allocation Breakdown and % of Investments exclude securities sold short and financial derivative instruments, if any. 6 Months* 1 Year 5 Year Fund Inception (10/30/2009) PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (Based on Net Asset Value) 5.13% 14.07% 5.10% 9.25% PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (At Market Price) (1) 5.32% 14.38% 5.18% 9.27% ICE BofAML Long U.S. Treasury Principal STRIPS Index ± 5.29% 13.76% 5.20% 9.36% All Fund returns are net of fees and expenses. * Cumulative return. Market Returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at market price and NAV, respectively. (1) The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that the Fund s NAV is calculated. ± ICE BofAML Long U.S. Treasury Principal STRIPS Index is an unmanaged index comprised of long maturity Separate Trading of Registered Interest and Principal of Securities ( STRIPS ) representing the final principal payment of U.S. Treasury bonds. The principal STRIPS comprising the Underlying Index must have 25 years or more remaining term to final maturity and must be stripped from U.S. Treasury bonds having at least $1 billion in outstanding face value. It is not possible to invest directly in an unmanaged index. Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed by authorized participants. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Differences in the Fund s performance versus the index and related attribution information with respect to particular categories of securities or individual positions may be attributable, in part, to differences in the pricing methodologies used by the Fund and the index. Performance data current to the most recent month-end is available at or via (888) 400-4ETF. Investment Objective and Strategy Overview PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund seeks to provide total return that closely corresponds, before fees and expenses, to the total return of the ICE BofAML Long US Treasury Principal STRIPS Index (the Underlying Index ), by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities ( Component Securities ) of the Underlying Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. PIMCO uses an indexing approach in managing the Fund s investments. The Fund employs a representative sampling strategy in seeking to achieve its investment objective. In using this strategy, PIMCO seeks to invest in a combination of Component Securities and other instruments, or in Component Securities but in different proportions as compared to the weighting of the Underlying Index, such that the portfolio effectively provides exposure to the Underlying Index. In using a representative sampling strategy, the Fund may not track its Underlying Index with the same degree of accuracy as a fund that replicates the composition and weighting of the Underlying Index. Fund strategies may change from time to time. Please refer to the Fund s current prospectus for more information regarding the Fund s strategy. Fund Insights at NAV The following affected performance during the reporting period:» Yields in the 25+ year segment of the U.S. Treasury STRIPS yield curve declined, positively impacting absolute performance for both the Fund and the Underlying Index. The Fund s total annual operating expense ratio in effect as of period end was 0.15%. Details regarding any changes to the Fund s operating expenses, subsequent to period end, can be found in the Fund s current prospectus, as supplemented. SEMIANNUAL REPORT DECEMBER 31,

10 PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund Cumulative Returns Through December 31, 2017 $ (in thousands) 0 08/09 10/13 12/17 INDEX $11,654 FUND S NET ASSET $11,450 FUND S PRICE $11,411 $10,000 invested at the end of the month when the Fund commenced operations. Average Annual Total Return for the period ended December 31, 2017 Allocation Breakdown as of 12/31/2017 U.S. Treasury Obligations 99.9% Short-Term Instruments 0.1% % of Investments, at value. Allocation Breakdown and % of Investments exclude securities sold short and financial derivative instruments, if any. 6 Months* 1 Year 5 Year Fund Inception (08/20/2009) PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund (Based on Net Asset Value) 0.51% 0.64% (0.07)% 1.61% PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund (At Market Price) (1) 0.47% 0.57% (0.08)% 1.60% ICE BofAML 1-5 Year U.S. Inflation-Linked Treasury Index ± 0.61% 0.82% 0.14% 1.83% All Fund returns are net of fees and expenses. * Cumulative return. Market Returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at market price and NAV, respectively. (1) The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that the Fund s NAV is calculated. ± ICE BofAML 1-5 Year US Inflation-Linked Treasury Index is an unmanaged index comprised of U.S. Treasury Inflation Protected Securities with at least $1 billion in outstanding face value and a remaining term to final maturity of at least 1 year and less than 5 years. It is not possible to invest directly in an unmanaged index. Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed by authorized participants. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Differences in the Fund s performance versus the index and related attribution information with respect to particular categories of securities or individual positions may be attributable, in part, to differences in the pricing methodologies used by the Fund and the index. Performance data current to the most recent month-end is available at or via (888) 400-4ETF. Ticker Symbol - STPZ Investment Objective and Strategy Overview PIMCO 1-5 Year U.S. TIPS Index Exchange- Traded Fund seeks to provide total return that closely corresponds, before fees and expenses, to the total return of the ICE BofAML 1-5 Year US Inflation-Linked Treasury Index (the Underlying Index ), by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities ( Component Securities ) of the Underlying Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. The Fund invests in a representative sample of securities included in the Underlying Index that collectively has an investment profile similar to the Underlying Index. Due to the use of representative sampling, the Fund may not hold all of the securities that are included in the Underlying Index. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. Fund strategies may change from time to time. Please refer to the Fund s current prospectus for more information regarding the Fund s strategy. Fund Insights at NAV The following affected performance during the reporting period:» Real yields, or the rates of return in excess of expected future inflation, generally rose across the one- to five-year segment of the U.S. Treasury Inflation-Protected Securities (TIPS) yield curve, negatively impacting performance of both the Fund and the Underlying Index.» A positive inflation accrual, or change in the Consumer Price Index (CPI), applied to the principal of the underlying TIPS, positively impacted performance of both the Fund and the Underlying Index. The net result was positive absolute performance for both the Fund and the Underlying Index. The Fund s total annual operating expense ratio in effect as of period end was 0.20%. Details regarding any changes to the Fund s operating expenses, subsequent to period end, can be found in the Fund s current prospectus, as supplemented. 8 PIMCO ETF TRUST

11 PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund Cumulative Returns Through December 31, 2017 $ (in thousands) 0 09/09 10/13 12/17 INDEX $16,426 FUND S NET ASSET $16,153 FUND S PRICE $16,094 $10,000 invested at the end of the month when the Fund commenced operations. Average Annual Total Return for the period ended December 31, 2017 Allocation Breakdown as of 12/31/2017 U.S. Treasury Obligations 100.0% % of Investments, at value. Allocation Breakdown and % of Investments exclude securities sold short and financial derivative instruments, if any. 6 Months* 1 Year 5 Year Fund Inception (09/03/2009) PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (Based on Net Asset Value) 7.54% 9.44% 0.98% 6.21% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (At Market Price) (1) 7.31% 9.25% 0.99% 6.19% ICE BofAML 15+ Year U.S. Inflation-Linked Treasury Index ± 7.65% 9.60% 1.14% 6.41% All Fund returns are net of fees and expenses. * Cumulative return. Market Returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at market price and NAV, respectively. (1) The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that the Fund s NAV is calculated. ± ICE BofAML 15+ Year US Inflation-Linked Treasury Index is an unmanaged index comprised of U.S. Treasury Inflation Protected Securities with at least $1 billion in outstanding face value and a remaining term to final maturity greater than 15 years. It is not possible to invest directly in an unmanaged index. Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed by authorized participants. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Differences in the Fund s performance versus the index and related attribution information with respect to particular categories of securities or individual positions may be attributable, in part, to differences in the pricing methodologies used by the Fund and the index. Performance data current to the most recent month-end is available at or via (888) 400-4ETF. Ticker Symbol - LTPZ Investment Objective and Strategy Overview PIMCO 15+ Year U.S. TIPS Index Exchange- Traded Fund seeks to provide total return that closely corresponds, before fees and expenses, to the total return of the ICE BofAML 15+ Year US Inflation-Linked Treasury Index (the Underlying Index ), by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities ( Component Securities ) of the Underlying Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. The Fund invests in a representative sample of securities included in the Underlying Index that collectively has an investment profile similar to the Underlying Index. Due to the use of representative sampling, the Fund may not hold all of the securities that are included in the Underlying Index. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. Fund strategies may change from time to time. Please refer to the Fund s current prospectus for more information regarding the Fund s strategy. Fund Insights at NAV The following affected performance during the reporting period:» Real yields, or the rates of return in excess of expected future inflation, declined across the 15+ year segment of the U.S. Treasury Inflation-Protected Securities (TIPS) yield curve, positively impacting performance of both the Fund and the Underlying Index.» A positive inflation accrual, or change in the Consumer Price Index (CPI), applied to the principal of the underlying TIPS, positively impacted performance of both the Fund and the Underlying Index. The Fund s total annual operating expense ratio in effect as of period end was 0.20%. Details regarding any changes to the Fund s operating expenses, subsequent to period end, can be found in the Fund s current prospectus, as supplemented. SEMIANNUAL REPORT DECEMBER 31,

12 PIMCO Broad U.S. TIPS Index Exchange-Traded Fund Cumulative Returns Through December 31, 2017 $ (in thousands) 0 09/09 10/13 12/17 INDEX $13,389 FUND S NET ASSET $13,190 FUND S PRICE $13,161 $10,000 invested at the end of the month when the Fund commenced operations. Average Annual Total Return for the period ended December 31, 2017 Allocation Breakdown as of 12/31/2017 U.S. Treasury Obligations 98.9% Short-Term Instruments 1.1% % of Investments, at value. Allocation Breakdown and % of Investments exclude securities sold short and financial derivative instruments, if any. 6 Months* 1 Year 5 Year Fund Inception (09/03/2009) PIMCO Broad U.S. TIPS Index Exchange-Traded Fund (Based on Net Asset Value) 2.32% 3.23% 0.04% 3.56% PIMCO Broad U.S. TIPS Index Exchange-Traded Fund (At Market Price) (1) 2.34% 2.96% 0.07% 3.55% ICE BofAML U.S. Inflation-Linked Treasury Index ± 2.39% 3.34% 0.17% 3.74% All Fund returns are net of fees and expenses. * Cumulative return. Market Returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at market price and NAV, respectively. (1) The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that the Fund s NAV is calculated. ± ICE BofAML US Inflation-Linked Treasury Index is an unmanaged index comprised of U.S. Treasury Inflation Protected Securities with at least $1 billion in outstanding face value. It is not possible to invest directly in an unmanaged index. Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed by authorized participants. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Differences in the Fund s performance versus the index and related attribution information with respect to particular categories of securities or individual positions may be attributable, in part, to differences in the pricing methodologies used by the Fund and the index. Performance data current to the most recent month-end is available at or via (888) 400-4ETF. Ticker Symbol - TIPZ Investment Objective and Strategy Overview PIMCO Broad U.S. TIPS Index Exchange-Traded Fund seeks to provide total return that closely corresponds, before fees and expenses, to the total return of the ICE BofAML US Inflation- Linked Treasury Index (the Underlying Index ), by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities ( Component Securities ) of the Underlying Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. The Fund invests in a representative sample of securities included in the Underlying Index that collectively has an investment profile similar to the Underlying Index. Due to the use of representative sampling, the Fund may not hold all of the securities that are included in the Underlying Index. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. Fund strategies may change from time to time. Please refer to the Fund s current prospectus for more information regarding the Fund s strategy. Fund Insights at NAV The following affected performance during the reporting period:» Real yields, or the rates of return in excess of expected future inflation, generally declined in the intermediate and long-dated part of the U.S. Treasury Inflation-Protected Securities (TIPS) yield curve, positively impacting performance of both the Fund and the Underlying Index.» A positive inflation accrual, or change in the Consumer Price Index (CPI), applied to the principal of the underlying TIPS, positively impacted performance of both the Fund and the Underlying Index. The Fund s total annual operating expense ratio in effect as of period end was 0.20%. Details regarding any changes to the Fund s operating expenses, subsequent to period end, can be found in the Fund s current prospectus, as supplemented. 10 PIMCO ETF TRUST

13 PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund Ticker Symbol - HYS Cumulative Returns Through December 31, 2017 $ (in thousands) 0 06/11 09/14 12/17 INDEX $14,536 FUND S NET ASSET $14,028 FUND S PRICE $13,979 $10,000 invested at the end of the month when the Fund commenced operations. Average Annual Total Return for the period ended December 31, 2017 Allocation Breakdown as of 12/31/2017 Corporate Bonds & Notes 88.2% Short-Term Instruments 11.8% % of Investments, at value. Allocation Breakdown and % of Investments exclude securities sold short and financial derivative instruments, if any. 6 Months* 1 Year 5 Year Fund Inception (06/16/2011) PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund (Based on Net Asset Value) 1.81% 5.83% 4.68% 5.38% PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund (At Market Price) (1) 1.96% 5.81% 4.55% 5.36% ICE BofAML 0-5 Year US High Yield Constrained Index ± 2.00% 6.43% 5.20% 5.93% All Fund returns are net of fees and expenses. * Cumulative return. Market Returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at market price and NAV, respectively. (1) The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that the Fund s NAV is calculated. ± The ICE BofAML 0-5 Year US High Yield Constrained Index tracks the performance of short-term U.S. dollar denominated below investment grade corporate debt issued in the U.S. domestic market with less than five years remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $250 million, issued publicly. Prior to September 30, 2016, securities with minimum amount outstanding of $100 million qualified. Allocations to an individual issuer will not exceed 2%. Investment Objective and Strategy Overview PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund seeks to provide total return that closely corresponds, before fees and expenses, to the total return of the ICE BofAML 0-5 Year US High Yield Constrained Index (the Underlying Index ), by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities ( Component Securities ) of the Underlying Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. The Fund invests in a representative sample of securities included in the Underlying Index that collectively has an investment profile similar to the Underlying Index. Due to the use of representative sampling, the Fund may not hold all of the securities that are included in the Underlying Index. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. Fund strategies may change from time to time. Please refer to the Fund s current prospectus for more information regarding the Fund s strategy. Fund Insights at NAV The following affected performance during the reporting period:» An increase in bond yields negatively impacted price returns for both the Fund and the Underlying Index.» Returns due to income positively contributed to performance, resulting in positive performance of both the Fund and the Underlying Index. It is not possible to invest directly in an unmanaged index. Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed by authorized participants. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Differences in the Fund s performance versus the index and related attribution information with respect to particular categories of securities or individual positions may be attributable, in part, to differences in the pricing methodologies used by the Fund and the index. Performance data current to the most recent month-end is available at or via (888) 400-4ETF. The Fund s total annual operating expense ratio in effect as of period end was 0.55%. Details regarding any changes to the Fund s operating expenses, subsequent to period end, can be found in the Fund s current prospectus, as supplemented. SEMIANNUAL REPORT DECEMBER 31,

14 PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund Ticker Symbol - CORP Cumulative Returns Through December 31, 2017 $ (in thousands) 0 09/10 04/14 12/17 INDEX $13,870 FUND S PRICE $13,774 FUND S NET ASSET $13,734 $10,000 invested at the end of the month when the Fund commenced operations. Average Annual Total Return for the period ended December 31, 2017 Allocation Breakdown as of 12/31/2017 Industrials 50.8% Banking & Finance 36.1% Utilities 11.9% Short-Term Instruments 0.9% Sovereign Issues 0.3% % of Investments, at value. Allocation Breakdown and % of Investments exclude securities sold short and financial derivative instruments, if any. 6 Months* 1 Year 5 Year Fund Inception (09/20/2010) PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund (Based on Net Asset Value) 2.40% 6.38% 3.51% 4.65% PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund (At Market Price) (1) 2.35% 6.50% 3.55% 4.67% ICE BofAML US Corporate Index ± 2.50% 6.48% 3.50% 4.76% All Fund returns are net of fees and expenses. * Cumulative return. Market Returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at market price and NAV, respectively. (1) The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that the Fund s NAV is calculated. ± ICE BofAML US Corporate Index sm is an unmanaged index comprised of U.S. dollar denominated investment grade, fixed rate corporate debt securities publicly issued in the U.S. domestic market with at least one year remaining term to final maturity and at least $250 million outstanding. Investment Objective and Strategy Overview PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund seeks to provide total return that closely corresponds, before fees and expenses, to the total return of the ICE BofAML US Corporate Index (the Underlying Index ), by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities ( Component Securities ) of the Underlying Index. The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which PIMCO believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements, and shares of affiliated bond funds. The Fund invests in a representative sample of securities included in the Underlying Index that collectively has an investment profile similar to the Underlying Index. Due to the use of representative sampling, the Fund may not hold all of the securities that are included in the Underlying Index. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. Fund strategies may change from time to time. Please refer to the Fund s current prospectus for more information regarding the Fund s strategy. Fund Insights at NAV The following affected performance during the reporting period:» Returns due to income positively contributed to performance, resulting in positive performance of both the Fund and the Underlying Index. It is not possible to invest directly in an unmanaged index. Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Shares may be worth more or less than original cost when redeemed by authorized participants. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Differences in the Fund s performance versus the index and related attribution information with respect to particular categories of securities or individual positions may be attributable, in part, to differences in the pricing methodologies used by the Fund and the index. Performance data current to the most recent month-end is available at or via (888) 400-4ETF. The Fund s total annual operating expense ratio in effect as of period end was 0.20%. Details regarding any changes to the Fund s operating expenses, subsequent to period end, can be found in the Fund s current prospectus, as supplemented. 12 PIMCO ETF TRUST