<PAGE>
front cover
PIMCO Commercial
Mortgage Securities
Trust, Inc.
December 31, 1995
Annual Report
A closed-end
fund specializing
in investments
in commercial
mortgage-backed
securities
<PAGE>
inside front cover
Pacific Investment Management Company is responsible for the
management and administration of the PIMCO Commercial
Mortgage Securities Trust, Inc. (the "Fund"). Founded in
1971, Pacific Investment currently manages more than $76
billion on behalf of mutual fund and
institutional clients located around the world. Renowned for
its fixed income management expertise, Pacific Investment
manages 58 of the largest 200 U.S. pension funds.
Pacific Investment is one of six investment advisory firms
which form PIMCO Advisors L.P., the nation's fourth largest
publicly traded investment management concern with combined
assets under management in excess of $95 billion. Widely
recognized for providing consistent performance and high-
quality client service, the six affiliated firms are:
Pacific Investment Management Company/Newport Beach, California
Columbus Circle Investors/Stamford, Connecticut
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
Blairlogie Capital Management/Edinburgh, Scotland
Units of PIMCO Advisors L.P. trade on the New York Stock
Exchange under the ticker symbol "PA".
<PAGE>
1
[photo appears here]
Letter to our
Shareholders
Bond investors enjoyed a banner year in 1995,
punctuated by falling interest rates and continued low
inflation. The year saw the yield on the bellwether 30-year
Treasury bond fall from 7.87% at year end 1994, to 5.94% on
the last trading day of December 1995.
We are pleased to report that investors in PIMCO Commercial
Mortgage Securities Trust, Inc. were able to participate in
this market rally. The Fund returned a remarkable 21.86% for
the twelve-month period as measured by its 1995 closing New
York Stock Exchange ("NYSE") share price (including
reinvested dividends). This figure compares favorably with
the Lehman Brothers Aggregate Bond Index, which increased
18.47% over the same period. Performance based on the Fund's
net asset value was also strong at 21.33%.
During this period of dramatic declines in interest
rates, market appreciation on the Fund's investment
portfolio was the chief contributor to the Fund's total
return investment performance. But also playing a key role
was the Fund's 9% annual yield, based on the year-end NYSE
share price. For the second consecutive year, the Fund was
able to pay a dividend of $1.125 per share. While of course
we cannot assure that this rate will be maintained
indefinitely, the Fund's investments in commercial mortgage-
backed securities continue to command a significant yield
premium over Treasuries and comparably rated corporate
bonds.
Placed in an historical context, 1995's 20+% returns are
rare in the fixed income world, particularly in an
environment of 3% inflation. No matter how much we would
like to place a string of such years together, another 2%
drop in rates across the yield curve is unlikely. On the
other hand, we see bright days ahead for fixed income
investors and feel that 1996 will offer solid, albeit lower,
returns. As discussed in greater depth in the following
pages, this forecast is based on mounting evidence of
economic weakness, coupled with our outlook for subdued
inflation.
Please spend a few moments reviewing this annual report,
particularly the interview with the Fund's portfolio
manager, Ben Trosky. We think you will find his commentary
on the Fund and the market for commercial mortgage-backed
securities both interesting and informative.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
January 25, 1996
<PAGE>
2
About the Fund
Launched in August 1993, PIMCO Commercial Mortgage
Securities Trust, Inc. is unique in that it is the only
closed-end fund that invests primarily in commercial
mortgage-backed securities. The Fund's primary investment
objective is to achieve high current income. Pacific
Investment Management Company believes that yields on
commercial mortgage-backed securities are, and will continue
to be for the foreseeable future, higher than yields on
corporate debt securities of comparable credit ratings and
maturities. Capital gain from the disposition of investments
is a secondary objective of the Fund.
Unlike an open-end fund, whose shares are bought and sold at
their net asset value ("NAV"), shares of most closed-end
funds, including the Fund, are listed on a stock exchange
where they trade at market value. Closing market prices for
the Fund's shares are published in the New York Stock
Exchange Composite Transaction Section of newspapers each
day. The Fund's NYSE trading symbol is "PCM". Comparative
NAV and market price information about the Fund is published
each Monday in The Wall Street Journal and each Saturday in
The New York Times and Barron's in a table called "Closed-
End Funds".
The Fund's Dividend Reinvestment Plan (the "Plan") provides
automatic reinvestment of dividend and capital gains
distributions in additional shares of the Fund. If your
shares are registered in your own name, you are already
enrolled in the Plan unless you have elected otherwise.
Shareholders whose shares are held in the name of a broker
or nominee should contact their broker or nominee to request
participation in the Plan. All distributions to shareholders
who elect not to participate in the Plan will be paid by
check mailed directly to the record holder of shares. For a
copy of the Plan Brochure, please call 800-213-3606.
The Fund issues a quarterly press release summarizing
investment performance and portfolio statistics. Should you
wish to receive a copy, please call 800-213-3606 to be
placed on the Fund's mailing list.
<PAGE>
3
About the Market for Commercial Mortgage-Backed Securities
Commercial mortgage-backed securities are fixed income
instruments representing an interest in mortgage loans on
commercial real estate properties, such as office buildings,
shopping malls, hotels, apartment buildings, nursing homes,
and industrial properties. In short, commercial mortgage-
backed securities may be collateralized by all types of real
estate other than single-family residential real estate.
The market for commercial mortgage-backed securities came
about as a result of the commercial real estate crisis of
the late 1980s. Traditional real estate lenders became
unwilling to finance new projects or to refinance existing
commercial properties in the face of rapidly falling real
estate prices. In addition, many banks and insurance
companies were forced by regulators to sell large portfolios
of commercial mortgage loans in order to improve their
balance sheets.
In order to make it possible for the market to absorb this
vast quantity of commercial mortgage loans, it was necessary
to put them into more attractive packages for investors. The
solution was to securitize them, which results in a security
with an interest in a diversified portfolio of loans that
could be rated by a major rating agency. So commercial
mortgage-backed securities were issued that were attractive
securities to investors who were unwilling to invest
directly in commercial mortgage loans.
One of the most compelling attributes of commercial mortgage-
backed securities is the fact that they have historically
generated higher yields than comparably rated corporate
bonds. For example, a BB-rated commercial mortgage-backed
security was yielding 4.8% more than 7-10 Year U.S. Treasury
notes at the end of December, while a BB-rated corporate
note was yielding only about 3.0% more.
Pacific Investment Management Company believes this yield
differential exists primarily because of the relative
newness and complexity of the market for commercial mortgage-
backed securities -- investors are demanding higher yields
as compensation for becoming knowledgeable about this new
class of securities. Higher yields may also be due to a less
liquid market for commercial mortgage-backed securities than
for corporate bonds (the Fund's closed-end format offers
shareholders the benefits of an indirect investment in less
liquid securities through ownership of the Fund's liquid
shares, which trade on the New York Stock Exchange).
[graph appears here]
<TABLE>
Commercial Mortgage-Backed
Securities Issuance
(dollars in billions)
<CAPTION>
Year Issuance ($ billions)
<S> <C>
1990 5.6
1991 8.6
1992 14.4
1993 17.4
1994 19.0
1995 18.5
</TABLE>
<PAGE>
4
Questions & Answers
Managing the PIMCO Commercial Mortgage Securities
Trust, Inc. investment portfolio requires the utilization of two distinct
disciplines: mortgage-backed securities management and
credit analysis. Expertise in these disciplines is provided
by portfolio managers Bill Powers and Ben Trosky. Mr.
Powers, a PIMCO Managing Director, has 12 years of
investment experience with mortgage-backed securities. Mr.
Trosky, a Chartered Financial Analyst and PIMCO Executive
Vice President, oversees the firm's credit research team and
has 15 years of investment experience with an emphasis on
the high-yield bond market. The following is a conversation
with Ben Trosky.
[photo appears here] [photo appears here]
William C. Powers Benjamin Trosky
Portfolio Manager Portfolio Manager
How did the Fund perform relative to other fixed income
investments in 1995?
As illustrated in the table shown below, Fund performance
was very strong in 1995, a year in which rapidly declining
interest rates drove one of the strongest bull markets ever
for fixed income investments. Measured on a comparative
basis, Fund performance during the year was very good when
matched against the Lehman and Salomon Brothers Indexes.
<TABLE>
<CAPTION>
6 months 1 year 2 years*
<S> <C> <C> <C>
PCM Net Asset Value 6.61% 21.33% 9.26%
PCM NYSE Market Value 0.54 21.86 4.48
Lehman Bros. Aggregate Bond Index 6.31 18.47 7.25
Salomon Bros. Mortgage Index 5.46 16.77 7.29
*Average annual total return
</TABLE>
[line graph appears here]
<TABLE>
Growth of $10,000 Net Investment in the Fund
<CAPTION>
Net NYSE Lehman Brothers
Asset Market Aggregate
Value Value Bond Index
<S> <C> <C> <C>
8/31/93 10,000 10,000 10,000
12/31/93 10,043 9,946 10,033
12/31/94 9,882 8,910 9,741
12/31/95 11,989 10,857 11,540
The line graph depicts the value of a net $10,000 investment made at the
Fund's inception on September 2, 1993 and held through December 31, 1995,
compared to the Lehman Brothers Aggregate Bond Index, an unmanaged market
index. Investment performance assumes the reinvestemnt of dividends and
capital gains distributions, if any. The PCM NYSE Market Value performance
does not reflect the effect of sales loads or broker commissions. The
performance data quoted represents past performance. Investment return
and share value will fluctuate so that the Fund shares, when sold, may be
worth more or less than their original cost.
</TABLE>
<PAGE>
5
What were the primary contributors to this performance?
Three factors had the greatest impact on strong 1995
returns. First, we increased the Fund's average duration to
approximately 4.4 years in 1995 from a 3.8 year average in
1994. By extending the duration as we entered 1995's bond
market rally, Fund performance benefited from the year's
sharp drop in interest rates. Second, yield spreads narrowed
versus Treasuries on the commercial mortgage-backed
securities ("CMBS") in the Fund, reflecting improved real
estate fundamentals and strong demand for "spread products"
like CMBS that offer an incremental yield advantage to
investors. Finally, total return also benefited from the
incremental yield advantage offered by CMBS relative to
comparably rated corporate bonds.
[graph appears here]
<TABLE>
CMBS and Corporate Bonds
Excess Yield over U.S. Treasuries*
<CAPTION>
Rating CMBS Corporates
<S> <C> <C>
AAA .90% .30%
AA 1.10% .42%
A 1.40% .55%
BBB 1.85% .75%
BB 4.75% 3.00%
B 6.50% 4.00%
* 7 to 10 year U.S. Treasury Notes as of December 31, 1995.
</TABLE>
On the heels of a great 1995 for bond investors, what is
your outlook for the economy in the coming year?
We believe that secular and cyclical forces are in play that
will keep inflation in check and allow bond yields to fall
further, sending bond prices higher. Entering 1996, we
expect sluggish economic growth of 0% to 1%, and there may
even be a quarter of economic contraction. As the economy
slows, businesses may lose whatever meager pricing power
they may have had, and with consumer debt at high levels,
job creation slowing and wage growth stagnant, there is
little on the horizon to spark inflation or push interest
rates higher. While it is unlikely that 1996 performance
will match 1995's meteoric rise, the scenario I describe is
certainly a good one for bonds and we do expect positive
returns in 1996.
[line graph appears here]
<TABLE>
U.S. Treasury Yield Curves
<S> <C> <C> <C> <C>
Duration Maturity 12/31/94 9/30/95 12/31/95
3 mos. 5.68 5.40 5.07
6 mos. 6.50 5.58 5.15
1 yr. 7.16 5.67 5.13
2 yr. 7.69 5.85 5.15
3 yr. 7.77 5.91 5.21
4.3 yr. 5 yr. 7.83 6.02 5.37
7.2 yr. 10 yr. 7.83 6.18 5.57
12.8 yr. 30 yr. 7.88 6.50 5.95
</TABLE>
<PAGE>
6
Entering the economic environment you describe, what is your
view of real estate fundamentals in the
CMBS market?
We continue to have a positive view of real estate
fundamentals. While commercial real estate values have moved
up steadily from the bottom of the cycle, many properties
trade well below replacement cost levels. This will help
keep a lid on new construction, while continued slow
economic growth will result in gradually increased
absorption of available space and ultimately higher rents.
At the same time, continued low inflation and declining
interest rates should lead to further price appreciation on
CMBS. In addition, the credit quality of our CMBS holdings
will benefit from improvements in the value of the CMBS'
underlying collateral.
[pie chart appears here]
Portfolio Composition
Mobile Home Park 3.5%
Retail 2.8%
Hospitality 8.2%
Healthcare 14.1%
Multi-Family 36.8%
Multi-Class* 34.6%
* A mix of all types of commercial properties
What sectors of the CMBS market are most attractive?
We are seeing the following trends in the real estate market:
Apartment absorption (as measured by occupancy rates)
remains strong across most of the country, with the
strongest demand in the south and west (except California);
The hotel sector has benefited from favorable
supply/demand trends for a number of years now, and
occupancies are approaching a ten-year high;
We are starting to see significant improvements in
demand for industrial warehouse and distribution facilities;
We continue to see good value in mobile home parks and
nursing homes run by good operators; and,
On balance, we remain cautious towards much of the
retail sector and urban office buildings, where rents and
occupancy rates continue to suffer from oversupply.
<PAGE>
7
With interest rates declining, what is your outlook for the
Fund's yield?
Based on the current structure of the Fund, we should be
able to maintain the existing dividend for the foreseeable
future. It is important to remember that the combination of
refinancing protection provided by many CMBS, combined with
their significant incremental yield advantage, should enable
the Fund to generate higher levels of income than most types
of fixed income investments with comparable credit risk,
even in a sustained low yield environment.
However, despite favorable prepayment protection, a portion
of the Fund's investment portfolio either pays down or
matures each month. These monies must then be reinvested at
today's lower yields. Eventually, if this interest rate
environment persists, the Fund's current dividend may prove
unsustainable.
Are CMBS subject to the same prepayment risks associated
with GNMAs and other residential mortgage-backed securities?
GNMAs and most other residential mortgage-backed issues are
subject to prepayment at any time. The likelihood of
prepayment is a function of the level of current interest
rates relative to those on the individual mortgages that
comprise a given security. The risk an owner of a
residential mortgage-backed security bears is that rates
decline to a level that incents individual mortgage holders
to refinance, rapidly depleting the security.
Unfortunately, the prepayments flow through to the investor
at a time when reinvest yields are lower than those on the
original security.
While these same market dynamics affect CMBS, most CMBS
benefit from significantly lower prepayment risk than
typical residential mortgage-backed securities. This arises
from the stringent prepayment penalties typically imposed on
commercial borrowers and stronger refunding protection built
into the structures of many CMBS.
<PAGE>
8
[pie chart appears here]
Portfolio Composition
by Quality Rating*
AAA 21.8%
AA 14.4%
A 10.1%
BBB 26.0%
BB 16.4%
B 11.3%
How do you assess and monitor
credit risk in the Fund?
We employ fundamental credit analysis techniques to monitor
credit risk in the Fund. In practical application, this
means that we carefully and systematically monitor the
fundamentals of the various sectors and regions in which we
invest and maintain a disciplined review process of the
remittance reports generated by the loan servicers. The
fundamentals we review on a routine basis include loan-to-
value measures, occupancy rates, building patterns and
cycles, lease rate trends, collateral support and
delinquency rates.
Is geographic diversity an important factor in security
selection?
Yes it is. Rather than one generic real estate cycle that
impacts all regions simultaneously, we have experienced
rolling cycles from region to region. Over the past ten
years, for example, the real estate recession first hit
Texas and the oil patch, then New York, then New England,
then the Midwest and finally the West Coast. As shown in the
accompanying map, we maintain a geographically diversified
portfolio to mitigate the impact of weak real estate markets
in any one region.
[map appears here]
<TABLE>
Geographic Diversification
<CAPTION>
State Percent
<S> <C>
CA 13.5%
TX 12.4%
FL 8.1%
IL 5.2%
WA 4.6%
MD 4.2%
NJ 4.1%
AZ 4.0%
TN 3.9%
CO 3.3%
PA 2.8%
OH 2.8%
IA 2.8%
NC 2.4%
GA 2.4%
NY 2.1%
AR 1.9%
VA 1.9%
MA 1.8%
NV 1.7%
AL 1.6%
MI 1.3%
MO 1.3%
OR 1.1%
CT 1.0%
OK 1.0%
IN 1.0%
States w/less
than 1% 5.8%
</TABLE>
<PAGE>
9
How has the CMBS market changed since the Fund opened in
1993?
The Resolution Trust Corporation (the "RTC"), a government
sponsored corporation that was created in part to securitize
the commercial loan portfolios of failed savings and loans,
was the primary issuer in the early stages of the CMBS
market. Now the RTC is essentially out of the market and has
been replaced by bulk sellers of loan portfolios, as well as
conduit product and Wall Street-originated pooled
transactions.
Do these developments affect the way you select and value
securities?
No. Our framework relies first and foremost on the
fundamental credit analysis described earlier. Once we find
a credit to be acceptable, we evaluate the structural
characteristics of the issue and determine the appropriate
price. If we can find a willing seller at that price, then
the security has a chance of being purchased by the Fund.
<PAGE>
10
Finally, after almost two and one half years, does the Fund
still make sense?
Absolutely. From today's level of interest rates, a repeat
of 1995's breathtaking principal rally is unlikely. Thus,
yield should provide a greater proportion of total return
than price appreciation going forward. Because of the
attractive yield characteristics of CMBS, the Fund has had
and should continue to offer a yield comparable to the high
yield, junk bond market while maintaining an average quality
of investment grade. At the same time, the mortgage
collateral backing the CMBS in the Fund offers an extra
layer of safety versus the less secured nature of comparably-
rated corporate debt. We think this offers a very compelling
argument for holding the Fund as part of a diversified
investment portfolio.
<PAGE>
11
Financial Highlights
<TABLE>
Financial Highlights
<CAPTION>
From commencement
For the year ended For the year ended of operations through
December 31, 1995 December 31, 1994 December 31, 1993(a)
<S> <C> <C> <C>
Selected per share data:
Net asset value, beginning
of period $ 12.41 $ 13.76 $ 13.95
Net investment income 1.16 1.16 0.20
Net realized and unrealized
gain (loss) on investments 1.40 (1.38) (0.14)
Total from investment operations 2.56 (0.22) 0.06
Less dividends from net
investment income (1.13) (1.13) (0.25)
Net asset value, end of period $ 13.84 $ 12.41 $ 13.76
Per share market value,
end of period $ 12.375 $ 11.125 $ 13.625
Total investment return
Per share market value(b) 21.86% (10.42%) (1.62%)*
Per share net asset value(c) 21.33% (1.61%) 1.30%*
Ratios to average net assets
Operating expenses 1.04% 1.03% 1.00%*
Interest expense 2.90% 1.68% 0.11%*
Net investment income 8.93% 8.84% 5.59%*
Supplemental data
Net assets, end of period $152,375,285 $136,595,091 $151,406,829
Portfolio turnover rate 47.79% 45.71% 17.43%
* Annualized
(a) Commencement of operations, September 2, 1993.
(b) Total investment return on market value is the
combination of reinvested dividend income, reinvested
capital gains distributions, if any, and changes in market
price per share. Total investment returns exclude the
effects of sales loads.
(c) Total investment return on net asset value is the
combination of reinvested dividend income, reinvested
capital gains distributions, if any, and changes in net
asset value per share.
</TABLE>
See Notes to Financial Statements
<PAGE>
12
Financial Statements
<TABLE>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
Assets
Investments in securities, at market value $ 224,546,400
(Identified cost: $ 223,719,980)
Cash 664
Interest receivable 2,367,519
Paydown receivable 256,647
Deferred organizational expense 16,266
Other assets 5,450
Total assets $ 227,192,946
Liabilities
Reverse repurchase agreements 67,134,245
Payable for investments purchased 6,253,714
Dividends payable 1,031,922
Accrued investment manager's fee 272,402
Accrued administrator's fee 37,573
Other liabilities 87,805
Total liabilities $ 74,817,661
Net assets applicable to
outstanding capital stock $ 152,375,285
Net assets consist of:
Capital stock - authorized 300 million
shares, $.001 par value; outstanding
11,007,169 shares 11,007
Additional paid-in capital 152,922,138
Undistributed net investment income 119,949
Accumulated net realized loss from
investments (1,504,229)
Unrealized appreciation of investments 826,420
$ 152,375,285
Net asset value per share outstanding $ 13.84
</TABLE>
See Notes to Financial Statements
<TABLE>
Statement of Operations
<CAPTION>
For the year ended
December 31, 1995
<S> <C>
Interest income $ 18,720,387
Expenses
Interest expense 4,216,482
Investment manager fee 1,057,771
Administration fee 145,899
Printing fee 99,735
Custody and portfolio accounting fee 42,665
Directors' fee 34,216
Audit fee 15,065
Organization expenses 6,079
Other expenses 110,556
Total expenses 5,728,468
Net investment income $ 12,991,919
Net realized and unrealized gain (loss)
Net realized loss on investments (476,725)
Unrealized appreciation on investments 15,647,907
Net gain on investments $ 15,171,182
Net increase in assets resulting
from operations $ 28,163,101
</TABLE>
<PAGE>
13
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the year ended For the year ended
December 31, 1995 December 31, 1994
<S> <C> <C>
Increase (decrease) in net assets from:
Operations
Net investment income $ 12,991,919 $ 12,805,888
Net realized loss on investments (476,725) (1,872,406)
Unrealized appreciation
(depreciation) on investments 15,647,907 (13,362,218)
Net increase (decrease)
resulting from operations 28,163,101 (2,428,736)
Distributions to shareholders from:
Net investment income (12,382,907) (12,383,002)
Total increase (decrease) in
net assets 15,780,194 (14,811,738)
Net assets
Beginning of period 136,595,091 151,406,829
End of period* $152,375,285 $136,595,091
*Including undistributed
(overdistributed) net
investment income of: $ 119,949 $ (242,082)
</TABLE>
<TABLE>
Statement of Cash Flows
<CAPTION>
For the year ended
December 31, 1995
<S> <C>
Net increase in net assets resulting from operations $ 28,163,101
Adjustments to reconcile to net cash
provided from operating activities
Increase in interest receivable (284,348)
Amortization of premium and discount, net (603,316)
Increase in accrued expenses 261,363
Net gain on investments (15,171,182)
Total adjustments (15,797,483)
Net cash provided from operating activities 12,365,618
Investing activities
Purchase of long-term portfolio investments (133,719,610)
Proceeds from disposition of long-term
portfolio investments 126,996,154
Proceeds of short-term portfolio investments, net 1,542,957
Net cash used in investing activities (5,180,499)
Financing activities*
Cash dividends paid (14,445,330)
Net increase in reverse repurchase agreements 7,238,000
Net cash used in financing activities (7,207,330)
Net decrease in cash (22,211)
Cash at beginning of period 22,875
Cash at end of period $ 664
*Cash paid for interest for the year ended December 31, 1995,
amounted to $4,011,222.
</TABLE>
See Notes to Financial Statements
<PAGE>
14
<TABLE>
Schedule of Investments
December 31, 1995
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Commercial Mortgage-Backed Securities - 145.9%
Multi-Family - 54.2%
Donaldson, Lufkin & Jenrette
7.350% due 12/18/03 $ 3,000,000 $ 3,070,314
Federal Housing Authority
7.970% due 04/25/15 2,650,702 2,653,189
8.350% due 04/01/16 1,538,584 1,560,701
6.430% due 12/01/19 2,862,205 2,872,938
9.125% due 01/01/21 993,487 1,040,677
7.430% due 07/01/21 1,915,100 1,974,349
7.430% due 08/01/21 993,409 1,024,764
7.430% due 02/25/23 2,129,218 2,214,387
7.430% due 03/29/23 2,982,121 2,972,229
8.250% due 02/01/28 2,628,465 2,638,321
8.875% due 06/01/35 (d) 5,993,077 6,352,684
Federal National Mortgage Association
7.900% due 12/01/15 (a)(c) 873,781 596,902
7.900% due 12/25/15 (a)(c) 1,608,435 1,250,558
9.375% due 04/01/16 2,808,318 2,913,630
7.875% due 11/01/18 1,973,952 1,983,822
8.147% due 05/25/28 (a)(c) 2,000,000 1,439,688
First Boston Mortgage Securities Corporation
7.557% due 09/25/06 (a) 976,236 987,371
Government National Mortgage Association
10.500% due 03/15/29 516,360 543,469
9.500% due 09/15/30 4,343,737 4,631,510
8.625% due 10/15/34 3,494,352 3,577,342
JHM Acceptance Corporation
8.960% due 04/01/19 931,274 940,587
Kidder Peabody Mortgage
8.880% due 08/01/03 (c) 4,987,000 5,258,168
Lehman Brothers Mortgage
7.963% due 02/25/24 (c) 6,800,000 4,641,000
Merrill Lynch Mortgage
8.071% due 04/25/23 (a) 5,000,000 5,206,250
Multi-Family Capital Access One, Inc.
7.400% due 01/15/24 2,295,918 2,309,551
Resolution Trust Corporation
9.000% due 03/25/17 7,246,521 7,530,466
8.000% due 09/25/21 1,781,239 1,804,896
8.230% due 09/25/21 (a) 3,554,602 3,601,256
<CAPTION>
Principal
Amount Value
Structured Asset Securities Corporation
7.050% due 11/25/02 $ 6,000,000 $ 4,946,250
82,537,269
Multi-Class - 50.5%
Aetna Commercial Mortgage Trust
7.100% due 12/26/30 1,000,000 980,625
Asset Securitization Corporation
7.384% due 08/13/27 1,500,000 1,483,828
CBA Mortgage Corporation
7.154% due 12/25/03 (a) 1,000,000 1,003,438
Cigna
9.400% due 01/15/02 595,254 598,602
First Boston Mortgage Securities Corporation
7.485% due 11/25/27 1,000,000 1,010,625
8.012% due 11/25/27 1,500,000 1,525,313
Lennar Corporation
9.890% due 09/15/04 (c) 2,150,000 2,162,094
Merrill Lynch Mortgage
8.060% due 06/15/21 (a) 1,490,505 1,536,152
Morgan Stanley
8.240% due 12/15/23 (c) 1,800,000 1,838,250
7.413% due 02/15/27 (a)(c) 2,000,000 2,003,750
Mutual Benefit Life Assurance Corporation
9.091% due 02/01/98 (a) 2,695,080 2,695,080
Nomura
9.150% due 07/07/03 (a)(c) 3,259,923 3,063,819
7.763% due 12/02/04 (a)(c) 1,500,000 1,461,095
9.659% due 09/11/19 (a) 3,000,000 3,415,782
Resolution Trust Corporation
10.500% due 10/15/03 (c) 3,000,000 3,071,250
7.875% due 01/15/04 (c) 1,800,000 1,800,000
10.500% due 01/15/04 (c) 1,500,000 1,507,500
9.250% due 06/25/23 5,836,953 6,088,671
9.450% due 05/25/24 4,842,116 5,051,687
9.500% due 05/25/24 1,472,654 1,455,628
8.150% due 06/25/24 1,945,700 1,968,805
9.200% due 06/25/24 1,205,124 1,245,421
7.700% due 07/25/24 3,411,847 3,449,964
8.000% due 07/25/24 1,432,513 1,451,315
7.100% due 12/25/24 (a) 973,626 969,975
7.150% due 03/25/25 3,611,792 3,643,395
</TABLE>
<PAGE>
15
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Resolution Trust Corporation (cont.)
8.000% due 03/25/25 $ 2,230,038 $ 2,319,239
8.500% due 03/25/25 2,258,292 2,238,532
8.000% due 04/25/25 4,450,806 4,570,373
8.000% due 06/25/26 3,271,614 2,846,304
6.900% due 02/25/27 2,856,441 2,536,877
SKW Realty L.P.
10.750% due 04/15/04 (a)(c) 6,000,000 6,000,000
76,993,389
Healthcare - 20.9%
Daiwa Mortgage Acceptance Corporation
8.615% due 09/25/06 (c) 4,505,511 3,643,832
Holiday Corporation
6.680% due 12/01/01 (c) 7,100,000 5,985,751
6.680% due 12/15/01 5,000,000 4,804,690
LTC
9.300% due 06/15/26 (c) 4,000,000 4,470,000
Red Mountain Funding Corporation
9.150% due 11/28/27 (c) 3,200,000 2,954,000
SC Commercial
7.050% due 11/28/13 (c) 5,000,000 4,956,250
7.800% due 11/28/13 (c) 5,000,000 4,950,000
31,764,523
Hospitality - 12.0%
Cooper Hotel
7.500% due 07/15/13 (c) 9,380,154 9,660,095
HMH Properties, Inc.
9.500% due 05/15/05 (c) 2,000,000 2,040,000
Hotel First
8.520% due 08/01/08 (c) 2,887,793 3,158,524
J.Q. Hammons Hotels
8.875% due 02/15/04 2,000,000 1,952,500
Showboat, Inc.
9.250% due 05/01/08 1,500,000 1,507,500
18,318,619
Mobile Home Parks - 5.2%
First Boston Mortgage Securities Corporation
7.513% due 04/25/11 (a) 4,000,000 3,980,000
Manufacturers Hanover Corporation
7.750% due 12/16/25 (a)(c) 1,000,000 1,000,000
9.400% due 12/16/25 (a)(c) 3,000,000 2,892,189
7,872,189
Retail - 3.1%
American Southwest Financial
5.100% due 06/02/99 (c) $ 916,097 $ 893,338
Conseco Commercial Mortgage
9.700% due 07/15/04 3,757,547 3,832,698
4,726,036
Total Commercial Mortgage-Backed Securities
(Cost $221,435,984) 222,212,025
Corporate Bonds - 1.0%
Trizec Finance Limited
10.875% due 10/15/05 1,500,000 1,539,375
Total Corporate Bonds 1,539,375
(Cost $1,488,996)
Short-Term Instruments - 0.5%
Repurchase Agreement -0.5%
State Street Bank
5.000% due 01/02/96 795,000 795,000
(Dated 12/29/95. Collateralized
by U.S. Treasury bond 8.750%
due 05/15/17 valued at $811,080.
Repurchase proceeds are $795,442.)
Total Short-Term Instruments 795,000
(Cost $795,000)
Total Investments(b) - 147.4% $ 224,546,400
(Cost $223,719,980)
Other Assets and Liabilities (Net) - (47.4%) (72,171,115)
Net Assets - 100.0% $ 152,375,285
</TABLE>
Notes to Schedule of Investments:
(a) Variable rate security. The rate shown is as of December 31, 1995.
(b) The identified cost of investemnts owned as of December 31, 1995 was the
same for federal income tax and financial statement purposes.
(c) Security purchased under Rule 144A of the 1933 Securities Act and, unless
registered under the Act or exempted from registration, may only be sold to
qualified institutional investors.
(d) Forward purchase.
See Notes to Financial Statements
<PAGE>
16
Notes to Financial Statements
1. General Information
The PIMCO Commercial Mortgage Securities Trust Inc.,
commenced operations on September 2, 1993.
The Fund is registered under the Investment Company
Act of 1940, as amended, as a closed-end, non-diversified,
investment management company established as a Maryland
corporation. The Fund intends to elect to be treated and
qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended. Previously, the Fund
elected to be treated and qualify as a real estate
investment trust under the Internal Revenue Code. The stock
exchange symbol of the Fund is PCM. Shares are traded on the
New York Stock Exchange.
2. Significant Accounting Policies
The following is a summary of significant accounting
policies followed in preparation of the Fund's financial
statements. The policies are in conformity with generally
accepted accounting principles.
Security valuation. It is the policy of the Fund to
value portfolio securities at market value. Market value is determined
on the basis of last reported sales prices, or if no sales are reported,
as is the case for most securities traded over-the counter, the
mean between representative bid and asked quotations.
Certain fixed income securities for which daily market
quotations are not readily available may be valued, pursuant
to guidelines established by the Board of Directors, with
reference to fixed income securities whose prices are more
readily obtainable and whose durations are comparable to the
securities being valued. Short-term investments having a
maturity of sixty days or less are valued at amortized cost.
Subject to the foregoing, other securities for which market
quotations are not readily available are valued at fair
value as determined in good faith by the Board of
Directors.
Securities transactions and investment income.
Securities transactions are recorded as of the trade date.
Securities purchased or sold on a when-issued or delayed-
delivery basis may be settled a month or more after the
trade date. Securities purchased on a when-issued basis
which are included in the portfolio are subject to market
value fluctuations during this period. On the commitment
date of such purchases, the Fund designates specific assets
with a value at least equal to the commitment, to be
utilized to settle the commitment. The proceeds to be
received from delayed-delivery sales are included in the
Fund's net assets on the date the commitment is executed.
Accordingly, any fluctuation in the value of such assets is
excluded from the Fund's net asset value while the
commitment is in effect. Realized gains and losses from
securities sold are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis and
includes the accretion of discounts and amortization of
premiums.
Dividends and distributions to shareholders. The
Fund intends to distribute all its net investment income
monthly. Distributions, if any, of net realized short- or
long-term capital gains will be distributed no less
frequently than once each year. Income and capital gain
distributions are determined in accordance with income tax
regulations which may differ from generally accepted
accounting principles. These differences are primarily due
to the accounting for paydown gains and losses on mortgage-
backed securities.
Federal income taxes. It is the Fund's policy to distribute all of
its taxable income to shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. In addition, by distributing in each calendar
year substantially all of its net investment income, capital
gains and certain other income, if any, the Fund will not be
subject to a federal excise tax.
Reverse repurchase agreements. Reverse repurchase agreements involve
the sale of a portfolio-eligible security by the Fund, coupled with
an agreement to repurchase the security at a specified date
and price. Reverse repurchase agreements involve
<PAGE>
17
the risk that the market value of securities retained by the Fund may
decline below the repurchase price of the securities sold by
the Fund which it is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the
Fund, and are subject to the Fund's overall restriction on
borrowing under which it must maintain asset coverage of at
least 300%.
Reclassification. Certain amounts as previously
reported have been reclassified to conform to the 1995
presentation.
3. Investment Manager Fee, Administration Fee, and Directors Fee
Investment Manager Fee.
Pacific Investment Management Company serves as investment manager to
the Fund, pursuant to an investment management agreement. Pacific
Investment receives a quarterly fee from the Fund at an
annual rate of 0.725% based on average weekly net assets of
the Fund.
Administration Fee. Pacific Investment also
provides administrative services to the Fund and receives
from the Fund a quarterly administrative fee at the annual
rate of 0.10% of the Fund's average weekly net
assets.
Directors' Fee. Each unaffiliated Director receives
an annual retainer of $6,000, plus $1,000 for each Board of
Directors meeting attended, plus reimbursement of related
expenses.
4. Organization
The Fund assumed all costs in connection with its organization and
offering of shares, including the fees and expenses of registering and
qualifying its shares for distribution under federal and
state securities regulations. Expenses incurred in
connection with the organization and offering of shares of
the Fund were $30,500 and are being amortized over a five
year period.
5. Securities Transactions
Cost of purchases and proceeds from sales of securities (excluding
U. S. Government securities and short-term investments) for the
year ended December 31, 1995 were $89,251,648 and
$62,652,030, respectively. Purchases and sales of U. S.
Government securities were $41,967,480 and $38,890,176,
respectively.
6. Federal Income Tax Matters
At December 31, 1995, the net unrealized appreciation of investments
based on cost for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation $ 3,971,084
Aggregate gross unrealized depreciation (3,144,664)
Net unrealized appreciation $ 826,420
The accumulated net realized loss on sales of investments for
federal income tax purposes at December 31, 1995, amounting to
$1,504,230, is available to offset future taxable gains. If not applied,
$67,350 of the loss will expire in 1998, $1,207,135 will
expire in 1999 and $229,745 will expire in 2003.7.
7. Borrowings under Reverse Repurchase Agreements
The average amount of borrowings outstanding during 1995 was
$65,428,793 at a weighted average interest rate of 6.4%. On December 31,
1995, securities valued at $71,848,645 were pledged as
collateral for reverse repurchase agreements.
The Fund is authorized to borrow funds and utilize leverage in amounts
not exceeding 33-1/3% of its total assets. The Fund's
ability to leverage creates an opportunity for increased net
income, but at the same time poses special risks. If the
income from the securities purchased with borrowed funds is
not sufficient to cover the cost of borrowing, the net
income of the Fund will be less than if borrowing had not
been used, reducing the amount available for distribution to
shareholders.
<PAGE>
18
Report of Independent Auditors
The Shareholders and Board of Directors PIMCO Commercial
Mortgage Securities Trust, Inc.
We have audited the accompanying statement of assets and
liabilities of PIMCO Commercial Mortgage Securities Trust,
Inc. (the Fund) including the schedule of investments, as of
December 31, 1995, the related statements of operations and
cash flows for the year then ended, the statements of
changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of
the two years in the period then ended and for the period
from September 2, 1993 (commencement of operations) to
December 31, 1993. These financial statements and financial
highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements and the financial
highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund at December 31, 1995, and the results of its operations,
its cash flows, changes in its net assets and financial highlights for the
periods indicated above in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Kansas City, Missouri
January 26, 1996
<PAGE>
19
Dividend Reinvestment Plan
What is the Dividend Reinvestment Plan for PIMCO Commercial
Mortgage Securities Trust, Inc.?
The Dividend Reinvestment Plan offers shareholders in the Fund an
efficient and simple way to reinvest dividends and capital gains
distributions, if any, in shares of the Fund. Each month the Fund will
distribute to shareholders substantially all of its net
investment income. The Fund expects to distribute at least
annually any net realized long-term or short-term capital
gains. Investors Fiduciary Trust Company ("IFTC") acts as
Plan Agent for shareholders in administering the Plan.
Who can participate in the Plan?
All shareholders in the Fund may participate in the Plan by following
the instructions for enrollment provided later in this section.
What does the Plan offer?
The Plan offers shareholders a simple and
convenient means to reinvest dividends and capital gains
distributions in additional shares of the Fund.
How is the reinvestment of income dividends and capital gains
distributions accomplished?
If you are a participant in the Plan, your dividends and capital gains
distributions will be reinvested automatically for you, increasing your
holding in the Fund. If the Fund declares a dividend or
capital gains distribution payable either in cash or in
shares of the Fund, you will automatically receive shares of
the Fund. If the market price of shares is equal to or
exceeds the net asset value per share on the Valuation Date
(as defined below), Plan participants will be issued shares
valued at the net asset value most recently determined or,
if net asset value is less than 95% of the then current
market price, then at 95% of the market price.
If the market price is less than the net asset value on the
Valuation Date, the Plan Agent will buy shares in the open
market, on the New York Stock Exchange ("NYSE") or
elsewhere, for the participants' accounts. If, following the
commencement of the purchase and before the Plan Agent has
completed its purchases, the market price exceeds the net
asset value, the average per share purchase price paid by
the Plan Agent may exceed the net asset value, resulting in
the acquisition of fewer shares than if the dividend or
capital gains distribution had been paid in shares issued by
the Fund at net asset value. Additionally, if the market
price exceeds the net asset value before the Plan Agent has
completed its purchases, the Plan Agent is permitted to
cease purchasing shares and the Fund may issue the remaining
shares at a price equal to the greater of net asset value or
95% of the then current market price. In a case where the
Plan Agent has terminated open market purchases and the Fund
has issued the remaining shares, the number of shares
received by the participant will be based on the weighted
average of prices paid for shares purchased in the open
market and the price at which the Fund issues the remaining
shares. The Plan Agent will apply all cash received to
purchase shares as soon as practicable after the payment
date of the dividend or capital gains distribution, but in
no event later than 30 days after that date, except when
necessary to comply with applicable provisions of the
federal securities laws.
The Valuation Date is the dividend or capital gains distribution payment
date or, if that date is not a NYSE trading day, the immediately preceding
trading day. All reinvestments are in full and fractional shares,
carried to three decimal places.
Is there a cost to participate?
There is no direct charge to participants for
reinvesting dividends and capital gains distributions, since
the Plan Agent's fees are paid by the Fund. There are no
brokerage charges for shares issued directly by the Fund.
Whenever shares are purchased on the NYSE or elsewhere in
connection with the reinvestment of dividends or capital
gains distributions, each participant will pay a pro rata
portion of brokerage commissions. Brokerage charges for
purchasing shares through the Plan are expected to be less
than the usual brokerage charges for individual
<PAGE>
20
transactions, because the Plan Agent will purchase shares
for all participants in blocks, resulting in lower
commissions for each individual participant.
What are the tax implications for participants?
You will receive tax information annually for your personal
records to help you prepare your federal income tax return.
The automatic reinvestment of dividends and capital gains distributions
does not affect the tax characterization of the dividends
and capital gains. Other questions should be directed to
your tax adviser.
How do participating shareholders benefit?
You will build holdings in the Fund easily and automatically at reduced
costs. You will receive a detailed account statement from the Plan Agent,
showing total dividends and distributions, dates of investments, shares
acquired and price per share, and total shares of record
held by you and by the Plan Agent for you. The proxy you
receive in connection with the Fund's shareholder meetings
will include shares purchased for you by the Plan Agent
according to the Plan.
As long as you participate in the Plan, shares acquired through the Plan
will be held for you in safekeeping in non-certificated form by IFTC, the
Plan Agent. This convenience provides added protection against
loss, theft or inadvertent destruction of certificates.
Who should I contact for additional information?
If you hold shares in your own name, please address all notices,
correspondence, questions or other communications regarding
the Plan to:
PIMCO Commercial Mortgage Securities Trust, Inc.
c/o Investors Fiduciary Trust Company
P.O. Box 419338
Kansas City, MO 64141
Telephone: 800-213-3606
If your shares are not held in your name, you should contact your
brokerage firm, bank or other nominee for more
information.
How do I enroll in the Plan?
If you hold shares of the Fund in your own name, you are already
enrolled in this Plan. Your reinvestments will begin with the first
dividend after you purchase your shares. If your shares are
held in the name of a brokerage firm, bank, or other
nominee, you should contact your nominee to see if it will
participate in the Plan on your behalf. If your nominee is
unable to participate in the Plan on your behalf, you may
want to request that your shares be registered in your name
so that you can participate in the Plan.
Once enrolled in the Plan, may I withdraw from it?
You may withdraw from the Plan without penalty at any time by providing
written notice to IFTC. Elections to withdraw from the Plan will be effective
for distributions with a Record Date of at least ten days
after such elections are received by the Plan Agent.
If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full shares
accumulated in your account from dividend and capital gains
distributions, plus a check for any fractional shares based
on market price.
Experience under the Plan may indicate that
changes are desirable. Accordingly, either the Fund or the
Plan Agent may amend or terminate the Plan. Participants
will receive written notice at least 30 days before the
effective date of any amendment. In the case of termination,
participants will receive written notice at least 30 days
before the record date of any dividend or capital gains
distribution by the Fund.
<PAGE>
inside back cover
Board of Directors and Other Information
Directors and Officers
Brent R. Harris, Chairman of the Board
Guilford C. Babcock, Director
Vern O. Curtis, Director
Thomas P. Kemp, Director
William J. Popejoy, Director
R. Wesley Burns, President
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Manager and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 360
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Legal Counsel
Dechert Price & Rhoads
1500 K Street N.W.
Washington, D.C. 20005
Independent Auditors
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
<PAGE>
back cover
PIMCO Commercial Mortgage Securities Trust, Inc.
This report, including the financal statements herein, is
provided to the shareholders of PIMCO Commercial Mortgage
Securities Trust, Inc. for their information. This is not a prospectus,
circular or representation intended for use in the purchase of shares of
the Fund or any securities mentioned in this report.
