<PAGE> Cover
PIMCO COMMERCIAL MORTGAGE SECURITIES TRUST, INC.
JUNE 30, 1996
SEMI-ANNUAL REPORT
A CLOSED-END FUND SPECIALIZING IN INVESTMENTS IN
COMMERCIAL MORTGAGE-BACKED SECURITIES
<PAGE> Inside 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 $79
billion on behalf of mutual fund and institutional clients
located around the world. Renowned for its fixed income
management expertise, Pacific Investment manages assets for
approximately 30% of the 200 largest 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 $100 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
Letter to our
Shareholders
Almost from the day we began investing in commercial
mortgage-backed securities for our shareholders, the bond
market has experienced volatility which has been higher than
traditional levels. As the third anniversary of the PIMCO
Commercial Mortgage Securities Trust will nearly coincide
with the issuance of this report, I want to thank our long-
term investors for their continued support through the ups
and downs of the past three years. And, for investors that
are new to the Fund, welcome. I believe the
Fund's unique investment focus on commercial mortgage-backed
securities will compliment your diversified investment portfolio.
The first half of 1996 qualifies as one of the down periods
for bonds noted above. Principal reductions due to a
rapidly rising interest rate environment narrowly outpaced
interest income, resulting in a slight decline in net asset
value (NAV) performance during the period. On a brighter
note, the market price performance of Fund shares trading on
the New York Stock Exchange rose 2.46% during the
same period, significantly outperforming such broad measures
of bond market performance as the widely followed Lehman
Brothers Aggregate Bond Index, which declined 1.21%.
This relatively strong investment performance can be
attributed to both effective portfolio management and a
significant narrowing of the Fund's trading discount. As
reported in more detail later in this report, we have
invested in sectors which offer better diversification and
are less dependent on rapid economic growth, and have
avoided those sectors that are experiencing poor
fundamentals. Market response has been that the Fund
currently trades at one of the lowest discounts to NAV, while
offering a very competitive yield, compared with other U.S.
mortgage bond funds covered by Lipper Analytical Services.
I invite you to spend a few minutes reviewing our report,
especially the interview with the Fund's portfolio manager,
Benjamin Trosky. Ben discusses the bond market and how the
portfolio has changed during the past six months, and
provides a glimpse of future strategy. As always, we
encourage you to contact us with questions or suggestions to
improve our shareholder reporting.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
August 1, 1996
<PAGE> 2
About the Fund
Launched in September 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. 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.
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
Interview with
Ben Trosky
Benjamin Trosky, a PIMCO Managing Director and fixed income
portfolio manager, has managed the PIMCO Commercial Mortgage
Securities Trust, Inc. since its inception in September of
1993. Ben is a Chartered Financial Analyst with over 15
years of investment experience, the past six of which have
been spent at PIMCO as head of the firm's credit research
team. In addition to his work on the Fund, Ben oversees the
use of commercial mortgage-backed securities and high yield
bonds in PIMCO's privately managed and mutual fund
portfolios. The following questions and answers are from a
recent conversation with Ben.
Briefly, what has happened in the bond market through the
first six months of 1996?
The bond market entered 1996 riding a wave of positive
investor sentiment fueled by reports of low inflation and
sluggish economic growth. Early this year, however, the
collapse of balanced budget talks and an upward surge in
employment began to shift investor sentiment. This was
followed by a rebound in consumer spending and spikes in key
commodity prices. These forces soon ignited fears of
accelerating economic growth and rising inflation. In
response, the bond market sold off, sending the yield on the
30-year Treasury bond nearly one percentage point higher to
finish just under 7% at the end of June.
[Graph appears here]
<TABLE>
<CAPTION>
30-year and 3-month U.S. Treasury Yields
3-Month 30-Year
U.S. Treasury Bill U.S. Treasury Bond
<S> <C> <C>
12/78 9.12% 8.88%
12/79 12.07% 10.12%
12/80 15.66% 12.40%
12/81 10.93% 13.45%
12/82 8.01% 10.54%
12/83 8.96% 11.88%
12/84 8.16% 11.52%
12/85 7.07% 9.54%
12/86 5.49% 7.37%
12/87 5.80% 9.12%
12/88 8.09% 9.01%
12/89 7.64% 7.90%
12/90 6.81% 8.24%
12/91 4.12% 7.70%
12/92 3.22% 7.44%
12/93 3.06% 6.25%
12/94 5.60% 7.87%
12/95 5.07% 5.95%
06/96 5.16% 6.87%
</TABLE>
Was the increase in interest rates uniform across different
maturity bonds?
No. In fact, interest rates often do not rise or fall
uniformly since the factors that cause rates to change are
different for short- and long-term instruments. The shape
of the yield curve provides a snapshot of two things.
First, the shortest rates primarily reflect the Fed's
approach to monetary policy, whether it is easing or
tightening. Second, longer-term rates reflect investors'
expectations for future inflation and interest rates,
including anticipated Fed action on short-term rates. As
illustrated in the graph below, the shape of the yield curve
changed significantly during the first six months of 1996.
At the end of 1995 the curve was flat, signaling that
investors expected lower inflation and interest rates, with
Fed easing likely. By the end of June, the curve had
steepened markedly, indicating investors' fears of rising
inflation and expectations that the Fed would tighten or
raise rates to reign in economic growth.
[Graph appears here]
<TABLE>
<CAPTION>
U.S. Treasury Yield Curves
Jun-96 Mar-96 Dec-95
<S> <C> <C> <C>
5.15% 5.14% 5.07%
5 Yrs. 6.46% 6.10% 5.37%
7 Yrs. 6.56% 6.28% 5.49%
10 Yrs. 6.71% 6.30% 5.57%
30 Yrs. 6.87% 6.70% 5.95%
Maturity (Yrs.)
</TABLE>
<PAGE> 4
How did the steepening yield curve and rising interest rates
impact the Fund?
Commercial mortgage-backed securities ("CMBS") respond to
rising interest rates much like other bonds, that is, by
declining in value. The fact that interest rates increased
the most on intermediate-maturity instruments also impacted
the Fund since its holdings are concentrated in that segment
of the yield curve. Counterbalancing these factors was a
combination of higher yields offered by CMBS and a positive
financing environment that made the Fund's leveraging
activity profitable for investors. Together, these
positives mitigated most of the negative impact of higher
interest rates. As a result, the Fund's net asset value
performance for the six-month period was only slightly
negative at -0.48%, and closed the period 0.73% ahead of
the broad-market Lehman Aggregate Bond Index, which declined
1.21%.
<TABLE>
<CAPTION>
Investment Performance Since
Inception
6 Months 1 Year 2 Years* 9/2/93*
<S> <C> <C> <C> <C>
Fund Net Asset Value -0.48% 6.10% 10.33% 6.46%
Fund NYSE Market Value 2.46% 3.01% 10.17% 3.85%
Lehman Brothers
Aggregate Bond Index -1.21% 5.02% 8.72% 4.73%
* Average annual total return
</TABLE>
[Graph appears here]
<TABLE>
<CAPTION>
Growth of $10,000 Net Investment in the Fund
Net NYSE Lehman Brothers
Asset Market Aggregate Month
Value Value Bond Index
<S> <C> <C> <C>
8/93 10,000 10,000 10,000
12/93 10,043 9,946 10,033
12/94 9,882 8,910 9,741
12/95 11,989 10,857 11,540
6/96 11,931 11,124 11,400
</TABLE>
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 June 30, 1996, compared to the Lehman Brothers
Aggregate Bond Index, an unmanaged market index. Investment
performance assumes the reinvestment of dividends and
capital gains distribution, 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 Fund shares, when sold, may
be worth more or less than their original cost.
<PAGE> 5
Do you believe the strong economic growth of
the first half will continue through the next two quarters?
How will this impact the CMBS market?
Over the next several months, PIMCO expects the pace of
economic growth to slow and inflation to remain moderate.
This economic environment should allow the Fed to leave
short-term rates unchanged and possibly consider lowering
them by the end of the year. We also believe that
investors' fears of higher future inflation will subside as
consumer spending slows, commodity prices stabilize, and
housing starts decline due to the delayed effect of higher
mortgage rates. This will allow longer-term rates to trend
lower. All of this bodes well for bond investors, as they
should benefit from declining rates and an economy that
continues to grow, albeit at a more modest pace.
Given this economic forecast, the outlook for the real
estate that serves as collateral for the securities in which
the Fund invests remains positive. Occupancy and rental
rates for most property types and in most geographic regions
continue to improve. While property values have
appreciated, most assets are still trading at a discount to
replacement value. This has kept a lid on speculative
building, resulting in a continuously positive supply/demand
environment.
What will this mean for yield spreads on CMBS?
One of the reasons we were attracted to CMBS when the Fund
was launched in 1993 was the generous yield spreads offered
by CMBS relative to corporate bonds of similar quality
rating and comparable maturity. As shown in the graph
below, this yield advantage is still very attractive and
continues to be a significant source of value for the Fund.
Over the coming quarters we expect this yield spread to
narrow, resulting in favorable prospects for relative
returns on CMBS.
[Graph appears here]
<TABLE>
CMBS and Corporate Bonds
<CAPTION>
Excess Yield over U.S. Treasuries*
Commercial
Mortgage
Backed Corporate
Rating Securities Bonds
<S> <C> <C>
AAA .90% .35%
AA 1.05% .50%
A 1.25% .60%
BBB 1.65% .90%
BB 4.30% 2.50%
B 6.00% 3.75%
*7 to 10 year U.S. Treasury Notes as of June 30, 1996
</TABLE>
<PAGE> 6
Have you been actively purchasing new issues
or do you focus investments on more seasoned securities?
We evaluate both primary and secondary investment
opportunities and purchase issues from both markets. On
balance, however, we have found more frequent opportunities
among seasoned issues that have improved as credits due to
the amortization of their senior tranches. Typical CMBS
deals are structured with senior and subordinated notes or
tranches. As the senior securities are retired, the
subordinated tranches are advantaged by moving up in the
credit structure. This process can enhance the collateral
support for the subordinated notes which in turn reduces
investment risk by making cash flows more stable and
predictable.
[Pie Chart appears here]
<TABLE>
<CAPTION>
Portfolio Composition
By Quality Rating*
<S> <C>
AAA 20.1%
AA 12.0%
A 10.7%
BBB 33.3%
BB 16.9%
B 7.0%
* As rated by Standard & Poor's or the equivalent by
Moody's, Duff & Phelps or Fitch.
</TABLE>
What CMBS market sectors have you favored during the past
six months and why?
The question is more one of which sectors have we avoided.
We have shied away from highly-cyclical single property
financing, urban office buildings, and the retail sector due
to continued poor fundamentals. Instead, we continue to add
to the Fund's mobile home, nursing home, congregate care,
and multi-class holdings. These sectors offer better
diversification and are not as dependent on more volatile
cyclical sectors of the economy.
[Pie Chart appears here]
<TABLE>
<CAPTION>
Portfolio Composition
By Commercial Mortgage Type
<S> <C>
Multi-family 36.7%
Multi-class* 33.9%
Healthcare 14.1%
Hospitality 8.2%
Mobile Home Park 3.6%
Retail 2.2%
Gaming 1.3%
* A mix of all types of commercial properties.
</TABLE>
<PAGE> 7
How do you utilize leverage in the Fund and has it been
successful?
The Fund uses a moderate amount of leverage limited by the
Fund's prospectus to one-third of its total assets. The
leveraged component of the Fund focuses on securities with
average lives of 3.5 years or less in order to benefit from
positive spread (the difference between a security's yield
and the financing cost) while minimizing price volatility.
Since the Fund typically uses short-term financing to
purchase longer-term securities, the recent steep yield
curve has enhanced the positive spread on the Fund's
leveraged component. The use of this technique was a
significant contributing factor to the five cent per share
special dividend that the Fund declared in early July.
Income has also been boosted through reinvesting amortized
principal at higher interest rates.
[Graph Appears here]
<TABLE>
<CAPTION>
Chain Weighted Real GDP Growth
Year GDP
<S> <C>
1986 2.20%
1987 6.00%
1988 5.10%
1989 0.40%
1990 -4.10%
1991 1.00%
1992 4.30%
1993 4.70%
1994 3.20%
1995 0.50%
1996 2.50%
3/97 1.50% PIMCO's Projection
</TABLE>
In closing, what is your outlook for investment performance
for the balance of 1996?
I am optimistic about the Fund's prospects for the remainder
of the year. As mentioned earlier, a down turn in the rate
of economic growth should allow long-term interest rates to
move lower. At the same time, commercial real estate
fundamentals remain positive and CMBS offer a significant
yield advantage versus assets of similar credit risk.
Barring any unforeseen negative surprises, these factors
should combine to offer an attractive total return profile.
[Graph Appears here]
<TABLE>
<CAPTION>
CPI Inflation (Year/Year % Change)
Year CPI
<S> <C>
1986 1.60%
1987 1.60%
1988 1.20%
1989 3.80%
1990 4.30%
1991 4.40%
1992 3.90%
1993 4.00%
1994 4.40%
1995 5.10%
1996 4.70%
3/97 2.40% PIMCO's Projection
</TABLE>
<PAGE> 8
Financial
Highlights
<TABLE>
Financial Highlights
<CAPTION> From
For the commencement
six months For the For the of operations
ended 6/30/96 year ended year ended through
(Unaudited) 12/31/95 12/31/94 12/31/93 (a)
<S> <C> <C> <C> <C>
Selected per share data:
Net asset value, beginning
of period $ 13.84 $ 12.41 $ 13.76 $ 13.95
Net investment income 0.61 1.16 1.16 0.20
Net realized and unrealized
gain (loss) on investments (0.68) 1.40 (1.38) (0.14)
Total from investment
operations (0.07) 2.56 (0.22) 0.06
Less dividends from net
investment income (0.56) (1.13) (1.13) (0.25)
Net asset value,
end of period $ 13.21 $ 13.84 $ 12.41 $ 13.76
Per share market value,
end of period $ 12.13 $ 12.38 $ 11.13 $ 13.63
Total investment return
Per share market value (b) 2.46% 21.86% (10.42%) (1.62%)*
Per share
net asset value (c) (0.48%) 21.33% (1.61%) 1.30%*
Ratios to average net assets
Operating expenses 1.01%* 1.04% 1.03% 1.00%*
Interest expense 2.54%* 2.90% 1.68% 0.11%*
Net investment income 9.15%* 8.93% 8.84% 5.59%*
Supplemental data
Net assets,
end of period $145,459,798 $152,375,285 $136,595,091 $151,406,829
Portfolio turnover rate 31.92% 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> 9
Financial
Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
<S> <C>
Assets
Investments in securities, at market value $ 214,445,371
(Identified cost: $221,366,234)
Interest receivable 2,301,451
Paydown receivable 92,832
Deferred organizational expense 13,243
Other assets 20,124
Total assets $ 216,873,021
Liabilities
Reverse repurchase agreements 66,629,333
Payable for investments purchased 1,359,753
Dividends payable 1,032,473
Accrued investment manager's fee 251,461
Accrued administrator's fee 34,684
Other liabilities 2,105,519
Total liabilities $ 71,413,223
Net assets applicable to
outstanding capital stock $ 145,459,798
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 684,039
Accumulated net realized loss from investments (1,236,523)
Unrealized depreciation of investments (6,920,863)
$ 145,459,798
Net asset value per share outstanding $ 13.21
</TABLE>
<TABLE>
Statement of Operations
<CAPTION>
For the six months
ended June 30, 1996
(Unaudited)
<S> <C>
Interest income $ 9,373,279
Expenses
Interest expense 1,873,481
Investment manager fee 524,846
Administration fee 72,393
Printing fee 56,950
Custody and portfolio accounting fee 28,924
Directors' fee 17,380
Audit fee 8,440
Organization expenses 3,023
Other expenses 31,673
Total expenses 2,617,110
Net investment income $ 6,756,169
Net realized and unrealized gain (loss)
Net realized gain on investments 267,706
Unrealized depreciation on investments (7,747,283)
Net loss on investments $ (7,479,577)
Net decrease in assets resulting
from operations $ (723,408)
</TABLE>
See Notes to Financial Statements
<PAGE> 10
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the six months
ended June 30,1996 For the year ended
(Unaudited) December 31, 1995
<S> <C> <C>
Increase (decrease) in net assets from:
Operations
Net investment income $ 6,756,169 $ 12,991,919
Net realized gain (loss)
on investments 267,706 (476,725)
Unrealized appreciation
(depreciation) on investments (7,747,283) 15,647,907
Net increase (decrease)
resulting from operations (723,408) 28,163,101
Distributions to shareholders from:
Net investment income (6,192,079) (12,382,907)
Total increase (decrease)
in net assets (6,915,487) 15,780,194
Net assets
Beginning of period 152,375,285 136,595,091
End of period* $ 145,459,798 $ 152,375,285
*Including undistributed net
investment income of: $ 684,039 $ 119,949
</TABLE>
<TABLE>
<CAPTION>
Statement of Cash Flows
For the six months
ended June 30, 1996
(Unaudited)
<S> <C>
Net decrease in net assets resulting from operations $ (723,408)
Adjustments to reconcile to net cash
provided from operating activities
Decrease in interest receivable 66,068
Amortization of premium and discount, net (460,442)
Increase in accrued expenses 1,993,884
Increase in other assets (11,651)
Net loss on investments 7,479,577
Total adjustments 9,067,436
Net cash provided from operating activities 8,344,028
Investing activities
Purchase of long-term portfolio investments (88,117,406)
Proceeds from disposition of long-term
portfolio investments 85,668,318
Proceeds of short-term portfolio investments, net 800,837
Net cash used in investing activities (1,648,251)
Financing activities*
Cash dividends paid (6,191,529)
Net decrease in reverse repurchase agreements (504,912)
Net cash used in financing activities (6,696,441)
Net decrease in cash (664)
Cash at beginning of period 664
Cash at end of period $ 0
* Cash paid for interest for the six months ended
June 30, 1996, amounted to $2,281,393.
</TABLE>
See Notes to Financial Statements
<PAGE> 11
<TABLE>
Schedule of
Investments
<CAPTION>
June 30, 1996 (Unaudited)
Principal
Amount Value
<S> <C> <C>
Commercial Mortgage-Backed Securities - 146.4%
Multi-Family - 53.9%
Donaldson, Lufkin & Jenrette
7.350% due 12/18/03 $ 3,000,000 $ 2,891,250
Federal Housing Authority
7.970% due 04/25/15 2,615,274 2,562,153
8.350% due 04/01/16 1,524,287 1,515,475
6.430% due 12/01/19 2,837,076 2,734,232
7.430% due 12/20/20 1,345,964 1,357,809
9.125% due 01/01/21 991,795 1,014,110
7.430% due 07/01/21 1,900,838 1,886,582
7.430% due 08/01/21 986,066 976,822
6.627% due 02/25/23 2,115,773 2,097,922
7.430% due 03/29/23 2,979,576 2,949,593
8.250% due 02/01/28 2,620,604 2,587,847
8.875% due 06/01/35 5,988,146 6,115,394
Federal National Mortgage Association
7.900% due 12/01/15 (a)(c) 873,781 548,434
7.900% due 12/25/15 (a)(c) 1,608,435 1,159,078
9.375% due 04/01/16 2,477,305 2,540,229
7.875% due 11/01/18 1,196,739 1,179,536
6.429% due 01/01/19 (a) 1,518,772 1,495,041
8.101% due 05/25/28 (a)(c) 2,000,000 1,377,656
First Boston Mortgage Securities Corporation
7.557% due 09/25/06 (a) 976,236 924,679
Government National Mortgage Association
9.500% due 09/15/30 4,335,688 4,433,241
8.625% due 10/15/34 3,489,269 3,543,789
JHM Acceptance Corporation
8.960% due 04/01/19 662,721 672,662
Kidder Peabody Mortgage
8.880% due 08/01/03 (c) 4,987,000 5,110,119
Lehman Brothers Mortgage
7.963% due 02/25/24 (a)(c) 6,800,000 4,221,311
Merrill Lynch Mortgage
8.071% due 04/25/23 (a) 5,000,000 4,973,440
Multi-Family Capital Access One, Inc.
7.400% due 01/15/24 2,230,851 2,119,308
Resolution Trust Corporation
9.000% due 03/25/17 2,236,925 2,292,151
7.525% due 01/25/20 (a) 1,000,000 1,015,000
7.260% due 09/25/20 (a) 1,311,736 800,159
8.947% due 06/25/21 (a)(c) 1,871,143 1,852,431
8.000% due 09/25/21 1,445,583 1,447,390
8.230% due 09/25/21 (a) 3,320,800 3,305,236
Structured Asset Securities Corporation
7.050% due 11/25/02 6,000,000 4,711,878
78,411,957
Multi-Class - 50.1%
Aetna Commercial Mortgage Trust
7.100% due 12/26/30 1,000,000 910,000
Asset Securitization Corporation
7.384% due 05/13/29 750,000 651,211
7.384% due 08/13/29 750,000 703,945
Blackrock Capital Financial
6.813% due 05/01/02 (a)(c) 1,750,000 1,738,516
Carolina First SBL Trust
7.638% due 04/01/26 (a) 2,000,000 1,997,500
CBA Mortgage Corporation
7.154% due 12/25/03 (a) 1,000,000 986,563
Cigna
9.400% due 01/15/02 317,554 317,752
First Boston Mortgage Securities Corporation
7.458% due 11/25/27 1,000,000 989,063
8.012% due 11/25/27 1,500,000 1,485,469
7.826% due 01/25/28 (a) 2,500,000 2,333,202
7.826% due 01/25/28 (a)(c) 1,380,615 974,196
Lennar Corporation
9.890% due 09/15/04 (c) 2,150,000 2,150,000
Matterhorn Capital Corporation
7.850% due 01/20/06 4,000,000 3,845,624
Merrill Lynch Mortgage
7.585% due 06/15/21 (a) 1,446,672 1,440,343
Morgan Stanley
7.466% due 02/15/05 (a)(c) 2,000,000 2,011,250
8.240% due 12/15/23 (c) 1,800,000 1,792,125
Nomura
8.496% due 07/07/03 (a)(c) 3,259,923 2,969,076
7.161% due 12/02/04 (a)(c) 1,500,000 1,461,796
9.659% due 09/11/19 (a) 3,000,000 3,166,875
Prudential Securities Secured Financing
7.610% due 12/26/22 1,000,000 931,563
Resolution Trust Corporation
6.240% due 03/25/20 (a) 640,399 640,399
7.150% due 06/25/23 467,449 463,797
9.250% due 06/25/23 5,734,636 5,826,034
9.450% due 05/25/24 4,842,116 4,903,397
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
June 30, 1996 (Unaudited)
Schedule of Investments (Cont.) Principal
Amount Value
<S> <C> <C>
Resolution Trust Corporation (cont.)
9.500% due 05/25/24 $ 1,193,922 $ 1,185,247
8.150% due 06/25/24 1,362,121 1,359,355
9.200% due 06/25/24 1,400,324 1,414,766
7.700% due 07/25/24 3,238,089 3,225,189
8.000% due 07/25/24 1,781,695 1,791,161
7.100% due 12/25/24 (a) 967,290 942,503
7.150% due 03/25/25 2,144,533 2,120,399
8.500% due 03/25/25 1,591,827 1,568,448
8.000% due 04/25/25 2,500,000 2,507,813
8.000% due 04/25/25 1,921,850 1,897,827
8.000% due 06/25/26 5,189,650 4,495,534
6.900% due 02/25/27 2,590,664 2,162,396
Structured Asset Securities Corporation
7.750% due 02/25/28 3,841,000 3,576,931
72,937,265
Healthcare - 20.8%
Daiwa Mortgage Acceptance Corporation
8.615% due 09/25/06 (c) 4,464,448 3,432,740
Holiday Corporation
6.680% due 12/01/01 (c) 5,100,000 4,190,767
6.680% due 12/01/01 (c) 2,000,000 1,510,938
6.680% due 12/15/01 5,000,000 4,575,780
LTC
9.300% due 06/15/26 (c) 4,000,000 4,195,000
Red Mountain Funding Corporation
9.150% due 11/28/27 (c) 3,200,000 2,781,002
SC Commercial
7.050% due 11/28/13 (c) 5,000,000 4,732,815
7.800% due 11/28/13 (c) 5,000,000 4,868,750
30,287,792
Hospitality - 12.1%
Cooper Hotel
7.500% due 07/15/13 (c) 9,212,813 8,890,364
German American Capital Corporation
8.535% due 10/10/02 (c) 2,000,000 2,000,000
HMH Properties, Inc.
9.500% due 05/15/05 2,000,000 1,905,000
Hotel First
8.520% due 08/01/08 (c) 2,859,400 2,893,356
J.Q. Hammons Hotels
8.875% due 02/15/04 2,000,000 1,872,500
17,561,220
Mobile Home Parks - 5.3%
First Boston Mortgage Securities Corporation
7.704% due 04/25/11 (a) $ 4,000,000 $ 4,000,000
Manufacturers Hanover Corporation
7.464% due 12/16/25 (a)(c) 960,225 953,924
9.400% due 12/16/25 (a)(c) 2,880,676 2,716,837
7,670,761
Retail - 2.3%
American Southwest Financial
5.100% due 06/02/99 (c) 841,969 811,579
Conseco Commercial Mortgage
9.700% due 07/15/04 2,484,947 2,509,797
3,321,376
Gaming - 1.9%
Bally's Grand
10.375% due 12/15/03 2,500,000 2,743,750
2,743,750
Total Commercial Mortgage-Backed Securities 212,934,121
(Cost $219,876,681)
Corporate Bonds - 1.0%
Trizec Finance Limited
10.875% due 10/15/05 1,500,000 1,511,250
Total Corporate Bonds 1,511,250
(Cost $1,489,553)
Total Investments (b) - 147.4% $ 214,445,371
(Cost $221,366,234)
Other Assets and Liabilities (Net) - (47.4)% (68,985,573)
Net Assets - 100.0% $ 145,459,798
</TABLE>
See Notes to Schedule of Investments
(a) Variable rate security. The rate shown is as of June 30, 1996.
(b) The identified cost of investments owned as of June 30, 1996
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.
See Notes to Financial Statements
<PAGE> 13
Notes to
Financial
Statements
June 30, 1996
(Unaudited)
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 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. The Fund intends to qualify as a
regulated investment company and distribute all of its
taxable income and net realized gains, if applicable, to
shareholders. Accordingly, no provision for Federal income
taxes has been made.
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 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%.
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.
<PAGE> 14
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 six months ended June 30, 1996 were
$61,317,245 and $49,171,448, respectively. Purchases and
sales of U.S. Government securities were $21,906,004 and
$19,536,112, respectively.
6. Federal Income Tax Matters
At June 30, 1996, the net unrealized depreciation of
investments based on cost for federal income tax purposes
was as follows:
Aggregate gross unrealized appreciation $ 1,392,595
Aggregate gross unrealized depreciation (8,313,458)
Net unrealized depreciation $ (6,920,863)
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. Borrowings under Reverse Repurchase Agreements
The average amount of borrowings outstanding during the
six months ended June 30, 1996 was $66,013,517 at a weighted
average interest rate of 5.7%. On June 30, 1996, securities
valued at $75,393,064 were pledged as collateral for reverse
repurchase agreements.
The Fund is authorized to borrow funds and utilize
leverage in amounts not exceeding thirty-three and one-third
percent 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> 15
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 transactions, because
the Plan Agent will purchase shares for all participants in
blocks, resulting in lower commissions for each individual
participant.
<PAGE> 16
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.
Whom 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 financial 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.
