<PAGE>
PIMCO COMMERCIAL MORTGAGE SECURITIES TRUST, INC.
[PICTURE OF BUILDINGS]
A CLOSED-END
FUND SPECIALIZING
IN INVESTMENTS
IN COMMERCIAL
MORTGAGE-BACKED
SECURITIES
DECEMBER 31, 1996
ANNUAL REPORT
PIMCO
<PAGE>
[PICTURE OF BUILDINGS]
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 $88
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 $110 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>
LETTER TO OUR SHAREHOLDERS
I am pleased to report that during 1996, PIMCO Commercial Mortgage Securities
Trust, Inc. was again able to meet its primary investment objective of providing
a high level of current income for shareholders. In fact, the Fund paid two
special dividends amounting to an additional ten cents of income over prior year
levels. As a proportion of its annual distribution, the special dividends
represented nearly a 9% increase in income, and they boosted the Fund's
distribution yield for 1996 to just over 9.5% (based on a year-end market share
price of $12.875).
A number of factors combined to make these two special dividends possible.
First, the Fund benefited from the positive spread between its cost of financing
and the yield generated by its investment portfolio. Second, yields on
commercial mortgage-backed securities remained significantly higher than those
offered by comparably rated corporate bonds. This yield advantage is consistent
with our original assessment of the asset class when the Fund was created in
1993, and it continues to enhance the Fund's income relative to corporate bond
funds. Third, because market interest rates were generally higher in 1996, the
Fund was able to reinvest regular principal paydowns and coupon payments at
higher interest rates, further enhancing yield.
I am also pleased to note that the Fund's total return investment performance
was ranked #1 of 10 in the U.S. Mortgage Bond Fund-Other category by Lipper
Analytical Services, Inc. for the one-year period ended December 31, 1996, and
based on its three-year performance record, the Fund now carries a Four-Star
rating from Morningstar, Inc.*
I hope you will spend a few moments reviewing the remainder of our annual
report. Of particular interest is a question and answer session with the Fund's
portfolio manager, Ben Trosky, which offers more information about commercial
mortgage-backed securities and a presentation of the Fund's overall investment
performance.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
February 3, 1997
* THE TOP 10% OF ALL FUNDS IN A BROAD INVESTMENT CATEGORY RECEIVE 5-STAR
RATINGS. THE NEXT 22.5% RECEIVE 4-STAR RATINGS. THE MORNINGSTAR RATING
COMBINES BOTH PERFORMANCE AND RISK INTO ONE EVALUATION.
1
<PAGE>
[PICTURE OF BUILDINGS]
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 titled "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.
2
<PAGE>
[PICTURE OF BUILDINGS]
QUESTIONS & ANSWERS 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.
BOND INVESTORS EXPERIENCED A DIFFICULT YEAR IN 1996. WHAT WERE THE PRIMARY
FACTORS DRIVING INTEREST RATES HIGHER?
Several events occurred early in 1996 which combined to push U.S. interest rates
higher. These included the collapse of balanced budget legislation that had
fueled an impressive bond rally in 1995's fourth quarter. General economic
strength led by robust employment growth, and solid housing and automobile sales
contributed as well, quickly reversing investor expectations of Fed easing to
very real concerns that the Fed would raise short-term rates to reign in
economic growth that might cause inflation. Only as the year progressed and
inflation remained calm did rates begin to fall, and then it took a series of
weakening economic statistics and a status-quo election outcome to drive bond
yields lower. Despite this late rally however, Treasury yields on maturities
two years and longer still finished the year between 70 and 85 basis points
higher.
Movements of U.S. Treasury Yields and Core CPI in 1996
<TABLE>
<CAPTION>
Date 30-Year Yield (left axis) 3-Month Yield (left axis) Core CPI* (right axis)
<S> <C> <C> <C>
12/29/95 5.915% 5.007% 2.200%
1/5/96 6.011 5.182
1/12/96 6.114 5.171
1/19/96 5.940 5.109
1/26/96 6.011 5.098 2.200
2/2/96 6.130 4.984
2/9/96 6.065 4.932
2/16/96 6.210 4.890
2/23/96 6.372 4.953
3/1/96 6.334 5.005 2.700
3/8/96 6.678 5.026
3/15/96 6.706 5.151
3/22/96 6.622 5.109
3/29/96 6.634 5.140 3.500
4/5/96 6.791 5.161
4/12/96 6.769 5.078
4/19/96 6.753 5.026
4/26/96 6.756 5.119 2.700
5/3/96 7.084 5.140
5/10/96 6.895 5.140
5/17/96 6.800 5.161
5/24/96 6.801 5.181
5/31/96 6.956 5.182 2.700
6/7/96 6.998 5.251
6/14/96 7.056 5.199
6/21/96 7.063 5.276
6/28/96 6.838 5.157 2.200
7/5/96 7.159 5.292
7/12/96 6.997 5.292
7/19/96 6.941 5.296
7/26/96 6.975 5.282 2.900
8/2/96 6.710 5.199
8/9/96 6.657 5.147
8/16/96 6.735 5.182
8/23/96 6.922 5.168
8/30/96 7.085 5.281 2.200
9/6/96 7.077 5.324
9/13/96 6.915 5.213
9/20/96 7.010 5.272
9/27/96 6.875 5.022 2.700
10/4/96 6.708 5.001
10/11/96 6.812 5.150
10/18/96 6.768 5.105
10/25/96 6.782 5.116
11/1/96 6.646 5.157 2.400
11/8/96 6.473 5.181
11/15/96 6.424 5.136
11/22/96 6.403 5.157
11/29/96 6.317 5.125 2.900
12/6/96 6.510 5.023
12/13/96 6.571 4.918
12/20/96 6.606 5.023
12/27/96 6.562 5.095
12/31/96 6.641 5.171
</TABLE>
*Excluding food and energy prices
3
<PAGE>
COMPARED TO BROAD MARKET MEASURES LIKE THE LEHMAN BROTHERS AGGREGATE BOND INDEX,
THE FUND POSTED STRONG PERFORMANCE FOR THE YEAR. DOES THE YIELD ADVANTAGE OF
COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS") TELL THE WHOLE STORY?
Of course, I was pleased, as I hope investors were, with the Fund's strong
relative performance in 1996. In a year when interest rates increased, the CMBS
that make up the Fund's investment portfolio had two distinct advantages over
the Lehman Index. First was the yield advantage of CMBS over fixed income
instruments of similar credit quality. The second was relative price
appreciation as yield spreads over Treasuries narrowed. Both of these issues
will be discussed in greater detail later in the report. Investment performance
calculated on the Fund's NYSE share price received an additional boost as the
Fund's trading discount narrowed by 3.59% from its level at the end of 1995.
INVESTMENT PERFORMANCE FOR THE PERIODS ENDED 12/31/96
SINCE
INCEPTION
1 YEAR 2 YEARS* 3 YEARS* 9/2/93*
- -----------------------------------------------------------------------------
Fund Net Asset Value 8.45% 14.71% 8.99% 8.20%
Fund NYSE Market Value 14.57% 18.16% 7.74% 6.77%
Lehman Brothers Aggregate
Bond Index 3.63% 10.80% 6.03% 5.51%
* AVERAGE ANNUAL TOTAL RETURN
Growth of $10,000 Net Investment in the Fund
LEHMAN BROTHERS
MONTH NET ASSET VALUE NYSE MARKET VALUE AGGREGATE BOND
INDEX
- --------- --------------- ----------------- ---------------
- --------- --------------- ----------------- ---------------
08/31/93 $10,000.00 $10,000.00 $10,000.00
12/31/93 10,043.01 9,946.24 10,033.40
12/31/94 9,881.78 8,909.53 9,740.76
12/31/95 11,989.26 10,856.85 11,540.33
12/31/96 13,002.57 12,438.43 11,959.28
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, 1996, COMPARED TO
THE LEHMAN BROTHERS AGGREGATE BOND INDEX, AN UNMANAGED MARKET INDEX. INVESTMENT
PERFORMANCE ASSUMES THE REINVESTMENT 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 FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
4
<PAGE>
HOW HAS CONTINUED ECONOMIC GROWTH INFLUENCED THE CMBS MARKET?
Continued economic expansion combined with modest new construction has resulted
in a positive fundamental backdrop for commercial real estate. Indeed, strength
in utilization levels has, with the exception of retail properties, resulted in
commercial real estate rents rising across most of the country. Capitalization
rates have remained stable, leading to improved property valuations, strong
collateral support and declining default rates across the spectrum of property
types. On balance, we expect these trends to persist through 1997. Given that
rental rates are approaching levels that will facilitate new construction, we
will remain vigilant to the prospects for changes in the balance between supply
and demand in the sectors we monitor.
DOES THIS EXPLAIN THE FUND'S CONCENTRATIONS IN MULTI-CLASS AND MULTI-FAMILY
SECURITIES?
The multi-family (apartment) sector was the first property class to rebound
following the overbuilding boom of the 1980's. Rents and capitalization rates
have risen steadily since 1992, and have reached a level that has encouraged new
construction in the faster growing markets of the Southeast, Southwest and Rocky
Mountain states. Future Fund purchases will likely de-emphasize the multi-
family sector.
For the three plus years that the Fund has been in existence, multi-class
securities have been attractive investments. This has primarily been due to
high levels of credit support and the technical structure of these securities
that directs cash flow towards the lower rated classes. This has the effect of
providing additional credit enhancement to more senior securities.
PORTFOLIO COMPOSITION
BY COMMERCIAL MORTGAGE TYPE
Multi-class* 34.8%
- -----------------------------
Multi-family 32.3%
- -----------------------------
Healthcare 14.2%
- -----------------------------
Hospitality 11.2%
- -----------------------------
Mobile Home Parks 3.5%
- -----------------------------
Discount Notes 2.2%
- -----------------------------
Retail 1.8%
- -----------------------------
* A MIX OF ALL TYPES OF COMMERCIAL PROPERTIES
5
<PAGE>
WHAT OTHER MARKET SECTORS DO YOU FIND ATTRACTIVE LOOKING FORWARD INTO 1997?
Looking into 1997, we expect issuance to remain strong and will continue to
focus our efforts on the congregate care and assisted living sector (included
with hospitals in the broad Healthcare property type). This market sector
benefits from positive demographics, barriers to entry and managed healthcare
trends. Suburban office space should continue to benefit from strong absorption
trends and full service hotels are aided by limited new construction, improving
revenue and utilization trends.
Commercial Mortgage-Backed Securities Issuance (dollars in billions)
Year Issuance
- ---- --------
1990 $ 5.6
1991 8.6
1992 14.4
1993 17.4
1994 20.1
1995 18.8
1996 30.2
COMPARED TO SIMILAR DURATION TREASURY SECURITIES, CORPORATE BOND YIELD SPREADS
NARROWED SIGNIFICANTLY IN 1996. DID THIS TREND CARRY OVER INTO THE CMBS MARKET?
Yes. In fact, 1996 saw CMBS outperform comparably rated corporate bonds across
the rating spectrum, with BBB-rated securities tightening the most. For
example, the yield spread on a typical BBB-rated CMBS versus a comparable
maturity Treasury narrowed by more than 75 basis points, with AA-rated CMBS
experiencing a lesser, but still significant spread tightening of 30 basis
points.
Comparative Changes in Yield Spreads Over 10-Year U.S. Treasuries (spreads in
basis points)
12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
AA-Rated CMBS 130 115 105 85 80
BBB-Rated CMBS 200 180 165 140 115
AA-Rated Corporates 55 40 40 46 40
BBB-Rated Corporates 95 90 90 93 88
6
<PAGE>
DOES THE TIGHTENING YOU JUST DESCRIBED TEMPER YOUR EXPECTATIONS FOR FUND
PERFORMANCE IN 1997?
While it is true that CMBS yield spreads have narrowed significantly, it is
important to keep in mind that these securities began 1996 grossly undervalued
versus securities of comparable credit risk. At this juncture, CMBS are priced
more fairly based on credit fundamentals, but nonetheless continue to offer
wider yield spreads than comparably rated corporate bonds. Given this yield
advantage and a favorable fundamental backdrop, CMBS should demonstrate
favorable relative performance versus other fixed income instruments in the
coming year.
CMBS and Corporate Bonds
Excess Yield over U.S. Treasuries*
Commercial
Mortgage-
Backed Corporate
Rating Securities Bonds
- ------ ---------- -----
AAA 0.70% 0.35%
AA 0.80% 0.40%
A 0.95% 0.55%
BBB 1.15% 0.88%
BB 3.75% 2.30%
B 7.00% 3.90%
* 10 year U.S. Treasury Notes as of December 31, 1996
AS YOU MOVE DOWN THE CREDIT LADDER, SPREADS WIDEN APPRECIABLY. IS THIS AN
ACCURATE REFLECTION OF THE CREDIT RISK ASSOCIATED WITH LOWER RATED CMBS?
No. A majority of investors in the higher-rated CMBS rely exclusively on the
rating agencies for credit input due to the specialized and complex nature of
the analysis. The significant yield advantage of lower-rated CMBS versus
comparably rated corporate bonds compensates those investors who have the
resources to conduct independent credit analysis. At PIMCO we feel that we have
sufficient depth and experience on our credit team to perform the necessary due
diligence to purchase these lower-rated securities with confidence. As noted
previously in discussing the yield advantages of lower-rated CMBS, the rewards
from thorough research can be considerable.
Portfolio Composition
By Quality Rating*
AAA 20.3%
AA 10.2%
A 11.2%
BBB 37.6%
BB 13.8%
B 6.9%
* As rated by Standard & Poor's or the equivalent by Moody's, Duff & Phelps or
Fitch
7
<PAGE>
HOW DO YOU ANALYZE SECURITIES TO IDENTIFY APPROPRIATE ADDITIONS TO THE FUND'S
INVESTMENT PORTFOLIO?
We start by evaluating the composition of the underlying collateral. Factors
such as geographic location, property type, loan-to-value, debt service
coverage, leasing rates versus current market, quality of tenant base, and
environmental compliance are considered. When appropriate, outside consultants
are utilized to help with the real estate aspects of this analysis. Once a
collateral pool is deemed to be acceptable, we evaluate the structural integrity
of the deal and its current market valuation before purchasing a security.
FINALLY, MOST INVESTORS HAVE PURCHASED THE FUND FOR MONTHLY INCOME. WHAT CAN
THEY EXPECT IN THE COMING YEAR?
While it is impossible to forecast with precision, the outlook remains
favorable. However, there are several economic and interest rate events that
could make it difficult to duplicate 1996's unusually high distribution levels
in the coming year. These include the possibility of a significant upward move
in interest rates, a negatively shaped yield curve or an increase in defaults.
While we do not consider any of these events to be likely, each factor could
negatively impact the Fund's dividend distributions.
8
<PAGE>
[PICTURE OF BUILDINGS]
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
FROM COMMENCEMENT
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OF OPERATIONS THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993(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 1.23 1.16 1.16 0.20
Net realized and unrealized
gain (loss) on investments (0.13) 1.40 (1.38) (0.14)
------------ ------------ ------------ ------------
Total from investment operations 1.10 2.56 (0.22) 0.06
Less dividends from net
investment income (1.23) (1.13) (1.13) (0.25)
------------ ------------ ------------ ------------
Net asset value, end of period $ 13.71 $ 13.84 $ 12.41 $ 13.76
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Per share market value,
end of period $ 12.88 $ 12.38 $ 11.13 $ 13.63
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total investment return
Per share market value (b) 14.57% 21.86% (10.42%) (1.62%)*
Per share net asset value (c) 8.45% 21.33% (1.61%) 1.30%*
Ratios to average net assets
Operating expenses
(excluding interest expense) 0.99% 1.04% 1.03% 1.00%*
Total operating expenses 3.60% 3.94% 2.71% 1.11%*
Net investment income 9.08% 8.93% 8.84% 5.59%*
Supplemental data
Net assets, end of period $150,929,420 $152,375,285 $136,595,091 $151,406,829
Portfolio turnover rate 35.98% 47.79% 45.71% 17.43%
</TABLE>
* 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.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
[PICTURE OF BUILDINGS]
FINANCIAL
STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS
Investments in securities, at market value $ 222,397,414
(Identified cost: $222,437,962)
Cash 774,244
Interest receivable 2,028,148
Paydown receivable 17,178
Deferred organizational expense 10,154
Other assets 4,930
---------------
Total assets $ 225,232,068
---------------
LIABILITIES
Reverse repurchase agreements 69,849,615
Payable for investments purchased 2,495,834
Dividends payable 1,582,281
Accrued investment manager's fee 271,902
Accrued administrator's fee 37,504
Other liabilities 65,512
---------------
Total liabilities $ 74,302,648
---------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 150,929,420
---------------
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 228,602
Accumulated net realized loss from investments (2,191,779)
Unrealized depreciation of investments (40,548)
---------------
$ 150,929,420
---------------
---------------
NET ASSET VALUE PER SHARE OUTSTANDING $ 13.71
---------------
---------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1996
<S> <C>
INTEREST INCOME $ 18,840,980
EXPENSES
Interest expense 3,876,006
Investment manager fee 1,072,606
Administration fee 147,946
Printing fee 56,168
Custody and portfolio accounting fee 37,444
Directors' fee 45,841
Audit fee 17,028
Organization expenses 6,112
Other expenses 92,371
---------------
Total expenses 5,351,522
---------------
NET INVESTMENT INCOME $ 13,489,458
NET REALIZED AND UNREALIZED LOSS
Net realized loss on investments (584,579)
Unrealized depreciation on investments (866,968)
---------------
Net loss on investments $ (1,451,547)
---------------
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $ 12,037,911
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income $ 13,489,458 $ 12,991,919
Net realized loss
on investments (584,579) (476,725)
Unrealized appreciation
(depreciation) on investments (866,968) 15,647,907
----------------------------------------
Net increase
resulting from operations 12,037,911 28,163,101
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (13,483,776) (12,382,907)
----------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (1,445,865) 15,780,194
----------------------------------------
----------------------------------------
NET ASSETS
Beginning of period 152,375,285 136,595,091
----------------------------------------
End of period* $ 150,929,420 $ 152,375,285
----------------------------------------
----------------------------------------
*Including undistributed net
investment income of: $ 228,602 $ 119,949
----------------------------------------
</TABLE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
<S> <C>
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 12,037,911
ADJUSTMENTS TO RECONCILE TO NET CASH
PROVIDED FROM OPERATING ACTIVITIES
Decrease in interest receivable 339,371
Amortization of premium and discount, net (993,780)
Increase in accrued expenses 208,508
Decrease in other assets 6,632
Net loss on investments 1,451,547
---------------
Total adjustments 1,012,278
---------------
Net cash provided from operating activities 13,050,189
---------------
INVESTING ACTIVITIES
Purchase of long-term portfolio investments (101,334,283)
Proceeds from disposition of long-term
portfolio investments 103,648,408
Purchase of short-term portfolio investments, net (4,141,317)
---------------
Net cash used in investing activities (1,827,192)
---------------
FINANCING ACTIVITIES*
Cash dividends paid (12,933,417)
Net increase in reverse repurchase agreements 2,484,000
---------------
Net cash used in financing activities (10,449,417)
---------------
Net increase in cash 773,580
Cash at beginning of period 664
---------------
Cash at end of period $ 774,244
---------------
---------------
</TABLE>
* Cash paid for interest for the year ended December 31, 1996, amounted to
$3,644,636.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
[PICTURE OF BUILDINGS]
SCHEDULE OF
INVESTMENTS
<TABLE>
<CAPTION>
December 31, 1996
PRINCIPAL
AMOUNT VALUE
-----------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGE-BACKED SECURITIES - 144.0%
MULTI-CLASS - 50.7%
Aetna Commercial Mortgage Trust
7.100% due 12/26/30 $ 1,000,000 $ 975,000
Asset Securitization Corporation
7.384% due 08/13/29 1,500,000 1,474,571
Blackrock Capital Financial
6.813% due 05/01/02 (a)(c) 1,750,000 1,741,250
8.185% due 11/16/26 (a)(c) 2,000,000 2,050,626
Carolina First SBL Trust
7.638% due 03/18/25 (a) 2,000,000 2,015,000
CBA Mortgage Corporation
7.154% due 12/25/03 (a) 1,000,000 997,813
Federal Deposit Insurance Corporation
6.918% due 11/25/26 (a) 1,260,000 1,271,025
First Boston Mortgage Securities Corporation
7.458% due 11/25/27 1,000,000 1,000,000
8.012% due 11/25/27 1,500,000 1,516,875
7.729% due 01/25/28 (a) 2,500,000 2,384,375
7.826% due 01/25/28 (a)(c) 1,351,480 955,327
Lennar Corporation
9.890% due 09/15/04 (c) 2,150,000 2,160,750
Matterhorn Capital Corporation
7.850% due 01/20/06 (c) 4,000,000 4,005,000
Merrill Lynch Mortgage
7.585% due 06/15/21 (a) 1,348,761 1,376,159
Morgan Stanley
7.466% due 02/15/05 (a)(c) 2,000,000 2,030,000
8.240% due 12/15/23 (c) 1,800,000 1,847,250
NB Commercial Mortgage
8.031% due 10/20/23 (c) 500,000 509,532
8.730% due 10/20/23 (c) 1,000,000 1,009,375
Nomura
8.010% due 07/07/03 (a) (c) 3,259,923 3,268,073
9.660% due 09/11/19 (a) 3,000,000 3,373,593
Prudential Securities Secured Financing
7.610% due 12/26/22 1,000,000 980,000
Resolution Trust Corporation
6.178% due 03/25/20 (a) 204,099 204,099
7.150% due 06/25/23 404,849 405,481
9.250% due 06/25/23 5,634,577 5,735,824
9.450% due 05/25/24 4,842,116 4,933,661
9.500% due 05/25/24 974,543 974,849
8.150% due 06/25/24 636,368 635,174
9.200% due 06/25/24 1,156,612 1,163,841
7.700% due 07/25/24 3,077,981 3,090,243
8.000% due 07/25/24 1,720,768 1,729,372
7.100% due 12/25/24 (a) 960,878 958,176
7.150% due 03/25/25 1,717,582 1,717,225
8.500% due 03/25/25 961,233 956,427
8.000% due 04/25/25 4,394,700 4,497,868
8.000% due 06/25/26 5,032,444 4,721,061
6.900% due 02/25/27 (a) 182,146 158,012
6.900% due 02/25/27 2,346,588 1,959,401
7.000% due 05/25/27 2,229,348 2,039,852
Structured Asset Securities Corporation
7.750% due 02/25/28 3,841,000 3,755,780
---------------
76,577,940
---------------
MULTI-FAMILY - 48.5%
Donaldson, Lufkin & Jenrette
7.350% due 12/18/03 3,000,000 2,989,689
Federal Housing Authority
7.970% due 04/25/15 2,578,383 2,609,002
8.350% due 04/01/16 1,509,364 1,540,329
6.430% due 12/01/19 2,811,025 2,796,093
7.430% due 12/20/20 1,337,567 1,321,490
9.125% due 01/01/21 99,179 101,410
7.430% due 07/01/21 1,889,218 1,918,148
7.430% due 08/01/21 978,444 992,661
6.627% due 02/25/23 2,101,815 2,132,686
7.430% due 03/29/23 2,909,681 2,972,422
8.250% due 02/01/28 2,612,404 2,664,652
8.875% due 06/01/35 5,977,813 6,112,314
Federal National Mortgage Association
7.900% due 12/01/15 (a)(c) 873,781 571,780
7.900% due 12/25/15 (a)(c) 1,608,435 1,202,305
9.375% due 04/01/16 2,433,536 2,537,521
7.875% due 11/01/18 1,145,176 1,146,608
6.429% due 01/01/19 (a) 1,469,755 1,456,895
First Boston Mortgage Securities Corporation
7.557% due 09/25/06 (a) 976,236 978,677
Government National Mortgage Association
9.500% due 09/15/30 4,327,239 4,424,602
8.625% due 10/15/34 3,483,953 3,562,342
JHM Acceptance Corporation
8.960% due 04/01/19 559,513 567,906
Kidder Peabody Mortgage
8.880% due 08/01/03 (c) 4,987,000 5,223,883
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
PRINCIPAL
AMOUNT VALUE
-----------------------------------
<S> <C> <C>
Merrill Lynch Mortgage
8.071% due 04/25/23 (a) $ 5,000,000 $ 5,125,000
Multi-Family Capital Access One, Inc.
7.400% due 1/15/24 2,162,807 2,159,429
Nationsbanc
8.101% due 05/25/28 (a)(c) 2,000,000 1,461,876
Resolution Trust Corporation
9.000% due 03/25/17 2,123,468 2,169,257
7.338% due 01/25/20 (a) 1,000,000 1,013,125
7.166% due 09/25/20 (a) 1,026,082 656,693
8.947% due 06/25/21 (a)(c) 1,827,809 1,772,975
8.000% due 09/25/21 1,188,774 1,195,368
8.230% due 09/25/21 (a) 2,740,910 2,742,622
Structured Asset Securities Corporation
7.050% due 11/25/02 6,000,000 5,070,000
---------------
73,189,760
---------------
HEALTHCARE - 20.9%
Daiwa Mortgage Acceptance Corporation
8.615% due 09/25/06 (c) 4,432,399 3,416,409
Holiday Corporation
6.680% due 12/01/01 (c) 7,100,000 5,927,733
6.680% due 12/15/01 5,000,000 4,836,720
LTC
9.300% due 06/15/26 (c) 4,000,000 4,253,752
Red Mountain Funding Corporation
9.150% due 11/28/27 (c) 3,200,000 2,931,001
SC Commercial
7.050% due 11/28/13 (c) 5,000,000 4,993,750
7.800% due 11/28/13 (c) 5,000,000 5,104,690
---------------
31,464,055
---------------
HOSPITALITY - 16.3%
Cooper Hotel
7.500% due 07/15/13 (c) 9,035,177 9,200,349
Franchise Mortgage Acceptance Corporation
7.981% due 11/15/18 (c) 2,300,000 2,323,000
German American Capital Corporation
8.535% due 10/10/02 (c) 2,000,000 2,043,126
HMH Properties, Inc.
9.500% due 05/15/05 (c) 3,000,000 3,120,000
Hotel First
8.520% due 08/01/08 (c) 2,829,763 2,999,107
J.Q. Hammons Hotels
8.875% due 02/15/04 1,000,000 985,000
Starwood
8.475% due 08/16/97 (c) 4,000,000 4,000,000
---------------
24,670,582
---------------
MOBILE HOME PARKS - 5.0%
First Boston Mortgage Securities Corporation
7.165% due 04/25/11 (a) 4,000,000 4,030,000
Manufacturers Hanover Corporation
7.250% due 12/16/25 (a)(c) 918,556 918,556
7.930% due 12/16/25 (a)(c) 2,755,669 2,617,885
---------------
7,566,441
---------------
RETAIL - 2.6%
American Southwest Financial
5.100% due 06/02/99 (c) 765,931 748,099
Conseco Commercial Mortgage
9.700% due 07/15/04 1,535,826 1,543,505
Trizec Finance Limited
10.875% due 10/15/05 1,500,000 1,642,500
---------------
3,934,104
---------------
Total Commercial Mortgage-Backed Securities 217,402,882
---------------
(Cost $217,443,430)
SHORT-TERM INSTRUMENTS - 3.4%
DISCOUNT NOTES - 3.4%
Pitney Bowes Credit, Inc.
5.380% due 01/15/97 2,600,000 2,594,949
Shell Oil Co.
6.250% due 01/03/97 2,400,000 2,399,583
---------------
Total Short-Term Instruments 4,994,532
---------------
(Cost $4,994,532)
TOTAL INVESTMENTS (b) - 147.4% $ 222,397,414
(Cost $222,437,962)
OTHER ASSETS AND LIABILITIES (NET) - (47.4%) (71,467,994)
NET ASSETS - 100.0% $ 150,929,420
---------------
---------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Variable rate security. The rate shown is as of December 31, 1996.
(b) The identified cost of investments owned as of December 31, 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
13
<PAGE>
[PICTURE OF BUILDINGS]
NOTES TO
FINANCIAL
STATEMENTS
DECEMBER 31, 1996
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, management investment
company organized 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 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 any, 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%.
RECLASSIFICATION. Certain amounts as previously reported have been
reclassified to conform to the 1996 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.
14
<PAGE>
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, 1996, were $75,672,624 and $57,491,698, respectively. Purchases and
sales of U.S. Government securities were $21,903,779 and $19,536,112,
respectively.
6. FEDERAL INCOME TAX MATTERS
At December 31, 1996, the net unrealized depreciation of investments based on
cost for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation $ 3,499,240
Aggregate gross unrealized depreciation (3,539,788)
------------
Net unrealized depreciation $ (40,548)
------------
The accumulated net realized loss on sales of investments for federal income
tax purposes at December 31, 1996, amounting to $2,191,779, is available to
offset future taxable gains. If not applied, $67,350, $1,207,135, $229,745
and $687,549 of the loss will expire in 1998, 1999, 2003 and 2004,
respectively.
7. BORROWINGS UNDER REVERSE REPURCHASE AGREEMENTS
The average amount of borrowings outstanding during the year ended December 31,
1996 was $66,950,897 at a weighted average interest rate of 5.8%. On
December 31, 1996, securities valued at $76,740,830 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.
15
<PAGE>
[PICTURE OF BUILDINGS]
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, 1996, and 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 three 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 and financial highlights. Our procedures
included confirmation of securities owned as of December 31, 1996, 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, 1996, 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 24, 1997
16
<PAGE>
[PICTURE OF BUILDINGS]
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.
17
<PAGE>
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.
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.
18
<PAGE>
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.
19
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
20
<PAGE>
[PICTURE OF BUILDINGS]
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>
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.
