<PAGE>
PIMCO
PIMCO COMMERCIAL MORTGAGE SECURITIES TRUST, INC.
[PHOTO APPEARS HERE]
A CLOSED-END
FUND SPECIALIZING
IN INVESTMENTS
IN COMMERCIAL
MORTGAGE-BACKED
SECURITIES
JUNE 30, 1998
SEMI-ANNUAL REPORT
<PAGE>
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 $139 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 seven investment advisory firms which form PIMCO
Advisors Holdings L.P., the nation's fourth largest publicly traded investment
management concern with combined assets under management totaling nearly $229
billion. Widely recognized for providing consistent performance and high-quality
client service, the seven affiliated firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
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 Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA".
2
<PAGE>
Letter to our
Shareholders
For the first half of 1998, investors received a 5.50% return based on the
Fund's net asset value, easily leading the market as measured by the Lehman
Brothers Aggregate Bond Index, which posted a 3.93% return. Long-term
performance has been excellent as well, with the Fund's annualized three-year
return of 10.72% (based on net asset value) well ahead of the Lehman benchmark
return of 7.88%.
U.S. long-term interest rates were virtually unchanged during the first quarter
of 1998 while short- and intermediate-term rates declined slightly. During the
second quarter, interest rates declined across all maturity ranges on continued
evidence of low inflation, slower economic growth and the ongoing economic
crisis in Asia.
Asia's financial distress has been largely beneficial for U.S. bonds. Due to
uncertainty regarding events in Asia, many domestic and foreign investors have
flocked to the relative security of high-quality, U.S. fixed income securities.
As a result, over the past six months the yield on the longest maturity, 30-year
U.S. Treasuries fell from 5.9% to 5.6%. This has led to gains in the prices of
bonds.
Despite the upheaval in the Asian financial markets and the consequent decline
of rates in the domestic bond market, the Fund has maintained an uninterrupted
and constant dividend. The monthly dividend per share has remained steady at
$0.09375 with total dividends declared of $0.5625 per share over the six-month
period ended June 30, 1998. The annualized dividend yield as of June 30, 1998
based on net asset value was 7.94%.
An interview with the Fund's portfolio manager, Benjamin Trosky, can be found on
the following pages. In the interview, Ben discusses issues affecting the bond
market and management of the Fund.
We are optimistic that 1998 will continue to be a successful year for Fund
investors. As always, we appreciate the trust you have placed in us, and we
welcome your questions and comments regarding the Fund and this semi-annual
report.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
August 26, 1998
1
<PAGE>
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>
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
18 years of investment experience, the past eight 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.
Looking back at the first six months of 1998, what have been the primary
economic factors influencing bond market performance?
The first two quarters of 1998 were marked by similarities and contrasts. First,
U.S. economic growth was very rapid for the first three months of 1998,
advancing at a 4.8% annual rate (chain weighted real GDP). Employment was
strong, the housing sector grew briskly and consumers continued to flood cash
registers with wealth-effect dollars generated by the strong bull market in
equities and a more favorable capital gains tax treatment. This tax conversion
motivated many investors to realize their sizable long-term gains accumulated
over the equity market's long bull run. Lending additional fuel to the economy's
growth engine was a buildup in business inventories in expectation of continued
strong spending by producers and consumers.
The second quarter saw an extension of several of these trends as economic
growth continued to be driven by consumer spending on a variety of items,
including housing and consumer durables related to the housing market. However,
consumer spending alone was not sufficient to maintain the rapid first quarter
economic advance and growth moderated significantly to a modest 1.4% annual clip
as the pace of U.S. manufacturing, particularly for the export market, slowed.
Movements of Core PPI and Core CPI
during the Past Twelve Months
PPI & CPI Y/Y Percent Change (%)
[LINE GRAPH APPEARS HERE]
Date Core Producer Price Index Core Consumer Price Index
6/30/97 2.23% 0
7/31/97 2.16% -0.15%
8/31/97 2.22% -0.15%
9/30/97 2.22% 0%
10/31/97 2.08% -0.38%
11/30/97 1.89% -0.68%
12/31/97 1.70% -1.20%
1/31/98 1.57% -1.80%
2/28/98 1.38% -1.66%
3/31/98 1.31% -1.81%
4/30/98 1.50% -1.21%
5/31/98 1.75% -0.91%
6/30/98 1.70% -0.80%
3
<PAGE>
One of the largest factors slowing the U.S. economy was the mounting economic
crisis in Asia which dramatically curtailed the pace of exports to the region.
The depth of the Asian quandary was highlighted in the second quarter by Japan's
continued inability to stimulate domestic economic growth, deal credibly with an
expanding banking crisis and support a weakening currency. Deterioration of an
already weak Japanese economy set the tone for the region and currencies and
stock markets declined as dire economic news continued to emerge. Adding to
export-linked slowing, U.S. industrial production was further trimmed to
compensate for excessive inventory levels accumulated in an overly aggressive
first quarter.
One by-product of the Asian-led contraction was a glut of commodities, including
oil and other raw materials, which helped to keep producer price inflation at
low levels in the U.S. In addition, weakening currencies and low input costs
allowed Asian and other exporters of consumer items to hold prices low on export
goods. This has flowed through favorably to finished goods prices, as reflected
in low consumer price inflation, and has offset some pricing pressure in the
service sector.
Movements of GDP during the Past Twelve Months
Annualized Quarterly Percent Change (%)
[LINE GRAPH APPEARS HERE]
6/30/97 3.31%
9/30/97 3.07%
12/31/97 3.71%
3/31/98 4.79%
6/30/98 1.40%
4
<PAGE>
For the six-month period ended June 30, 1998, the Fund delivered strong total
return investment performance of 5.50% based on its net asset value relative to
the 3.93% return of the Lehman Brothers Aggregate Bond Index. What factors were
most responsible for your success?
Several factors contributed to the Fund's favorable performance relative to the
broad bond market during the first half of 1998. First, the Fund maintained a
duration (sensitivity to changes in interest rates) roughly three-quarters of a
year longer than its comparative market benchmark (the Lehman Brothers Aggregate
Bond Index) which benefited relative performance in a period of declining
interest rates. Second, the yield spread premiums offered by commercial
mortgage-backed securities ("CMBS") relative to similarly rated corporate bonds
narrowed during the period, further benefiting relative returns. Third, a number
of our holdings were upgraded by Moody's and Fitch IBCA, two national rating
agencies, resulting in a boost to performance.
Investment Performance for the Periods Ended 6/30/98
Since
Inception
6 Months 1 Year 3 Years* 9/2/93*
- -------------------------------------------------------------------
Fund Net Asset Value 5.50% 11.46% 10.72% 9.16%
Fund NYSE Market Value 2.75% 7.81% 11.27% 8.58%
Lehman Brothers
Aggregate Bond Index 3.93% 10.54% 7.88% --
* Average annual total return
5
<PAGE>
In contrast, the Fund's share price performance for the period was negatively
impacted by a trading discount that widened over the six-month period. It is
noteworthy, however, that the Fund continues to trade at a historically narrow
discount relative to its trading position over the past nearly five years since
it was launched in September 1993, and compares favorably to other fixed income,
closed-end funds.
Growth of $10,000 Net Investment in the Fund
[LINE GRAPH APPEARS HERE]
Growth of $10,000 Net Investment in the Fund
<TABLE>
<CAPTION>
Lehman Brothers
Date Net Asset Value NYSE Market Value Aggregate Bond Index
<S> <C> <C> <C>
08/31/93 10,000.00 10,000.00 10,000.00
09/30/93 9,992.83 10,000.00 10,027.47
10/31/93 10,014.34 10,483.87 10,064.94
11/30/93 10,021.51 9,767.03 9,979.32
12/31/93 10,043.01 9,946.24 10,033.40
01/31/94 10,130.60 9,672.49 10,168.87
02/28/94 9,970.02 9,398.74 9,992.20
03/31/94 9,897.95 9,421.55 9,745.85
04/30/94 9,786.15 8,955.14 9,668.03
05/31/94 9,853.23 9,328.27 9,666.67
06/30/94 9,801.99 9,165.02 9,645.31
07/31/94 9,893.38 9,260.49 9,836.90
08/31/94 10,022.86 9,546.90 9,849.10
09/30/94 9,916.23 9,666.23 9,704.14
10/31/94 9,802.94 8,982.76 9,695.50
11/30/94 9,779.58 8,689.85 9,673.96
12/31/94 9,881.79 8,909.53 9,740.76
01/31/95 10,067.91 9,284.94 9,933.54
02/28/95 10,407.85 9,663.40 10,169.72
03/31/95 10,515.93 9,739.69 10,232.11
04/30/95 10,738.74 10,124.15 10,375.04
05/31/95 11,143.49 10,408.25 10,776.52
06/30/95 11,245.64 10,798.55 10,855.53
07/31/95 11,165.64 10,667.50 10,831.28
08/31/95 11,285.96 10,852.34 10,962.00
09/30/95 11,407.12 10,400.16 11,068.65
10/31/95 11,630.98 10,802.22 11,212.59
11/30/95 11,770.92 10,775.22 11,380.61
12/31/95 11,989.26 10,856.85 11,540.33
01/31/96 12,122.44 11,377.76 11,616.96
02/29/96 11,942.57 11,681.53 11,415.03
03/31/96 11,796.58 11,375.59 11,335.68
04/30/96 11,844.11 11,179.46 11,271.94
05/31/96 11,856.36 11,038.30 11,249.05
06/30/96 11,931.47 11,123.65 11,400.11
07/31/96 12,133.56 11,714.24 11,431.31
08/31/96 12,219.16 11,917.21 11,412.15
09/30/96 12,378.91 11,771.16 11,611.03
10/31/96 12,697.17 12,153.72 11,868.23
11/30/96 12,989.67 12,420.51 12,071.51
12/31/96 13,002.57 12,438.43 11,959.28
01/31/97 12,968.19 12,770.52 11,995.90
02/28/97 13,143.66 12,618.49 12,025.74
03/31/97 13,099.19 12,894.14 11,892.47
04/30/97 13,286.77 13,048.37 12,070.50
05/31/97 13,553.63 13,141.58 12,184.60
06/30/97 13,694.71 13,798.66 12,329.22
07/31/97 14,024.48 13,956.18 12,661.70
08/31/97 13,938.69 14,051.33 12,553.70
09/30/97 14,192.79 14,083.27 12,738.85
10/31/97 14,297.37 14,051.11 12,923.65
11/30/97 14,341.76 14,472.00 12,983.16
12/31/97 14,468.17 14,478.52 13,113.88
01/31/98 14,606.69 14,643.80 13,282.24
02/28/98 14,694.01 15,009.89 13,271.65
03/31/98 14,739.92 14,909.38 13,317.85
04/30/98 14,722.75 14,943.11 13,387.36
05/31/98 14,971.41 14,705.38 13,514.35
06/30/98 15,264.58 14,876.37 13,628.97
</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, 1998, 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 Fund's 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.
While we are pleased to deliver positive short-term results, our management
process is focused on achieving strong relative performance over longer time
periods. In this regard, the Fund's three-year record of outperforming the
Lehman benchmark, whether measured by net asset value or share price, is a
better indication of our ability to offer a quality investment vehicle for
long-term investors.
6
<PAGE>
CMBS issuance continues to rise. How has this impacted the relative value of
CMBS?
As you can see in the accompanying graph, CMBS issuance for the first six months
of 1998 has nearly equaled the issuance for the entire year of 1997, a year that
realized the previous high. One factor influencing the busy calendar of new
issues was a strong appetite among investors for "spread products," or
securities that trade at a premium to U.S. Treasury issues with similar
durations. As the yields offered by Treasuries have continued to decline, many
investors have turned to corporate and less traditional spread products like
CMBS to bolster income. It is noteworthy that bond issuance of high yield
corporate securities is also at an all time high. At the same time, the
heightened demand has helped to push yields down, making it cheaper for issuers
to create and offer CMBS to the market. However, since CMBS and corporate bonds
are riskier investments than Treasuries, there are limits, and the heavy
calendar of new issuance combined with wider spreads in competing products have
resulted in widening yield premiums in the CMBS market.
Commercial Mortgage-Backed
Securities Issuance
(dollars in billions)
[BAR GRAPH APPEARS HERE]
Year Issuance
---- --------
1990 5.6
1991 8.6
1992 14.4
1993 17.4
1994 20.1
1995 18.8
1996 30.2
1997 44.0
1998 (1st 6 months) 40.0
CMBS and Corporate Bonds
Excess Yield over U.S. Treasuries*
[LINE GRAPH APPEARS HERE]
Rating CMBS
------ -------
6/30/98
AAA 0.85%
AA 0.96%
A 1.10%
BBB 1.40%
BB 2.75%
B 4.50%
Corporate
Rating Bonds
------ ---------
6/30/98
AAA 0.56%
AA 0.67%
A 0.84%
BBB 1.11%
BB 2.10%
B 3.90%
*7-to 10-year U.S. Treasuries as of June 30, 1998
7
<PAGE>
Can you discuss how interest rate movements and other economic factors have
affected the way you manage the Fund?
We are sensitive to the ways in which changes both in the level of interest
rates and the relationship of interest rates at various maturities (the shape of
the yield curve) impact the Fund's investment portfolio. In fact, we subject the
portfolio to regular "stress testing" to help us understand how significant
interest rate changes are likely to affect each security as well as the
aggregate portfolio. We combine this analysis with our outlook for growth,
inflation and the relative value of market sectors to develop what we believe is
a fundamentally sound investment philosophy.
Portfolio Composition
By Commercial Mortgage Type
[PIE CHART APPEARS HERE]
Multi-Class* 33.2%
Multi-Family 27.2%
Healthcare 16.9%
Hospitality 9.6%
Corporate
Bonds & Notes 5.2%
Short-Term
Instruments 3.9%
Retail 1.5%
Mobile
Home Parts 1.3%
Asset-Backed
Securities 1.0%
Gaming 0.2%
*A mix of all types of
commercial properties
8
<PAGE>
Over the past several quarters, this disciplined approach has led us to select
securities with slightly longer durations that are positioned to benefit from
declining interest rates. We have also limited our exposure to CMBS rated below
investment-grade in recognition that yield spreads are at historically narrow
levels and will widen on any sustained hint of economic weakness. In addition,
we are avoiding those sectors that are exposed to the more cyclical segments of
the economy. The Fund features its greatest sector concentrations in multi-class
and multi-family CMBS. We favor securities from these two sectors because there
exists a steady demand for their issuance. In addition, multi-family CMBS
provide relative stability and less sensitivity to shifting economic conditions,
while multi-class CMBS offer significant diversification benefits and account
for a major component of supply.
Portfolio Composition
By Quality Rating*
[PIE CHART APPEARS HERE]
AAA 17.7%
AA 9.6%
A 15.5%
BBB 31.3%
BB 18.6%
B 7.3%
*As rated by Standard-&-Poor's
or the equivalent by Moody's,
Duff-&-Phelps or Fitch
9
<PAGE>
You have always looked for lower rated CMBS with upgrade potential. Talk about
some recent successes employing this strategy.
When we first offered the Fund back in 1993, we were just beginning to emerge
from the severe real estate problems created by economic recession following on
the heels of an era of easy credit and over building in the commercial property
market. Realizing that the industry had been stung by rapid deterioration of
mortgage collateral, the national rating agencies were determined to impose very
stringent rating standards on newly issued CMBS. At that time, our fundamental
analysis suggested that many issues were actually stronger credits than their
formal ratings indicated. However, these securities traded at yield spreads
consistent with their agency ratings.
We believed that one of the ways we could add value to the Fund was by
identifying CMBS with upgrade potential knowing that the rating agencies would
periodically review their initial assessments. Over the life of the Fund we have
experienced some success in our efforts, highlighted most recently by the five
Fund holdings in the accompanying table that received ratings upgrades during
the first six months of 1998. These upgrades are generally accompanied by
favorable pricing adjustments as the market re-values the securities relative to
their new rating range.
Upgraded Securities during the Past Six Months
New Prior Rating % of Net
Security Description Rating Rating Service Assets
- ------------------------------------------------------------------------
First Boston Mortgage Securities Corp.
7.528% due 01/25/28 A1 A2 Moody's 2.3
Nomura Asset Securities Corp.
8.024% due 07/07/03 A- BBB+ Fitch IBCA 2.1
SC Commercial
7.050% due 11/28/13 AA AA- Fitch IBCA 3.2
Carolina First SBL Trust
7.888% due 03/18/27 A BBB Fitch IBCA 1.3
Morgan Stanley Capital
8.240% due 12/15/23 A+ A- Fitch IBCA 1.2
---------
10.1
10
<PAGE>
Briefly discuss your sell discipline. What factors prompt you to dispose of
portfolio holdings?
As I noted in an earlier response, all portfolio holdings are systematically
reviewed on an ongoing basis. Our management team consists of individuals
skilled in mortgage analysis as well as fundamental credit research. Utilizing
this blend of expertise, we look for deterioration in the performance of the
underlying collateral for each security that might lead to a downgrade or
economic impairment. When we detect weakness in the collateral pool, that
security becomes a sale target. Even if a bond's underlying collateral is
strong, we may still wish to swap the security for an alternate issue. One
factor that might trigger such a swap is the relative prepayment protection
offered by the two issues.
One of the attractive characteristics of many CMBS is that they feature
prepayment protection. Often, the prepayment protection is created by a
subordination structure where one security in a series receives all of the
principal prepayments until it is completely retired, at which time principal
payments are directed to the next security in line. In a period of declining
interest rates, securities can prepay rapidly. We look for opportunities to swap
holdings that have become vulnerable to prepayment for securities offering a
more stable profile.
11
<PAGE>
What are your projections for economic growth and inflation for the remainder of
1998? How will this impact the CMBS market and the Fund?
High employment and moderate real wage gains have produced a strong U.S.
consumer. As a result, consumer spending continues to propel the U.S. economy
forward at a steady pace, despite the length of the expansion and the inevitable
satisfaction of pent-up demand for goods.
However, the effects of economic contraction and weakening currencies in Asia
will continue to filter into the U.S. economy, leading to slower GDP growth.
Thus far, though the impact of the troubles in Asia's economies have been
powerful and pervasive, they have been compensated for by the strong U.S.
domestic economy. With Asia representing roughly one-third of world GDP, we
expect a continued impact and a gradual global economic slowing. Concerted
action by the Federal Reserve and Treasury appears inevitable in order to
provide liquidity to the region until confidence can be restored.
[LINE GRAPH APPEARS HERE]
Treasury Yield Curves
<TABLE>
<CAPTION>
December 31, 1997 6/30/98 June 30, 1999 Projection
<S> <C> <C> <C>
3 Mos. 5.34 5.093 4.25
6 Mos. 5.44 5.233 4.34
1 Yr. 5.48 5.365 4.42
2 Yrs. 5.64 5.475 4.52
3 Yrs. 5.67 5.491 4.58
5 Yrs. 5.71 5.465 4.65
10 Yrs. 5.74 5.446 4.80
30 Yrs. 5.92 5.626 5.00
</TABLE>
12
<PAGE>
With action required in order to resuscitate Japan's ailing economy, there is an
increased probability that the Fed will ease rates in the next six to nine
months. Inflation should remain benign, in part due to the continued effects of
commodity deflation, which remains a potent force for offsetting the potential
for rising prices in the service sector. With the expectation of lower rates, an
above-benchmark duration will provide additional price gains. A Fed ease could
result in a steeper yield curve, and an emphasis on a bulleted maturity
structure in intermediate (five- to ten-year) maturities will benefit most from
such steepening. As noted earlier, we plan to minimize the Fund's exposure to
cyclical sectors and use the recent spread widening as an opportunity to add
yield to the portfolio.
30 Year and 3 Month Treasury Yields
[LINE GRAPH APPEARS HERE]
MONTHLY 3-Month T-Bill 30 Year Treasury
01/31/87 5.45 7.47
02/28/87 5.59 7.46
03/31/87 5.56 7.91
04/30/87 5.76 8.44
05/31/87 5.75 8.64
06/30/87 5.69 8.49
07/31/87 5.78 8.90
08/31/87 6.00 9.15
09/30/87 6.32 9.74
10/31/87 6.40 9.03
11/30/87 5.81 9.10
12/31/87 5.80 8.98
01/31/88 5.90 8.42
02/29/88 5.69 8.34
03/31/88 5.69 8.76
04/30/88 5.92 9.10
05/31/88 6.27 9.24
06/30/88 6.50 8.91
07/31/88 6.73 9.21
08/31/88 7.02 9.30
09/30/88 7.23 9.05
10/31/88 7.34 8.74
11/30/88 7.68 9.07
12/31/88 8.09 8.99
01/31/89 8.29 8.82
02/28/89 8.48 9.11
03/31/89 8.83 9.09
04/30/89 8.70 8.93
05/31/89 8.40 8.60
06/30/89 8.22 8.04
07/31/89 7.92 7.92
08/31/89 7.91 8.20
09/30/89 7.72 8.24
10/31/89 7.59 7.91
11/30/89 7.65 7.89
12/31/89 7.64 7.98
01/31/90 7.64 8.45
02/28/90 7.76 8.54
03/31/90 7.87 8.63
04/30/90 7.78 8.99
05/31/90 7.78 8.58
06/30/90 7.74 8.40
07/31/90 7.66 8.41
08/31/90 7.44 8.98
09/30/90 7.38 8.95
10/31/90 7.19 8.76
11/30/90 7.07 8.49
12/31/90 6.81 8.25
01/31/91 6.30 8.20
02/28/91 5.95 8.20
03/31/91 5.91 8.25
04/30/91 5.67 8.18
05/31/91 5.51 8.27
06/30/91 5.60 8.41
07/31/91 5.58 8.34
08/31/91 5.39 8.06
09/30/91 5.25 7.81
10/31/91 5.03 7.91
11/30/91 4.60 7.94
12/31/91 4.12 7.40
01/31/92 3.80 7.76
02/29/92 3.84 7.79
03/31/92 4.04 7.96
04/30/92 3.75 8.04
05/31/92 3.63 7.84
06/30/92 3.66 7.78
07/31/92 3.21 7.46
08/31/92 3.13 7.41
09/30/92 2.91 7.38
10/31/92 2.86 7.63
11/30/92 3.13 7.60
12/31/92 3.22 7.40
01/31/93 3.06 7.20
02/28/93 2.93 6.90
03/31/93 2.95 6.93
04/30/93 2.87 6.93
05/31/93 2.96 6.98
06/30/93 3.07 6.67
07/31/93 3.04 6.56
08/31/93 3.02 6.09
09/30/93 2.95 6.03
10/31/93 3.02 5.97
11/30/93 3.10 6.30
12/31/93 3.06 6.35
01/31/94 2.98 6.24
02/28/94 3.25 6.66
03/31/94 3.50 7.09
04/30/94 3.68 7.31
05/31/94 4.14 7.43
06/30/94 4.14 7.61
07/31/94 4.33 7.40
08/31/94 4.48 7.45
09/30/94 4.76 7.82
10/31/94 4.95 7.97
11/30/94 5.29 8.00
12/31/94 5.60 7.88
01/31/95 5.71 7.70
02/28/95 5.77 7.44
03/31/95 5.73 7.43
04/30/95 5.65 7.34
05/31/95 5.67 6.65
06/30/95 5.47 6.62
07/31/95 5.42 6.85
08/31/95 5.40 6.65
09/30/95 5.28 6.50
10/31/95 5.49 6.33
11/30/95 5.47 6.13
12/31/95 5.08 5.95
01/31/96 5.05 6.03
02/29/96 5.03 6.47
03/31/96 5.14 6.67
04/30/96 5.15 6.91
05/31/96 5.18 6.99
06/30/96 5.16 6.87
07/31/96 5.31 6.97
08/31/96 5.28 7.12
09/30/96 5.03 6.92
10/31/96 5.15 6.64
11/30/96 5.13 6.35
12/31/96 5.17 6.64
01/31/97 5.15 6.79
02/28/97 5.22 6.80
03/31/97 5.32 7.10
04/30/97 5.23 7.14
05/31/97 4.94 6.91
06/30/97 5.17 6.74
07/31/97 5.23 6.45
08/31/97 5.22 6.61
09/30/97 5.10 6.40
10/31/97 5.20 6.15
11/30/97 5.20 6.05
12/31/97 5.35 5.92
01/31/98 5.18 5.80
02/28/98 5.31 5.92
03/31/98 5.13 5.93
04/30/98 4.97 5.95
05/31/98 5.01 5.80
06/30/98 5.08 5.63
PROJECTION
07/31/98 5.06 5.61
08/31/98 5.04 5.60
09/30/98 5.02 5.58
10/31/98 5.00 5.57
11/30/98 4.96 5.54
12/31/98 4.81 5.43
01/31/99 4.67 5.32
02/28/99 4.52 5.20
03/31/99 4.37 5.09
04/30/99 4.33 5.06
05/31/99 4.29 5.03
06/30/99 4.25 5.00
13
<PAGE>
Financial
Highlights
<TABLE>
<CAPTION>
For the six For the year For the year For the year For the year
months ended ended ended ended ended
June 30, 1998 December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994
(unaudited)
<S> <C> <C> <C> <C> <C>
Selected per share data:
Net asset value, beginning
of period $ 13.97 $ 13.71 $ 13.84 $ 12.41 $ 13.76
------------------------------------------------------------------------------------------------
Net investment income 0.65 1.20 1.23 1.16 1.16
Net realized and unrealized
gain (loss) on investments 0.10 0.29 (0.13) 1.40 (1.38)
------------------------------------------------------------------------------------------------
Total from investment operations 0.75 1.49 1.10 2.56 (0.22)
Less dividends from net
investment income (0.56) (1.23) (1.23) (1.13) (1.13)
------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.16 $ 13.97 $ 13.71 $ 13.84 $ 12.41
================================================================================================
Per share market value,
end of period $ 13.50 $ 13.69 $ 12.88 $ 12.38 $ 11.13
================================================================================================
Total investment return
Per share market value (b) 2.75% 16.40% 14.57% 21.86% (10.42%)
Per share net asset value (c) 5.50% 11.27% 8.45% 21.33% (1.61%)
Ratios to average net assets
Operating expenses
(excluding interest expense) 0.98% 0.97% 0.99% 1.04% 1.03%
Total operating expenses 3.80% 3.69% 3.60% 3.94% 2.71%
Net investment income 9.38% 8.63% 9.08% 8.93% 8.84%
Supplemental data
Net assets, end of period
(amounts in thousands) $ 155,818 $ 153,803 $ 150,929 $ 152,375 $ 136,595
Portfolio turnover rate 6.08% 8.74% 35.98% 47.79% 45.71%
<CAPTION>
From commencement of
operations through
December 31, 1993(a)
<S> <C>
Selected per share data:
Net asset value, beginning
of period $ 13.95
---------------------
Net investment income 0.20
Net realized and unrealized
gain (loss) on investments (0.14)
---------------------
Total from investment operations 0.06
Less dividends from net
investment income (0.25)
Net asset value, end of period $ 13.76
=====================
Per share market value,
end of period $ 13.63
=====================
Total investment return
Per share market value (b) (1.62%)*
Per share net asset value (c) 1.30%*
Ratios to average net assets
Operating expenses
(excluding interest expense) 1.00%*
Total operating expenses 1.11%*
Net investment income 5.59%*
Supplemental data
Net assets, end of period
(amounts in thousands) $ 151,407
Portfolio turnover rate 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
14
<PAGE>
Financial
Statements
Statement of Assets and Liabilities
June 30, 1998
Amounts in thousands, except per share amounts (unaudited)
Assets:
Investments in securities, at market value $ 228,874
(Identified cost: $225,164)
Interest receivable 2,541
Paydown receivable 511
Deferred organizational expense 1
Other assets 22
---------
Total assets $ 231,949
---------
Liabilities:
Reverse repurchase agreements $ 74,805
Payable for investments purchased 0
Dividends payable 1,032
Accrued investment manager's fee 257
Accrued administrator's fee 35
Accrued trustees' fee 1
Other liabilities 1
---------
Total liabilities $ 76,131
---------
Net assets applicable to outstanding stock $ 155,818
=========
Net Assets Consist of:
Capital stock - authorized 300 million shares,
$.001 par value; outstanding 11,007,169 shares 11
Additional paid-in capital 152,922
Undistributed net investment income 759
Accumulated net realized loss from investments (1,584)
Net unrealized appreciation of investments 3,710
---------
$ 155,818
=========
Net asset value per share outstanding $ 14.16
=========
Statement of Operations
For the six months ended
Amounts in thousands June 30, 1998
(unaudited)
Interest income $ 10,065
Expenses:
Interest expense 2,152
Investment manager fee 557
Administration fee 77
Custodian and portfolio accounting fee 32
Directors' fee 25
Proxy expense 10
Legal fee 3
Audit fee 7
Organization expenses 3
Other expenses 38
---------
Total expenses 2,904
---------
Net investment income $ 7,161
Net realized and unrealized gain:
Net realized gain on investments 160
Unrealized appreciation on investments 886
---------
Net gain on investments $ 1,046
---------
Net increase in assets resulting from operations $ 8,207
=========
See Notes to Financial Statements
15
<PAGE>
Financial
Statements
(cont.)
Statement of Changes in Net Assets
For the six months ended For the year ended
Amounts in thousands June 30, 1998 December 31, 1997
(unaudited)
Increase (decrease) in net assets from:
Operations
Net investment income $ 7,161 $ 13,116
Net realized gain
on investments 160 376
Unrealized appreciation
on investments 886 2,865
-------------------------------
Net increase resulting
from operations 8,207 16,357
Distributions to Shareholders from:
Net investment income (6,192) (13,483)
-------------------------------
Total increase in net assets 2,015 2,874
===============================
Net assets
Beginning of period 153,803 150,929
-------------------------------
End of period* $ 155,818 $ 153,803
===============================
*Including undistributed
(overdistributed) net
investment income of: $ 830 $ (210)
-------------------------------
Statement of Cash Flows
For the six months ended
Amounts in thousands June 30, 1998
(unaudited)
Net increase in net assets resulting from operations $ 8,207
Adjustments to reconcile to net cash
provided from operating activities
Increase in interest receivable (458)
Amortization of premium and discount, net (547)
Decrease in accrued expenses (41)
Decrease in other assets (13)
Net gain on investments (1,044)
-----------------
Total adjustments (2,103)
-----------------
Net cash provided from operating activities 6,104
-----------------
Investing activities
Purchase of long-term portfolio investments (24,397)
Proceeds from disposition of long-term
portfolio investments 24,903
Proceeds from disposition of short-term
portfolio investments, net 567
-----------------
Net cash provided by investing activities 1,073
-----------------
Financing activities*
Cash dividends paid (7,292)
Net increase in reverse repurchase agreements 115
-----------------
Net cash used in financing activities (7,177)
-----------------
Net increase in cash 0
Cash at beginning of period 0
-----------------
Cash at end of period $ 0
=================
* Cash paid for interest for the six months ended June 30, 1998, amounted to
$1,848.
See Notes to Financial Statements
16
<PAGE>
Schedule of
Investments
June 30, 1998
(unaudited)
Principal
Amount Value
(000s) (000s)
-----------------------------
Commercial Mortgage-Backed Securities 132.1%
Multi-Class 48.8%
Aetna Commercial Trust
7.100% due 12/26/30 $ 1,000 $ 1,022
Asset Securitization Corp.
7.384% due 08/13/29 1,500 1,570
Blackrock Capital Financial
8.282% due 11/16/26 (b)(c) 2,000 2,028
8.480% due 09/25/28 (c) 3,000 2,999
Carolina First SBL Trust
7.888% due 03/18/27 (b)(c) 2,000 2,002
CBA Mortgage Corp.
7.760% due 12/25/03 (b) 1,000 1,000
Federal Deposit Insurance Corp.
6.906% due 11/25/26 (b) 1,260 1,290
First Boston Mortgage Securities Corp.
7.556% due 09/25/06 (b) 976 1,007
7.458% due 11/25/27 1,000 1,021
8.012% due 11/25/27 1,500 1,545
7.528% due 01/25/28 (b)(c) 3,812 3,535
General Motors Acceptance Corp.
7.153% due 05/18/28 (b)(c) 1,500 1,373
Green Tree Financial Corp.
8.000% due 07/15/18 3,087 3,163
Matterhorn Capital Corp.
7.850%due 01/20/06 (c) 2,000 2,021
Merrill Lynch Mortgage
8.172% due 06/15/21 (b) 1,009 1,025
7.120% due 06/18/29 2,000 1,998
Morgan Stanley Capital
7.256% due 02/15/05 (b)(c) 2,000 2,018
6.850% due 02/15/20 (c) 1,000 909
8.240% due 12/15/23 (b)(c) 1,802 1,839
7.695% due 10/03/30 (c) 2,000 1,911
Mortgage Capital Funding, Inc.
7.531% due 07/20/27 1,000 1,041
NB Commercial Mortgage
8.031% due 10/20/23 (c) 500 505
8.730% due 10/20/23 (c) 1,000 1,020
Nomura Asset Securities Corp.
8.024% due 07/07/03 (b)(c) 3,260 3,266
9.713% due 09/11/19 (b) 3,000 3,437
Prudential Securities Secured Financing
7.610% due 12/26/22 1,000 1,000
Resolution Trust Corp.
7.150% due 06/25/23 242 241
9.250% due 06/25/23 5,374 5,405
8.835% due 12/25/23 1,600 1,671
9.450% due 05/25/24 4,842 4,843
9.500% due 05/25/24 929 929
9.200% due 06/25/24 557 559
8.000% due 07/25/24 1,569 1,571
7.100% due 12/25/24 (b) 942 957
8.000% due 04/25/25 4,340 4,384
8.000% due 06/25/26 2,236 2,247
6.900% due 02/25/27 1,633 1,517
6.900% due 02/25/27 (b) 333 326
7.000% due 05/25/27 1,950 1,922
Structured Asset Securities Corp.
7.750% due 02/25/28 3,841 3,915
----------
76,032
==========
Multi-Family 40.0%
Donaldson, Lufkin & Jenrette
7.350% due 12/18/03 (c) 3,000 3,092
Federal Housing Administration
8.360% due 01/01/12 1,224 1,260
7.977% due 04/25/15 736 756
7.750% due 01/01/16 414 436
8.350% due 04/01/16 1,461 1,506
6.875% due 12/01/16 766 752
7.625% due 12/01/16 491 514
6.430% due 12/01/19 2,728 2,752
7.430% due 12/20/20 1,171 1,217
7.430% due 07/01/21 867 883
7.439% due 08/01/21 702 713
7.484% due 02/25/23 1,311 1,347
7.430% due 03/29/23 370 379
6.875% due 11/01/23 1,979 1,964
8.250% due 02/01/28 2,586 2,653
7.750% due 05/01/28 967 969
9.325% due 06/01/35 5,952 6,116
17
<PAGE>
Schedule of
Investments
(cont.)
June 30, 1998
(unaudited)
Principal
Amount Value
(000s) (000s)
----------------------------
Federal National Mortgage Assn.
7.900% due 12/01/15 (b)(c) $ 874 $ 724
7.900% due 12/25/15 (b)(c) 1,608 1,610
9.375% due 04/01/16 1,789 1,859
7.875% due 11/01/18 586 589
6.113% due 01/01/19 (b) 1,414 1,415
Government National Mortgage Assn.
9.500% due 09/15/30 4,299 4,418
8.625% due 10/15/34 3,466 3,562
JHM Acceptance Corp.
8.960% due 04/01/19 240 239
Merrill Lynch Mortgage
8.171% due 04/25/23 (b) 5,000 5,063
Multi-Family Capital Access One, Inc.
7.400% due 01/15/24 1,939 1,998
NationsBanc Mortgage Capital Corp.
8.138% due 05/25/28 (b)(c) 2,000 1,622
Resolution Trust Corp.
9.000% due 03/25/17 1,598 1,600
7.588% due 01/25/20 (b) 792 793
6.899% due 09/25/20 (b) 667 556
7.940% due 09/25/21 (b) 1,334 1,336
8.000% due 09/25/21 123 123
7.700% due 07/25/24 1,801 1,804
Structured Asset Securities Corp.
7.050% due 11/25/02 6,000 5,753
-----------
62,373
===========
Healthcare 24.8%
Daiwa Mortgage Acceptance Corp.
8.566% due 09/25/06 (b)(c) 4,377 3,536
Federal Housing Administration
7.500% due 12/31/31 1,587 1,618
LTC Commercial Corp.
9.300% due 06/15/26 (c) 4,000 4,104
Nomura Asset Securities Corp.
6.680% due 12/15/01 5,000 5,047
6.680% due 12/15/01 (c) 7,100 7,052
Red Mountain Funding Corp.
7.072% due 01/15/19 (c) 2,000 2,010
7.471% due 01/15/19 (c) 1,000 951
8.926% due 01/15/19 (c) 1,000 919
9.150% due 11/28/27 (c) 3,200 3,247
SC Commercial
7.050% due 11/28/13 (c) 5,000 5,048
7.800% due 11/28/13 (c) 5,000 5,119
-----------
38,651
===========
Hospitality 14.1%
Cooper Hotel
7.500% due 07/15/13 (c) 8,434 8,825
Federal Housing Administration
7.500% due 09/01/34 766 779
Franchise Mortgage Acceptance Corp.
7.981% due 11/15/18 (c) 2,300 2,353
German American Capital Corp.
8.535% due 10/10/02 (c) 2,000 2,070
HMH Properties, Inc.
9.500% due 05/15/05 (c) 3,000 3,225
8.875% due 07/15/07 500 556
Hotel First
8.520% due 08/05/08 (c) 2,733 3,019
J.Q. Hammons Hotels
8.875% due 02/15/04 1,100 1,110
-----------
21,937
===========
Retail 2.2%
American Southwest Financial
5.100% due 06/02/99 (c) 526 524
Trizec Finance Limited
10.875% due 10/15/05 2,505 2,824
-----------
3,348
===========
Mobile Home Parks 1.9%
Manufacturers Hanover Corp.
7.536% due 12/16/25 (b)(c) 785 785
8.216% due 12/16/25 (b)(c) 2,356 2,238
-----------
3,023
===========
Gaming 0.3%
Riviera Holdings Corp.
10.000% due 08/15/04 500 500
-----------
Total Commercial Mortgage-Backed Securities 205,864
(Cost $202,247) ===========
See Notes to Financial Statements
18
<PAGE>
Principal
Amount Value
(000s) (000s)
----------------------------
Corporate Bonds & Notes 7.7%
Utilities 2.0%
Calpine Corp.
8.750% due 07/15/07 $ 1,680 $ 1,726
Flag Limited
8.250% due 01/30/08 1,400 1,416
-----------
3,142
===========
Industrials 3.0%
Building Materials Corp.
8.000% due 10/15/07 (c) 3,000 3,030
Chattem, Inc.
8.875% due 04/01/08 500 493
US Air, Inc.
9.330% due 01/01/06 1,149 1,201
-----------
4,724
===========
Banking & Finance 2.7%
Forest City Enterprises
8.500% due 03/15/08 4,000 4,110
-----------
Total Corporate Bonds & Notes 11,976
(Cost $11,845) ===========
Asset-Backed Securities 1.4%
Airplanes Pass Through Trust
10.875% due 03/15/19 2,000 2,200
-----------
Total Asset-Backed Securities 2,200
(Cost $2,238) ===========
Short-Term Instruments 5.7%
Commercial Paper 5.2%
Caisse d'Amortissement
5.500% due 08/27/98 200 198
Export Development Corp.
5.590% due 07/07/98 600 599
Federal National Mortgage Assn.
5.450% due 08/03/98 1,150 1,144
General Electric Capital Corp.
5.650% due 07/09/98 400 399
General Motors Acceptance Corp.
5.520% due 08/12/98 4,300 4,273
National Rural Utilities Cooperative
5.510% due 08/21/98 300 298
5.490% due 09/10/98 200 198
Shell Oil Co.
5.740% due 07/16/98 900 898
-----------
8,007
===========
Repurchase Agreement 0.5%
State Street Bank 827 827
5.000% due 07/01/98
(Dated 06/30/98. Collateralized by
U.S. Treasury Bond 7.875% due 11/15/07
valued at $846,038. Repurchase
proceeds are $827,115.)
Total Short-Term Instruments 8,834
(Cost $8,834) -----------
TOTAL INVESTMENTS (a) 146.9% $ 228,874
(Cost $225,164)
OTHER ASSETS AND LIABILITIES (NET) (46.9%) (73,056)
-----------
NET ASSETS 100.0% $ 155,818
===========
Notes to Schedule of Investments
(a) The identified cost of investments owned as of June 30, 1998 was the same
for federal income tax and financial statement purposes.
(b) Variable rate security. The rate shown is as of June 30, 1998.
(c) Securities 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
19
<PAGE>
Notes to
Financial
Statements
June 30, 1998
(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 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%.
20
<PAGE>
3. Investment Manager Fee, Administration Fee, and Directors` Fee
Investment Manager Fee. Pacific Investment Management Company serves as
investment manager to the Fund, pursuant to an investment management agreement.
Pacific Investment receives a quarterly fee from the Fund at an annual rate of
0.725% based on average weekly net assets of the Fund.
Administration Fee. Pacific Investment also provides administrative
services to the Fund and receives from the Fund a quarterly administrative fee
at the annual rate of 0.10% of the Fund's average weekly net assets.
Directors` Fee. Each unaffiliated Director receives an annual retainer of
$6,000, plus $1,000 for each Board of Directors meeting attended, plus
reimbursement of related expenses.
4. Organization
The Fund assumed all costs in connection with its organization and offering of
shares, including the fees and expenses of registering and qualifying its shares
for distribution under federal and state securities regulations. Expenses
incurred in connection with the organization and offering of shares of the Fund
were $30,500 and are being amortized over a five year period.
5. Securities Transactions
Cost of purchases and proceeds from sales of securities (excluding U.S.
Government securities and short-term investments) for the six months ended June
30, 1998, were $24,395,458 and $13,583,000, respectively.
6. Federal Income Tax Matters
At June 30, 1998, the net unrealized appreciation of investments based on cost
for federal income tax purposes was as follows (amounts in thousands):
Aggregate gross unrealized appreciation $ 6,268
Aggregate gross unrealized depreciation (2,558)
--------------
Net unrealized appreciation $ 3,710
==============
The accumulated net realized loss on sales of investments for federal income tax
purposes December 31, 1997, amounting to $1,744,523, is available to offset
future taxable gains. If not applied, $827,229, $229,745, and $687,549 of the
loss will expire in 1999, 2003, and 2004, respectively.
7. Borrowings under Reverse Repurchase Agreements
The average amount of borrowings outstanding during the six months ended June
30, 1998 was $73,779,251 at a weighted average interest rate of 5.83%. On June
30, 1998, securities valued at $84,144,106 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.
8. Impact of Year 2000 Problem
The Year 2000 Problem is the term generally applied to errors caused by a
computer system incorrectly processing dates beginning with the year 2000. Some
computer systems shorten date representations to specify a two-digit year. This
may cause a problem beginning in the year 2000 should the corresponding two-
digit year "00" be interpreted as the year 1900.
Pacific Investment is addressing the Year 2000 Problem and is modifying its
computer systems accordingly. Pacific Investment is requiring the other service
providers to the Fund to ensure that their systems are not susceptible to the
Year 2000 Problem. There can be no assurance, however, that steps taken by
Pacific Investment and the Fund's other service providers in preparation for the
year 2000 will be sufficient to avoid any adverse impact on the Fund.
21
<PAGE>
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.
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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.
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Board of
Directors
and Other Information
Directors and Officers
Brent R. Harris, Chairman of the Board and Director
R. Wesley Burns, President and Director
Guilford C. Babcock, Director
Vern O. Curtis, Director
Thomas P. Kemp, Sr., Director
William J. Popejoy, Director
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Manager and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
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
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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.
