<PAGE>
[LOGO]
PIMCO COMMERCIAL MORTGAGE SECURITIES TRUST, INC.
A CLOSED-END
FUND SPECIALIZING
IN INVESTMENTS
IN COMMERCIAL
MORTGAGE-BACKED
SECURITIES
DECEMBER 31, 1999
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 $186 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 many of the largest corporations, foundations, endowments, and
governmental bodies in the United States and the world.
Pacific Investment is one of five 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 over $260
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality client service.
Its investment firms are:
Pacific Investment Management Company/
Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York,
a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
- --------------------------------------------------------------------------------
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO
Advisors L.P. and Allianz AG (EURO:ALV) announced that they have reached a
definitive agreement for Allianz AG to acquire majority ownership of PIMCO
Advisors, including all of the interests held at PIMCO Advisors Holdings
L.P. Under the terms of the agreement, at the closing the units of PA
Holdings will be exchanged by way of a merger and there will be no further
public ownership of PIMCO Advisors. Additionally, key employees at each of
PIMCO Advisors' investment units, including PIMCO's Bill Gross, have
significant profit-sharing and retention arrangements to ensure continuity
of the investment process and staff.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
For the fiscal year ended December 31, 1999, the Fund returned 2.44% based on
net asset value, outperforming the broad bond market as measured by the Lehman
Brothers Aggregate Bond Index, which declined 0.82%. Long-term performance has
been strong, with the Fund posting an 11.28% five-year, annualized return based
on its NYSE share price, versus a return of 7.73% for the Lehman Index.
The past year was a difficult one for bond investors, with U.S. interest rates
rising as much as 1.80% for some maturities. This increase came as robust
economic expansion in the U.S. and accelerating growth in Europe and Asia
boosted demand for capital worldwide and caused inflation to rise from lows
reached in the previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The central bank has now taken back all three of its rate cuts from 1998,
when market participants were preoccupied with the threat of global deflation
and reduced liquidity in financial markets. The Fed left rates unchanged in
December, largely because of market uncertainties surrounding Y2K. Still,
investors remained concerned that the combination of rapid growth and a
dwindling pool of workers would increase wage pressures and force the Fed to
tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
I am pleased to announce that Scott A. Mather assumed day-to-day responsibility
for managing the Fund in February. Benjamin Trosky, who had managed the Fund
since inception, is now focused exclusively on high yield product management at
PIMCO. Mr. Mather joined the firm two years ago and is a PIMCO Senior Vice
President. Scott's investment expertise as a trader of a broad range of
mortgage-backed securities demonstrates that he will be a valued addition to the
Fund.
We are optimistic that 2000 will be a successful year for Fund investors. As
always, we appreciate the trust you have placed in us, and welcome your
questions and comments regarding the Fund and this annual report.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
February 17, 2000
1
ANNUAL REPORT
December 31, 1999
<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.
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
ANNUAL REPORT
December 31, 1999
<PAGE>
YEAR IN REVIEW
Market Review
Interest rates rose during the first quarter as continued evidence of strong
U.S. economic growth heightened concern that the Federal Reserve would increase
the fed funds rate in an effort to combat the prospect of rising inflation. The
yield on the 30-year Treasury jumped 0.53%, ending the quarter at 5.62%, near
where it was in August 1998 before turbulence in the global financial markets
sparked a flight to safety that pushed yields down below 5%.
Rates continued to rise in the second quarter with the yield on the 30-year
Treasury bond ending the period at 5.97%, after reaching a high of 6.19%. The
Fed raised the federal funds rate by 0.25% to 5.00% at the end of the six-month
period and indicated that the move had been driven mainly by a return to
normalcy in the U.S. and international financial markets after the global crisis
of 1998.
- --------------------------------------------------------------------------------
TREASURY YIELD CURVES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/1999 6/30/1999 12/31/1998
3 Mos. 5.312 4.763 4.457
6 Mos. 5.726 5.033 4.539
1 Yr. 5.962 5.051 4.519
2 Yrs. 6.235 5.524 4.533
3 Yrs. 6.27 5.62 4.533
5 Yrs. 6.342 5.649 4.542
10 Yrs. 6.435 5.787 4.646
30 Yrs. 6.479 5.969 5.092
</TABLE>
12/31/99
6/30/99
12/31/98
Removal of the Fed's tightening bias came amid encouraging news about inflation.
After a surprise jump in the April consumer price index, led by higher energy
prices, the CPI was unchanged in May. A reduction in new home sales due to
higher borrowing costs suggested the economy might be slowing, reducing
inflationary pressure. Economic expansion kept labor markets tight, with
unemployment at a 29-year low, but growth in
3
ANNUAL REPORT
December 31, 1999
<PAGE>
YEAR IN REVIEW (CONT.)
wage costs slowed. Workers were generally willing to accept smaller wage pay
increases with inflation subdued and real incomes rising. With goods inflation
relatively benign, Fed tightening was aimed more at potential asset bubbles in
housing and stock markets, where price gains have lifted consumer confidence to
record highs and stimulated increases in consumption that fueled economic
growth.
- --------------------------------------------------------------------------------
MOVEMENTS OF CORE CPI DURING THE PAST TWO YEARS
- --------------------------------------------------------------------------------
CPI Y/Y Percent Change (%)
[GRAPH]
<TABLE>
<CAPTION>
<S> <C>
Dec-1997 1.7
Mar-1998 1.4
Jun-1998 1.7
Sep-1998 1.5
Dec-1998 1.6
Mar-1999 1.7
Jun-1999 2.0
Sep-1999 2.6
Dec-1999 2.7
</TABLE>
- --------------------------------------------------------------------------------
MOVEMENTS OF GDP DURING THE PAST TWO YEARS
- --------------------------------------------------------------------------------
Annualized Quarterly Percent Change (%)
[GRAPH]
<TABLE>
<CAPTION>
<S> <C>
Dec-1997 3%
Mar-1998 6%
Jun-1998 2%
Sep-1998 4%
Dec-1998 6%
Mar-1999 4%
Jun-1999 2%
Sep-1999 6%
Dec-1999 6%
</TABLE>
4
ANNUAL REPORT
December 31, 1999
<PAGE>
Treasury yields ended the third quarter slightly higher after fluctuating in a
0.40% to 0.50% range as investor sentiment about rates shifted several times.
The yield on the 30-year Treasury increased by 0.08% to finish the quarter at
6.05%. The shape of the yield curve was little changed as rates rose in roughly
parallel fashion. In an effort to quell the prospect of rising inflation, the
Fed raised the fed funds rate to 5.25%. Bond markets took comfort from signs
that the Fed rate increases were working to cool the economy and restrain
inflation. Growth in jobs and wages slowed in August, which appeared to reduce
the risk of wage inflation. Home mortgage rates surged to around 8%, slowing
re-financings that had helped fuel the boom in consumer spending.
A considerable worry for investors was the decline of the U.S. dollar,
especially versus the Japanese yen, which threatened to boost inflation by
pushing up import prices. The dollar's decline stemmed from a record U.S. trade
deficit and raised the prospect that international investors may move capital
from the U.S. markets to growing Asian and European economies. The strength of
the dollar is an important consideration because of the growing percentage of
domestic consumption satisfied by imports.
Interest rates moved higher during the fourth quarter, capping the worst year in
the bond market since 1994, as investors anticipated that more Fed tightening
would be needed to prevent the economy from overheating. Indeed, the Fed raised
the fed funds rate by 0.25% to 5.5% in November, taking back the last of three
rate cuts from 1998. Treasury yields increased across the maturity range with
the yield on the benchmark 30-year Treasury increasing by 0.43% to finish the
quarter at 6.48%
Dividends
Despite this environment of rising rates and Fed tightening, the Fund maintained
an uninterrupted and constant dividend throughout the year, holding the monthly
per share rate steady at $0.09375. In addition, a special dividend of $0.05 per
share was declared at year-end from ordinary income accumulated over the year in
excess of the Fund's regular monthly distributions. These dividend pay-outs
equate to an annualized dividend yield of 9.79% based on the Fund's NYSE trading
price as of December 31, 1999.
5
ANNUAL REPORT
December 31, 1999
<PAGE>
YEAR IN REVIEW (CONT.)
Performance
For the 12-month period ended December 31, 1999, the Fund delivered total return
investment performance of 2.44% based on net asset value and a -4.42% return
based on its NYSE share price. The Fund's total return based on net asset value
outperformed the -0.82% return of the Lehman Brothers Aggregate Bond Index over
the fiscal year. Fund performance was helped when S&P, Moody's, Duff & Phelps
and Fitch IBCA, four national rating agencies, upgraded several of the Fund's
holdings.
- --------------------------------------------------------------------------------
GROWTH OF $10,000 NET INVESTMENT IN THE FUND
- --------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Growth of $10,000 Net Investment in the Fund
Net Asset NYSE Market Lehman Brothers
Value Value Aggregate Bond Index
<S> <C> <C> <C>
08/31/1993 10,000 10,000 10,000
09/30/1993 9,993 10,000 10,027
10/31/1993 10,014 10,484 10,065
11/30/1993 10,022 9,767 9,979
12/31/1993 10,043 9,946 10,033
01/31/1994 10,131 9,672 10,169
02/28/1994 9,970 9,399 9,992
03/31/1994 9,898 9,422 9,746
04/30/1994 9,786 8,955 9,668
05/31/1994 9,853 9,328 9,667
06/30/1994 9,802 9,165 9,645
07/31/1994 9,893 9,260 9,837
08/31/1994 10,023 9,547 9,849
09/30/1994 9,916 9,666 9,704
10/31/1994 9,803 8,983 9,695
11/30/1994 9,780 8,690 9,674
12/31/1994 9,882 8,910 9,741
01/31/1995 10,068 9,285 9,934
02/28/1995 10,408 9,663 10,170
03/31/1995 10,516 9,740 10,232
04/30/1995 10,739 10,124 10,375
05/31/1995 11,143 10,408 10,777
06/30/1995 11,246 10,799 10,856
07/31/1995 11,166 10,668 10,831
08/31/1995 11,286 10,852 10,962
09/30/1995 11,407 10,400 11,069
10/31/1995 11,631 10,802 11,213
11/30/1995 11,771 10,775 11,381
12/31/1995 11,989 10,857 11,540
01/31/1996 12,122 11,378 11,617
02/29/1996 11,943 11,682 11,415
03/31/1996 11,797 11,376 11,336
04/30/1996 11,844 11,179 11,272
05/31/1996 11,856 11,038 11,249
06/30/1996 11,931 11,124 11,400
07/31/1996 12,134 11,714 11,431
08/31/1996 12,219 11,917 11,412
09/30/1996 12,379 11,771 11,611
10/31/1996 12,697 12,154 11,868
11/30/1996 12,990 12,421 12,072
12/31/1996 13,003 12,438 11,959
01/31/1997 12,968 12,771 11,996
02/28/1997 13,144 12,618 12,026
03/31/1997 13,099 12,894 11,892
04/30/1997 13,287 13,048 12,070
05/31/1997 13,554 13,142 12,185
06/30/1997 13,695 13,799 12,329
07/31/1997 14,024 13,956 12,662
08/31/1997 13,939 14,051 12,554
09/30/1997 14,193 14,083 12,739
10/31/1997 14,297 14,051 12,924
11/30/1997 14,342 14,472 12,983
12/31/1997 14,468 14,479 13,114
01/31/1998 14,607 14,644 13,282
02/28/1998 14,694 15,010 13,272
03/31/1998 14,740 14,909 13,318
04/30/1998 14,723 14,943 13,387
05/31/1998 14,971 14,705 13,514
06/30/1998 15,265 14,876 13,629
07/31/1998 15,387 15,324 13,658
08/31/1998 15,380 15,359 13,880
09/30/1998 15,559 15,114 14,205
10/31/1998 15,475 14,939 14,130
11/30/1998 15,480 15,186 14,210
12/31/1998 15,528 15,907 14,253
01/31/1999 15,668 15,943 14,355
02/28/1999 15,559 15,688 14,104
03/31/1999 15,712 15,505 14,182
04/30/1999 15,832 15,542 14,227
05/31/1999 15,790 15,727 14,103
06/30/1999 15,654 16,439 14,058
07/31/1999 15,776 16,100 13,998
08/31/1999 15,840 15,910 13,991
09/30/1999 15,808 15,566 14,153
10/31/1999 15,753 15,681 14,205
11/30/1999 15,878 14,788 14,204
12/31/1999 15,907 15,203 14,136
</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 December 31, 1999,
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.
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE FOR THE PERIODS ENDED 12/31/1999
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years* 5 Years* 9/2/93*
- --------------------------------------------------------------------------------
Fund Net Asset Value 2.44% 6.95% 9.99% 7.61%
Fund NYSE Market Value -4.42% 6.92% 11.28% 6.84%
Lehman Brothers
Aggregate Bond Index -0.82% 5.73% 7.73% N/A
* Average annual total return
6
ANNUAL REPORT
December 31, 1999
<PAGE>
The Fund's NYSE share price performance lagged the Fund's return based on net
asset value due to a significant widening of the Fund's trading discount over
the year. The Fund began the year with a premium to net asset value of 0.07% and
closed the year at a discount of 6.90%. Towards the end of the year, the Fund
experienced a discount to net asset value that reached a wide of more than 12%
in mid-December as concerns about potential inflation permeated the marketplace.
- --------------------------------------------------------------------------------
PREMIUM/(DISCOUNT) TO NET ASSET VALUE
- --------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
PCM
Premium/(Discount) to
Net Asset Value
<S> <C>
31-Dec-97 -2.09%
8-Jan-98 -2.27%
15-Jan-98 0.64%
22-Jan-98 -0.11%
29-Jan-98 -0.89%
5-Feb-98 -0.87%
12-Feb-98 -1.15%
19-Feb-98 0.71%
26-Feb-98 0.89%
5-Mar-98 0.05%
12-Mar-98 -1.03%
19-Mar-98 -0.36%
26-Mar-98 0.23%
2-Apr-98 0.73%
9-Apr-98 -1.55%
16-Apr-98 -0.14%
23-Apr-98 -2.23%
30-Apr-98 -0.65%
7-May-98 -4.57%
14-May-98 -2.85%
21-May-98 -2.30%
28-May-98 -3.36%
4-Jun-98 -3.85%
11-Jun-98 -3.91%
18-Jun-98 -3.54%
25-Jun-98 -4.25%
2-Jul-98 -3.44%
9-Jul-98 -3.95%
16-Jul-98 -3.07%
23-Jul-98 -2.84%
30-Jul-98 -2.08%
6-Aug-98 -3.24%
13-Aug-98 -3.74%
20-Aug-98 -4.32%
27-Aug-98 -1.39%
3-Sep-98 -2.18%
10-Sep-98 -3.47%
17-Sep-98 -3.54%
24-Sep-98 -5.57%
1-Oct-98 -3.85%
8-Oct-98 -12.43%
15-Oct-98 -8.68%
22-Oct-98 -6.00%
29-Oct-98 -5.60%
5-Nov-98 -3.81%
12-Nov-98 -4.33%
19-Nov-98 -4.36%
27-Nov-98 -3.88%
3-Dec-98 -3.92%
10-Dec-98 -3.09%
17-Dec-98 -3.74%
24-Dec-98 -2.54%
31-Dec-98 0.15%
7-Jan-99 -2.27%
14-Jan-99 -0.82%
21-Jan-99 -1.41%
28-Jan-99 -0.98%
4-Feb-99 -0.22%
11-Feb-99 -0.91%
18-Feb-99 -2.06%
25-Feb-99 -1.44%
4-Mar-99 -2.21%
11-Mar-99 -0.81%
18-Mar-99 -0.86%
25-Mar-99 -0.55%
1-Apr-99 -2.65%
8-Apr-99 -2.09%
15-Apr-99 -3.60%
22-Apr-99 -3.60%
29-Apr-99 -3.95%
6-May-99 -3.88%
13-May-99 -3.88%
20-May-99 -4.06%
27-May-99 -2.24%
3-Jun-99 -1.73%
10-Jun-99 -0.02%
17-Jun-99 -0.19%
24-Jun-99 1.05%
1-Jul-99 1.35%
8-Jul-99 3.55%
15-Jul-99 -0.65%
22-Jul-99 -1.88%
29-Jul-99 -0.77%
5-Aug-99 0.15%
12-Aug-99 -1.84%
19-Aug-99 -1.56%
26-Aug-99 -1.61%
2-Sep-99 -1.54%
9-Sep-99 -0.97%
16-Sep-99 -2.21%
23-Sep-99 -3.85%
30-Sep-99 -3.92%
7-Oct-99 -5.61%
16-Oct-99 -6.56%
21-Oct-99 -7.65%
28-Oct-99 -3.70%
4-Nov-99 -5.94%
11-Nov-99 -5.13%
18-Nov-99 -6.01%
24-Nov-99 -8.80%
2-Dec-99 -9.27%
9-Dec-99 -11.54%
16-Dec-99 -11.19%
23-Dec-99 -12.02%
30-Dec-99 -7.76%
31-Dec-99 -6.90%
</TABLE>
CMBS Issuance
Rising interest rates have had the positive effect of sustaining existing CMBS
by limiting issuance of new securities. New issuance of CMBS declined from $80.0
billion in 1998 to $66.0 billion in 1999, representing a 17.5% decrease. The
decline in issuance was directly attributable to the slowdown in commercial-
mortgage originations. The expectation of higher rates caused many borrowers who
did not need to refinance to sit on the sidelines. In addition, there was a
slowdown in REIT acquisition activity due to capital constraints. The overall
effect of this decline in issuance has resulted in relatively smaller deals
involving more traditional property types as well as more single borrower
transactions.
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES ISSUANCE
(dollars in billions)
- --------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Year Issuance
- ---------- -------------
<S> <C>
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 80.0
1999 66.0
</TABLE>
7
ANNUAL REPORT
December 31, 1999
<PAGE>
YEAR IN REVIEW (CONT.)
Credit Spreads
Yield spreads between CMBS and ten-year Treasuries decreased over the fourth
quarter with spreads on both A-rated and BBB-rated CMBS declining 0.30% as
concerns over supply and Y2K diminished. Supply in all spread sectors (CMBS,
MBS, ABS and Corporates) reached a peak late in the summer as issuers rushed to
the market before year-end. This supply/demand imbalance caused a dramatic
widening of spreads across the credit spectrum. However, it became increasingly
clear that CMBS issuers and servicers were well prepared for Y2K and that the
widening in spreads was unwarranted given the improving fundamentals and decline
in commercial mortgage delinquencies to 30 year lows (0.5%).
- --------------------------------------------------------------------------------
COMPARATIVE CHANGES IN YIELD SPREADS OVER 10-YEAR TREASURIES*
- --------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Rating 31-Dec-96 31-Mar-97 30-Jun-97 30-Sep-97 31-Dec-97 31-Mar-98 30-Jun-98
<S> <C> <C> <C> <C> <C> <C> <C>
AA - Rated CMBS 80 72 67 69 90 88 96
BBB - Rated CMBS 115 100 86 89 130 140 140
AA - Rated Corporates 40 46 40 37 50 65 67
BBB - Rated Corporates 88 85 75 72 88 105 111
</TABLE>
<TABLE>
<CAPTION>
Rating 30-Sep-98 31-Dec-98 31-Mar-99 30-Jun-99 30-Sep-99 31-Dec-99
<S> <C> <C> <C> <C> <C> <C>
AA - Rated CMBS 155 161 135 140 160 140
BBB - Rated CMBS 240 285 240 200 245 215
AA - Rated Corporates 75 68 82 89 94 81
BBB - Rated Corporates 162 171 150 155 159 173
</TABLE>
*7 to 10 year U.S. Treasury Bonds as of December 31, 1999
8
ANNUAL REPORT
December 31, 1999
<PAGE>
Quality Ratings
Throughout the 12-month period, the portfolio's average quality has revolved
around a BBB rating. We regularly scrutinize and evaluate every portfolio
holding in an effort to assure that each security retains healthy
characteristics and that each remains a viable holding in relation to the
portfolio. We also focus our security selection process on the potential that a
particular bond may be upgraded in the future. As highlighted below, this
strategy was rewarded over the course of the 12-month period.
- --------------------------------------------------------------------------------
UPGRADED SECURITIES DURING THE PAST 12 MONTHS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Prior Rating % of Net
Security Description Rating Rating Service Assets
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Commercial Trust
7.100% due 12/26/2030 AA+ AA Fitch 0.7%
CBAMortgage Corp.
6.670% due 12/25/2003 AA BBB Duff & Phelps 0.3%
Federal Deposit Insurance Corp.
6.630% due 11/25/2026 Aa2 A2 Moody's 0.9%
First Boston Mortgage Securities Corp.
6.907% due 1/25/2028 AAA A1 Moody's 0.5%
8.012% due 11/25/2027 AA+/AA- BBB S&P/Fitch 0.4%
Merrill Lynch Mortgage
7.681% due 6/15/2021 Baa2 Baa3 Moody's 0.5%
8.429% due 4/25/2023 Aa2 Baa1 Moody's 3.4%
9.418% due 11/25/2020 A BB+ Duff & Phelps 1.7%
Morgan Stanley Capital
7.000% due 02/15/2005 A BBB Fitch 1.4%
NB Commercial Mortgage
8.031% due 10/20/2023 AA+ A Fitch 0.3%
8.730% due 10/20/2023 BBB+ BBB Fitch 0.7%
Structured Asset Securities Corp.
7.750% due 2/25/2028 A+/BBB BBB/BB+ Fitch/S&P 2.6%
-------
13.4%
</TABLE>
----------------------------------------------------------------------------
PORTFOLIO COMPOSITION
By Quality Rating*
----------------------------------------------------------------------------
[GRAPH]
AAA 24.4%
AA 11.6%
A 10.0%
BBB 26.0%
BB 10.7%
B 9.2%
* As rated by Standard & Poor's or the equivalent by Moody's, Duff &
Phelps or Fitch IBCA
9
ANNUAL REPORT
December 31, 1999
<PAGE>
YEAR IN REVIEW (CONT.)
Geographic Distribution
The geographic distribution of the Fund's investment portfolio did not change
significantly over the 12-month period ended December 31, 1999. While loans on
properties in nearly every state are held in the portfolio, the three largest
contributors, California, Texas and Florida remained unchanged. This is
consistent with the Fund's low turnover rate that limits significant shifts in
portfolio composition. It also reflects the overall diversity of CMBS issuance
which is closely linked to commercial development.
Sector Allocations
The Fund features its greatest sector concentrations in multi-class and
multi-family CMBS. Multi-class CMBS provides diversification benefits and
multi-family CMBS is selected due to the traditional and stable nature of the
property type. Over the past several years, real estate fundamentals have
remained solid with all sectors performing relatively well. We do not see any
major change in the near term, however, we will continue to monitor the
portfolio with regards to changes in the real estate market and make adjustments
when appropriate.
----------------------------------------------------------------------------
Portfolio Composition
By Commercial Mortgage Type
----------------------------------------------------------------------------
[GRAPH]
Multi-Class* 29.0%
Multi-Family 27.1%
Healthcare 18.0%
Hospitality 10.2%
Commercial Paper 4.4%
Retail 1.3%
Gaming 0.2%
Other 9.8%
* A mix of all type of commercial properties
CMBS and e-commerce
Online sales are bound to profoundly change the face of retailing and put
pressure on the value of retail properties. The history of retailing is one of
change in which every retail concept and success is constantly challenged by new
consumer patterns and competition. It is likely that some retailers will rise to
the challenge and successfully use a "clicks and mortar" combination of online
retailing with traditional retail space to expand sales. Given the weighting of
retail properties in most new CMBS securitizations (~30%), the effects of
e-commerce on specific retailers warrants caution and close scrutiny.
It is worth noting that while e-commerce will have negative effects on some
retailing properties, it has so far benefited other property types. In
particular, there has been a dramatic rise in the need for more office space
from new dot.coms as well as the need for new industrial storage facilities to
warehouse and distribute products.
10
ANNUAL REPORT
December 31, 1999
<PAGE>
Market Outlook
We anticipate that U.S. economic growth will slow modestly over the next nine
months but remain solid. Growth is likely to be stronger in the first half of
2000 as widespread Y2K disruptions have not materialized and strong stock and
housing markets will support high levels of consumer spending. Resurgent
economies in Europe and Asia will help sustain growth by absorbing more U.S.
exports. However, a couple of factors threaten to slow growth in the second half
of the year. Non-U.S. investors, who enjoy increasingly attractive investment
opportunities elsewhere in the world, could require higher U.S. interest rates
to continue financing the widening U.S. trade deficit. In addition, consumers
could begin to moderate their spending if the surging equity market cools off,
thereby reversing the recent trend of a declining savings rate.
Inflation increased modestly in recent months as deflationary forces such as
falling commodity prices and a strong dollar began to reverse themselves.
Inflation will continue to trend upward because economic growth will reduce the
supply of available workers and heighten the risk of accelerating wage
increases. In addition, import prices will rise because capital outflows to
faster growing economies will weaken the U.S. dollar. Finally, stronger
economies in Europe and Asia have led to rising commodity prices, the effects of
which will continue to work their way through the economy.
While there will be upward pressure on interest rates in response to rising
inflation, rates are unlikely to move far above the top of our secular range
because inflation will remain relatively benign. Several factors will help
contain increases in inflation. First, we expect that the Fed will tighten at
least once more during the first half of 2000 to cool the economy. In addition,
strong productivity gains will hold down increases in unit labor costs, while
relatively low capacity utilization will limit producers' ability to pass on
wage increases.
Yield enhancement with limited credit risk will continue to offer better
opportunities for outperformance than interest rate strategies in a
low-volatility rate environment.
----------------------------------------------------------------------------
30 Year and 3 Month Treasury Yields
----------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
MONTHLY 3 Month Treasury Bill 30 Year Treasury
<S> <C> <C>
Jun-1979 9.045 8.920
Jul-1979 9.262 8.930
Aug-1979 9.450 8.980
Sep-1979 10.182 9.170
Oct-1979 11.472 9.850
Nov-1979 11.868 10.300
Dec-1979 12.071 10.120
Jan-1980 12.036 10.600
Feb-1980 12.814 12.130
Mar-1980 15.526 12.340
Apr-1980 14.003 11.400
May-1980 9.150 10.360
Jun-1980 6.995 9.810
Jul-1980 8.126 10.240
Aug-1980 9.259 11.000
Sep-1980 10.321 11.340
Oct-1980 11.580 11.590
Nov-1980 13.888 12.370
Dec-1980 15.661 11.980
Jan-1981 14.724 12.280
Feb-1981 14.905 12.970
Mar-1981 13.478 12.650
Apr-1981 13.635 13.650
May-1981 16.295 13.060
Jun-1981 14.557 13.300
Jul-1981 14.699 13.960
Aug-1981 15.612 14.780
Sep-1981 14.951 15.190
Oct-1981 13.873 14.360
Nov-1981 11.269 12.910
Dec-1981 10.926 13.650
Jan-1982 12.412 13.910
Feb-1982 13.780 13.830
Mar-1982 12.493 13.680
Apr-1982 12.821 13.390
May-1982 12.148 13.390
Jun-1982 12.108 13.910
Jul-1982 11.914 13.420
Aug-1982 9.006 12.500
Sep-1982 8.196 11.790
Oct-1982 7.750 11.010
Nov-1982 8.042 10.700
Dec-1982 8.013 10.430
Jan-1983 7.810 10.990
Feb-1983 8.130 10.510
Mar-1983 8.304 10.690
Apr-1983 8.252 10.380
May-1983 8.185 10.960
Jun-1983 8.820 10.980
Jul-1983 9.120 11.820
Aug-1983 9.390 11.930
Sep-1983 9.050 11.410
Oct-1983 8.710 11.790
Nov-1983 8.710 11.640
Dec-1983 8.960 11.870
Jan-1984 8.930 11.750
Feb-1984 9.030 12.170
Mar-1984 9.440 12.480
Apr-1984 9.690 12.840
May-1984 9.900 13.740
Jun-1984 9.940 13.640
Jul-1984 10.130 12.770
Aug-1984 10.490 12.510
Sep-1984 10.410 12.250
Oct-1984 9.970 11.560
Nov-1984 8.790 11.530
Dec-1984 8.160 11.530
Jan-1985 7.760 11.210
Feb-1985 8.220 11.880
Mar-1985 8.570 11.640
Apr-1985 8.000 11.460
May-1985 7.560 10.560
Jun-1985 7.010 10.440
Jul-1985 7.050 10.660
Aug-1985 7.180 10.470
Sep-1985 7.080 10.560
Oct-1985 7.170 10.250
Nov-1985 7.200 9.840
Dec-1985 7.070 9.270
Jan-1986 7.040 9.320
Feb-1986 7.030 8.280
Mar-1986 6.590 7.440
Apr-1986 6.060 7.450
May-1986 6.120 7.750
Jun-1986 6.210 7.230
Jul-1986 5.840 7.420
Aug-1986 5.570 7.200
Sep-1986 5.190 7.590
Oct-1986 5.180 7.610
Nov-1986 5.350 7.400
Dec-1986 5.490 7.490
Jan-1987 5.450 7.470
Feb-1987 5.590 7.460
Mar-1987 5.560 7.910
Apr-1987 5.760 8.440
May-1987 5.750 8.640
Jun-1987 5.690 8.490
Jul-1987 5.780 8.900
Aug-1987 6.000 9.150
Sep-1987 6.320 9.740
Oct-1987 6.400 9.030
Nov-1987 5.810 9.100
Dec-1987 5.800 8.980
Jan-1988 5.900 8.420
Feb-1988 5.690 8.340
Mar-1988 5.690 8.760
Apr-1988 5.920 9.100
May-1988 6.270 9.240
Jun-1988 6.500 8.910
Jul-1988 6.730 9.210
Aug-1988 7.020 9.300
Sep-1988 7.230 9.050
Oct-1988 7.340 8.740
Nov-1988 7.680 9.070
Dec-1988 8.090 8.990
Jan-1989 8.290 8.820
Feb-1989 8.480 9.110
Mar-1989 8.830 9.090
Apr-1989 8.700 8.930
May-1989 8.400 8.600
Jun-1989 8.220 8.040
Jul-1989 7.920 7.920
Aug-1989 7.910 8.200
Sep-1989 7.720 8.240
Oct-1989 7.590 7.910
Nov-1989 7.650 7.890
Dec-1989 7.640 7.980
Jan-1990 7.640 8.450
Feb-1990 7.760 8.540
Mar-1990 7.870 8.630
Apr-1990 7.780 8.990
May-1990 7.780 8.580
Jun-1990 7.740 8.400
Jul-1990 7.660 8.410
Aug-1990 7.440 8.980
Sep-1990 7.380 8.950
Oct-1990 7.190 8.760
Nov-1990 7.070 8.490
Dec-1990 6.810 8.250
Jan-1991 6.300 8.200
Feb-1991 5.950 8.200
Mar-1991 5.910 8.250
Apr-1991 5.670 8.180
May-1991 5.510 8.270
Jun-1991 5.600 8.410
Jul-1991 5.580 8.340
Aug-1991 5.390 8.060
Sep-1991 5.250 7.810
Oct-1991 5.030 7.910
Nov-1991 4.600 7.940
Dec-1991 4.120 7.400
Jan-1992 3.800 7.760
Feb-1992 3.840 7.790
Mar-1992 4.040 7.960
Apr-1992 3.750 8.040
May-1992 3.630 7.840
Jun-1992 3.660 7.780
Jul-1992 3.210 7.460
Aug-1992 3.130 7.410
Sep-1992 2.910 7.380
Oct-1992 2.860 7.630
Nov-1992 3.130 7.600
Dec-1992 3.220 7.400
Jan-1993 3.060 7.200
Feb-1993 2.930 6.900
Mar-1993 2.950 6.930
Apr-1993 2.870 6.930
May-1993 2.960 6.980
Jun-1993 3.070 6.670
Jul-1993 3.040 6.560
Aug-1993 3.020 6.090
Sep-1993 2.950 6.030
Oct-1993 3.020 5.970
Nov-1993 3.100 6.300
Dec-1993 3.060 6.350
Jan-1994 2.980 6.240
Feb-1994 3.250 6.660
Mar-1994 3.500 7.090
Apr-1994 3.680 7.310
May-1994 4.140 7.430
Jun-1994 4.140 7.610
Jul-1994 4.330 7.400
Aug-1994 4.480 7.450
Sep-1994 4.760 7.820
Oct-1994 4.950 7.970
Nov-1994 5.290 8.000
Dec-1994 5.600 7.880
Jan-1995 5.710 7.700
Feb-1995 5.770 7.440
Mar-1995 5.730 7.430
Apr-1995 5.650 7.340
May-1995 5.670 6.650
Jun-1995 5.470 6.620
Jul-1995 5.420 6.850
Aug-1995 5.400 6.650
Sep-1995 5.280 6.500
Oct-1995 5.490 6.330
Nov-1995 5.470 6.130
Dec-1995 5.080 5.950
Jan-1996 5.050 6.030
Feb-1996 5.030 6.470
Mar-1996 5.140 6.670
Apr-1996 5.150 6.910
May-1996 5.180 6.990
Jun-1996 5.160 6.870
Jul-1996 5.310 6.970
Aug-1996 5.280 7.120
Sep-1996 5.030 6.920
Oct-1996 5.150 6.640
Nov-1996 5.130 6.350
Dec-1996 5.170 6.640
Jan-1997 5.150 6.790
Feb-1997 5.220 6.800
Mar-1997 5.320 7.100
Apr-1997 5.230 7.140
May-1997 4.940 6.910
Jun-1997 5.170 6.740
Jul-1997 5.230 6.450
Aug-1997 5.220 6.610
Sep-1997 5.100 6.400
Oct-1997 5.200 6.150
Nov-1997 5.200 6.050
Dec-1997 5.350 5.920
Jan-1998 5.183 5.805
Feb-1998 5.308 5.919
Mar-1998 5.125 5.932
Apr-1998 4.978 5.951
May-1998 5.007 5.803
Jun-1998 5.093 5.626
Jul-1998 5.080 5.714
Aug-1998 4.830 5.256
Sep-1998 4.356 4.965
Oct-1998 4.323 5.150
Nov-1998 4.488 5.072
Dec-1998 4.457 5.092
Jan-1999 4.457 5.091
Feb-1999 4.664 5.575
Mar-1999 4.470 5.621
Apr-1999 4.530 5.661
May-1999 5.007 5.803
Jun-1999 4.763 5.969
Jul-1999 4.740 6.103
Aug-1999 4.961 6.067
Sep-1999 4.846 6.053
Oct-1999 5.083 6.161
Nov-1999 5.295 6.289
Dec-1999 5.312 6.479
</TABLE>
11
ANNUAL REPORT
December 31, 1999
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------ ------------------ ------------------
For the year ended For the year ended For the year ended
Selected Per Share Data: December 31, 1999 December 31, 1998 December 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.74 $ 13.97 $ 13.71
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Net investment income 1.08 1.24 1.20
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Net realized and unrealized gain (loss) on investments (0.75) (0.25) 0.29
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Total from investment operations 0.33 0.99 1.49
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Less dividends from net investment income (1.18) (1.22) (1.23)
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Net asset value, end of period $ 12.89 $ 13.74 $ 13.97
========================================================== ================== ================== ==================
Per share market value, end of period $ 12.00 $ 13.75 $ 13.69
========================================================== ================== ================== ==================
Total investment return
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Per share market value (a) (4.42)% 9.86% 16.40%
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Per share net asset value (b) 2.44% 7.33% 11.27%
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Ratios to average net assets
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Operating expenses (excluding interest expense) 1.01% 0.99% 0.97%
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Total operating expenses 3.16% 3.61% 3.69%
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Net investment income 7.97% 8.81% 8.63%
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Supplemental data
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Net assets, end of period (amounts in thousands) $ 141,860 $ 151,222 $ 153,803
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Amount of borrowings outstanding, end of period (in
thousands) $ 52,233 $ 59,990 $ 74,688
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Asset coverage ratio (c) 372% 352% 306%
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Portfolio turnover rate 1.86% 7.92% 8.74%
- ---------------------------------------------------------- ------------------ ------------------ ------------------
<CAPTION>
------------------ ------------------
For the year ended For the year ended
Selected Per Share Data: December 31, 1996 December 31, 1995
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period $ 13.84 $ 12.41
- ---------------------------------------------------------- ------------------ ------------------
Net investment income 1.23 1.16
- ---------------------------------------------------------- ------------------ ------------------
Net realized and unrealized gain (loss) on investments (0.13) 1.40
- ---------------------------------------------------------- ------------------ ------------------
Total from investment operations 1.10 2.56
- ---------------------------------------------------------- ------------------ ------------------
Less dividends from net investment income (1.23) (1.13)
- ---------------------------------------------------------- ------------------ ------------------
Net asset value, end of period $ 13.71 $ 13.84
========================================================== ================== ==================
Per share market value, end of period $ 12.88 $ 12.38
========================================================== ================== ==================
Total investment return
- ---------------------------------------------------------- ------------------ ------------------
Per share market value (a) 14.57% 21.86%
- ---------------------------------------------------------- ------------------ ------------------
Per share net asset value (b) 8.45% 21.33%
- ---------------------------------------------------------- ------------------ ------------------
Ratios to average net assets
- ---------------------------------------------------------- ------------------ ------------------
Operating expenses (excluding interest expense) 0.99% 1.04%
- ---------------------------------------------------------- ------------------ ------------------
Total operating expenses 3.60% 3.94%
- ---------------------------------------------------------- ------------------ ------------------
Net investment income 9.08% 8.93%
- ---------------------------------------------------------- ------------------ ------------------
Supplemental data
- ---------------------------------------------------------- ------------------ ------------------
Net assets, end of period (amounts in thousands) $ 150,929 $ 152,375
- ---------------------------------------------------------- ------------------ ------------------
Amount of borrowings outstanding, end of period
(in thousands) $ 69,850 $ 67,134
- ---------------------------------------------------------- ------------------ ------------------
Asset coverage ratio (c) 316% 327%
- ---------------------------------------------------------- ------------------ ------------------
Portfolio turnover rate 35.98% 47.79%
- ---------------------------------------------------------- ------------------ ------------------
</TABLE>
(a) 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.
(b) 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.
(c) Represents net assets, plus borrowings, at end of period divided by
borrowings outstanding at end of period.
12
ANNUAL REPORT
December 31, 1999
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
-----------------
Amounts in thousands, except per share amounts December 31, 1999
-----------------
Assets:
Investments in securities, at market value
(Identified cost: $202,692) $ 194,041
- ------------------------------------------------------------- ----------------
Cash 165
- ------------------------------------------------------------- ----------------
Interest receivable 2,180
- ------------------------------------------------------------- ----------------
Paydown receivable 988
- ------------------------------------------------------------- ----------------
Other assets 115
- ------------------------------------------------------------- ----------------
Total assets $ 197,489
============================================================= ================
Liabilities:
Reverse repurchase agreements $ 52,233
- ------------------------------------------------------------- ----------------
Payable for investments purchased 1,437
- ------------------------------------------------------------- ----------------
Dividends payable 1,583
- ------------------------------------------------------------- ----------------
Accrued investment manager's fee 259
- ------------------------------------------------------------- ----------------
Accrued administrator's fee 36
- ------------------------------------------------------------- ----------------
Accrued trustees' fee 54
- ------------------------------------------------------------- ----------------
Other liabilities 27
- ------------------------------------------------------------- ----------------
Total liabilities $ 55,629
============================================================= ================
Net assets applicable to outstanding stock $ 141,860
============================================================= ================
Net Assets consist of:
Capital stock - authorized 300 million shares,
$.001 par value; outstanding 11,009,587 shares $ 11
- ------------------------------------------------------------- ----------------
Additional paid-in capital 152,272
- ------------------------------------------------------------- ----------------
Accumulated net investment loss (817)
- ------------------------------------------------------------- ----------------
Accumulated net realized loss from investments (955)
- ------------------------------------------------------------- ----------------
Net unrealized depreciation of investments (8,651)
- ------------------------------------------------------------- ----------------
$ 141,860
============================================================= ================
Net asset value per share outstanding $ 12.89
============================================================= ================
STATEMENT OF OPERATIONS
------------------
For the year ended
Amounts in thousands December 31, 1999
------------------
Interest income $ 16,453
============================================================= ================
Expenses:
Interest expense 3,176
- ------------------------------------------------------------- ----------------
Investment manager fee 1,062
- ------------------------------------------------------------- ----------------
Administration fee 146
- ------------------------------------------------------------- ----------------
Custodian and accounting fee 67
- ------------------------------------------------------------- ----------------
Directors' fee 91
- ------------------------------------------------------------- ----------------
Proxy expense 18
- ------------------------------------------------------------- ----------------
Legal fee 5
- ------------------------------------------------------------- ----------------
Audit fee 15
- ------------------------------------------------------------- ----------------
Other expenses 92
- ------------------------------------------------------------- ----------------
Total expenses 4,672
============================================================= ================
Net investment income $ 11,781
============================================================= ================
Net realized and unrealized gain (loss):
Net realized gain on investments 66
- ------------------------------------------------------------- ----------------
Unrealized depreciation on investments (8,307)
- ------------------------------------------------------------- ----------------
Net loss on investments $ (8,241)
- ------------------------------------------------------------- ----------------
Net increase in assets resulting from operations $ 3,540
============================================================= ================
13
ANNUAL REPORT
December 31, 1999
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
------------------ ------------------
For the year ended For the year ended
Amounts in thousands December 31, 1999 December 31, 1998
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 11,781 $ 13,664
- ---------------------------------------------- --------------- ---------------
Net realized gain on investments 66 785
- ---------------------------------------------- --------------- ---------------
Unrealized depreciation on investments (8,307) (3,546)
- ---------------------------------------------- --------------- ---------------
Net increase resulting from operations 3,540 10,903
- ---------------------------------------------- --------------- ---------------
Distributions to Shareholders from:
From net investment income (12,934) (13,484)
- ---------------------------------------------- --------------- ---------------
Fund Share Transactions:
Issued as reinvestment of distributions
(2,418 and 0 shares, respectively) 32 0
- ---------------------------------------------- --------------- ---------------
Total Decrease in Net Assets (9,362) (2,581)
============================================== =============== ===============
Net Assets
Beginning of year 151,222 153,803
- ---------------------------------------------- --------------- ---------------
End of year* $ 141,860 $ 151,222
- ---------------------------------------------- --------------- ---------------
* Including undistributed (overdistributed)
net investment income of: $ (817) $ 232
- ---------------------------------------------- --------------- ---------------
</TABLE>
STATEMENT OF CASH FLOWS
------------------
For the year ended
Amounts in thousands December 31, 1999
------------------
Net increase in net assets resulting from operations $ 3,540
============================================================ =================
Adjustments to reconcile to net cash provided
from operating activities:
Decrease in interest receivable 316
- ------------------------------------------------------------ -----------------
Amortization of premium and discount, net (332)
- ------------------------------------------------------------ -----------------
Increase in accrued expenses 158
- ------------------------------------------------------------ -----------------
Decrease in other assets 5
- ------------------------------------------------------------ -----------------
Net loss on investments (8,241)
- ------------------------------------------------------------ -----------------
Total adjustments 8,388
- ------------------------------------------------------------ -----------------
Net cash provided from operating activities 11,928
- ------------------------------------------------------------ -----------------
Investing activities:
Purchase of long-term portfolio investments (19,339)
- ------------------------------------------------------------ -----------------
Proceeds from disposition of long-term portfolio
investments 35,969
- ------------------------------------------------------------ -----------------
Purchase of short-term portfolio investments, net (7,159)
- ------------------------------------------------------------ -----------------
Net cash provided from investing activities 9,473
- ------------------------------------------------------------ -----------------
Financing activities*:
Cash dividends paid (13,485)
- ------------------------------------------------------------ -----------------
Net decrease in reverse repurchase agreements (7,757)
- ------------------------------------------------------------ -----------------
Net cash used in financing activities (21,242)
- ------------------------------------------------------------ -----------------
Net increase in cash: 159
- ------------------------------------------------------------ -----------------
Cash at beginning of year 6
- ------------------------------------------------------------ -----------------
Cash at end of year $ 165
============================================================ =================
* Cash paid for interest for the year ended December 31,1999, amounted to
$2,249.
14
ANNUAL REPORT
December 31, 1999
<PAGE>
SCHEDULE OF INVESTMENTS
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES 117.4%
- --------------------------------------------------------------------------------
Multi-Class 39.6%
Aetna Commercial Trust
7.100% due 12/26/2030 $ 1,000 $ 981
Asset Securitization Corp.
7.384% due 08/13/2029 1,500 1,394
Blackrock Capital Financial
8.480% due 10/25/2026 (c) 3,000 2,400
CBA Mortgage Corp.
6.670% due 12/25/2003 (b) 415 389
Federal Deposit Insurance Corp.
6.630% due 11/25/2026 (b)(d) 1,260 1,274
First Boston Mortgage Securities Corp.
7.555% due 09/25/2006 (b) 976 966
8.012% due 11/25/2027 525 526
6.907% due 01/25/2028 (b)(c) 1,300 1,249
6.907% due 01/25/2028 (b) 830 782
General Electric Capital Mortgage Services, Inc.
7.250% due 08/25/2029 (d) 2,768 2,572
GMAC Commercial Mortgage Securities, Inc.
6.500% due 03/15/2012 2,000 1,607
7.088% due 05/15/2030 (b) 1,500 1,004
Green Tree Financial Corp.
8.000% due 07/15/2018 (d) 3,087 2,716
J.P. Morgan Commercial Mortgage Finance Corp.
8.541% due 11/25/2027 (c) 2,284 1,886
Matterhorn Capital Corp.
7.850% due 01/20/2006 (c) 783 783
Merrill Lynch Mortgage
7.681% due 06/15/2021 (b) 708 700
7.120% due 06/18/2029 2,000 1,783
Morgan Stanley Capital
7.000% due 02/15/2005 (b)(d) 2,000 1,982
6.850% due 02/15/2020 (c) 1,000 711
7.695% due 10/03/2030 (c) 2,000 1,623
Mortgage Capital Funding, Inc.
7.531% due 04/20/2007 1,000 954
NationsLink Funding Corp.
7.100% due 01/20/2009 2,000 1,841
7.105% due 01/20/2013 (c) 2,500 1,777
NB Commercial Mortgage
8.031% due 10/20/2023 (c) 376 377
8.730% due 10/20/2023 (c) 1,000 1,004
Nomura Asset Securities Corp.
9.765% due 09/11/2019 (b)(d) 3,000 3,127
Prudential Securities Secured Financing
7.610% due 12/26/2022 1,000 916
Resolution Trust Corp.
8.835% due 12/25/2023 (d) 1,600 1,612
9.450% due 05/25/2024 3,075 3,027
8.000% due 04/25/2025 129 127
8.000% due 04/25/2025 (d) 1,812 1,767
8.000% due 06/25/2026 2,131 2,116
6.900% due 02/25/2027 (b) 1,636 1,493
7.000% due 05/25/2027 1,798 1,733
Sasco Floating Rate Commercial Mortgage
7.031% due 04/25/2003 (b)(c) 2,500 2,281
Structured Asset Securities Corp.
7.375% due 09/25/2024 1,000 992
7.750% due 02/25/2028 (d) 3,841 3,745
-------
56,217
Multi-Family 37.1%
Chase Commercial Mortgage Securities Corp.
6.900% due 11/19/2006 1,500 1,469
Donaldson, Lufkin & Jenrette
7.350% due 12/18/2003 3,000 2,935
Federal Housing Administration
8.360% due 01/01/2012 (d) 948 946
7.750% due 01/01/2016 396 384
6.875% due 12/01/2016 733 666
7.625% due 12/01/2016 471 453
6.430% due 12/01/2019 (d) 2,636 2,594
7.430% due 12/20/2020 1,138 1,086
7.430% due 07/01/2021 579 573
7.439% due 08/01/2021 603 603
7.430% due 02/25/2023 965 931
6.875% due 11/01/2023 (d) 1,941 1,763
8.250% due 02/01/2028 (d) 2,555 2,521
7.750% due 05/01/2028 955 925
8.875% due 06/01/2035 (d) 5,923 5,719
Federal National Mortgage Association
7.865% due 12/25/2015 (b)(c) 2,482 1,885
9.375% due 04/01/2016 (d) 1,324 1,359
7.875% due 11/01/2018 (d) 251 251
5.782% due 01/01/2019 (b)(d) 1,215 1,185
Government National Mortgage Association
9.500% due 09/15/2030 (d) 4,267 4,344
8.625% due 10/15/2034 (d) 3,447 3,515
Merrill Lynch Mortgage
8.429% due 04/25/2023 (b)(d) 5,000 5,013
9.418% due 11/25/2020 (c) 2,500 2,513
Multi-Family Capital Access One, Inc.
7.400% due 01/15/2024 1,684 1,667
NationsBanc Mortgage Capital Corp.
8.048% due 05/25/2028 (b)(c) 2,000 1,500
Resolution Trust Corp.
6.797% due 09/25/2020 (b) 285 268
Structured Asset Securities Corp.
7.050% due 11/25/2007 6,000 5,486
-------
52,554
Healthcare 24.6%
Daiwa Mortgage Acceptance Corp.
6.063% due 09/25/2006 (b)(c) 598 603
Federal Housing Administration
7.500% due 12/31/2031 (d) 1,571 1,471
7.380% due 04/01/2041 2,412 2,251
LTC Commercial Corp.
9.300% due 06/15/2026 (c) 4,000 3,925
Nomura Asset Securities Corp.
6.680% due 12/15/2001 (c) 12,100 11,634
Red Mountain Funding Corp.
7.072% due 01/15/2019 (c) 2,000 1,650
7.471% due 01/15/2019 (c) 1,000 662
8.926% due 01/15/2019 (c) 1,000 530
9.150% due 11/28/2027 (c) 3,200 2,634
SC Commercial
7.050% due 11/28/2013 (c) 5,000 4,928
7.800% due 11/28/2013 (c) 5,000 4,600
-------
34,888
Hospitality 14.0%
Cooper Hotel
7.500% due 07/15/2013 (c)(d) 7,715 7,588
Federal Housing Administration
7.500% due 09/01/2034 760 718
Franchise Mortgage Acceptance Corp.
7.981% due 11/15/2018 (c) 2,300 2,375
German American Capital Corp.
8.535% due 10/10/2002 (c) 2,000 1,918
Host Marriott Pool Trust
8.310% due 08/03/2009 (c) 2,000 1,922
Hotel First
8.520% due 08/05/2008 (c) 2,623 2,592
J.Q. Hammons Hotels
8.875% due 02/15/2004 450 413
Starwood Commercial Mortgage Trust
6.920% due 02/03/2009 2,500 2,294
-------
19,820
15
ANNUAL REPORT
December 31, 1999
<PAGE>
SCHEDULE OF INVESTMENTS (CONT.)
Principal
Amount Value
(000s) (000s)
- -------------------------------------------------------------------------------
Retail 1.8%
Trizec Finance Ltd.
10.875% due 10/15/2005 $ 2,505 $ 2,580
---------
Gaming 0.3%
Riviera Holdings Corp.
10.000% due 08/15/2004 500 464
---------
Total Commercial Mortgage-Backed Securities 166,523
(Cost $173,769) =========
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 11.1%
- --------------------------------------------------------------------------------
Banking & Finance 3.8%
Forest City Enterprises
8.500% due 03/15/2008 4,000 3,740
Mercury Finance Co.
10.000% due 03/23/2001 (c) 1,602 1,631
---------
5,371
Industrials 5.2%
Building Materials Corp.
8.000% due 10/15/2007 3,000 2,730
Chattem, Inc.
8.875% due 04/01/2008 500 470
Container Corp. of America
11.250% due 05/01/2004 1,500 1,571
Grupo Televisa SA
11.875% due 05/15/2006 750 801
Holmes Products Corp.
9.875% due 11/15/2007 1,000 735
US Air, Inc.
9.330% due 01/01/2006 1,017 1,063
---------
7,370
Utilities 2.1%
Calpine Corp.
8.750% due 07/15/2007 1,680 1,638
Flag Ltd.
8.250% due 01/30/2008 1,400 1,309
---------
2,947
---------
Total Corporate Bonds & Notes 15,688
(Cost $16,648) =========
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 1.2%
- --------------------------------------------------------------------------------
Airplanes Pass Through Trust
10.875% due 03/15/2019 2,000 1,739
---------
Total Asset-Backed Securities 1,739
(Cost $2,184) =========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 7.1%
- --------------------------------------------------------------------------------
Commercial Paper 6.0%
Alcoa
6.050% due 01/27/2000 200 199
ANZ, Inc.
5.820% due 02/04/2000 2,000 1,990
General Electric Capital Corp.
6.400% due 01/25/2000 1,000 996
Illinois Tool Works
6.190% due 01/31/2000 900 896
Mobil Australia Financial
5.900% due 01/18/2000 1,200 1,197
Motorola, Inc.
5.940% due 01/20/2000 3,200 3,191
---------
8,469
=========
Repurchase Agreement 1.1%
State Street Bank
4.000% due 01/03/2000 1,622 1,622
(Dated 12/31/1999. Collateralized by
Federal Home Loan Bank
5.875% due 09/17/2001 valued at $1,657
Repurchase proceeds are $1,623.)
---------
1,622
---------
Total Short-Term Instruments 10,091
(Cost $10,091) =========
Total Investments (a) 136.8% $ 194,041
(Cost $202,692)
Other Assets and Liabilities (Net) (36.8%) (52,181)
---------
Net Assets 100.0% $ 141,860
=========
Notes to Schedule of Investments:
(a) The identified cost of investments owned as of December 31, 1999, was the
same for federal income tax and financial statements purposes.
(b) Variable rate security. The rate shown is as of December 31, 1999.
(c) Securities purchased under Rule 144A of the 1933 Securities Act and, unless
registered under the Act or exempt from registration, may only be sold to
qualified institutional investors.
(d) Securities pledged as collateral for reverse repurchase agreements.
16
ANNUAL REPORT
December 31, 1999
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. General Information
The PIMCO Commercial Mortgage Securities Trust, Inc. (the "Fund") 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. As of December 31, 1999, the identified cost of
certain portfolio securities was adjusted by $1,051,000 to correctly state the
amount of discount accretion recognized by the Fund in 1999 and 1998. The
reduction in the cost of securities reduced unrealized depreciation of
investments with no effect on the Fund's net assets. Amounts previously reported
in 1998 have not been restated due to the immateriality of the change in the
reported amounts.
17
ANNUAL REPORT
December 31, 1999
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONT.)
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%.
Repurchase Agreements. The Fund may engage in repurchase transactions. Under the
terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time. The
market value of the collateral must be equal at all times to the total amount of
the repurchase obligations, including interest. Generally, in the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred.
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. 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, 1999, were $10,985,928 and $44,932, respectively.
18
ANNUAL REPORT
December 31, 1999
<PAGE>
5. Federal Income Tax Matters
At December 31, 1999, the net unrealized depreciation of investments based on
cost for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation $ 1,717,437
Aggregate gross unrealized depreciation (10,368,055)
-------------
Net unrealized depreciation $ (8,650,618)
=============
The accumulated net realized loss on sales of investments for federal income tax
purposes at December 31, 1999, amounting to $955,439, is available to offset
future taxable gains. If not applied, $229,745, $687,550, and $38,144 of the
loss will expire in 2003, 2004, and 2007, respectively.
6. Borrowings under Reverse Repurchase Agreements
The average amount of borrowings outstanding during the year ended December
31,1999 was $56,564,478 at a weighted average interest rate of 5.61%. On
December 31,1999, securities valued at $57,061,918 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.
7. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
8. A Word About the Year 2000 (unaudited)
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses./1/
/1/ This is a Year 2000 Readiness Disclosure dated January 31, 2000.
19
ANNUAL REPORT
December 31, 1999
<PAGE>
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, 1999, 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 five years in the period then ended. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
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, 1999, 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, 1999, the results of its operations, its cash flows,
changes in its net assets and financial highlights for the periods indicated
above in conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
Kansas City, Missouri
February 16, 2000
20
ANNUAL REPORT
December 31, 1999
<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. State
Street Bank & Trust Co. 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
21
ANNUAL REPORT
December 31, 1999
<PAGE>
DIVIDEND REINVESTMENT PLAN (CONT.)
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.
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 State Street Bank &
Trust Co., the Plan Agent. This convenience provides added protection against
loss, theft or inadvertent destruction of certificates.
22
ANNUAL REPORT
December 31, 1999
<PAGE>
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 State Street Bank & Trust Co.
150 Royalle Street
Canton, MA02021
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 State Street Bank & Trust Co.. 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.
23
ANNUAL REPORT
December 31, 1999
<PAGE>
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
State Street Bank & Trust Co.
150 Royalle Street
Canton, MA 02021
Custodian
State Street Bank & Trust Co.
801 Pennsylvania
Kansas City, Missouri 64105
Legal Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
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.
