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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-07816
PIMCO Commercial Mortgage Securities Trust, Inc.
(Exact name of registrant as specified in charter)
840 Newport Center Drive, Newport Beach, CA 92660
(Address of principal executive offices)
John P. Hardaway
Treasurer
PIMCO Funds
840 Newport Center Drive
Newport Beach, CA 92660
(Name and address of agent for service)
Copies to:
Brendan Fox
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006
Registrant’s telephone number, including area code: (866) 746-2606
Date of fiscal year end: December 31
Date of reporting period: January 1, 2006 – December 31, 2006
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
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Item 1. Reports to Shareholders.
The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1).
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| Approval of Renewal of Investment Management Agreement and Administrative Services Agreement |
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Pacific Investment Management Company LLC (“PIMCO”), an investment adviser with in excess of $667 billion of assets under management as of December 31, 2006, is responsible for the management and administration of the PIMCO Commercial Mortgage Securities Trust, Inc. (the “Fund”). Founded in 1971, PIMCO manages assets on behalf of mutual fund and institutional clients located around the world. Renowned for its fixed-income management expertise, PIMCO manages assets for many of the largest corporations, foundations, endowments and governmental bodies in the United States and the world.
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Dear PIMCO Commercial Mortgage Securities Trust, Inc., Shareholder:
It is our pleasure to present to you the annual report for the PIMCO Commercial Mortgage Securities Trust, Inc. (the “Fund”), covering the fiscal year ended December 31, 2006.
For the twelve-month reporting period, the Fund outperformed its benchmark on both a share price and net asset value performance basis. The Fund returned 11.17% based on its NYSE share price and 9.17% based on its net asset value during the year. In comparison, the benchmark Lehman Brothers Aggregate Bond Index, which includes Treasury, investment-grade corporate and mortgage-backed securities, returned 4.33% during the same period. On December 31, 2006, the Fund’s net assets stood at $134.2 million.
Highlights of the financial markets during the reporting period include:
| n | During 2006, most bond markets struggled in the first half of the year as the Federal Reserve raised the Federal Funds Rate four times to an eventual rate of 5.25% and inflation pressures increased due to rising oil prices. However, during the second half of the year, the economic backdrop was more benign and the Federal Reserve decided to keep the Federal Funds Rate steady, citing declines in housing activity and energy prices as the primary reasons for keeping the Federal Funds Rate unchanged. Towards the end of the reporting period, investor confidence in a continued softening of the economy was dampened by strength in retail sales, lower gasoline prices and higher-than expected housing starts. As a result, interest rates trended upward as 2006 came to a close. |
| n | The yield on the benchmark ten-year Treasury, increased by 0.31% to end the period at 4.70%. |
In these pages please find a more complete Fund review as it relates to financial-market activities, as well as details about total return investment performance for the twelve-month reporting period.
If you have any questions regarding your Fund investment, please contact us at 1-866-746-2606. Additionally, please visit the Fund’s website at www.pcmfund.com. Thank you for the trust you have placed in us. We will continue to work diligently to meet your investment needs.
Sincerely,
Brent R. Harris
Chairman, PIMCO Commercial Mortgage Securities Trust, Inc.
January 31, 2007
| Annual Report | December 31, 2006 | 1 |
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Important Information About the Fund
The Fund is a non-diversified, closed-end bond fund that trades on the New York Stock Exchange under the symbol “PCM.” Formed in 1993, the Fund’s primary investment objective is to achieve high current income by investing in a portfolio comprised primarily of commercial mortgage-backed securities. These 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. Capital gains from the disposition of investments is a secondary objective of the Fund.
Summary of Risks
We believe that bond funds have an important role to play in a well diversified investment portfolio. It is important to note, however, that in an environment where interest rates may trend upward, rising rates would negatively impact the performance of most bond funds, and fixed-income securities held by a fund are likely to decrease in value. The price volatility of fixed-income securities can also increase during periods of rising interest rates resulting in increased losses to a fund. Bond funds and individual bonds with a longer duration (a measure of the expected life of a security) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities or funds with shorter durations.
The Fund may be subject to various risks in addition to those described above. Some of these risks may include, but are not limited to, the following: mortgage risk, prepayment risk, real rate risk, derivative risk, small company risk, non-U.S. security risk, high yield security risk and specific sector investment risks. The Fund may use derivative instruments for hedging purposes or as part of an investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, credit risk, management risk, leveraging risk and the risk that the Fund could not close out a position when it would be most advantageous to do so. The Fund’s investments in derivatives could result in losses greater than the principal amount. Investing in non-U.S. securities may entail risk due to non-U.S. economic and political developments; this risk may be enhanced when investing in emerging markets. High-yield bonds typically have a lower credit rating than other bonds. Lower rated bonds generally involve a greater risk to principal than higher rated bonds. Smaller companies may be more volatile than larger companies and may entail more risk. Concentrating investments in individual sectors, such as the real estate sector, may add additional risk and volatility compared to a diversified portfolio. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio.
An investment in the Fund is not a deposit of a bank and is not guaranteed or insured by the Federal Deposit Insurance Corporation or any other government agency. It is possible to lose money on an investment in the Fund.
| 2 | PIMCO Commercial Mortgage Securities Trust, Inc. |
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Sarbanes-Oxley Act and Other Information Available to Shareholders
PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940. The Proxy Policy has been adopted by the Fund as the policies and procedures that PIMCO will use when voting proxies on behalf of the Fund. Copies of the written Proxy Policy and the factors that PIMCO may consider in determining how to vote proxies for the Fund, and information about how the Fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, are available without charge, upon request, by calling the Fund at 1-866-746-2606 and on the Securities Exchange Commission’s (“SEC”) web site at http://www.sec.gov. The Fund’s proxy voting record is also available on the Fund’s web site at http://www.pcmfund.com.
The Fund files a complete schedule of its portfolio holdings with the SEC on Form N-Q for the first and third quarters of each fiscal year, which are available on the SEC’s web site at http://www.sec.gov. A copy of the Fund’s Form N-Q is available without charge, upon request, by calling the Fund at 1-866-746-2606 or visiting our web site at http://www.pcmfund.com. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Holdings are subject to change daily.
On May 5, 2006, the Fund submitted a CEO annual certification to the New York Stock Exchange (NYSE) on which the Fund’s principal executive officer certified that he was not aware, as of that date, of any violation by the Fund of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund’s principal executive and principal financial officers have made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q, relating to, among other things, the Fund’s disclosure controls and procedures and internal control over financial reporting, as applicable.
Fund Benchmark
Lehman Brothers Aggregate Bond Index represents securities that are SEC-registered, taxable, and U.S. dollar-denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. It is not possible to invest directly in this index.
| Annual Report | December 31, 2006 | 3 |
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Fund Summary PIMCO Commercial Mortgage Securities Trust, Inc.
Objective: The Fund’s primary investment objective is to achieve high current income, with capital gains from the disposition of investments as a secondary objective.
Primary Investments: Commercial mortgage-backed securities
Inception Date: September 2, 1993
Total Net Assets: $134.2 million
Portfolio Manager: Dan Ivascyn
Cumulative Returns Through December 31, 2006
Lehman Brothers
PCM Based on Aggregate
Net Asset Value NYSE Share Price Bond Index
--------------- ----------------- ----------
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 14,478 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 14,961 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 15,789 15,727 14,103
06/30/1999 15,653 16,439 14,058
07/31/1999 15,776 16,100 13,998
08/31/1999 15,839 15,910 13,991
09/30/1999 15,808 15,566 14,153
10/31/1999 15,752 15,681 14,205
11/30/1999 15,878 14,788 14,204
12/31/1999 15,907 15,203 14,136
01/31/2000 15,862 15,084 14,090
02/29/2000 15,954 15,204 14,260
03/31/2000 16,159 16,049 14,448
04/30/2000 16,214 16,170 14,407
05/31/2000 15,990 15,558 14,400
06/30/2000 16,482 16,093 14,699
07/31/2000 16,680 16,383 14,833
08/31/2000 16,867 16,339 15,048
09/30/2000 16,898 16,299 15,143
10/31/2000 17,035 15,535 15,243
11/30/2000 17,265 16,990 15,492
12/31/2000 17,578 17,727 15,779
01/31/2001 17,788 18,194 16,037
02/28/2001 18,055 18,470 16,177
03/31/2001 18,337 19,391 16,258
04/30/2001 18,468 19,368 16,191
05/31/2001 18,502 19,983 16,289
06/30/2001 18,663 20,237 16,350
07/31/2001 18,854 20,537 16,716
08/31/2001 19,290 20,498 16,907
09/30/2001 19,614 21,026 17,104
10/31/2001 19,882 21,692 17,462
11/30/2001 19,535 21,154 17,221
12/31/2001 19,456 22,016 17,112
01/31/2002 19,674 22,224 17,250
02/28/2002 19,771 22,215 17,417
03/31/2002 19,593 22,079 17,128
04/30/2002 19,970 22,640 17,460
05/31/2002 20,287 23,557 17,608
06/30/2002 20,529 23,450 17,760
07/31/2002 21,104 24,266 17,975
08/31/2002 21,238 24,207 18,279
09/30/2002 21,516 24,327 18,574
10/31/2002 21,409 22,800 18,490
11/30/2002 21,204 23,238 18,485
12/31/2002 21,590 24,568 18,867
01/31/2003 21,613 25,244 18,883
02/28/2003 21,977 25,112 19,144
03/31/2003 22,017 24,562 19,129
04/30/2003 22,041 24,901 19,287
05/31/2003 22,395 26,352 19,647
06/30/2003 22,454 25,331 19,608
07/31/2003 21,720 25,052 18,948
08/31/2003 21,780 25,131 19,074
09/30/2003 22,521 25,969 19,579
10/31/2003 22,491 25,739 19,397
11/30/2003 22,734 26,479 19,443
12/31/2003 23,107 26,965 19,641
01/31/2004 23,428 27,343 19,799
02/29/2004 23,713 27,873 20,013
03/31/2004 24,132 27,805 20,163
04/30/2004 23,555 23,821 19,638
05/31/2004 23,448 24,591 19,560
06/30/2004 23,495 25,174 19,670
07/31/2004 24,024 25,316 19,865
08/31/2004 24,518 27,232 20,244
09/30/2004 24,662 27,867 20,299
10/31/2004 24,926 28,111 20,469
11/30/2004 24,715 27,602 20,306
12/31/2004 25,204 26,529 20,493
01/31/2005 25,455 28,491 20,622
02/28/2005 25,360 28,985 20,500
03/31/2005 25,266 27,544 20,395
04/30/2005 25,687 28,641 20,671
05/31/2005 26,029 29,228 20,894
06/30/2005 26,163 29,361 21,008
07/31/2005 25,896 29,914 20,817
08/31/2005 26,395 30,534 21,084
09/30/2005 26,188 29,841 20,867
10/31/2005 26,088 30,234 20,701
11/30/2005 26,226 30,586 20,793
12/31/2005 26,410 30,616 20,991
01/31/2006 26,374 31,148 20,992
02/28/2006 26,762 30,761 21,062
03/31/2006 26,770 30,924 20,855
04/30/2006 26,711 31,222 20,817
05/31/2006 26,695 31,051 20,795
06/30/2006 26,775 31,059 20,839
07/31/2006 27,365 31,295 21,121
08/31/2006 27,819 32,653 21,444
09/30/2006 28,228 33,376 21,632
10/31/2006 28,428 33,269 21,776
11/30/2006 28,773 33,511 22,028
12/31/2006 28,831 34,036 21,900
Past performance is no guarantee of future results. 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, 2006, compared to the Lehman Brothers Aggregate Bond Index, an unmanaged market index. Investment performance assumes the reinvestment of dividends and capital gains distribution, if any. The Fund’s NYSE Share Price 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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on the sale of Fund shares.
| Average Annual Total Return for the period ended December 31, 2006 | ||||||||||
| 1 Year | 5 Years | 10 Years | Fund Inception* | |||||||
| PCM Based on NYSE Share Price | 11.17% | 9.10% | 10.59% | 9.65% | ||||||
| PCM Based on Net Asset Value | 9.17% | 8.18% | 8.29% | 8.29% | ||||||
| - - - |
Lehman Brothers Aggregate Bond Index | 4.33% | 5.06% | 6.24% | 6.06% | |||||
All Fund returns are net of fees and expenses.
| * | The Fund began operations on 09/02/93. Index comparisons began on 08/31/93. |
Past performance is no guarantee of future results. Performance data current to the most recent month-end is available at www.pcmfund.com or by calling 1-866-746-2606.
| 4 | PIMCO Commercial Mortgage Securities Trust, Inc. |
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| NYSE Symbol | PCM | |||
| Allocation Breakdown % of Total Investments as of December 31, 2006 | ||
| Commercial Mortgage-Backed Securities | 77.8% | |
| Real Estate Asset-Backed Securities | 15.7% | |
| Corporate Bonds & Notes | 6.3% | |
| Short-Term Instruments | 0.2% |
Portfolio Insights
| Annual Report | December 31, 2006 | 5 |
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| Selected Per Share Data for the Year Ended: | 12/31/2006 | 12/31/2005 | 12/31/2004 | 12/31/2003 | 12/31/2002 | |||||||||||||||
| Net Asset Value Beginning of Year | $ | 11.94 | $ | 12.49 | $ | 12.53 | $ | 12.80 | $ | 12.85 | ||||||||||
| Net Investment Income (a) | 0.90 | 0.98 | 1.01 | 1.09 | 1.22 | |||||||||||||||
| Net Realized/Unrealized Gain (Loss) on Investments (a) |
0.14 | (0.40 | ) | 0.08 | (0.23 | ) | 0.14 | |||||||||||||
| Total Income from Investment Operations |
1.04 | 0.58 | 1.09 | 0.86 | 1.36 | |||||||||||||||
| Dividends from Net Investment Income |
(1.13 | ) | (1.13 | ) | (1.13 | ) | (1.13 | ) | (1.41 | ) | ||||||||||
| Net Asset Value End of Year | $ | 11.85 | $ | 11.94 | $ | 12.49 | $ | 12.53 | $ | 12.80 | ||||||||||
| NYSE Share Price End of Year | $ | 14.40 | $ | 14.03 | $ | 13.17 | $ | 14.53 | $ | 14.32 | ||||||||||
| Total Investment Return | ||||||||||||||||||||
| Per Share NYSE Share Price (b) |
11.17 | % | 15.40 | % | (1.62 | )% | 9.76 | % | 11.59 | % | ||||||||||
| Total Investment Return | ||||||||||||||||||||
| Per Share Net Asset Value (c) |
9.17 | % | 4.78 | % | 9.07 | % | 7.03 | % | 10.97 | % | ||||||||||
| Net Assets End of Year (000s) | $ | 134,259 | $ | 134,792 | $ | 140,267 | $ | 139,891 | $ | 142,063 | ||||||||||
| Ratio of Expenses to Average Net Assets |
3.69 | % | 2.77 | % | 1.75 | % | 1.52 | % | 1.94 | % | ||||||||||
| Ratio of Expenses to Average Net Assets Excluding Interest Expense |
1.03 | % | 1.07 | % | 1.00 | % | 1.05 | % | 1.08 | % | ||||||||||
| Ratio of Net Investment Income to Average Net Assets |
7.64 | % | 8.00 | % | 8.09 | % | 8.62 | % | 9.34 | % | ||||||||||
| Amount of Borrowings Outstanding End of Year (000s) |
$ | 69,574 | $ | 67,880 | $ | 67,702 | $ | 71,025 | $ | 50,993 | ||||||||||
| Portfolio Turnover Rate | 21 | % | 8 | % | 24 | % | 40 | % | 42 | % | ||||||||||
| (a) | Per share amounts based on average number of shares outstanding during the period. |
| (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 distribution, if any, and changes in net asset value per share. |
| 6 | PIMCO Commercial Mortgage Securities Trust, Inc. | See accompanying notes |
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| Statement of Assets and Liabilities | December 31, 2006 | |
| (Amounts in thousands, except per share amounts) | ||||
| Assets: | ||||
| Investments, at value | $ | 202,808 | ||
| Cash | 17 | |||
| Receivable for investments sold | 1 | |||
| Interest and dividends receivable | 1,612 | |||
| Variation margin receivable | 3 | |||
| Swap premiums paid | 5,670 | |||
| Unrealized appreciation on swap agreements | 9,726 | |||
| 219,837 | ||||
| Liabilities: | ||||
| Payable for the reverse repurchase agreements | $ | 69,574 | ||
| Dividends payable | 1,063 | |||
| Accrued investment advisory fee | 249 | |||
| Accrued administration fee | 34 | |||
| Accrued custodian expense | 9 | |||
| Accrued audit fee | 16 | |||
| Accrued printing expense | 2 | |||
| Swap premiums received | 35 | |||
| Unrealized depreciation on swap agreements | 14,547 | |||
| Other liabilities | 49 | |||
| 85,578 | ||||
| Net Assets | $ | 134,259 | ||
| Net Assets Consist of: | ||||
| Capital stock–authorized 300 million shares, $0.001 par value; outstanding 11,334,275 shares | $ | 11 | ||
| Paid in capital | 154,935 | |||
| (Overdistributed) net investment income | (792 | ) | ||
| Accumulated undistributed net realized (loss) | (13,341 | ) | ||
| Net unrealized (depreciation) | (6,554 | ) | ||
| $ | 134,259 | |||
| Net Asset Value Per Share Outstanding | $ | 11.85 | ||
| Cost of Investments Owned | $ | 204,599 | ||
| See Accompanying Notes | Annual Report | December 31, 2006 | 7 |
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| Statement of Operations | Year Ended December 31, 2006 | |
| (Amounts in thousands) | ||||
| Investment Income: | ||||
| Interest | $ | 14,127 | ||
| Miscellaneous income | 1,032 | |||
| Total Income |
15,159 | |||
| Expenses: | ||||
| Investment advisory fees | 969 | |||
| Administration fees | 134 | |||
| Transfer agent fees | 29 | |||
| Directors’ fees | 58 | |||
| Printing expense | 43 | |||
| Proxy expense | 22 | |||
| Legal fees | 34 | |||
| Audit fees | 28 | |||
| Custodian fees | 45 | |||
| Interest expense | 3,549 | |||
| Miscellaneous expense | 30 | |||
| Total Expenses |
4,941 | |||
| Net Investment Income | 10,218 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain on investments | 337 | |||
| Net realized gain on futures contracts, options and swaps | 2,360 | |||
| Net change in unrealized appreciation on investments | 674 | |||
| Net change in unrealized (depreciation) on futures contracts, options and swaps | (2,047 | ) | ||
| Net Gain |
1,324 | |||
| Net Increase in Net Assets Resulting from Operations | $ | 11,542 | ||
| 8 | PIMCO Commercial Mortgage Securities Trust, Inc. | See accompanying notes |
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Statement of Changes in Net Assets
| (Amounts in thousands, except share amounts) | ||||||||
| Increase (Decrease) in Net Assets from: | Year Ended December 31, 2006 |
Year Ended December 31, 2005 |
||||||
| Operations: | ||||||||
| Net investment income | $ | 10,218 | $ | 11,058 | ||||
| Net realized gain | 2,697 | 2,345 | ||||||
| Net change in unrealized (depreciation) | (1,373 | ) | (6,971 | ) | ||||
| Net increase resulting from operations | 11,542 | 6,432 | ||||||
| Distributions to Shareholders: | ||||||||
| From net investment income | (12,726 | ) | (12,667 | ) | ||||
| Total Distributions | (12,726 | ) | (12,667 | ) | ||||
| Fund Share Transactions: | ||||||||
| Issued as reinvestment of distributions (48,723 and 57,181 shares, respectively) |
651 | 760 | ||||||
| Net increase resulting from Fund share transactions | 651 | 760 | ||||||
| Total (Decrease) in Net Assets | (533 | ) | (5,475 | ) | ||||
| Net Assets: | ||||||||
| Beginning of period | 134,792 | 140,267 | ||||||
| End of period* | $ | 134,259 | $ | 134,792 | ||||
| * Including (overdistributed) net investment income of: | $ | (792 | ) | $ | (436 | ) | ||
| Annual Report | December 31, 2006 | 9 |
Table of Contents
| Statement of Cash Flows | Year Ended December 31, 2006 | |
| (Amounts in thousands) | ||||
| Increase in Cash from: | ||||
| Cash flows provided by operating activities: | ||||
| Net increase in net assets resulting from operations | $ | 11,542 | ||
| Adjustments to reconcile net increase in net assets from operations to net cash used for operating activities: | ||||
| Purchases of long-term securities | (66,479 | ) | ||
| Proceeds from sales of long-term securities | 64,396 | |||
| Sale of short-term portfolio investments, net | 3,782 | |||
| Decrease in interest receivable | 25 | |||
| Decrease in receivable for investments sold | 158 | |||
| Decrease in paydown receivable | 3 | |||
| Decrease in payable for investments purchased | (718 | ) | ||
| Increase in swap premiums paid | (816 | ) | ||
| Proceeds from future transactions | 84 | |||
| Increase in payable to advisor | 1 | |||
| Decrease in printing fee | (4 | ) | ||
| Increase in custodian fee | 1 | |||
| Increase in audit fee | 6 | |||
| Decrease in other fees | (8 | ) | ||
| Unrealized (depreciation) on investments | 1,373 | |||
| Net realized gain on investments | (2,697 | ) | ||
| Net amortization on investments | (257 | ) | ||
| Net cash used for operating activities | 10,392 | |||
| Cash flows received from financing activities*: | ||||
| Net borrowing from reverse repurchase agreements | 1,694 | |||
| Cash dividend paid | (12,070 | ) | ||
| Net cash received from financing activities | (10,376 | ) | ||
| Net Increase in Cash | 16 | |||
| Cash: | ||||
| Beginning of period | 1 | |||
| End of period | $ | 17 | ||
| * | Includes reinvestment of dividends of $651. |
| 10 | PIMCO Commercial Mortgage Securities Trust, Inc. | See accompanying notes |
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| Schedule of Investments | December 31, 2006 | |
| See Accompanying Notes | Annual Report | December 31, 2006 | 11 |
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Schedule of Investments (Cont.)
| 12 | PIMCO Commercial Mortgage Securities Trust, Inc. | See accompanying notes |
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| December 31, 2006 | ||
| Annual Report | December 31, 2006 | 13 |
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Schedule of Investments (Cont.)
Notes to Schedule of Investments (amounts in thousands, except number of contracts):
| (a) | Security is in default. |
| (b) | Interest only security. |
| (c) | On December 31, 2006, securities valued at $73,894 were pledged as collateral for reverse repurchase agreements. |
| (d) | As of December 31, 2006, portfolio securities with an aggregate value of $7,641 were valued in good faith and pursuant to the guidelines established by the Board of Directors. |
| (e) | 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. |
| (f) | Securities with an aggregate market value of $35 have been segregated with the custodian to cover margin requirements for the following open futures contracts on December 31, 2006: |
| Description | Type | Expiration Month |
# of Contracts |
Unrealized Appreciation | |||||
| U.S. Treasury 20-Year Bond March Futures |
Short |
03/2007 | 29 | $ | 58 | ||||
| 14 | PIMCO Commercial Mortgage Securities Trust, Inc. | See accompanying notes |
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| December 31, 2006 | ||
| (g) | Swap agreements outstanding on December 31, 2006: |
Interest Rate Swaps
| Counterparty | Floating Rate Index |
Pay/ Receive Floating Rate |
Fixed Rate |
Expiration Date |
Notional Amount |
Unrealized Appreciation/ (Depreciation) |
|||||||||
| Barclays Bank PLC |
3-Month USD-LIBOR |
Pay | 5.600% | 06/21/2026 | $ | 28,000 | $ | 954 | |||||||
| Barclays Bank PLC |
3-Month USD-LIBOR |
Pay | 5.650% | 06/21/2026 | 165,000 | 6,516 | |||||||||
| Barclays Bank PLC |
3-Month USD-LIBOR |
Receive | 5.650% | 06/21/2026 | 193,000 | (11,460 | ) | ||||||||
| Barclays Bank PLC |
3-Month USD-LIBOR |
Receive | 5.000% | 12/20/2026 | 12,300 | (529 | ) | ||||||||
| Goldman Sachs & Co. |
3-Month USD-LIBOR |
Receive | 4.405% | 02/23/2016 | 53,000 | 272 | |||||||||
| Goldman Sachs & Co. |
3-Month USD-LIBOR |
Pay | 5.800% | 02/23/2016 | 53,000 | 72 | |||||||||
| UBS AG |
3-Month USD-LIBOR |
Pay | 5.700% | 06/21/2025 | 40,000 | 1,912 | |||||||||
| UBS AG |
3-Month USD-LIBOR |
Receive | 5.700% | 06/21/2025 | 40,300 | (2,327 | ) | ||||||||
| UBS AG |
3-Month USD-LIBOR |
Receive | 5.000% | 12/20/2026 | 4,200 | (231 | ) | ||||||||
| $ | (4,821 | ) | |||||||||||||
| (h) | Restricted securities as of December 31, 2006: |
| Issuer Description | Coupon | Maturity Date |
Acquisition Date |
Cost | Market Value |
Market Value as Percentage of Net Assets | ||||||||
| Fannie Mae |
6.512% |
12/25/2015 | 12/08/1995 | $ | 1,084 | $ | 1,084 | 0.81% | ||||||
| Annual Report | December 31, 2006 | 15 |
Table of Contents
1. ORGANIZATION
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 (the “Act”), 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 (“NYSE”).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures on the financial statements. Actual results could differ from those estimates.
(a) Security Valuation Fund securities are valued as of the close of regular trading (normally 4:00 p.m., Eastern Time) on each day that the NYSE is open. Fund securities and other assets for which market quotes are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services. Fixed-income securities and non-exchange traded derivatives are normally valued on the basis of quotes obtained from brokers and dealers or pricing services. Prices obtained from independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Certain fixed-income securities purchased on a delayed-delivery basis are marked to market daily until settlement at the forward settlement date. Short-term investments having a maturity of 60 days or less are generally valued at amortized cost. Exchange traded options, futures and options on futures are valued at the settlement price determined by the relevant exchange.
Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates obtained from pricing services. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and an investor is not able to purchase, redeem or exchange shares.
Securities and other assets for which market quotes are not readily available are valued at fair value as determined in good faith by the Board of Directors or persons acting at their direction. The Board of Directors has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available, and has delegated to Pacific Investment Management Company LLC (“PIMCO”) the responsibility for applying the valuation methods. In the event that market quotes are not readily available, and the security or asset cannot be valued pursuant to one of the valuation methods, the value of the security or asset will be determined in good faith by the Valuation Committee of the Board of Directors, generally based upon recommendations provided by PIMCO.
Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/asked information, broker quotes), including where events occur after the close of the relevant market, but prior to the close of regular trading, that materially affect the values of the Fund’s securities or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available. The Board has delegated to PIMCO the responsibility for monitoring significant events that may materially affect the values of the Fund’s securities or assets and for determining whether the value of the applicable securities or assets should be re-evaluated in light of such significant events.
When the Fund uses fair value pricing to determine its NAV, securities will not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that the Board of Directors or persons acting at their direction believe accurately reflects fair value. The Trust’s policy is intended to result in a calculation of the Fund’s NAV that fairly reflects security values as of the time of pricing. However, fair values determined by the Board of Directors or persons acting at their direction may not accurately reflect the price that the Fund could obtain for a security if it were to dispose of that security as of the time of pricing. Because foreign securities can trade on non-business days, the NAV of the Fund’s portfolio may change on days when shareholders
| 16 | PIMCO Commercial Mortgage Securities Trust, Inc. |
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| December 31, 2006 | ||
will not be able to purchase or redeem fund shares. The prices used by the Fund may differ from the value that would be realized if the securities were sold and the differences could be material to the financial statements.
(b) 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. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, adjusted for the accretion of discounts and amortization of premiums, is recorded on the accrual basis. Paydown gains and losses on mortgage-related or asset-backed securities are recorded as components of interest income on the Statement of Operations.
(c) Delayed-Delivery Transactions The Fund may purchase or sell securities on a when-issued or delayed-delivery basis. These transactions involve a commitment by the Fund to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed-delivery purchases are outstanding, the Fund will designate liquid assets in an amount sufficient to meet the purchase price. When purchasing a security on a delayed-delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell when-issued securities before they are delivered, which may result in a capital gain or loss. When the Fund has sold a security on a delayed delivery basis, the Fund does not participate in future gains and losses with respect to the security.
(d) Dividends and Distributions to Shareholders The Fund intends to distribute all its net investment income monthly. Net realized capital gains earned by the Fund, if any, will be distributed no less frequently than once each year.
Income dividends and capital gain distributions are determined in accordance with income tax regulations which may differ from GAAP. Differences between tax regulations and GAAP may change the fiscal year when income and capital items are recognized for tax and GAAP purposes. Examples of events that give rise to timing differences include wash sales, straddles, net operating losses and capital loss carryforwards. Further, the character of investment income and capital gains may be different for certain transactions under the two methods of accounting. Examples of characterization differences include the treatment of mortgage paydowns, swaps, foreign currency transactions and contingent debt instruments. As a result, income dividends and capital gain distributions declared during a fiscal period may differ significantly from the net investment income and realized capital gain reported in the Fund’s annual financial statements presented under GAAP.
(e) Futures Contracts The Fund is authorized to enter into futures contracts. The Fund may use futures contracts to manage its exposure to the securities markets or to movements in interest rates and currency values. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to deposit with futures broker, an amount of cash or U.S. Government and Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities.
(f) 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 (collateral) subject to an obligation of the seller to repurchase, and the Fund to resell, the obligation at an agreed-upon price and time. The underlying securities for all repurchase agreements are held in safekeeping at the Fund’s custodian or designated subcustodians under triparty repurchase agreements. The market value of the collateral must be equal to or exceed at all times to the total amount of the repurchase obligations, including interest. Securities purchased under repurchase agreements are reflected as an asset on the Statement of Assets and Liabilities. Generally, in the event of counterparty default, the Fund has the right to use the collateral to offset losses incurred. If the counterparty
| Annual Report | December 31, 2006 | 17 |
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Notes to Financial Statements (Cont.)
should default, the Fund will seek to sell the securities which it holds as collateral. This could involve procedural costs or delays in addition to a loss on the securities if their value should fall below their repurchase price.
(g) Reverse Repurchase Agreements The Fund is authorized to enter into 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 borrowing by the Fund. To the extent the Fund collatoralizes its obligations under reverse repurchase agreements, such transactions will not be deemed subject to the 300% asset coverage requirements imposed by the Act. The Fund will segregate assets determined to be liquid by PIMCO or otherwise cover its obligations under reverse repurchase agreements. The average amount of borrowings outstanding during the year ended December 31, 2006 was $68,477 at a weighted average interest rate of 5.090%.
(h) Restricted Securities The Fund is permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult.
(i) Swap Agreements The Fund may invest in swap agreements. Swap transactions are privately negotiated agreements between the Fund and a counterparty to exchange or swap investment cash flows, assets, or market-linked returns at specified, future intervals. The Fund may enter into interest rate and other forms of swap agreements to manage its exposure to interest rates and credit risk. In connection with these agreements, securities may be identified as collateral in accordance with the terms of the respective swap agreements.
Interest rate swap agreements involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”, or (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
Swaps are marked to market daily based upon quotations from market makers and the change in value, if any, is recorded as unrealized gain or loss on the Statement of Operations. Payments received or made at the beginning of the measurement period are reflected as such on the Statement of Assets and Liabilities. These upfront payments are recorded as realized gain or loss on the Statement of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss on the Statement of Operations. Net periodic payments received or paid by the Fund are included as part of realized gain or loss on the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit, market and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of contractual terms in the agreements and that there may be unfavorable changes in interest rates.
(j) Mortgage-Related and Other Asset-Backed Securities The Fund may invest in mortgage-related or other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (“SMBSs”) and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. The value of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Fund to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
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| December 31, 2006 | ||
One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or “IO” class), while the other class will receive all of the principal (the principal-only, or “PO” class). Payments received for IOs are included in interest income on the Statement of Operations. Because principal will not be received at the maturity of an IO, adjustments are made to the book value of the security on a daily basis until maturity. These adjustments are included in interest income on the Statement of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.
(k) U.S. Government Agencies or Government-Sponsored Enterprises Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA” or “Ginnie Mae”), a wholly owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government.
(l) New Accounting Policies In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (the “Interpretation”). The Interpretation is effective for fiscal years beginning after December 15, 2006, with implementation for NAV calculation purposes to be no later than June 29, 2007.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (the “Statement”). The Statement is effective for fiscal years beginning after November 15, 2007.
Management is currently evaluating the application of the Interpretation and Statement to the Fund and will provide additional information in relation to the Interpretation and Statement on the Fund’s semiannual financial statements for the period ending June 30, 2007.
3. FEES AND EXPENSES
(a) Investment Manager Fee PIMCO is a majority-owned subsidiary of Allianz Global Investors of America L.P. (“AGI”) and serves as investment manager (the “Manager”) to the Fund, pursuant to an investment advisory contract. The Manager receives a quarterly fee from the Fund at an annual rate of 0.725% based on average weekly net assets of the Fund.
(b) Administration Fee PIMCO serves as administrator (the “Administrator”), and provides administrative services to the Fund for which it receives from the Fund a quarterly administrative fee at an annual rate of 0.10% based on average weekly net assets of the Fund.
(c) Fund Expenses The Fund is responsible for the following expenses: (i) independent auditors’ fees; (ii) printing fees; (iii) transfer agent fees; (iv) custody and accounting fees; (v) taxes and governmental fees; (vi) brokerage fees and commissions and other portfolio transaction expenses; (vii) the costs of borrowing money, including interest expenses and bank overdraft charges; (viii) fees and expenses of the Directors who are not “interested persons”, as defined in the Act, of PIMCO or the Fund (each an “Independent Director”), and any counsel retained exclusively for their benefit; (ix) legal fees; and (x) extraordinary expenses, including costs of litigation and indemnification expenses.
For the current period ended December 31, 2006, each unaffiliated Director received an annual retainer of $6,000, plus $1,000 for each Board of Directors quarterly meeting attended, $250 for each Board of Directors committee meeting attended and $500 for each special board meeting attended, plus reimbursement of related expenses. In addition, the Committee Chair received an additional annual retainer of $500 and the Audit Committee Chair received an additional annual retainer of $1,000. These expenses are allocated on a pro rata basis to the Fund according to its net assets. The Fund pays no compensation directly to any Director or any other officer who is affiliated with the Administrator, all of whom receive remuneration for their services to the Fund from the Administrator or its affiliates.
| Annual Report | December 31, 2006 | 19 |
Table of Contents
Notes to Financial Statements (Cont.)
4. RELATED PARTY TRANSACTIONS
The Advisor, Administrator, and Distributor are related parties as defined by FAS 57, Related Party Disclosures. Fees payable to these parties are disclosed in Note 3.
5. GUARANTEES AND INDEMNIFICATIONS
Under the Fund’s organizational documents, each Director, officer, employee or other agent of the Fund (including the Fund’s Manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and believes the risk of loss to be remote.
6. PURCHASES AND SALES OF SECURITIES
The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements. High portfolio turnover (e.g., over 100%) involves correspondingly greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. Such sales may also result in realization of taxable capital gains, including short-term capital gains (which are generally taxed at ordinary income tax rates). The trading costs and tax effects associated with portfolio turnover may adversely affect the Fund’s performance.
Purchases and sales of securities (excluding short-term investments) for the period ended December 31, 2006, were as follows (amounts in thousands):
| U.S. Government/Agency | All Other | |||||
| Purchases | Sales | Purchases | Sales | |||
| $ 1,494 | $ 3,671 | $ 65,480 | $ 39,487 | |||
7. FEDERAL INCOME TAX MATTERS
The Fund intends to qualify as a regulated investment company under sub-chapter M of the Internal Revenue Code and distribute all of its taxable income and net realized gains, if applicable, to shareholders. Accordingly, no provision for Federal income taxes has been made.
As of December 31, 2006, the components of distributable taxable earnings are as follows (amounts in thousands):
| Undistributed Ordinary Income |
Undistributed Long-Term Capital Gains |
Net Tax Basis Unrealized Appreciation/ (Depreciation) (1) |
Other Book-to-Tax Accounting Differences |
Accumulated Capital Losses (2) |
Post- October | |||||
| $ 0 | $ 0 | $ (7,395) | $ 0 | $ (13,292) | $ 0 | |||||
| (1) |
Adjusted for the accelerated recognition of unrealized gain or loss on certain futures for federal income tax purposes. Also adjusted for differences between book and tax realized and unrealized gain (loss) on swap contracts and accelerated recognition of income for interest-only securities for federal income tax purposes. |
| (2) |
Capital losses available to offset future net capital gains expire in varying amounts in the years shown below. |
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| December 31, 2006 | ||
As of December 31,2006, the Fund had accumulated capital losses expiring in the following years (amounts in thousands). The Fund will resume capital gain distributions in the future to the extent gains are realized in excess of accumulated capital losses.
| Expiration of Accumulated Capital Losses | ||||||||
| 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 | 12/31/2012 | ||||
| $ 1,856 | $ 950 | $ 1,498 | $ 5,073 | $ 3,915 | ||||
As of December 31, 2006, the aggregate cost and the net unrealized appreciation/(depreciation) of investments for federal income tax purposes are as follows (amounts in thousands):
| Federal Tax Cost |
Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation/ (Depreciation) (3) | |||
| $ 205,120 | $ 5,063 | $ (7,375) | $ (2,312) |
| (3) |
Primary differences between book and tax net unrealized appreciation/(depreciation) on investments are attributable to interest-only basis adjustments for federal income tax purposes. |
For the fiscal years ended December 31, 2006 and December 31, 2005, respectively, the Fund made the following tax basis distributions (amounts in thousands):
| Fiscal Year Ended |
Ordinary Income Distributions (4) |
Long-Term Capital Gain Distributions |
Return of Capital | |||
| 12/31/2006 | $ 12,726 | $ 0 | $ 0 | |||
| 12/31/2005 | 12,667 | 0 | 0 |
| (4) |
Includes short-term capital gains, if any, distributed. |
8. REGULATORY AND LITIGATION MATTERS
Since February 2004, PIMCO, Allianz Global Investors of America L.P. (PIMCO’s parent company), and certain of their affiliates, including the PIMCO Funds (a series of funds managed by PIMCO), the Allianz Funds (a series of funds managed by affiliates of PIMCO), certain Directors of the Fund (in their capacity as Trustees of the PIMCO Funds or the Allianz Funds) and certain employees of PIMCO, have been named as defendants in fifteen lawsuits filed in various jurisdictions. Eleven of those lawsuits concern “market timing,” and they have been transferred to and consolidated for pre-trial proceedings in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland; the other four lawsuits concern “revenue sharing” and have been consolidated into a single action in the U.S. District Court for the District of Connecticut. The lawsuits have been commenced as putative class actions on behalf of investors who purchased, held or redeemed shares of the various series of the PIMCO Funds and the Allianz Funds during specified periods, or as derivative actions on behalf of the PIMCO Funds and the Allianz Funds.
The market timing actions in the District of Maryland generally allege that certain hedge funds were allowed to engage in “market timing” in certain of the PIMCO Funds and the Allianz Funds and this alleged activity was not disclosed. Pursuant to tolling agreements entered into with the derivative and class action plaintiffs, PIMCO, certain Directors of the Fund (in their capacity as Trustees of PIMCO Funds or the Allianz Funds), and certain employees of PIMCO who were previously named as defendants have all been dropped as defendants in the market timing actions; the plaintiffs continue to assert claims on behalf of the shareholders of the PIMCO Funds or on behalf of the PIMCO Funds themselves against other defendants. By order dated November 3, 2005, the U.S. District Court for the District of Maryland granted the PIMCO Funds’ motion to dismiss claims asserted against it in a consolidated amended complaint where the PIMCO Funds were named, in the complaint, as a nominal defendant. The revenue sharing action in the District of Connecticut generally alleges that fund assets were inappropriately used to pay brokers to promote the PIMCO Funds and the Allianz Funds, including directing fund brokerage transactions to such brokers, and that such alleged arrangements were not fully disclosed to shareholders. On August 11, 2005 the U.S.
| Annual Report | December 31, 2006 | 21 |
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Notes to Financial Statements (Cont.)
District Court for the District of Connecticut conducted a hearing on defendants’ motion to dismiss the consolidated amended complaint in the revenue sharing action but has not yet ruled on the motion to dismiss. The market timing and revenue sharing lawsuits seek, among other things, unspecified compensatory damages plus interest and, in some cases, punitive damages, the rescission of investment advisory contracts, the return of fees paid under those contracts and restitution.
Two nearly identical class action civil complaints have been filed in August 2005, in the Northern District of Illinois Eastern Division, alleging that the plaintiffs each purchased and sold a 10-year Treasury note futures contract and suffered damages from an alleged shortage when PIMCO held both physical and futures positions in 10-year Treasury notes for its client accounts. The two actions have been consolidated into one action, and the two separate complaints have been replaced by a consolidated complaint. PIMCO is a named defendant, and the PIMCO Funds have been added as a defendant, to the consolidated action. PIMCO strongly believes the complaint is without merit and intends to vigorously defend itself.
In April 2006, the Fund was served in an adversary proceeding brought by the Official Committee of Asbestos Claimants of G-I Holdings, Inc. in G-I Holdings, Inc.’s bankruptcy in the District of New Jersey. In July 2004, PIMCO was named in this lawsuit and remains a defendant. The plaintiff seeks to recover for the bankruptcy estate assets that were transferred by the predecessor entity of G-I Holdings, Inc. to a wholly-owned subsidiary in 1994. The subsidiary has since issued notes, of which the Fund is alleged to be a holder. The complaint alleges that in 2000, more than two hundred noteholders — including the Fund — were granted a second priority lien on the assets of the subsidiary in exchange for their consent to a refinancing transaction and the granting of a first priority lien to the lending banks. The plaintiff is seeking invalidation of the lien in favor of the noteholders and/or the value of the lien. On June 21, 2006, the District of New Jersey overturned the Bankruptcy Court’s decision granting permission to file the adversary proceeding and remanded the matter to the Bankruptcy Court for further proceedings. Following a motion to reconsider, the District Court upheld its remand on August 7, 2006, and instructed the Bankruptcy Court to conduct a “cost-benefit” analysis of the Committee’s claims, including claims against the noteholders. The Bankruptcy Court held a status conference on October 25, 2006 and set a briefing schedule relating to this cost-benefit analysis.
The foregoing speaks only as of the date of this report. It is possible that these matters and/or other developments resulting from these matters could lead to a decrease in the market value of the Funds’ Shares or other adverse consequences to the Fund. However, PIMCO believes that these matters are not likely to have a material adverse effect on the Fund or on PIMCO’s ability to perform its investment advisory services relating to the Fund.
9. CHANGE IN PORTFOLIO MANAGER
On June 1, 2006, the Fund named Daniel J. Ivascyn as the Fund’s portfolio manager primarily responsible for the day-to-day management of the Fund’s investment portfolio. Mr. Ivascyn had served as co-portfolio manager of the Fund since October 4, 2002, together with William C. Powers. Mr. Ivascyn is a Managing Director. He joined PIMCO in 1998, previously having been associated with Bear Stearns in the asset backed securities group as well as T. Rowe Price and Fidelity Investments. Mr. Ivascyn has sixteen years of investment experience and holds a degree in economics from Occidental College and an MBA in analytic finance from the University of Chicago Graduate School of Business.
| 22 | PIMCO Commercial Mortgage Securities Trust, Inc. |
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of PIMCO Commercial Mortgage Securities Trust, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations, of changes in net assets and of cash flows, and the financial highlights present fairly, in all material respects, the financial position of the PIMCO Commercial Mortgage Securities Trust, Inc. (hereinafter referred to as the “Fund”) at December 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, cash flows for the year then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to collectively as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and counterparties, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 22, 2007
| Annual Report | December 31, 2006 | 23 |
Table of Contents
| Privacy Policy* | (Unaudited) | |
The Funds consider customer privacy to be a fundamental aspect of their relationships with shareholders and are committed to maintaining the confidentiality, integrity and security of their current, prospective and former shareholders’ personal information. To ensure their shareholders’ privacy, the Funds have developed policies that are designed to protect this confidentiality, while allowing shareholder needs to be served.
Obtaining Personal Information
In the course of providing shareholders with products and services, the Funds and certain service providers to the Funds, such as the Funds’ investment advisers (“Advisers”), may obtain non-public personal information about shareholders, which may come from sources such as account applications and other forms, from other written, electronic or verbal correspondence, from shareholder transactions, from a shareholder’s brokerage or financial advisory firm, financial adviser or consultant, and/or from information captured on the Funds’ internet web sites.
Respecting Your Privacy
As a matter of policy, the Funds do not disclose any personal or account information provided by shareholders or gathered by the Funds to non-affiliated third parties, except as required or permitted by law or as necessary for such third parties to perform their agreements with respect to the Funds. As is common in the industry, non-affiliated companies may from time to time be used to provide certain services, such as preparing and mailing prospectuses, reports, account statements and other information, conducting research on shareholder satisfaction and gathering shareholder proxies. A Fund’s Distributor may also retain non-affiliated companies to market the Fund’s shares or products which use the Fund’s shares and enter into joint marketing agreements with other companies. These companies may have access to a shareholder’s personal and account information, but are permitted to use this information solely to provide the specific service or as otherwise permitted by law. In most cases, the shareholders will be clients of a third party, but the Funds may also provide a shareholder’s personal and account information to the shareholder’s respective brokerage or financial advisory firm.
Sharing Information with Third Parties
The Funds reserve the right to disclose or report personal information to non-affiliated third parties, in limited circumstances, where the Funds believe in good faith that disclosure is required under law to cooperate with regulators or law enforcement authorities, to protect their rights or property or upon reasonable request by any Fund in which a shareholder has chosen to invest. In addition, the Funds may disclose information about a shareholder’s accounts to a non-affiliated third party with the consent of the shareholder.
Sharing Information with Affiliates
The Funds may share shareholder information with their affiliates in connection with servicing their shareholders’ accounts or to provide shareholders with information about products and services that the Funds or their Advisers, principal underwriters or their affiliates (“Service Affiliates”) believe may be of interest to such shareholders. The information that the Funds share may include, for example, a shareholder’s participation in one of the Funds or in other investment programs sponsored by a Service Affiliate, a shareholder’s ownership of certain types of accounts (such as IRAs), or other data about a shareholder’s accounts. The Funds’ Service Affiliates, in turn, are not permitted to share shareholder information with non-affiliated entities, except as required or permitted by law.
Procedures to Safeguard Private Information
The Funds take seriously the obligation to safeguard shareholder non-public personal information. In addition to this policy, the Funds have also implemented procedures that are designed to restrict access to a shareholder’s non-public personal information only to internal personnel who need to know that information in order to provide products or services to such shareholders. In order to guard a shareholder’s non-public personal information, physical, electronic and procedural safeguards are in place.
* This Privacy Policy applies to the following entities: PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO Commercial Mortgage Securities Trust, Inc. and PIMCO Strategic Global Government Fund, Inc. (collectively, the “Funds”).
| 24 | PIMCO Commercial Mortgage Securities Trust, Inc. |
Table of Contents
| Dividend Reinvestment Plan | (Unaudited) | |
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 additional 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. Computershare Trust Co., N.A. 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.
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.
| Annual Report | December 31, 2006 | 25 |
Table of Contents
| (Unaudited) | ||
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 Computershare Trust Co., N.A., 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 Computershare Trust Co., N.A.
250 Royall Street
Canton, MA 02021
Telephone: 1-800-213-3606
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 with the Plan Agent 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 Computershare Trust Co., N.A. 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.
| 26 | PIMCO Commercial Mortgage Securities Trust, Inc. |
Table of Contents
| Management of the Fund | (Unaudited) | |
The chart below identifies the Directors and Officers of the Fund. Each “interested” Director as defined by the 1940 Act, is indicated by an asterisk (*). Unless otherwise indicated, the address of all persons below is 840 Newport Center Drive, Newport Beach, CA 92660.
| Directors of the Fund | ||||||||
| Name, Age and Position Held with Trust |
Term of Office** and Length of Time Served |
Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Director |
Other Directorships Held by Director | ||||
| Interested Directors | ||||||||
| Brent R. Harris* 47 Chairman of the Board and Director |
09/1993 to present |
Managing Director and member of Executive Committee PIMCO. |
92 | Trustee and Chairman of the Boards, PIMCO Funds and PIMCO Variable Insurance Trust; Director and Vice President, StocksPLUS® Management, Inc.; and member of Board of Governors and Executive Committee, Investment Company Institute. | ||||
| R. Wesley Burns* Director |
11/1997 to present |
Consulting Managing Director and Director, PIMCO. |
93 | Trustee, PIMCO Funds and PIMCO Variable Insurance Trust; Director and Chairman of the Board, PIMCO Strategic Global Government Fund, Inc.; and Director, PS Business Parks, Inc. (a real estate investment trust). | ||||
| Independent Directors | ||||||||
| Marilyn A. Alexander 55 Director |
10/2006 to present |
Independent Consultant, Alexander & Friedman, LLC (a consulting service for corporate/not-for-profit executives). Formerly, Senior Vice President and Chief Director, Financial Officer of the Disneyland Resort, Walt Disney Company (an entertainment conglomerate). | 92 | Trustee, PIMCO Funds and PIMCO Variable Insurance Trust; Trustee, Equity Office Properties Trust; Director, New Century Financial Corporation; and Director, Breast Health Awareness Foundation. | ||||
| E. Philip Cannon 66 Director |
03/2000 to present |
Proprietor, Cannon & Company, (a private equity investment firm). Formerly, President, Houston Zoo. | 92 | Trustee, PIMCO Funds and PIMCO Variable Insurance Trust. Formerly, Trustee, Allianz Funds (formerly, PIMCO Funds: Multi-Manager Series). | ||||
| Vern O. Curtis 72 |
02/1995 to present |
Private Investor. | 92 | Trustee, PIMCO Funds and PIMCO Variable Insurance Trust; and Director, PS Business Parks, Inc., (a real estate investment trust). | ||||
| J. Michael Hagan 67 Director |
03/2000 to present |
Private Investor and Business Adviser (primarily to manufacturing companies). | 92 | Trustee, PIMCO Funds and PIMCO Variable Insurance Trust; Director, Ameron International (manufacturing); and Director, Fleetwood Enterprises (manufacturer of housing and recreational vehicles). Formerly, Director, Remedy Temp (staffing). | ||||
| William J. Popejoy 68 Director |
07/1993 to 02/1995 and 08/1995 to present |
Private Investor. |
92 | Trustee, PIMCO Funds and PIMCO Variable Insurance Trust. Formerly, Director, New Century Financial Corporation. | ||||
* Each of Mr. Harris and Mr. Burns is an “interested person” of the Fund (as the term is defined in the 1940 Act) because of his affiliations with PIMCO.
** Trustees serve until their successors are duly elected and qualified.
| Annual Report | December 31, 2006 | 27 |
Table of Contents
| Management of the Fund (Cont.) | (Unaudited) | |
| Name, Age and Position Held with Trust |
Term of Office*** and Length of Time Served |
Principal Occupation(s) During Past 5 Years | ||
| Officers of the Fund | ||||
| Ernest L. Schmider 49 |
05/2005 to present | Managing Director, PIMCO. | ||
| David C. Flattum 42 |
11/2006 to present | Executive Vice President and General Counsel, PIMCO. Formerly, Managing Director, Chief Operating Officer and General Counsel, Allianz Global Investors of America L.P.; and Partner at Latham and Watkins LLP. | ||
| Jennifer E. Durham 36 Chief Compliance Officer |
07/2004 to present | Senior Vice President, PIMCO. Formerly, Vice President, PIMCO. | ||
| Daniel J. Ivascyn 37 Senior Vice President |
11/2001 to present | Managing Director, PIMCO. Formerly, Executive Vice President. | ||
| William C. Powers 49 Senior Vice President |
07/1993 to present | Managing Director, PIMCO. | ||
| Jeffrey M. Sargent 44 Senior Vice President |
06/1993 to present | Executive Vice President, PIMCO. Formerly, Senior Vice President and Vice President, PIMCO. | ||
| William S. Thompson, Jr. 61 Senior Vice President |
07/1993 to present | Managing Director and Chief Executive Officer, PIMCO. | ||
| J. Stephen King, Jr. 44 |
05/2005 to present | Senior Vice President and Attorney, PIMCO. Formerly, Vice President, PIMCO; and Associate, Dechert LLP. | ||
| Henrik P. Larsen 36 |
02/1999 to present | Senior Vice President, PIMCO. Formerly, Vice President, PIMCO. | ||
| Michael J. Willemsen 47 |
02/1995 to present | Vice President, PIMCO. | ||
| Garlin G. Flynn 60 Secretary |
08/1995 to present | Senior Paralegal, PIMCO. Formerly, Paralegal and Specialist, PIMCO. | ||
| John P. Hardaway 49 |
06/1993 to present | Executive Vice President, PIMCO. Formerly, Senior Vice President, PIMCO. | ||
| Erik C. Brown 39 Assistant Treasurer |
02/2001 to present | Senior Vice President, PIMCO. Formerly, Vice President, PIMCO. | ||
| Stacie D. Anctil 37 |
11/2003 to present | Vice President, PIMCO. Formerly, Specialist, PIMCO. | ||
*** The Officers of the Fund are re-appointed annually by the Board of Directors.
| 28 | PIMCO Commercial Mortgage Securities Trust, Inc. |
Table of Contents
Approval of Renewal of Investment Management Agreement
and Administrative Services Agreement
On August 15, 2006, the Board of Directors (the “Board”) of PIMCO Commercial Mortgage Securities Trust, Inc. (the “Fund”), including a majority of the independent Directors, approved the renewal of the Fund’s Investment Management Agreement and Administrative Services Agreement (together, the “Agreements”) with Pacific Investment Management Company LLC (“PIMCO”) for an additional one-year term through August 31, 2007. The information, material factors and conclusions that formed the basis for the Board’s approval are described below.
1. Information Received
A. Materials Reviewed
During the course of each year, the Directors receive a wide variety of materials relating to the services provided by PIMCO. At each of its quarterly meetings, the Board reviews the Fund’s investment performance and matters relating to fund operations, including the Fund’s compliance program, shareholder services, valuation, custody, and other information relating to the nature, extent and quality of services provided by PIMCO to the Fund. In considering whether to approve renewal of the Agreements, the Board also reviewed supplementary information, including comparative industry data with regard to investment performance, advisory fees and expenses, financial and profitability information regarding PIMCO and information about the personnel providing investment management and administrative services to the Fund.
B. Review Process
In connection with the renewal of the Agreements, the Board reviewed written materials prepared by PIMCO in response to requests from Fund counsel. The Board also received assistance and advice regarding applicable legal standards from Fund counsel, and reviewed comparative fee and performance data prepared at the Board’s request by Lipper, Inc. (“Lipper”), an independent provider of investment company performance and fee and expense data, and a report prepared by PIMCO containing comparative performance and expense ratio information from Morningstar. The Board also heard oral presentations on matters related to the Agreements and met both as a full Board and as the independent Directors alone, without management present. In deciding to recommend the renewal of the Agreements, the Board did not identify any single factor or particular information that, in isolation, was controlling. This summary describes the most important, but not all, of the factors considered by the Board.
2. Nature, Extent and Quality of Services
A. PIMCO and its Personnel and Resources
The Board considered the depth and quality of PIMCO’s investment management process, including: its global research capabilities; the experience, capability and integrity of its senior management and other personnel; the low turnover rates of its key personnel; the overall financial strength and stability of its organization; and the ability of its organizational structure to address the recent growth in assets under management. The Board also considered that PIMCO makes available to its investment professionals a variety of resources and systems relating to investment management, compliance, trading, performance and portfolio accounting. The Board considered PIMCO’s commitment to investing in information technology supporting investment management and compliance, as well as PIMCO’s continuing efforts to attract and retain qualified personnel and to maintain and enhance its resources and systems.
B. Other Services
The Board considered PIMCO’s policies, procedures and systems to assure compliance with applicable laws and regulations and its commitment to these programs; its efforts to keep the Directors informed about matters relevant to the Fund and its shareholders; and its attention to matters that may involve conflicts of interest with the Fund. The Board also considered the nature, extent, quality and cost of administrative services provided by PIMCO to the Fund under the Agreements and the terms of the Agreements. Ultimately, the Board concluded that the nature, extent and quality of the services provided by PIMCO has benefited and will likely continue to benefit the Fund and its shareholders.
3. Investment Performance
The Board received and examined information from PIMCO concerning the Fund’s one-, three-, five- and ten-year performance for the periods ended June 30, 2006 and from Lipper concerning the Fund’s one-, two-, three-, five- and ten-year performance for the periods ended May 31, 2006. The Board noted that shares of the Fund had generally been trading at a premium for the one-, three-, five- and ten-year periods ended June 30, 2006. The Board also noted that for each of these periods, the Fund had beaten its benchmark index based both on its NAV and market
| Annual Report | December 31, 2006 | 29 |
Table of Contents
price. The Board also noted that the Fund had outperformed most of its peer group funds and its peer group average based both on its NAV and market price for these periods. The Board also noted that while the Fund had underperformed most of its peer group funds based on its total return during certain periods, the Fund outperformed most of its peer group funds based on total return for the two-, five-, and ten-year periods ended May 31, 2006.
Overall, the Board determined that the Fund’s investment performance was strong, and concluded that PIMCO’s performance record in managing the Fund indicates that its continued management is likely to benefit the Fund and its shareholders.
4. Advisory Fees and Administrative Fees
PIMCO reported to the Board that, in proposing fees for the Fund, it considers a number of factors, including the type and complexity of the services provided, the cost of providing services, the risk assumed by PIMCO in the provision of services, the impact on potential returns from different levels of fees, the competitive marketplace for financial products, and the attractiveness of potential Fund returns to current and potential investors.
The Board considered the services to be provided under the Agreements and the advisory and administrative fees. With respect to overall levels of Fund expenses, the Board observed that bond funds are more fee- and expense-ratio sensitive than equity funds, given the tangible impact of fees and expenses on yield. The Board compared the Fund’s total expenses to other funds in the Expense Group provided by Lipper and PIMCO and found the Fund’s total expenses to be reasonable. The Board noted that the Fund’s expense ratio was lower than certain of the comparative funds presented by Lipper and PIMCO. PIMCO does not manage any separate accounts with a similar investment strategy to the Fund; therefore the Board could not consider the fees charged by PIMCO to comparable separate accounts. The Board also considered the advisory fees charged by PIMCO to the other closed-end fund PIMCO manages. The Board concluded that the Fund’s advisory and administrative fees were reasonable in relation to the value of the services provided.
Based on the information presented by PIMCO and Lipper, members of the Board then determined, in the exercise of their business judgment, that the level of the advisory and administrative fees charged by PIMCO, as well as the total expenses of the Fund, are reasonable and renewal of the Agreements will likely benefit the Fund and its shareholders.
5. Adviser Costs, Level of Profits and Economies of Scale
The Board reviewed information regarding PIMCO’s costs of providing services to the Fund as a whole, as well as the resulting level of profits to PIMCO, noting that those results were comparable to the reported results of several large publicly held investment management companies. The Board noted that it had also received information regarding the structure and manner in which PIMCO’s investment professionals were compensated, and PIMCO’s view of the relationship of such compensation to the attraction and retention of quality personnel. The Board considered PIMCO’s need to invest in technology, infrastructure and staff to reinforce and offer new services and to accommodate changing regulatory requirements.
With respect to potential economies of scale, the Board noted that, as a closed-end fund, the Fund was not expected to materially increase in size. The Board also noted that although the Fund’s Investment Management Agreement does not contain breakpoints, advisory agreements for closed-end funds generally do not contain breakpoints.
6. Ancillary Benefits
The Board considered other benefits received by PIMCO and its affiliates as a result of PIMCO’s relationship with the Fund, including possible ancillary benefits to PIMCO’s institutional investment management business due to the reputation and market penetration of the Fund. The Board also reviewed PIMCO’s soft dollar policies and procedures, noting that PIMCO has adopted a policy not to accept soft dollars.
7. Conclusions
Based on their review, including their consideration of each of the factors referred to above, the Board concluded that the nature, extent and quality of the services rendered to the Fund by PIMCO continued to be excellent and favored renewal of the Agreements. The Board concluded that the Agreements continued to be fair and reasonable to the Fund and its shareholders, that the Fund’s shareholders received reasonable value in return for the advisory fees and other amounts paid to PIMCO by the Fund, and that the renewal of the Agreements was in the best interests of the Fund and its shareholders.
| 30 | PIMCO Commercial Mortgage Securities Trust, Inc. |
Table of Contents
Other Information
Investment Manager and Administrator
Pacific Investment Management Company LLC
840 Newport Center Drive
Newport Beach, California 92660
Transfer Agent
Computershare Trust Co., N.A.
250 Royall Street
Canton, Massachusetts 02021
Custodian
State Street Bank & Trust Co.
801 Pennsylvania
Kansas City, Missouri 64105
Legal Counsel
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
Table of Contents
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.
3674-AR-0207
Table of Contents
| Item 2. |
Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a code of ethics (the “Code”) that applies to the registrant’s principal executive officer and principal financial officer. During the period, the Code was amended to clarify certain defined terms, address the role of the registrant’s Chief Compliance Officer and provide for the public disclosure of any amendments or waivers. The registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the principal executive officer or principal financial officer during the period covered by this report.
A copy of the Code is included as an exhibit to this report. | |||||||||
| Item 3. |
Audit Committee Financial Expert. | |||||||||
| (a) | The Board of Directors has determined that Vern O. Curtis, who serves on the Board’s audit committee, qualifies as an “audit committee financial expert” as such term is defined in the instructions to this Item 3. The Board has also determined that Mr. Curtis is “independent” as such term is interpreted under this Item 3. | |||||||||
| Item 4. |
Principal Accountant Fees and Services. | |||||||||
| (a) | Fiscal Year Ended |
Audit Fees |
|||||||||
| December 31, 2006 | $ | 20,060 | |||||||||
| December 31, 2005 | $ | 20,950 | |||||||||
| (b) | Fiscal Year Ended |
Audit-Related Fees (1) |
|||||||||
| December 31, 2006 | $ | 2,160 | |||||||||
| December 31, 2005 | $ | 9,350 | |||||||||
| (c) | Fiscal Year Ended |
Tax Fees (2) |
|||||||||
| December 31, 2006 | $ | — | |||||||||
| December 31, 2005 | $ | 1,750 | |||||||||
| (d) | Fiscal Year Ended |
All Other Fees (3) |
|||||||||
| December 31, 2006 | $ | — | |||||||||
| December 31, 2005 | $ | — | |||||||||
| “Audit Fees” represents fees billed for each of the last two fiscal years for professional services rendered for the audit of the PIMCO Commercial Mortgage Securities Trust, Inc (the “Fund”) annual financial statements for those fiscal years or services that are normally provided by the accountant in connection with statutory or regulatory filings or engagements for those fiscal years.
“Audit-Related Fees” represents fees billed for each of the last two fiscal years for assurance and related services reasonably related to the performance of the audit of the Fund’s annual financial statements for those years.
“Tax Fees” represents fees billed for each of the last two fiscal years for professional services related to tax compliance, tax advice and tax planning, including review of federal and state income tax returns, review of excise tax distribution requirements and preparation of excise tax returns.
“All Other Fees” represents fees, if any, billed for other products and services rendered by the principal accountant to the Fund for the last two fiscal years.
(1) Includes aggregate fees billed for review of the registrant’s semi-annual reports to shareholders.
(2) Includes aggregate fees billed for review of the registrant’s tax returns.
(3) There were no “Other Fees” for the last two fiscal years. | ||||||||||||
| (e) | Pre-approval policies and procedures | |||||||||||
| (1) | The registrant’s Audit Committee has adopted pre-approval policies and procedures (the “Procedures”) to govern the Audit Committee’s pre-approval of (i) all audit services and permissible non-audit services to be provided to the registrant by its independent accountant, and (ii) all permissible non-audit services to be provided by such independent accountant to the registrant’s investment adviser and to any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant (collectively, the “Service Affiliates”) if the services provided directly relate to the registrant’s operations and financial reporting. In accordance with the Procedures, the Audit Committee is responsible for the engagement of the independent accountant to certify the registrant’s financial statements for each fiscal year. With respect to the pre-approval of non-audit services provided to the registrant and its Service Affiliates, the Procedures provide that the Audit Committee may annually pre-approve a list of types or categories of non-audit services that may be provided to the registrant or its Service Affiliates, or the Audit Committee may pre-approve such services on a project-by-project basis as they arise. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent accountant. The Procedures also permit the Audit Committee to delegate authority to one or more of its members to pre-approve any proposed non-audit services that have not been previously pre-approved by the Committee, subject to the ratification by the full Audit Committee no later than its next scheduled meeting. | |||||||||||
| (2) | With respect to the services described in paragraphs (b) through (d) of this Item 4, no amount was approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. | |||||||||||
| (f) | Not applicable. | |||||||||||
| (g) | ||||||||||||
| Aggregate Non-Audit Fees Billed to Entity |
||||||||||||
| Entity |
December 31, 2006 |
December 31, 2005 |
||||||||||
| PIMCO Commercial Mortgage Securities Trust, Inc. |
$ | 2,160 | $ | 11,100 | ||||||||
| Pacific Investment Management Company LLC |
$ | 676,012 | $ | 407,032 | ||||||||
| Totals |
$ | 753,672 | $ | 418,132 | ||||||||
| (h) | The registrant’s Audit Committee has considered whether the provision of non-audit services that were rendered to the Registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant’s which were not pre-approved (not requiring pre-approval) is compatible with maintaining the principal accountant’s independence. | |||||||||||||
| Item 5. |
Audit Committee of Listed Registrants.
The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The audit committee is comprised of: | |||||||||||||
| Marilyn A. Alexander E. Philip Cannon; Vern O. Curtis; J. Michael Hagan; William J. Popejoy | ||||||||||||||
| Item 6. |
Schedule of Investments.
The schedule of investments is included as part of the report to shareholders under Item 1. | |||||||||||||
| Item 7. |
Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. | |||||||||||||
| (a) | PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. The Proxy Policy has been adopted by the registrant as the policies and procedures that PIMCO will use when voting proxies on behalf of the registrant. Recognizing that proxy voting is a rare event in the realm of fixed income investing and is typically limited to solicitation of consent to changes in features of debt securities, the Proxy Policy also applies to any voting rights and/or consent rights of PIMCO, on behalf of the registrant, with respect to debt securities, including but not limited to, plans of reorganization, and waivers and consents under applicable indentures. | |||||||||||||
| The Proxy Policy is designed and implemented in a manner reasonably expected to ensure that voting and consent rights are exercised in the best interests of the registrant and its shareholders. Each proxy is voted on a case-by-case basis taking into consideration any relevant contractual obligations as well as other relevant facts and circumstances at the time of the vote. In general, PIMCO reviews and considers corporate governance issues related to proxy matters and generally supports proposals that foster good corporate governance practices. PIMCO may vote proxies as recommended by management on routine matters related to the operation of the issuer and on matters not expected to have a significant economic impact on the issuer and/or its shareholders. | ||||||||||||||
| PIMCO will supervise and periodically review its proxy voting activities and implementation of the Proxy Policy. PIMCO will review each proxy to determine whether there may be a material conflict between PIMCO and the registrant. If no conflict exists, the proxy will be forwarded to the appropriate portfolio manager for consideration. If a conflict does exist, PIMCO will seek to resolve any such conflict in accordance with the Proxy Policy. PIMCO seeks to resolve any material conflicts of interest by voting in good faith in the best interest of the registrant. If a material conflict of interest should arise, PIMCO will seek to resolve such conflict in the registrant’s best interest by pursuing any one of the following courses of action: (i) convening a committee to assess and resolve the conflict; (ii) voting in accordance with the instructions of the Board; (iii) voting in accordance with the recommendation of an independent third-party service provider; (iv) suggesting to the Board that the registrant engage another party to determine how the proxy should be voted; (v) delegating the vote to a third-party service provider; or (vi) voting in accordance with the factors discussed in the Proxy Policy. | ||||||||||||||
| Item 8. |
Portfolio Managers of Closed-End Management Investment Companies.
Daniel J. Ivascyn is responsible for the day-to-day management of the Fund. The table below provides information about the portfolio manager.
| |||||||||||||
| Portfolio Manager |
Since |
Recent | ||||||||||||
| Daniel J. Ivascyn |
10/02* | Managing Director, PIMCO. He joined PIMCO as a Portfolio Manager in 1998, and is a member of PIMCO’s mortgage and ABS team. | ||||||||||||
|
* Prior to June 1, 2006, Mr. Ivascyn served as co-portfolio manager to the Fund with Mr. William C. Powers.
Other Accounts Managed
Mr. Ivascyn also manages other registered investment companies, other pooled investment vehicles and other accounts, as indicated below. The following table identifies, as of December 31, 2006: (i) the number of other registered investment companies, pooled investment vehicles and other accounts managed by the portfolio manager; and (iii) the total assets of such companies, vehicles and accounts, and the number and total assets of such companies, vehicles and accounts with respect to which the advisory fee is based on performance.
| ||||||||||||||
| Portfolio Manager |
Number of All Accounts |
Total Assets of All Accounts (in $MM) | ||||||||||||
| Daniel J. Ivascyn |
Registered Investment Companies | 4 | $3,084 | |||||||||||
| Registered Investment Companies with Performance-Based Advisory Fees | None | None | ||||||||||||
| Other Pooled Investment Vehicles | 3 | $215 | ||||||||||||
| Other Pooled Investment Vehicles with Performance-Based Advisory Fees | 1 | $54 | ||||||||||||
| Other Accounts | 6 | $3,274 | ||||||||||||
| Other Accounts with Performance-Based Advisory Fees | None | None | ||||||||||||
| Conflicts of Interest
From time to time, potential conflicts of interest may arise between the portfolio manager’s management of the investments of the Fund, on the one hand, and the management of other accounts, on the other. The other accounts might have similar investment objectives or strategies as the Fund, track the same index the Fund tracks or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Fund. The other accounts might also have different investment objectives or strategies than the Fund.
Knowledge and Timing of Fund Trades. A potential conflict of interest may arise as a result of the portfolio manager’s day-to-day management of the Fund. Because of his position with the Fund, the portfolio manager knows the size, timing and possible market impact of the Fund’s trades. It is theoretically possible that the portfolio manager could use this information to the advantage of other accounts he manages and to the possible detriment of the Fund.
Investment Opportunities. A potential conflict of interest may arise as a result of the portfolio manager’s management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for both the Fund and the other accounts managed by the portfolio manager, but may not be available in sufficient quantities for both the Fund and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by the Fund and another account. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.
Under PIMCO’s allocation procedures, investment opportunities are allocated among various investment strategies based on individual account investment guidelines and PIMCO’s investment outlook. PIMCO has also adopted additional procedures to complement the general trade allocation policy that are designed to address potential conflicts of interest due to the side-by-side management of the Fund and certain pooled investment vehicles, including investment opportunity allocation issues.
Performance Fees. The portfolio manager may advise certain accounts with respect to which the advisory fee is based entirely or partially on performance. Performance fee arrangements may create a conflict of interest for the portfolio manager in that the portfolio manager may have an incentive to allocate the investment opportunities that he believes might be the most profitable to such other accounts instead of allocating them to the Fund. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities between the Fund and such other accounts on a fair and equitable basis over time.
Portfolio Manager Compensation
PIMCO has adopted a “Total Compensation Plan” for its professional level employees, including the portfolio manager, that is designed to pay competitive compensation and reward performance, integrity and teamwork consistent with the firm’s mission statement. The Total Compensation Plan includes a significant incentive component that rewards high performance standards, work ethic and consistent individual and team contributions to the firm. Mr. Ivascyn, as a Managing Director of PIMCO, receives a base salary and also receives compensation from PIMCO’s profits. Certain employees of PIMCO, including the portfolio manager, may elect to defer compensation through PIMCO’s deferred compensation plan. PIMCO also offers its employees a non-contributory defined contribution plan through which PIMCO makes a contribution based on the employee’s compensation. PIMCO’s contribution rate increases at a specified compensation level, which is a level that would include the portfolio manager.
Salary. Base salaries are determined by considering an individual portfolio manager’s experience and expertise and may be reviewed for adjustment annually.
Investment professionals, including the portfolio manager, are eligible to participate in a Long Term Cash Bonus Plan (“Cash Bonus Plan”), which provides cash awards that appreciate or depreciate based upon the performance of PIMCO’s parent company, Allianz Global Investors of America L.P. (“AGI”), and PIMCO over a three-year period. The aggregate amount available for distribution to participants is based upon AGI’s profit growth and PIMCO’s profit growth.
Profit Sharing Plan. Instead of a bonus, Mr. Ivascyn, as a Managing Director of PIMCO, receives compensation from a non-qualified profit sharing plan consisting of a portion of PIMCO’s net profits. Mr. Ivascyn, as a Managing Director, receives an amount determined by the Managing Director Compensation Committee, based upon his individual overall contribution to the firm and the Bonus Factors.
From time to time, under the PIMCO Class B Unit Purchase Plan, Managing Directors and certain executive management (including Executive Vice Presidents) of PIMCO may become eligible to purchase Class B Units of PIMCO. Upon their purchase, the Class B Units are immediately exchanged for Class A Units of PIMCO Partners, LLC, a California limited liability company that holds a minority interest in PIMCO and is owned by the Managing Directors and certain executive management of PIMCO. The Class A Units of PIMCO Partners, LLC entitle their holders to distributions of a portion of the profits of PIMCO. The PIMCO Compensation Committee determines which Managing Directors and executive management may purchase Class B Units and the number of Class B Units that each may purchase. The Class B Units are purchased pursuant to full recourse notes issued to the holder. The base compensation of each Class B Unit holder is increased in an amount equal to the principal amortization applicable to the notes given by the Managing Director or member of executive management.
Mr. Ivascyn, as a Managing Director, also has a long-term employment contract, which guarantees severance payments in the event of involuntary termination of his employment with PIMCO.
Securities Ownership
The table below shows the dollar range of shares of the Fund beneficially owned as of December 31, 2006, by the portfolio manager of the Fund.
| ||||||||||||||
| Portfolio Manager |
Dollar Range of Shares Owned |
|||||||||||||
| Daniel J. Ivascyn |
None | |||||||||||||
| Item 9. |
Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchases. | |||||||||||||
Registrant Purchases of Equity Securities
| Period |
(a) Total Number of Shares (or Units) Purchased* |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs* |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||
| Month #1 (July 1, 2006 - July 31, 2006) |
4,126.27 | $ | 13.02 | 4,126.27 | (1) | N/A | ||||
| Month #3 (August 1, 2006 - August 31, 2006) |
4,187.92 | $ | 12.92 | 4,187.92 | (1) | N/A | ||||
| Month #3 (September 1, 2006 - September 30, 2006) |
3,705.97 | $ | 13.63 | 3,705.97 | (1) | N/A | ||||
| Month #4 (October 1, 2006 - October 31, 2006) |
4,013.96 | $ | 13.41 | 4,013.96 | (1) | N/A | ||||
| Month #5 (November 1, 2006 - November 30, 2006) |
3,964.39 | $ | 13.59 | 3,964.39 | (1) | N/A | ||||
| Month #6 (December 1, 2006 - December 31, 2006) |
3,942.92 | $ | 13.73 | 3,942.92 | (1) | N/A | ||||
| Total |
23,941.43 | N/A | ||||||||
| * | Shares purchased include purchases made at NAV as well as open market by the agent of the Fund’s Dividend Reinvestment |
| Plan pursuant to such plan. |
|
|
(1) Purchased from original issue at 95% of market price. |
| Item 10. |
Submission of Matters to a Vote of Security Holders.
Not applicable. | |||||||||||||
| Item 11. |
Controls and Procedures. | |||||||||||||
| (a) | The principal executive officer and principal financial officer of the Fund have concluded that the Fund’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act) provide reasonable assurances that material information relating to the Fund is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report. | |||||||||||||
| (b) | There were no changes in the Fund’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting. | |||||||||||||
| Item 12. |
Exhibits. | |||||||||||||
| (a)(1) |
Exhibit 99. CODE—Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. | |
| (a)(2) |
Exhibit 99.CERT—Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| (b) |
Exhibit 99.906CERT—Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PIMCO Commercial Mortgage Securities Trust, Inc. | ||
| By: |
/s/ ERNEST L. SCHMIDER | |
| Ernest L. Schmider | ||
| President, Principal Executive Officer | ||
| Date: |
March 8, 2007 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: |
/s/ ERNEST L. SCHMIDER | |
| Ernest L. Schmider | ||
| President, Principal Executive Officer | ||
| Date: |
March 8, 2007 | |
| By: |
/s/ JOHN P. HARDAWAY | |
| John P. Hardaway | ||
| Treasurer, Principal Financial Officer | ||
| Date: |
March 8, 2007 | |