PIMCO said it can continue to run its Commodity Real Return Strategy Fund using current investment policies without falling out of step with a recent IRS ruling.

According to a Morningstar article, the Newport, California-based firm said it can use alternative investments such as commodity-linked notes or alternative structures within the fund to comply with ruling, which would limit its investments in commodity-linked swaps or other commodity-linked derivatives.

Earlier, PIMCO that the ruling, issued on December 16, may trigger changes in the way the fund is run.

Under the ruling, income from commodity-index derivative contracts does not help a fund qualify for the tax benefits typically enjoyed by mutual funds. It will take effect on July 1, 2006.

"If the fund is unable to ensure continued qualification using current investment techniques, the fund may be required to change its investment objective, policies or techniques, or cease operations," it said in the December 19 filing.

But on December 21, PIMCO amended its prospectus sticker to read: "PIMCO believes it can continue to operate the fund consistent with both the Revenue Ruling and its current investment policies using (i) alternative investments, such as commodity-linked notes, and/or (ii) alternative structures within the Fund. PIMCO believes that these changes can be made prior to June 30, 2006." 

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