Exhibit 12
[LETTERHEAD OF DECHERT]
___________, 200_
Board of Trustees
Pilgrim SmallCap Growth Fund
Pilgrim Mutual Funds
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
Pilgrim SmallCap Opportunities Fund
7337 East Doubletree Ranch Road
Scottsdale, AZ 85258-2034
Dear Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences to the Pilgrim SmallCap Growth Fund ("Target"), a separate series
of Pilgrim Mutual Funds, a Delaware business trust, to the holders of the shares
of beneficial interest (the "shares") of Target (the "Target Shareholders"), and
to the Pilgrim SmallCap Opportunities Fund ("Acquiring Fund"), a separate series
of Pilgrim SmallCap Opportunities Fund ("Acquiring Company"), a Massachusetts
business trust, in connection with the proposed transfer of substantially all of
the properties of Target to Acquiring Fund in exchange solely for voting shares
of beneficial interest of Acquiring Fund ("Acquiring Fund Shares"), followed by
the distribution of such Acquiring Fund Shares received by Target in complete
liquidation and termination of Target (the "Reorganization"), all pursuant to
the Agreement and Plan of Reorganization (the "Plan") dated as of
______________, 2001 between Pilgrim Mutual Funds on behalf of Target and
Acquiring Company on behalf of Acquiring Fund.
For purposes of this opinion, we have examined and rely upon (1) the Plan,
(2) the Form N-14 filed by Acquiring Fund on December __, 2001 with the
Securities and Exchange Commission, (3) the related Proxy Statement dated
February __, 2002, (4) the facts and representations contained in the letter
dated on or about the date hereof addressed to us from Acquiring Company on
behalf of Acquiring Fund, (5) the facts and representations contained in the
letter dated on or about the date hereof addressed to us from Pilgrim Mutual
Funds on behalf of Target, and (6) such other documents and instruments as we
have deemed necessary or appropriate for purposes of rendering this opinion.
This opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), United States Treasury regulations, judicial decisions, and
administrative rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof. This opinion is conditioned upon the
Reorganization taking place in the manner described in the Plan and the Form
N-14 referred to above.
Board of Trustees
December __, 2001
Page 2
Based upon the foregoing, it is our opinion that:
1. The acquisition by Acquiring Fund of substantially all of the properties of
Target in exchange solely for Acquiring Fund Shares followed by the
distribution of Acquiring Fund Shares to the Target Shareholders in
exchange for their Target shares in complete liquidation and termination of
Target will constitute a reorganization within the meaning of section
368(a) of the Code. Target and Acquiring Fund will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code.
2. Target will not recognize gain or loss upon the transfer of substantially
all of its assets to Acquiring Fund in exchange solely for Acquiring Fund
Shares except to the extent that Target's assets consist of contracts
described in section 1256(b) of the Code ("Section 1256 Contracts"); Target
will be required to recognize gain or loss on the transfer of any such
Section 1256 contracts to Acquiring Fund pursuant to the Reorganization as
if such Section 1256 contracts were sold to Acquiring Fund on the effective
date of the Reorganization at their fair market value. Target will not
recognize gain or loss upon the distribution to its shareholders of the
Acquiring Fund Shares received by Target in the Reorganization. We do not
express any opinion as to whether any accrued market discount will be
required to be recognized as ordinary income.
3. Acquiring Fund will recognize no gain or loss upon receiving the properties
of Target in exchange solely for Acquiring Fund Shares.
4. The basis to Acquiring Fund of the properties of Target received by
Acquiring Fund in the reorganization will be the same as the basis of those
properties in the hands of Target immediately before the exchange.
5. Acquiring Fund's holding periods with respect to the properties of Target
that Acquiring Fund acquires in the transaction will include the respective
periods for which those properties were held by Target (except where
investment activities of Acquiring Fund have the effect of reducing or
eliminating a holding period with respect to an asset).
6. The Target Shareholders will recognize no gain or loss upon receiving
Acquiring Fund Shares solely in exchange for Target shares.
7. The aggregate basis of the Acquiring Fund Shares received by a Target
Shareholder in the transaction will be the same as the aggregate basis of
Target shares surrendered by the Target Shareholder in exchange therefor.
8. A Target Shareholder's holding period for the Acquiring Fund Shares
received by the Target Shareholder in the transaction will include the
holding period during which the Target Shareholder held Target shares
surrendered in exchange therefor, provided that the Target Shareholder held
such shares as a capital asset on the date of Reorganization.
Board of Trustees
December __, 2001
Page 3
We express no opinion as to the federal income tax consequences of the
Reorganization except as expressly set forth above, or as to any transaction
except those consummated in accordance with the Plan.
Our opinion as expressed herein, is solely for the benefit of Target, the
Target Shareholders, and the Acquiring Fund, and unless we give our prior
written consent, neither our opinion nor this opinion letter may be quoted in
whole or in part or relied upon by any other person.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to this firm in the Tax Section. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the U.S. Securities and Exchange
Commission thereunder.
Very truly yours,