EXHIBIT 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
July 27, 2000
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
The Bank of New York
Unit Investment Trust Division
101 Barclay Street
New York, New York 10286
Re: Van Kampen Focus Portfolios, Municipal Series 337
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Gentlemen:
We have acted as counsel for Van Kampen Funds Inc., Depositor of Van
Kampen Focus Portfolios, Municipal Series 337 (the "Fund"), in connection with
the issuance of Units of fractional undivided interest in the several Trusts of
said Fund under a Trust Agreement dated July 27, 2000 (the "Indenture") between
Van Kampen Funds Inc., as Depositor, American Portfolio Evaluation Services, a
division of Van Kampen Investment Advisory Corp., as Evaluator, and The Bank of
New York, as Trustee.
In this connection, we have examined the Registration Statement, the
form of Prospectus proposed to be filed with the Securities and Exchange
Commission, the Indenture and such other instruments and documents as we have
deemed pertinent. For purposes of the following opinions, it is assumed that
each asset of the Trusts is debt, the interest on which is excluded from gross
income for federal income tax purposes.
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) Each Trust is not an association taxable as a corporation
but will be governed by the provisions of subchapter J (relating to
trusts) of Chapter 1, Internal Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata
share of each asset of the respective Trust in the proportion that the
number of Units of such Trust held by him bears to the total number of
Units outstanding of such Trust. Under Subpart E, Subchapter J of
Chapter 1 of the Code, income of each Trust will be treated as income
of each Unitholder of the respective Trust in the proportion described,
and an item of Trust income will have the same character in the hands
of a Unitholder as it would have in the hands of the Trustee.
Accordingly, to the extent that the income of a Trust consists of
interest and original issue discount excludable from gross income under
Section 103 of the Code, such income will be excludable from Federal
gross income of the Unitholders, except in the case of a Unitholder who
is a substantial user (or a person related to such user) of a facility
financed through issuance of any industrial development bonds or
certain private activity bonds held by the respective Trust. In the
case of such Unitholder who is a substantial user, interest received
with respect to his Units attributable to such industrial development
bonds or such private activity bonds is includable in his gross income.
In the case of certain corporations, interest on the Bonds is included
in computing the alternative minimum tax pursuant to Section 56(c) of
the Code and the branch profits tax imposed by Section 884 of the Code
with respect to U.S. branches of foreign corporations.
(iii) Gain or loss will be recognized to a Unitholder upon
redemption or sale of his Units. Such gain or loss is measured by
comparing the proceeds of such redemption or sale with the adjusted
basis of the Units. If a Bond is acquired with accrued interest, that
portion of the price paid for the accrued interest is added to the tax
basis of the Bond. When this accrued interest is received, it is
treated as a return of capital and reduces the tax basis of the Bond.
If a Bond is purchased for a premium, the amount of the premium is
added to the tax basis of the Bond. Bond premium is amortized over the
remaining term of the Bond, and the tax basis of the Bond is reduced
each tax year by the amount of the premium amortized in that tax year.
Accordingly, Unitholders must reduce the tax basis of their Units for
their share of accrued interest received by the respective Trust, if
any, on Bonds delivered after the Unitholders pay for their Units to
the extent that such interest accrued on such Bonds before the date the
Trust acquired ownership of the Bonds (and the amount of this reduction
may exceed the amount of accrued interest paid to the seller) and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. In
addition, such basis will be increased by the Unitholder's aliquot
share of the accrued original issue discount (and market discount, if
the Unitholder elects to include market discount in income as it
accrues) with respect to each Bond held by the Trust with respect to
which there was original issue discount at the time the Bond was issued
(or which was purchased with market discount) and reduced by the annual
amortization of bond premium, if any, on Bonds held by the Trust.
(iv) If the Trustee disposes of a Trust asset (whether by
sale, payment on maturity, liquidation, redemption or otherwise) gain
or loss is recognized to the Unitholder and the amount thereof is
measured by comparing the Unitholder's aliquot share of the total
proceeds from the transaction with his basis for his fractional
interest in the asset disposed of. Such basis is ascertained by
apportioning the tax basis for his Units among each of the Trust assets
(as of the date on which his Units were acquired) ratably according to
their values as of the valuation date nearest the date on which he
purchased such Units. A Unitholder's basis in his Units and of his
fractional interest in each Trust asset must be reduced by the amount
of his aliquot share of accrued interest received by the Trust, if any,
on Bonds delivered after the Unitholders pay for their Units to the
extent that such interest accrued on the Bonds before the date the
Trust acquired ownership of the Bonds (and the amount of this reduction
may exceed the amount of accrued interest paid to the seller), must be
reduced by the annual amortization of bond premium, if any, on Bonds
held by the Trust and must be increased by the Unitholder's share of
the accrued original issue discount (and market discount, if the
Unitholder elects to include market discount in income as it accrues)
with respect to each Bond which, at the time the Bond was issued, had
original issue discount (or which was purchased with market discount).
(v) In the case of any Bond held by the Trust where the
"stated redemption price at maturity" exceeds the "issue price", such
excess shall be original issue discount. With respect to each
Unitholder, upon the purchase of his Units subsequent to the original
issuance of Bonds held by the Trust, Section 1272(a)(7) of the Code
provides for a reduction in the accrued "daily portion" of such
original issue discount upon the purchase of a Bond subsequent to the
Bond's original issue, under certain circumstances. In the case of any
Bond held by the Trust the interest on which is excludable from gross
income under Section 103 of the Code, any original issue discount which
accrues with respect thereto will be treated as interest which is
excludable from gross income under Section 103 of the Code.
(vi) We have examined the Municipal Bond Unit Investment Trust
Insurance policies, if any, issued to certain of the Trusts on the Date
of Deposit by AMBAC Assurance Corporation, Financial Guaranty Insurance
Corporation or a combination thereof. Each such policy, or a
combination of such policies, insures all bonds held by the Trustee for
that particular Trust (other than bonds described in paragraph (vii))
against default in the prompt payment of principal and interest. In our
opinion, any amount paid under each any such policy, or a combination
of such policies, which represents maturing interest on defaulted Bonds
held by the Trustee will be excludable from Federal gross income if,
and to the same extent as, such interest would have been so excludable
if paid in normal course by the Issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for
such policies are reasonable, customary and consistent with the
reasonable expectation that the Issuer of the Bonds, rather than the
insurer, will pay debt service on the Bonds. Paragraph (ii) of this
opinion is accordingly applicable to insurance proceeds representing
maturing interest.
(vii) Certain bonds in the portfolios of certain of the Insured
Trusts have been insured by the issuers thereof against default in the
prompt payment of principal and interest (the "Insured Bonds").
Insurance has been obtained for such Insured Bonds, or, in the case of
a commitment, the Bonds will be ultimately insured under the terms of
such an insurance policy, which are designated as issuer Insured Bonds
on the portfolio pages of the respective Trusts in the prospectus for
the Fund, by the issuer of such Insured Bonds. Insurance on Insured
Bonds is effective so long as such Insured Bonds remain outstanding.
For each of these Insured Bonds, we have been advised that the
aggregate principal amount of such Insured Bonds listed on the
portfolio page for the respective Trust was acquired by the applicable
Trust and are part of the series of such Insured Bonds listed in the
aggregate principal amount. Based upon the assumption that the Insured
Bonds of the Trust are part of the series covered by an insurance
policy or, in the case of a commitment, will be ultimately insured
under the terms of such an insurance policy, it is our opinion that any
amounts received by the applicable Trust representing maturing interest
on such Insured Bonds will be excludable from federal gross income if,
and to the same extent as, such interest would have been so excludable
if paid in normal course by the Issuer provided that, at the time such
policies are purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the Insured Bonds, rather than the insurer, will pay
debt service on the Insured Bonds. Paragraph (ii) of this opinion is
accordingly applicable to such payment.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price"). The application of these rules will also vary depending on the
value of the Bond on the date a Unitholder acquires his Units, and the price the
Unitholder pays for his Units.
Because the Trusts do not include any "private activity" bonds within
the meaning of Section 141 of the Code issued on or after August 8, 1986, none
of the Trust Funds' interest income shall be treated as an item of tax
preference when computing the alternative minimum tax. In the case of
corporations, for taxable years beginning after December 31, 1986, the
alternative minimum tax depends upon the corporation's alternative minimum
taxable income ("AMTI") which is the corporation's taxable income with certain
adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment items used
in computing AMTI of a corporation (other than an S corporation, Regulated
Investment Company, Real Estate Investment Trust, REMIC or FASIT) for taxable
years beginning after 1989, is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its AMTI
(before such adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt interest,
including interest on all Bonds in the Trust, and tax-exempt original issue
discount.
Effective for tax returns filed after December 31, 1987, all taxpayers
are required to disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Section 265 of the Code provides for a reduction in each taxable year
of 100 percent of the otherwise deductible interest on indebtedness incurred or
continued by financial institutions, to which either Section 585 or Section 593
of the Code applies, to purchase or carry obligations acquired after August 7,
1986, the interest on which is exempt from Federal income taxes for such taxable
year. Under rules prescribed by Section 265, the amount of interest otherwise
deductible by such financial institutions in any taxable year which is deemed to
be attributable to tax-exempt obligations acquired after August 7, 1986, will
generally be the amount that bears the same ratio to the interest deduction
otherwise allowable (determined without regard to Section 265) to the taxpayer
for the taxable year as the taxpayer's average adjusted basis (within the
meaning of Section 1016) of tax-exempt obligations acquired after August 7,
1986, bears to such average adjusted basis for all assets of the taxpayer.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units is not
deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of Units. However, these rules
generally do not apply to interest paid on indebtedness incurred for
expenditures of a personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued) subject to a statutory
de minimis rule. Market discount can arise based on the price a Trust pays for
Bonds or the price a Unitholder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under prior law, the
accretion had been treated as capital gain. Market discount that accretes while
a Trust holds a Bond would be recognized as ordinary income by the Unitholders
when principal payments are received on the Bond, upon sale or at redemption
(including early redemption), or upon the sale or redemption of his or her
Units, unless a Unitholder elects to include market discount in taxable income
as it accrues.
We have examined certain laws of the State of Pennsylvania (the
"State") to determine their applicability to the Pennsylvania IM-IT Trust (the
"Pennsvylania Trust") and to the holders of Units in the Pennsylvania Trust who
are residents of the State of Pennsylvania (the "Unitholders"). The assets of
the Pennsylvania Trust will consist of interest-bearing obligations issued by or
on behalf of the State, any public authority, commission, board or other agency
created by the State or a political subdivision of the State, or political
subdivisions thereof (the "Bonds"). Distributions of income with respect to the
Bonds received by the Pennsylvania Trust will be made monthly.
Although we express no opinion with respect thereto, in rendering the
opinion expressed herein, we have assumed that: (i) the Bonds were validly
issued by the State or its municipalities, as the case may be, (ii) the interest
thereon is excludable from gross income for federal income tax purposes, (iii)
the interest thereon is exempt from Pennsylvania State and local taxes and (iv)
the Bonds are exempt from county personal property taxes. This opinion does not
address the taxation of persons other than full-time residents of Pennsylvania.
Based on the foregoing, and review and consideration of existing State
laws as of this date, it is our opinion, and we herewith advise you, as follows:
(1) The Pennsylvania Trust will have no tax liability for
purposes of the personal income tax (the "Personal Income Tax"), the
corporate income tax (the "Corporate Income Tax") and the capital
stock-franchise tax (the `"Franchise Tax"), all of which are imposed
under the Pennsylvania Tax Reform Code of 1971, or the Philadelphia
School District Investment Net Income Tax (the "Philadelphia School
Tax") imposed under Section 19-1804 of the Philadelphia Code of
Ordinances.
(2) Interest on the Bonds, net of Pennsylvania Trust
expenses, which is exempt from the Personal Income Tax when received by
the Pennsylvania Trust and which would be exempt from such tax if
received directly by a Unitholder, will retain its status as exempt
from such tax when received by the Pennsylvania Trust and distributed
to such Unitholder. Interest on the Bonds which is exempt from the
Corporate Income Tax and the Philadelphia School Tax when received by
the Pennsylvania Trust and which would be exempt from such taxes if
received directly by a Unitholder, will retain its status as exempt
from such taxes when received by the Pennsylvania Trust and distributed
to such Unitholder.
(3) Distributions from the Pennsylvania Trust attributable to
capital gains recognized by the Pennsylvania Trust upon its disposition
of a Bond issued on or after February 1, 1994, will be taxable for
purposes of the Personal Income Tax and the Corporate Income Tax. No
opinion is expressed with respect to the taxation of distributions from
the Pennsylvania Trust attributable to capital gains recognized by the
Pennsylvania Trust upon its disposition of a Bond issued before
February 1, 1994.
(4) Distributions from the Pennsylvania Trust attributable to
capital gains recognized by the Pennsylvania Trust upon its disposition
of a Bond will be exempt from the Philadelphia School Tax if the Bond
was held by the Pennsylvania Trust for a period of more than six months
and the Unitholder held his Unit for more than six months before the
disposition of the Bond. If, however, the Bond was held by the
Pennsylvania Trust or the Unit was held by the Unitholder for a period
of less than six months, then distributions from the Pennsylvania Trust
attributable to capital gains recognized by the Pennsylvania Trust upon
its disposition of a Bond issued on or after February 1, 1994 will be
taxable for purposes of the Philadelphia School Tax; no opinion is
expressed with respect to the taxation of any such gains attributable
to Bonds issued before February 1, 1994.
(5) Insurance proceeds paid under policies which represent
maturing interest on defaulted obligations will be exempt from the
Corporate Income Tax to the same extent as such amounts are excluded
from gross income for federal income tax purposes. No opinion is
expressed with respect to whether such insurance proceeds are exempt
from the Personal Income Tax or the Philadelphia School Tax.
(6) Each Unitholder will recognize gain for purposes of the
Corporate Income Tax if the Unitholder redeems or sells Units of the
Pennsylvania Trust to the extent that such a transaction results in a
recognized gain to such Unitholder for federal income tax purposes and
such gain is attributable to Bonds issued on or after February 1, 1994.
No opinion is expressed with respect to the taxation of gains realized
by a Unitholder on the sale or redemption of a Unit to the extent such
gain is attributable to Bonds issued prior to February 1, 1994.
(7) A Unitholder's gain on the sale or redemption of a Unit
will be subject to the Personal Income Tax, except that no opinion is
expressed with respect to the taxation of any such gain to the extent
it is attributable to Bonds issued prior to February 1, 1994.
(8) A Unitholder's gain upon a redemption or sale of Units
will be exempt from the Philadelphia School Tax if the Unitholder held
his Unit for more than six months and the gain is attributable to Bonds
held by the Pennsylvania Trust for a period of more than six months.
If, however, the Unit was held by the Unitholder for less than six
months or the gain is attributable to Bonds held by the Pennsylvania
Trust for a period of less than six months, then the gains will be
subject to the Philadelphia School Tax; except that no opinion is
expressed with respect to the taxation of any such gains attributable
to Bonds issued before February 1, 1994.
(9) The Bonds will not be subject to taxation under the
County Personal Property Tax Act of June 17, 1913 (the "Personal
Property Tax"). Personal property taxes in Pennsylvania are imposed and
administered locally, and thus no assurance can be given as to whether
Units will be subject to the Personal Property Tax in a particular
jurisdiction. However, in our opinion, Units should not be subject to
the Personal Property Tax.
Unitholders should be aware that, generally, interest on indebtedness
incurred or continued to purchase or carry Units is not deductible for purposes
of the Personal Income Tax, the Corporate Income Tax or the Philadelphia School
Tax.
We have not examined any of the Bonds to be deposited and held in the
Pennsylvania Trust or the proceedings for the issuance thereof or the opinions
of bond counsel with respect thereto, and therefore express no opinion as to the
exemption from federal or state income taxation of interest on the Bonds if
interest thereon had been received directly by a Unitholder.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Pennsylvania law. Ownership of the Units may result
in collateral Pennsylvania tax consequences to certain taxpayers. Prospective
investors should consult their tax advisors as to the applicability of any such
collateral consequences.
Very truly yours,
CHAPMAN AND CUTLER
