EXHIBIT 3.2
June 21, 2000
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
The Chase Manhattan Bank
Nuveen Administration Department
4 New York Plaza, Third Floor
New York, New York 10004-2413
Re: Nuveen Unit Trusts, Series 96
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Gentlemen:
We have acted as counsel for John Nuveen & Co. Incorporated, as Sponsor
and Depositor of Nuveen Unit Trusts, Series 96 (the "Fund") including Nuveen
Insured Corporate Portfolio, Series 5 (Long-Term) (the "Trust"), in connection
with the issuance of Units of fractional undivided interest in the Trusts, under
a Trust Indenture and Agreement dated June 21, 2000 (the "Indenture") between
John Nuveen & Co. Incorporated, as Depositor and Evaluator, and The Chase
Manhattan Bank, as Trustee.
In this connection, we have examined the Registration Statement, the
Prospectus, the Indenture, and such other instruments and documents as we have
deemed pertinent. The assets of the Trust will consist of a portfolio of
long-term corporate debt obligations issued by utility companies (the "Corporate
Bonds") and "Zero coupon" U.S. Treasury bonds (the "Treasury Bonds")
(collectively, the "Obligations") as set forth in the Prospectus. All
Obligations have been issued after July 18, 1984. For purposes of the opinions
set forth below, we have assumed that each of the Obligations is debt for
federal income tax purposes and that the interest on each of the Obligations is
includable in 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) The Trust is not an association taxable as a corporation for
Federal income tax purposes but will be governed by the provisions of
subpart E, 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 Trust for federal income tax purposes. Under subpart E,
subchapter J of chapter 1 of the Code, income of the Trust will be treated
as income of each Unitholder. Each Unitholder will be considered to have
received his pro rata share of income derived from each Trust asset when
such income is considered to be received by the Trust. Each Unitholder will
also be required to include in taxable income for federal income tax
purposes, original issue discount with respect to his interest in any
Obligation held by the Trust at the same time and in the same manner as
though the Unitholder were the direct owner of such interest. Original
issue discount will be treated as zero with respect to an Obligation if it
is "de minimis" within the meaning of Section 1273 of the Code. If a
Corporate Bond is a "high-yield discount obligation" within the meaning of
Section 163(e)(5) of the Code, certain special rules may apply. A
Unitholder may elect to include in taxable income for Federal income tax
purposes, market discount as it accrues with respect to his interest in any
Obligation held by the Trust which he is considered as having acquired with
market discount at the same time and in the same manner as though the
Unitholder were the direct owner of such interest.
(iii) The price a Unitholder pays for his Units, generally including
sales charges, is allocated among his pro rata portion of each Obligation
held by the Trust (in proportion to the fair market values thereof on the
valuation date closest to the date the Unitholder purchases his Units), in
order to determine his tax basis for his pro rata portion of each
Obligation held by such Trust. The Treasury Bonds are treated as Bonds that
were originally issued at an original issue discount. Because the Treasury
Bonds represent interests in "stripped" U.S. Treasury bonds, a Unitholder's
initial cost for his pro rata portion of each stripped Treasury Bond held
by the Trust (determined at the time he acquires his Units, in the manner
described above) shall be treated as its "purchase price" by the
Unitholder. Under the special rules relating to stripped bonds, original
issue discount applicable to stripped Treasury Bonds is effectively treated
as interest for federal income tax purposes and the amount of original
issue discount in this case is generally the difference between each
stripped Treasury Bond's purchase price and its stated redemption price at
maturity. A Unitholder will be required to include in gross income for each
taxable year the sum of his daily portions of original issue discount
attributable to the Treasury Bonds held by the Trust as such original issue
discount accrues and will in general be subject to federal income tax with
respect to the total amount of such original issue discount that accrues
for such year even though the income is not distributed to the Unitholders
during such year to the extent it is greater than or equal to the "de
minimis" amount described below. To the extent the amount of such discount
is less than the respective "de minimis" amount, such discount shall be
treated as zero. In general, original issue discount accrues daily under a
constant interest rate method which takes into account the semi-annual
compounding of accrued interest. In the case of Treasury Bonds this method
will generally result in an increasing amount of income to the Unitholders
each year.
(iv) Each Unitholder will have a taxable event when the Trustee
disposes of a Trust asset (whether by sale, exchange, liquidation,
redemption, payment on maturity or otherwise) or when the Unitholder
redeems or sells his Units. A Unitholder's tax basis in his Units will
equal his tax basis in his pro rata portion of all the assets of the Trust.
Such basis is determined (before the adjustments described below) by
apportioning the tax basis for his Units among each of the Trust assets
according to their values as of the valuation date nearest the date on
which he purchased such Units. Unitholders must reduce the tax basis of
their Units for their share of accrued interest received, if any, on
Obligations delivered after the date the Unitholders pay for their Units to
the extent that such interest accrued on such Obligations before the date
the Trust acquired ownership of the Obligations (and the amount of this
reduction may exceed the amount of accrued interest paid to the sellers)
and, consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing the proceeds
of such redemption or sale with the adjusted basis of the Units. If the
Trustee disposes of Obligations (whether by sale, exchange, payment on
maturity, redemption or otherwise), gain or loss is recognized to the
Unitholder (subject to various nonrecognition provisions of the Code). The
amount of any such gain or loss is measured by comparing the Unitholder's
pro rata share of the total proceeds from such disposition with his basis
for his fractional interest in the asset disposed of. The basis of each
Unit and of each Obligation which was issued with original issue discount
(or which had market discount) must be increased by the amount of accrued
original issue discount (and market discount if the Unitholder elects to
include market discount in income as it accrues) and the basis of each Unit
and of each Obligation which was purchased by the Trust at a premium must
be reduced by the annual amortization of bond premium which the Unitholder
has properly elected to amortize under Section 171 of the Code. The tax
basis reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unitholder realizing a
taxable gain when his Units are sold or redeemed for an amount equal to or
less than his original cost.
Each Unitholder's pro rata share of each expense paid by the Trust is
deductible by the Unitholder to the same extent as though the expense had been
paid directly by him. It should be noted that as a result of the Tax Reform Act
of 1986, certain miscellaneous itemized deductions, such as investment expenses,
tax return preparation fees and employee business expenses will be deductible by
an individual only to the extent they exceed 2% of such individual's adjusted
gross income (similar limitations also apply to estates and trusts). Unitholders
may be required to treat some or all of the expenses of the Trust as
miscellaneous itemized deductions subject to this limitation.
The Code provides a complex set of rules governing the accrual of
original issue discount, including special rules relating to "stripped" debt
instruments such as the Treasury Bonds. These rules provide that original issue
discount generally accrues on the basis of a constant compound interest rate
over the term of such debt instruments. Special rules apply if the purchase
price of an Obligation exceeds its original issue price plus the amount of
original issue discount which would have previously accrued, based upon its
issue price (its "adjusted issue price"). Similarly, these special rules would
apply to a Unitholder if the tax basis of his pro rata portion of an Obligation
issued with original issue discount exceeds his pro rata portion of its adjusted
issue price. In addition, as discussed above, the Regulation provides that the
amount of original issue discount on a stripped bond is considered zero if the
actual amount of original issue discount on such stripped bond as determined
under Section 1286 of the Code is less than a "de minimis" amount, which, the
Regulation provides, is the product of (i) 0.25 percent of the stated redemption
price at maturity and (ii) the number of full years from the date the stripped
bond is purchased (determined separately for each new purchaser thereof) to the
final maturity date of the bond.
It is possible that a Corporate Bond that has been issued at an
original issue discount may be characterized as a "high-yield discount
obligation" within the meaning of Section 163(e)(5) of the Code. To the extent
that such an obligation is issued at a yield in excess of six percentage points
over the applicable Federal rate, a portion of the original issue discount on
such obligation will be characterized as a distribution on stock (e.g.,
dividends) for purposes of the dividends received deduction which is available
to certain corporations with respect to certain dividends received by such
corporations.
If a Unitholder's tax basis in his pro rata portion of any Corporate
Bond held by the Trust is less than his allocable portion of such Corporate
Bond's stated redemption price at maturity (or, if issued with original issue
discount, his allocable portion of its revised issue price), such difference
will constitute market discount unless the amount of market discount is "de
minimis" as specified in the Code. To the extent the amount of such discount is
less than the respective "de minimis" amount, such discount shall be treated as
zero. Market discount accrues daily computed on a straight line basis, unless
the Unitholder elects to calculate accrued market discount under a constant
yield method. The market discount rules do not apply to Treasury Bonds because
they are stripped debt instruments subject to special original issue discount
rules as discussed in paragraph (iii).
Accrued market discount is generally includible in taxable income of
the Unitholders as ordinary income for federal tax purposes upon the receipt of
serial principal payments on Corporate Bonds held by the Trust, on the sale,
maturity or disposition of such Corporate Bonds by the Trust and on the sale of
a Unitholder's Units (unless a Unitholder elects to include the accrued market
discount in taxable income as such discount accrues). If a Unitholder does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions of any interest expense incurred by the Unitholder to
purchase or carry his Units will be reduced by such accrued market discount. In
general, the portion of any interest which is not currently deductible would
ultimately be deductible when the accrued market discount is included in income.
The tax basis of a Unitholder with respect to his interest in an
Obligation is increased by the amount of original issue discount (and market
discount, if the Unitholder elects to include market discount, if any, on the
Obligations held by the Trust in income as it accrues) thereon properly included
in the Unitholder's gross income as determined for federal income tax purposes
and reduced by the amount of any amortized premium which the Unitholder has
properly elected to amortize under Section 171 of the Code. A Unitholder's tax
basis in his Units will equal his tax basis in his pro rata portion of all of
the assets of the Trust.
A Unitholder will recognize taxable gain (or loss) when all or part of
the pro rata interest in an Obligation is disposed of for an amount greater (or
less) than his tax basis therefor in a taxable transaction subject to various
non-recognition provisions of the Code.
As previously discussed, gain attributable to any Corporate Bond deemed
to have been acquired by the Unitholder with market discount will be treated as
ordinary income to the extent the gain does not exceed the amount of accrued
market discount not previously taken into income. The tax basis reduction
requirements of the Code relating to amortization of bond premium may, under
certain circumstances, result in the Unitholder realizing a taxable gain when
his Units are sold or redeemed for an amount equal to or less than his original
cost.
If a Unitholder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all Trust assets including his pro
rata portion of all of the Corporate Bonds represented by the Unit. This may
result in a portion of the gain, if any, on such sale being taxable as ordinary
income under the market discount rules (assuming no election was made by the
Unitholder to include market discount in income as it accrues) as previously
discussed.
In addition, it should be noted that capital gains may be
recharacterized as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions entered into after
April 30, 1993.
A Unitholder who is a foreign investor (i.e., an investor other than a
U.S. citizen or resident or U.S. corporation, partnership, estate or trust) will
not be subject to United States federal income taxes, including withholding
taxes on interest income (including any original issue discount) on, or any gain
from the sale or other disposition of his pro rata interest in any Obligation
held by a Trust or the sale of his Units provided that all of the following
conditions are met:
(i) the interest income or gain is not effectively connected with the
conduct by the foreign investor of a trade or business within the United
States;
(ii) if the interest is United States source income (which is the case
for most securities issued by United States issuers), the Obligation was
issued after July 18, 1984 (which is the case for each Obligation held by
the Trusts), the foreign investor does not own, directly or indirectly, 10%
or more of the total combined voting power of all classes of voting stock
of the issuer of the Obligation and the foreign investor is not a
controlled foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Obligation, or
(iii) with respect to any gain, the foreign investor (if an
individual) is not present in the United States for 183 days or more during
his or her taxable year; and
(iv) the foreign investor provides all certification which may be
required of his status.
It should be noted that the Revenue Reconcilation Act of 1993 includes
a provision which eliminates the exemption from United States taxation,
including withholding taxes, for certain "contingent interest." This provision
applies to interest received after December 31, 1993. No opinion is expressed
herein regarding the potential applicability of this provision and whether
United States taxation or withholding taxes could be imposed with respect to
income derived from the Units as a result thereof.
The scope of this opinion is expressly limited to the matters set forth
herein, and, except as expressly set forth above, we express no opinion with
respect to any other taxes, including foreign, state or local taxes or
collateral tax consequences with respect to the purchase, ownership and
disposition of Units.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-39164) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Very truly yours,
/s/ Chapman and Cutler
CHAPMAN AND CUTLER
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