EXHIBIT 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
November 16, 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 Insured Income Trust, Series 76
Gentlemen:
We have acted as counsel for Van Kampen Funds Inc., Depositor of Van
Kampen Focus Portfolios Insured Income Trust, Series 76 (the "Trust"), in
connection with the issuance of Units of fractional undivided interest in the
Trust, under a Trust Agreement dated November 16, 2000 (the "Indenture") among
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
Prospectus, the Indenture, and such other instruments and documents as we have
deemed pertinent.
The assets of the Trust may consist of a portfolio of intermediate-term
or long-term corporate debt obligations issued after July 18, 1984 of United
States corporate issuers (the "Corporate Bonds"), municipal issuers (the
"Taxable Municipal Bonds") and "zero coupon" U.S. Treasury bonds (the "Treasury
Bonds") (collectively, the "Obligations") as set forth in the Prospectus. For
purposes of the opinions set forth below, we have assumed that the Obligations
are debt and that interest on each of the Obligations (including the Taxable
Municipal Bonds, if any) is includable in gross income for federal income tax
purposes (i.e., the Taxable Municipal Bonds are not tax-exempt).
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 Corporate Bonds and the Taxable Municipal Bonds if it
is "de minimis" within the meaning of Section 1273 of the Code and,
based upon a Treasury Regulation (the "Regulation") which was issued on
December 28, 1992 regarding the stripped bond rules of the Code,
original issue discount with respect to a Treasury Bond will be treated
as zero if it is "de minimis" as determined thereunder. 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 Corporate Bond or Taxable Municipal Bond 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 the 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 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 the
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 the 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 the
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 an
Obligation of the Trust is disposed of (whether by sale, exchange,
liquidation, redemption, payment at maturity, or otherwise) or when the
Unitholder redeems or sells his Units. A Unitholder's tax basis in his
Unit will equal his tax basis in his pro rata portion of all of the
assets of the Trust. Such basis is determined (before the adjustments
described below) by apportioning the tax basis for the Units among each
of the Trust assets according to value as of the valuation date nearest
the date of acquisition of the 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 sale or redemption 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 non-recognition 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 (including the Treasury Bonds) (or which has
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 a 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 the Obligations. 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 or Taxable Municipal Bond held by a Trust is less than his allocable
portion of such 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 includable in taxable income of
the Unitholders as ordinary income for federal tax purposes upon the receipt of
serial principal payments on Corporate Bonds and Taxable Municipal Bonds held by
the Trust, on the sale, maturity or disposition of such 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 for 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 was 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 or
Taxable Municipal 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 and Taxable Municipal 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 a 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 the 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 is issued after July 18, 1984 (which is the case for each
Obligation held by the Trust), 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;
(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 Reconciliation 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.
Very truly yours
CHAPMAN AND CUTLER
MJK/md
