Foreign tax credit. Some mutual funds or other regulated investment companies (RICs) invest in foreign securities or other instruments. If you claim a foreign tax credit in 2007 on your share of the foreign taxes paid by the mutual fund or other RIC, you no longer have to report the income or taxes paid on a country-by-country basis. You can summarize the reporting of the income and taxes on Form 1116, Foreign Tax Credit. See Form 1116 and its instructions for more information.

Maximum tax rate on qualified dividends and net capital gain reduced. In tax years beginning after 2007, the 5% maximum tax rate on qualified dividends and net capital gain is reduced to 0 (zero)%. Thus, qualified dividends and net capital gain are not taxed if the regular tax rate that would apply to them is lower than 25%.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843- 5678) if you recognize a child.

This publication provides federal income tax information for individual shareholders of mutual funds or other regulated investment companies, including money market funds. It explains how to report distributions paid to you by a mutual fund and any expenses connected with your investment. In addition, it explains how to report undistributed long-term capital gains. It also explains how to figure and report your gain or loss when you sell, exchange, or redeem your mutual fund shares. A comprehensive example, with filled-in forms, appears at the end of the publication.

In this publication, the term “mutual fund” means a mutual fund or other regulated investment company.