Here's the worst taxable capital gains distribution ever

If it's January, investors are likely griping about their funds' taxable capital gains distributions. But account holders in Boston Company International Small Cap could be fainting. That fund's distributions amounted to a breathtaking 94% of the fund's assets.

When funds sell a security at a profit, they must distribute the gains to shareholders, who then owe taxes on the distribution. If you invest in the fund in a taxable account, your 2007 distributions will figure into your 2007 tax bill.

Distributions of gains and dividends equal to 5% of a fund's share price are common. Shareholders in the Boston Company fund were smacked with a distribution equal to $23.17 a share; the fund's price-per-share before the distribution was only slightly higher: $24.70.

David Snowball, writing for the website FundAlarm, notes: Had you invested the minimum $100,000 in the fund on Dec. 1, it would have distributed about $94,000 in taxable gains, pummeling you with a tax bill of $14,100.

How could this happen? The fund's management team left in August, and a big chunk of the fund's assets left, too. The new manager had to sell stocks to meet redemptions. Fortunately, the fund is aimed at institutions, but it has a $100,000 minimum, meaning that some individuals could have gotten socked, too.

Even if you didn't invest in Boston Company's fund, it's been a painful year for distributions. Here's what some of the largest funds paid in long-term gains:

•American Funds Growth Fund of America: $2.057 a share, or 5.7% of the fund's share price before the distribution.

•Fidelity International Small Cap: $3.96 a share, or 13.6% of the fund's price before the distribution.

•American Century Real Estate: $1.94 a share, or 7% of the fund's price before the distribution. The fund also paid $2.05 a share in short-term gains, which are taxed at your regular income tax rate.

Vanguard 500 Index, the third-largest stock fund, paid no capital gains distribution — and it hasn't since 2000. If you're investing in a taxable account, consider an index fund, or one whose investment policy is geared toward minimizing distributions.

Managers of the year

Morningstar has named its annual mutual fund managers of the year:

•Bill Gross, manager of Pimco Total Return and Harbor Bond, won the award for fixed-income manager. Gross moved his funds' assets away from U.S. corporate bonds before the credit crunch began. His fund's performance landed it in the top 10% of all intermediate-term bond funds the past 12 months — and the past 15 years, too. Gross is the first three-time winner of the award.

•Will Danoff, manager of Fidelity Contrafund, took the prize for top domestic stock fund manager. The manager of Fidelity's largest stock fund, Danoff has driven the fund to an average annual gain of 10.9% for the past decade, vs. 5.5% for the Standard & Poor's 500-stock index.

•Hakan Castegren, longtime skipper of Harbor International, got the nod for top international fund manager. The fund soared more than 20% last year.

Past winners of the Morningstar Manager of the Year award have included Peter Lynch and Jeff Vinik, former managers of Fidelity Magellan; Tom Marsico, head of the Marsico funds; Bob Rodriguez, manager of FPA Capital; and Chris Davis and Ken Feinberg, managers of Davis New York Venture.

Major exodus at Janus

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