Fundline: Worst taxable capital gains distribution ever

— -- 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: