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.