There's been a bit of chatter of late about Contrafund's recent price drop. In late December, the price (also known as the net asset value) of the fund, which has been a top performer ranking in the top 1% of its category over the past three and five years, dropped from around $71 to less than $65. Did some of its investments take a nosedive?

There's no reason to panic. The one-day drop in the price was actually the result of the fund's planned and expected distribution, which comes this time of year. On Dec. 22, the fund announced a $5.60 distribution ($5.21 of capital gains and $0.39 of dividends). That distribution comes directly out of the fund's share price, so the price falls by roughly the same amount. In years past, the fund's drop hasn't been that big because the distributions have been relatively small--usually less than $1. So the result may not have been that shocking.

Here's how it works. Let's say you own 100 shares Mutual Fund XYZ. The fund has a share price of $20, making the value of the account $2,000. Now let's assume the fund announces a distribution of $1. As a result, the fund's price will drop to $19. After that, you'll have $100 in capital gains ($1 multiplied by 100 shares) and $1,900 worth of shares. Ultimately, the value of your account remains the same. And if you reinvest the distribution, as many people do, your investment in the mutual fund remains the same.

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