American Century of Kansas City, Mo. has become the latest in a series of no-load fund companies to add C-shares, or level loads, to some of its funds.

The firm will add the class to a variety of equity and fixed income funds by May 1, said David Larrabee, senior vice president of American Century's investment advisor sales channel.

"It allows us to meet the needs of financial advisors who use C-shares," said Larrabee. "It allows us to also have our funds introduced to clients who choose to use the services of those advisors." No-load funds are usually sold by advisors in mutual fund wrap programs that add a one percent service fee, he said. By adding C-shares, American Century will be building the fee into the share class, he said.

The shares also offer advisors more flexibility in how they sell their funds, he said.

"For different reasons - maybe certain investors don't understand or don't want to be in a wrap program, or there could be advisors that don't want to sell or use wrap programs, but they still want to offer our funds and get paid for that - C-shares are the answer," said Larrabee.

American Century added the share class at the request of advisors, he said. The move will simply add another option for the intermediaries selling American Century's funds, he said.

Sales of level load shares have been steadily rising in recent years, climbing from $13.9 million in 1997 to $28 million in 2000, according to Financial Research Corp. of Boston. And level load shares are capturing a greater percentage of net flows. In 1997, level loads represented slightly more than five percent of net flows into all share classes, but by 2000, level loads had captured 16 percent, according to FRC.

Not surprisingly, in the past year or so, several no-load fund giants have added level loads. In November 1999, Invesco of Denver announced it would attach C-shares to 27 of its funds, citing its desire to sell the shares through intermediaries.

Zurich Scudder of Boston announced on Oct. 30 that it would add loaded shares, including level loads, to all of

its Scudder funds by July 2001 in order

to begin selling them through intermediaries.

"[C-shares] have become more popular because ... there has been a trend away

from up-front sales charges and from more traditional mutual fund structures to more fee-based and pay-as-you go type structures," said Peter Jacobs, director of

product management for Zurich Scudder's retail funds.

However, the growth of level loads could make it more common that shareholders pay more in fees than they should, said Harold R. Evensky, chairman of the International Certified Financial Planner Council of Denver and principal of Evensky, Brown & Katz in Coral Gables, Fla. Because C-shares, or level loads, charge no up-front sales charge, some investors might misconstrue the shares to be no-load shares, when in fact, they usually include a one percent fee. The fee, in itself, is not a problem, he said. But, a problem arises if the fee is misrepresented or hidden from investors, Evensky said.

"There is no moral issue with the commission," he said. "It's how it's presented to the client. The pejorative hidden' is relating to those that are hiding the reality from the client."

And some advisors are selling the product as a no-load share class and then adding their own asset-based fees on top of the fund's fees, he said.

"There are advisors who say, I'm using a no-load and I'm charging a fee on top of it,'" he said. "The client [believes] the only fee they are paying is a fee they are paying directly to the broker."

The onus of explaining the fee is on the intermediaries and that is written in any kind of sales agreement Zurich Scudder signs with an intermediary, Jacobs said. American Century will not establish a relationship with advisors that give customers the impression that the only fee they are paying is an asset-based fee, said Larrabee.

Still, C-shares increase the likelihood that either the fees will be misrepresented by intermediaries or misunderstood by investors, said Irving Strauss, founder of the No-Load Mutual Fund Council and president of Strauss Communications, both of New York.

"I think generally speaking, investors are not that sophisticated about what the charges are all about," he said. "I think the opportunity or chance for investors to misunderstand or simply not be fully informed as to whether there is a charge and what the implications of the charge are is quite high."

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