Alliance Capital Management continues to have a hefty exposure to Argentine bonds in its North American Government Income Trust Fund - a year after investors charged that the fund's name is misleading.

The New York-based fund company is investing heavily in Argentina in "a sneaky way," said Kim Rebecca, an analyst at Morningstar Inc., a Chicago company that tracks fund performance.

"They're really pushing the limits of their prospectus," she added.

Alliance is still fighting investor lawsuits filed last year after its North American bond portfolio turned in the worst 1994 performance among taxable bond funds. The North American fund's total return plummeted 31% that year, as the bond market tumbled.

Investors claimed that the fund, contrary to its name, was heavily exposed to Argentine bonds. The fund had also invested in Mexican bonds, which performed poorly after the peso's devaluation. Unlike Argentina, Mexico is in North America.

According to Ms. Rebecca, the fund's name continues to mislead investors. But a spokeswoman for Alliance said the name is appropriate because, in the fund's prospectus, Alliance is required to invest only 65% of the portfolio in North America.

"I don't know how the name came to be," the spokeswoman said. "By prospectus it is a North American government fund."

The Alliance spokeswoman noted that another Morningstar analyst has stated that the prospectus is clear about what the fund can invest in.

The fund, managed by Wayne D. Lyski, is allowed to invest in Latin America, Ms. Rebecca said. In fact, 25% of its investments can be made in Argentina alone, but Alliance has exceeded that, she said.

Alliance says it has kept within the 25% limit by its own method of calculation, but Ms. Rebecca called that method "tricky."

For example, according to a June shareholder report, the Alliance North American fund had $2.1 billion of assets under management, Ms. Rebecca said. The total included more than $387 million of loans the fund had taken to invest in Argentine bonds.

That would give the portfolio a 21.4% stake in Argentine bonds. However, Ms. Rebecca said, not counting the loans and measuring against total net assets, the fund's exposure to Argentina would be 30.84%.

The Alliance spokeswoman called Ms. Rebecca's complaint "a matter of semantics." She added that the fund's current exposure to Argentina is 18% of its gross assets of about $2.2 billion, or 21.3% of total net assets.

Still, Ms. Rebecca maintained, "the language is unclear" in the prospectus. She did point out, however, that the North American fund was up 5.5% for the year through Aug. 31 and had soared 30% in 1995.

"The fund has come back strongly," she said.

In addition, this year's marketing literature includes a discussion of the fund's risks. "What we can't criticize them anymore for is walking around the risk," Ms. Rebecca said. "They very much now bring attention to the risk and play it up."

An observer said Alliance's push into Argentina could hurt the company's relationships with banks. Alliance was a big seller of bond funds through banks in 1993 and 1994. But now it is struggling to regain banks' attention.

"They may be skating on thin ice with whatever good will they have generated in the banking community," said Burton Greenwald, a mutual fund consultant in Philadelphia. People still consider their banks places to get conservative investments.

But Alliance denied the North American portfolio would hurt its bank relationships. "It's not a fund we sell through banks in a meaningful amount," said Richard Davies, a senior vice president who heads Alliance's sales through financial institutions.

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