FOREIGN, HIGH-DIVIDEND FUNDS GAIN FAVOR

While many mutual fund investors are aggressively investing abroad, a steadily increasing number are playing a more conservative game, investing in funds that hold high-dividend stocks, such as utilities.

The funds let people "have their cake and eat it, too," said John Woerth, a spokesman for the Vanguard Group, in Valley Forge, Pa. "It's for people who don't want the roller-coaster ride of the stock market."In March, nearly $500 million flowed into what are known as income-equity funds. That's more than twice as much as the previous month and four times more than March 1989, according to the Investment Company Institute, a mutual fund trade group in Washington, D.C.

More money is flowing to other stock funds, too - for example, the tumbling Berlin Wall has proved a boon to international funds - but since last year income-equity funds have been growing faster.

For many investors, income-equity funds are a bridge between stocks and bonds. They invest in stocks that pay high dividends, such as utilities and financial companies; preferred stocks, which pay higher dividends than common stock; and some bonds.

If the stock market rises, so do income-equity funds, though not as much. If the market falls, investors still receive a regular dividend check. This makes the funds particularly attractive to retirees.

In the first quarter, $62 million flowed into Vanguard's 2-year-old Equity-Income Fund, more than five times as much as in first quarter 1989.

Over the past five years, equity-income funds have done better than the typical aggressive fund, returning an average of 12.64 percent a year, said Don Phillips of Morningstar, a Chicago mutual fund analyst.

"That's not something you expect to see," he said.

Oddly, the funds haven't done well lately, Phillips said. For the first quarter, they fell in value about 3.42 percent, worse than the typical equity fund, which fell 1.84 percent.

Still, the funds provide haven for cautious stock investors, Phillips said. Dividends set a floor below which a stock is unlikely to fall.

For example, Ford Motor pays a $3 dividend annually. With current interest rates, its price is unlikely to fall as far as $40 a share (The stock closed Wednesday at 457/8). At $40, the stock would yield 7.5 percent annually - about what the average money market account paid last week. That's pretty high for a stock that is likely to bounce back eventually.

If you are shopping for income-equity funds, Phillips said, look for:

-Junk bonds. Until recently, some funds stocked up on junk to increase yield. Most are out of that market, but you should check a prospectus to be sure.

-The mixture of stocks and bonds. The more bonds the fund holds, the higher its dividends are likely to be.

-The amount of blue-chip stocks the fund owns. The more blue chips, the more the conservative the fund is.

-The amount of convertible bonds the fund owns. Convertible bonds can be changed into stock if the stock rises to a certain price. Some income-equity funds dabble in convertibles, which tend to be issued by smaller, growing companies. If the underlying stocks excel, investors do well. If the stocks stumble, investors can suffer.