While President Bush's Tax Cut II has accomplished little in regards to the two million manufacturing jobs vaporized on his watch, it has created plenty of work for the mutual fund industry. Marketing departments are working overtime to capitalize on the more favorable tax treatment afforded to dividend income.

Given the paucity of capital gains stocks have produced in recent years, battered investors yearning for safer, income-producing investments. Wall Street is eagerly satisfying that craving. When Eaton Vance took its Tax-Advantaged Dividend Income Fund to market last week, investors emptied their wallets to the tune of $1.3 billion.

"We think there's a sea change going on here. There's going to be a lot more emphasis on yielding investments," says Alpine Funds President Sam Lieber, whose Purchase, N.Y., company launched the Dynamic Dividend Fund last week.

Also hitting the market last week was Federated Investors Muni and Stock Advantage Fund, which invests in tax-free municipal bonds and dividend stocks. In order to maintain the tax-free status of the bond income, at least 50 percent of the holdings always will be in munis, says John Nichol, who oversees the equity portion of the new fund. He says bonds will make up 50 to 70 percent of the portfolio, with 50 to 100 dividend-paying stocks accounting for most of the remainder. (The fund expects to hold less than 5 percent cash.)

Combining tax-free bonds with dividend-paying stocks gives investors a less volatile investment than an all-stock fund but also provides exposure to the stock market they wouldn't get in an all-bond fund. Nichol expects the fund to yield between 3.8 percent to 4.1 percent. Depending on their tax bracket, investors would have to earn taxable yields of 5.5 percent to 5.9 percent to match that, Nichol says.

Alpine's Dynamic Dividend Fund sports a yield of about 5 percent, says portfolio manager Jill Evans. She's hunting for stocks that pay a dividend of at least 4 percent, or whose earnings or cash flow makes dividend increases to that level likely. The fund also will trade a portion of high-yielding stocks whose prices don't vary much. That will generate five or six dividend payments a year vs. the four quarterly payments a buy-and-hold investor would receive, Evans says.

A sour stock market and Bush's tax cut have made "dividend" a respectable word, but there were plenty of dividend-oriented funds for investors to choose from long before the bear and the bull came along. Many of these funds -- commonly known as equity income funds -- came of age when companies paid out a larger percentage of their earnings as dividends, which can't be said today. Fifty years ago, the Standard & Poor's 500 sported a dividend yield of 5.8 percent. Today, the yield on the benchmark index is a mere 1.7 percent.

According to Lipper, the year-to-date return through Sept. 25 for the average equity-income fund is 12 percent vs. a 15.5 percent return for the Standard & Poor's 500.

The new dividend funds are tailored to meet the fine print of the tax law, which applies the maximum tax rate of 15 percent to only certain types of dividends, largely those paid on the common and preferred stocks of U.S. companies. Nonqualifying dividends are subject to the ordinary income tax rate (maximum rate: 35 percent). Dividends from money market funds don't qualify. Nor do dividends paid by certain types of preferred stocks and real estate investment trusts, or REITs.

Moreover, the lower tax rate only applies if funds hold the dividend-paying stock for more than 60 days during a specific 120-day period (60 days before and after the ex-dividend date). Dividends on stocks a fund doesn't hold for that long will be taxed at the higher rate.

Investors probably will have to hold dividend funds for the same amount of time during the same period in order to qualify for the tax cut, says T. Rowe Price Vice President Sam Beardsley. He says that issue won't be resolved until the IRS finishes writing regulations to implement the tax cut. Also unresolved: which foreign stocks will qualify for favorable treatment.

Although they weren't designed that way, most dividends paid by the established funds will meet the new law's requirements. Beardsley estimates 90 to 100 percent of the dividends paid by the Baltimore-based mutual fund family's dividend-oriented offerings will qualify.

There are far worse bandwagons for investors to jump on than the dividend bandwagon. Investors left holding the bag when growth stocks ran out of gas are looking for the security dividends can provide.

Joe Grieco, financial products manager for Parker/Hunter, says that based on reinvesting dividends, the quarterly payouts have provided about a third of the return investors have received from the S&P 500 over the last 50 years. "That's an important thing to understand right now," Grieco says.

But before leaping into dividend funds, it's important to realize that in investing, as in golf, it's important to keep your eye on the ball. Depending on your tax bracket, risk tolerance, investment horizon and other investments, dividend funds may or may not be for you.

Besides, there's no telling what political expediencies will dictate after 2008, when the dividend tax cut is scheduled to expire.

"It's nice if you buy a stock that has a dividend because that is a component of total return. But you shouldn't run out and see how many stocks that pay a dividend you can buy," says Mike Blehar, a principal with Fort Pitt Capital in Green Tree. "We're still focused on what everybody should be focused on: total return."