After the most tumultuous year in its history, the National Endowment for the Arts yesterday started off 1991 by announcing $47 million in grants to 1,200 artists and arts organizations, including two that support the work of controversial performance artists Karen Finley and Holly Hughes.

The Finley- and Hughes-connected grants are part of a group of five that, since August, have gone through a tortuous on-again, off-again funding process. All but one of them -- a Washington Project for the Arts application -- were originally recommended by a peer review panel and the NEA's Arts Council (its presidentially appointed advisory board), but were challenged on conflict-of-interest grounds relating to members of the review panel. Since then all five have been approved by another panel and the council.

In a statement commenting on the five grants, NEA Chairman John Frohnmayer, who was out of town, avoided the emotive language that has characterized much of the debate about the endowment during the past two years. "A major thrust of the Arts Endowment is to encourage innovative art," said Frohnmayer. "But we cannot predetermine the nature of a particular work." He also said he had personally reviewed the applications and was satisfied that the grants met the criteria set forth in the current NEA guidelines. (Last month he agreed to reconsider an application by New York artist Mel Chin that he had previously rejected.)

The Finley and Hughes projects approved yesterday are not the same ones that were denied NEA funding last June under an anti-obscenity statute. The ones that were rejected are under litigation in a Los Angeles federal court. Regarding the difference between the two, the NEA's general counsel, Julianne Davis, said yesterday that each project was dealt with on its own merits, and that the ones that have been approved are basically collaborative.

Reached yesterday in Albany, N.Y., Holly Hughes, whose work deals with lesbian themes, said: "I'm really happy that the new art czar, John Frohnmayer, has decided to uphold two peer panels plus the council. But people shouldn't forget that because of this small victory, the battle's not over. With all the internal changes at the endowment ... many artists whose work is very deserving of support, and whose identity is too controversial, are just not going to get funded. It's possible John Frohnmayer tossed the arts community this small tidbit."

The $47 million awarded yesterday, which represents about one-fourth of the grants that will be awarded in fiscal 1991, had been delayed until the NEA could complete a reallocation of funds mandated by Congress. Under the new guidelines, state arts agencies will receive $31.5 million this year, compared with $26.1 million in fiscal 1990.

The five grants that attention was focused on are all for performance arts pieces, a category that is particularly difficult to evaluate in advance. These grants are: $15,000 to Downtown Art Co. Inc. in Manhattan for a new work by Holly Hughes and Ellen Sebastian; $20,000 to the Kitchen, also in Manhattan, for a new work by Karen Finley and Jerry Hunt; $15,000 to the Washington Project for the Arts for a multimedia installation by Adrian Piper, a former Washington artist who teaches philosophy at Wellesley; $17,000 to the Arts Company Inc. in Cambridge, Mass., for a new piece by Wim Vandekeybus; and $10,000 to Los Angeles Contemporary Exhibitions Inc. (LACE) for a new work by Daniel J. Martinez in collaboration with four other artists.

None of the grantees seemed inclined to reject the money, as did several who had to live with last year's anti-obscenity language. "We're delighted," said Bobby Tsumagari, the executive director of the Kitchen. "I see this as a reaffirmation of our faith in the artists, in their integrity and ability and talent, and beyond that an acknowledgement in the faith in the NEA's processes of reviewing applications."

Approval of the WPA grant, for a video installation that deals with racism with regard to selective hiring, was particularly gratifying to the organization. "We're very pleased," said the WPA's executive director, Marilyn Zeitlin. "Because the project addresses issues of race, part of our concern has been that it might be flagged at every juncture. For us it's an exemplar and gives us the green light for approaching the endowment for projects like this in the future."

Arts activists reacted to yesterday's developments with varying degrees of interest. "I don't think the government should be involved in the arts, and the NEA's decision to approve these grants is another example that proves my point," said Dana Rohrabacher (R-Calif.), who was a leading NEA opponent last year, but whose office said he will not be taking a lead on the issue this year.

"I think it's wonderful that these five grants that should have been funded in the first place without any hesitation are now finally being funded," said Charlotte Murphy, the executive director of the National Association of Artists' Organizations. "If this is a new Frohnmayer, one who consistently stands behind the integrity of the NEA process, and individual artists creating new work, then perhaps the artistic community can trust him."

One of the problems that will continue to face the endowment and any artist or organization that receives a grant is the phrase in the legislation that says that the endowment will fund projects of artistic excellence and merit that uphold "general standards of decency and respect for the diverse beliefs and values of the American public." Rep. Paul Henry (R-Mich.), who came up with that language, yesterday warned about the dangers of prejudging applications.

"The intent of the issue and that language is not to blacklist," he said. "What is at stake is the kind of art being funded. It's important that we distinguish between the artist and the art. I didn't like Vladimir Horowitz's lifestyle, but I listened to his records.

"The money that will go to the organizations is project-specific... . If at any time monies are used inappropriately, a process for recapture is clearly established."

Also approved yesterday were grants to artists and arts organizations in Maryland, the District and Virginia. They ranged from $11,400 to the Black Film Institute in the District for the fifth annual Filmfest, to $31,000 to Baltimore's Walters Art Gallery for a catalogue of its Romanesque sculpture collection, to $65,000 to the Colonial Williamsburg Foundation for the reinstallation of a folk art collection, to $163,500 to support the 1991-92 a season of the Washington Opera.

Martin Feinstein, the head of the Washington Opera, was a little troubled that its grant had been reduced from last year's $172,000, an inevitable result, he thought, of increased aid to state agencies. But he was not worried about meeting general standards of decency. "We're very decent people," he said, "even though we may have total nudity at times as we did in 'Salome.' Out of more than 13,000 who saw our 'Salome,' there were only two objections."