Veterans' groups and fraternal lodges on the Eastern Shore and two private yacht clubs and their officers won't be prosecuted for the possession of 161 illegal slot machines seized by Maryland state troopers two months ago, state special prosecutor Stephen Montanarelli said yesterday, citing "some confusion" over the law.

But the one-armed bandits are considered contraband and, along with about $16,000 found inside them, will not be returned, he said.

A high-noon raid in Caroline, Queen Anne's, Talbot, Dorchester and Somerset counties on 24 establishments Sept. 28 outraged some officials there. Two judges who belonged to the clubs declined to sign search and seizure warrants, and two prosecutors said they would refuse to prosecute the cases.

Caroline County State's Attorney Starke M. Evans likened the state action to "the smash-and-grab raids" conducted by federal authorities during Prohibition.

"They would pour all the booze out and leave, and nobody was ever prosecuted," Evans said.

Montanarelli, who wrote the clubs Monday of his intention not to prosecute, said the situation is "a little different, but I can recognize the analogy. . . . We're not out to punish, but to remove the machines as contraband."

He said he has informed the appropriate state's attorneys of his decision, and that they concurred. Montanarelli said he did not regard club officers and others who sanctioned the presence of the slots as criminals.

Another reason for his decision, he said, is "some confusion" over the Maryland slot machine law. In particular, he said, the 1968 law outlawing slots has coexisted with a 1949 statute, never repealed, that allows fraternal organizations to have gambling devices.

"The clubs' lawyers interpret this that they can possess slots," Montanarelli said. "We don't look at it that way."

But he questioned the clubs' assertions that most of their gambling proceeds went to charity. "From the books we've looked at, there is very little evidence that any of the proceeds were donated to charity," he said.

Thus, Montanarelli said, the state will institute civil forfeiture proceedings for the machines and the money. It's possible, he said, that the state may keep the slots as museum pieces, or destroy them.

Most of the clubs owned the seized machines, but some rented them, he said. Slot machines were legal in four Southern Maryland counties from 1949 to 1968, and Montanarelli said some of the older machines could have come from there. An investigation into the vendors who leased the slots to the Eastern Shore groups is continuing, Montanarelli said.