The Baltimore Stars retained territorial rights to Outland trophy winner Bruce Smith of Virginia Tech and the New Jersey Generals claimed Heisman trophy winner Doug Flutie of Boston College in yesterday's third annual U.S. Football League draft, which was held in New York.

The Stars, who moved to Baltimore this fall after winning the 1984 USFL title representing Philadelphia, also drafted all-America offensive tackle Bill Fralic of Pittsburgh.

The Stars will play at the University of Maryland's Byrd Stadium in College Park this season before moving to Memorial Stadium in Baltimore in 1986.

Flutie's father, Dick, told the Boston Globe yesterday in a telephone interview from Honolulu, where his son is preparing for the Hula Bowl all-star game, that, "Doug is going to wait. Whatever he gets from the USFL, he'll go over to the NFL and say, 'Is there any interest over there? Can you match this? Yea or nay?'

"If they'll match it, probably at equal levels, Doug would prefer the NFL because he likes the competition."

The Generals' owner, Don Trump, is expected to offer Flutie at least $700,000 per year.

Dick Flutie, who also announced that Boston sports agent Bob Woolf would become his son's agent, indicated the Generals' location and potential for endorsements were factors in their favor.

"Doug has to evaluate . . . that difference in dollars and potential in environment -- playing in New York with the New Jersey Generals as opposed to some isolated place in the NFL," he said.

"The USFL (New Jersey) is drafting so many BC players, there is a real advantage of playing in the USFL," the elder Flutie went on.

The Generals employed their territorial rights to draft receiver Gerard Phelan, defensive backs Tony Thurman and Todd Russell, and tight end Scott Gieselman, who announced he would return to BC for a fifth year.

If the Generals sign Flutie, he would be the third straight Heisman winner signed by the USFL.

Herschel Walker, the 1982 winner, signed with New Jersey and 1983 winner Mike Rozier signed with now-defunct Pittsburgh.

The Stars hold the rights to Rozier, who has a guaranteed contract that will remain in effect if he wants to play in the USFL.

The USFL conducted its open draft yesterday for players not claimed as territorial choices. Each of the 14 clubs was assigned six territorial colleges from which it could retain the rights to a total of 25 players.

The territorial draft choices were made in December, but were not announced until yesterday.

The Tampa Bay Bandits held the territorial rights to University of Maryland players. The Bandits drafted Terrapins center Kevin Glover, quarterback Frank Reich and linebacker Eric Wilson.

Ten of Tampa's 25 territorial selections were from the University of Florida.

Mississippi Valley State wide receiver Jerry Rice was the first player chosen in the open phase of the draft -- by Birmingham.

Most of the name players selected said they would wait until the National Football League draft in April before making a commitment. The USFL season will open Feb. 26.

Smith, a defensive tackle, said it would take an extraordinary offer for him to sign before the NFL draft.

"I'll just sit back and wait for the NFL draft," Smith said yesterday from the Norfolk office of his family attorney, Robert Romm. "But if they (the Stars) offer something I can't refuse, I'll have to consider it."

Smith said he would prefer playing in the NFL, but added that Baltimore is enticing because it would be easy for his parents to see him play. He added he would want more money to play in the USFL than in the NFL.

The Stars said they could realistically hope to sign either Smith or Fralic, but not both.

"We would like to come away with one or the other, and nothing has given us an indication that either of them is not interested," said Bill Kuharich, the team's director of player personnel.

Among the other Baltimore territorial selections was running back Ethan Horton of North Carolina. The Stars chose wide receiver Chris Burkett of Jackson State with their first-round pick in the open draft. STARS' DRAFT PICKS Open Selections

1, Chris Burkett, WR, Jackson State; 2, Wayne Davis, DB, Indiana State; 2, Roger Caron, T, Harvard; 3, Mike Heaven, DB, Illinois; 3, Hal Garner, RB, Utah State; 4, Stefon Adams, WR, East Carolina; 5, Tony Davis, TE, Missouri; 5, James Cofer, LB, Knoxville; 5, James Evans, WR, East Central Oklahoma; 6, Bruce Collie, T, Texas-Arlington; 6, Mark Kelso, DB, William and Mary; 6, Jess Atkinson, K, Maryland; 7, Jeff Smith, RB, Nebraska; 8, Jim Morriseyl, LB, Michigan State; 9, Terry Lewis, DB, Michigan State; 10, David Burnette, DE, Central Arkansas; 11, Troy Bodine, QB, Cincinnati; 11, Ricky Dirks, RB, East Texas State; 11, Dwayne McMullen, WR, Minnesota; 12, Carl Keever, LB, Boise State; 13, David Edwards, DB, Illinois; 14, Dave Baran, C, UCLA; 15, Brian Wagner, P, Northridge State. Territorial Selections

1, Caesar Aldisert, LB, Pittsburgh; 2, Troy Benson, LB, Pittsburgh; 3, Russell Carter, WR, Temple; 4, Greg Christy, G, Pittsburgh; 5, Ed Colson, RB, North Carolina; 6, Chris Doleman, LB, Pittsburgh; 7, Bill Fralic, T, Pittsburgh; 8, Nick Gancitano, K, Penn St.; 9, Nick Haden, C, Penn St.; 10, Ethan Horton, RB, North Carolina; 11, Marlon McIntyre, RB, Pittsburgh; 12, Don McMullin, TE, Temple; 13, Micah Moon, LB, North Carolina; 14, Tony Mumford, RB, Penn St.; 15, Greg Naron, G, North Carolina; 16, Bobby Pope, T, North Carolina; 17, Dan Reeder, RB, Delaware; 18, Stan Short, T, Penn St.; 19, Bruce Smith, DE, Virginia Tech; 20, Doug Strang, QB, Penn St.; 21, Chris Sydnor, DB, Penn St.; 22, Blair Talmadge, DB, Lehigh; 23, Bill Wallace, WR, Pittsburgh; 24, Rocky Washington, WR, Penn St.; 25, Ali Witherspoon, LB, Delaware; 26, Anthony Young, DB, Temple.