CHECKERS DRIVE-IN RESTAURANTS Inc. (Clearwater, Fla.) -- Andrew H. Hines Jr., 71 years old, has been named a director of this hamburger-restaurant chain. Mr. Hines succeeds James E. Mattei, who was Checker's president until he resigned in March. Mr. Mattei cited family reasons for his resignation. Mr. Hines is the retired former chairman and chief executive officer of Florida Progress Corp., the holding company of Florida Power.

Hoechst AG, one of Germany's largest chemical companies, and Cassella AG, a 75.6%-owned affiliate, will merge their domestic pharmaceutical distribution systems, effective Oct. 1.

By the end of 1995, 76 jobs will be eliminated through attrition and early retirement, Hoechst said. The merger was needed because of sales declines stemming from Germany's 1993 health-care reform.

About 60 Frankfurt-based employees of Cassella-Riedel Pharma GmbH will move to Hoechst Pharma Deutschland in the Frankfurt suburb of Bad Soden as part of the merger.

LONDON -- Britain's purchasing managers' index rose to a record in June, the latest monthly survey from the Chartered Institute of Purchasing & Supply shows.

The index rose from 59.2% in May to 61.4% in June -- its highest level ever and the fifth month in a row that purchasing managers have reported an upsurge in manufacturing activity.

There was significant growth in manufacturing activity during the month, overtaking previous record levels, and prices were forced up as suppliers failed to meet the increase in demand.

The institute said the June index was boosted by record rises in new orders and employment and a strong surge in output.

Order books improved across all U.K. industries and regions in June. Increased demand in the domestic market was led by sales promotions and seasonal factors and was supported by a recovery in exports.

Employment rose to new record levels in June, reflecting efforts by many companies to increase capacity to meet the current higher order levels. The improvement was spread across all industries, but was generally seen as temporary or seasonal.

The unanticipated strength of demand led to a general fall in the stock levels, despite seasonal stock building by some firms, the institute said.

NEW YORK -- The dollar fell to a record low against the yen yesterday on fears that the latest political convulsions in Japan have left U.S. efforts to conclude a trade agreement with that nation in disarray.

During midmorning trading in New York, the dollar posted a fresh post-World War II bottom at 98.37 yen on an intraday basis and couldn't scrape together any significant recovery.

The U.S. currency also was badly bruised by a collapse in U.S. bonds and stocks that forced a hasty retreat against the mark and other European currencies. Though the dollar still managed to gain a little against the mark, it lost practically all of the significant gains achieved during overnight trading.

Pressuring the bond market, along with the ailing dollar, was the release of the Purchasing Management Association of Chicago's index of area activity, which showed a sharp gain in the prices-paid component to 69.7% in June from 63.3% in May.

The inflationary implications of that number engendered speculation that the Federal Reserve would again lift interest rates when its Federal Open Market Committee meets on Tuesday.

"Stronger economic numbers and uncertainty about the implications for policy with the new Japanese government further undercut investor confidence and led to another day of weaker dollar, weaker bonds and weaker stocks," said John Lipsky, chief economist at Salomon Brothers Inc.

Late in New York, the dollar was quoted at 98.50 yen, down from 98.75 yen late Wednesday in New York. The U.S. currency also was changing hands at 1.5877 marks, up from 1.5855 marks. Sterling was trading at $1.5440, down from $1.5460. About noon Friday in Tokyo, the dollar was trading at 97.90 yen and at 1.5854 marks; sterling was at $1.5430.

The dollar didn't get any relief from the cabinet lineup announced by Japan's Prime Minister Tomiichi Murayama, elected Wednesday to head what is widely perceived as a fragile coalition.

Mr. Murayama, Japan's first socialist leader since 1948, formed a cabinet composed primarily of his one-time rivals from the pro-business Liberal Democratic Party, or LDP. But the market remains doubtful about the durability of the new government, which was formed after the resignation Saturday of former Prime Minister Tsutomu Hata.

"We have the fourth Japanese prime minister in a year and nothing has changed," said Mark Schwartz, vice president at Lehman Brothers Inc. "The collapse of the previous Japanese government gave the impression that trade was a secondary issue to Japan all along," said Joseph Francomano, a trader at Dai-Ichi Kangyo Bank Ltd. in New York.

Meanwhile, U.S. Trade Representative Mickey Kantor's move Thursday to extend for another month the deadline imposed on Japan for settling government procurement policies was largely taken as evidence of U.S. weakness when it comes to trade negotiations.

The markets also shrugged off U.S. Treasury Secretary Lloyd Bentsen's latest attempt at jawboning for a stronger dollar. His call Tuesday night for a stronger dollar had been his most adamant statement to date. Yet the market instead focused on his impromptu remark that Japanese political instability would "slow down" trade talks -- and the dollar was roundly sold off.

WICHITA, Kan. -- Fourth Financial Corp. completed the acquisition of First Dodge City Bancshares Inc. of Dodge City, Kan., for about $19.8 million in stock.

Fourth Financial, a bank-holding company based in Wichita, Kan., issued about 662,000 shares of common stock in exchange for all the stock of First Dodge City and its subsidiaries.

While the release of Robert Fiske's first Whitewater report starts to clear the obstacles to a public accounting of these events, the most significant legal news yesterday concerned the Bank of Credit and Commerce International. It seems the Justice Department has cooked up a sweetheart deal for the biggest BCCI crook it's been able to lay hands on.

Apparently our legal eagles would rather not know what happened to $9 billion in world-wide loot. Worse, they don't want to know how a band of Arabs illegally took control of the biggest bank in Washington, D.C. Swaleh Naqvi, BCCI's number two man finally extradited from Abu Dhabi in May, has not been forthcoming to investigators. But Justice has struck a deal with him anyway, to be presented on July 9 to Judge Joyce Hens Green, over the certain objection of Manhattan District Attorney Robert Morgenthau.

The plea bargain, as detailed by Sharon Walsh in the Washington Post, would provide a sentence of nominally nine to 11 years for Mr. Naqvi. However, he would receive credit for three years of "house arrest" in Abu Dhabi, whose ruler was BCCI's majority shareholder. With the possibility of parole, he will escape with only a short sentence for $9 billion in larceny, instead of the 35-year maximum cited on his arraignment.

Now, this deal was reached by the same Justice Department where Webster Hubbell recently held sway, brokering meetings that reversed the Department's position in a corruption trial. The same Justice Department that fired all sitting U.S. attorneys and appointed a Friend of Bill to squelch the criminal referral of Whitewater before recusing herself from the case.

The dominant figure at Justice, now that Mr. Hubbell has resigned, is Deputy Attorney General Jamie Gorelick, who as a private attorney was involved in BCCI affairs in representing Clark Clifford and Robert Altman, who ran Washington's First American Bank when it was illegally owned by BCCI. Her confirmation, despite such problems as no experience in law enforcement, was whisked through the Senate Judiciary Committee by Senator Orrin Hatch, who had been represented by one of her partners when he was cleared by the Senate Ethics Committee of impropriety in a Senate speech defending a previous BCCI settlement now understood as a wrist-slap.

Ms. Gorelick's part in the BCCI legal festivities was to try to get First American's trustee to pay legal bills for Mr. Clifford and Mr. Altman. That is, to collect money for Mr. Fiske and for present presidential lawyer Robert Bennett, both of whom also represented Mr. Clifford and Mr. Altman. One of Mr. Bennett's law partners, John Schmidt, was also recently appointed Associate Attorney General, the number three post at Justice. The BCCI case is directly handled by Gerald Stern, special counsel for financial institution fraud, who admittedly has no BCCI connection; his private experience was as general counsel to Armand Hammer's Occidental Petroleum.

While attorneys are entitled to have clients, the Clifford imprint on Justice is surely remarkable. For that matter, the White House press briefing of December 7 has an intriguing exchange about Mr. Clifford and Mr. Altman entering the West Wing, and briefer Dee Dee Myers promising to inquire who they were visiting but saying they were not scheduled to meet with the President. Perhaps Mr. Clifford has resumed his role as eminence grise. And why not, since he did not stand trial for his First American role, and Mr. Altman was acquitted on charges of misleading regulators about ownership of the bank?

But if Mr. Clifford and Mr. Altman did not hoodwink regulators, what did happen? We do after all have laws about who can own an American bank, and clearly they were violated when the capital's biggest institution was taken over by front men for a criminal enterprise. What precisely was the regulatory failure? What do we need to do to keep it from happening again?

This is a pressing question because all signs suggest we're entering a new phase of international criminality. FBI director Louis Freeh is even now touring Eastern Europe seeking ways to combat the large and sophisticated criminal enterprises that have grown in the vacuum created by the collapse of the Soviet empire. As the CIA and for that matter Russian President Boris Yeltsin have also warned, it will be a growing international problem. And since the big international drug trade depends on money laundering, the regulation of financial institutions is central to both the problem and solution.

We've also learned that when drugs and money laundering arrive, political corruption cannot be far behind. If we had an explanation of how BCCI got away with its illegal purchase of First American, we could afford to dismiss such ambiguous connections as lawyer-client relationships. But we have no such answer, and are left to speculate why, in the Naqvi plea-bargain, the Justice Department does not seem to be pressing for one.

I read Dr. Vil Mirzayanov's May 25 editorial-page piece "Free to Develop Chemical Weapons" with considerable interest, finding his characterization of his experiences in the Soviet (now Russian) chemical weapon development program particularly informative. His letter is a strong argument for continued vigilance as we move toward ratification of the new Chemical Weapons Convention (CWC), which requires the elimination of such arms. It is also a cautionary tale for those who believe the disintegration of the U.S.S.R. also meant the end of the Russian military-industrial machine.

Dr. Mirzayanov is wrong, however, in his assertion that the new CWC's failure to specifically list, by name, the chemicals used in the binary "Novichok" means their production is not prohibited. Article I, paragraph 1(a) -- virtually the first words in the treaty -- clearly prohibits all acts related to the development and manufacture of any chemical weapons. The treaty actually provides lists of specific, obvious CW agents and their precursors, as well as groups or "families" of chemicals, to illustrate the types of materials that are banned, and to ease initial verification of the CWC's provisions.

While Dr. Mirzayanov describes a source of potential concern, very few Western disarmament professionals ever felt the treaty would result in effortless elimination of chemical weapons. But the CWC is far more robust in its design that he allows, and was thoughtfully written to address just the types of new technologies he writes about. The CWC should not be amended or otherwise delayed. It should be ratified.

SENATE AND HOUSE PANELS TOOK opposite positions on health reform.

The increasingly partisan divisions over health reform were dramatized yesterday when key panels took opposite positions on the issue of whether employers should be required to help pay for workers' insurance. By a 20-18 margin, House Ways and Means Committee Democrats won adoption of a bill demanding huge contributions from business. But the Senate Finance panel twice voted 14-6 to kill even standby versions of an employer mandate.

When lawmakers return from the July Fourth recess, the legislation will move from the disparate committees and toward the floors of both chambers.

THE JUSTICES SAID judges can keep antiabortion protesters from clinics.

The Supreme Court said judges and legislators may restrict protests by ordering demonstrators to keep a certain distance from abortion clinics. The 6-3 ruling was hailed as a victory by abortion-rights advocates, who said it would help protect clinics that protesters have tried to shut down. Antiabortion groups decried the court's action, saying it would infringe their First Amendment rights to gather and speak freely.

Separately, the court handed proponents of minority-dominated voting districts a pair of defeats in cases from Florida and Georgia.

FISKE ISSUED a report on the first phase of his Whitewater inquiry.

Whitewater prosecutor Robert Fiske declared that Clinton aides did nothing illegal when they discussed a politically sensitive probe into an Arkansas S&L. Fiske also reaffirmed a police assertion that Deputy White House Counsel Foster killed himself. On a third matter, Fiske said he soon would conclude a report about whether White House aides obstructed an investigation of Foster's death when they took documents from his office.

Fiske may be the first witness when House hearings on Whitewater-related matters begin on July 26. Senate hearings also will begin at the end of July.

Israel's Rabin warned he would take tough steps to thwart violence during expected right-wing protests against PLO leader Arafat, who will arrive in the Gaza Strip today for a three-day visit. Rabin said the Israeli opposition was using the Arafat visit to incite unrest against the center-left government.

Japan's new Socialist premier named pro-business moderates to many top cabinet posts. Murayama gave 13 of the 21 posts to his old enemies in the Liberal Democratic Party, including the trade, foreign affairs and defense portfolios. But he chose the liberal leader of the Sakigake party to be finance minister.

Britain and China reached an accord on the future of British military bases to be vacated in 1997 when China regains sovereignty over the British colony. The pact was announced only a few hours after the colonial legislature approved a democratic reform bill that was opposed by Beijing.

The U.S. has decided to sign a U.N. treaty governing international waters, Secretary of State Christopher said. The U.S. dropped its opposition based on changes in provisions about seabed mining.

Diego Maradona was suspended by the international soccer federation, which alleged that the soccer star, captain of Argentina's World Cup team, took five banned drugs. The action was the first drug suspension at a World Cup in 16 years.

Tonya Harding was stripped of the 1994 national skating championship she won. A U.S. Figure Skating Association panel also banned her from the association for life, citing her conduct in connection with an attack on rival Nancy Kerrigan.

Haitian leftists demonstrated in support of ousted President Aristide in the first public act of defiance against Haiti's military regime in almost a year. The activists announced formation of a coalition to push for Aristide's return. Meanwhile, Secretary of State Christopher voiced hope that sanctions would force out the military leaders.

Cracks have been found in the steel shrouds surrounding radioactive fuel in as many as 10 U.S. nuclear reactors, a problem the Nuclear Regulatory Commission says could lead to a meltdown in the event of an earthquake. Cracks were first found last fall in a North Carolina reactor.

Coca-Cola's diet Coke brand is introducing a 60-second commercial Sunday during the Wimbledon tennis tournament on NBC. The ad, emphasizing the beverage's contour bottle, is produced not by diet Coke's agency, Omnicom Group's Lowe & Partners/SMS, but by Fallon-McElligott in Minneapolis.

Fallon has the assignment of introducing the contour bottle in all Coke advertising, including Coke Classic. It also redesigned the diet Coke can.

The ad features an elephant swimming to a raft where a woman is sunbathing and drinking the soft drink. The woman is unaware of the elephant as he removes one can of diet Coke and replaces it with a bag of peanuts and then swims away.

A Coca-Cola spokesman says another version of the ad will be used to promote Coke Classic outside the U.S.

PITTSBURGH -- Westinghouse Electric Corp., gambling on gaining new business in Russia and Ukraine, agreed to help improve safety of potentially hazardous nuclear power plants there without indemnification from the U.S. government.

In making the move, Westinghouse is veering away from other companies in the industry who have said they will not participate in Department of Energy programs there unless the U.S. government offers indemnification against potential lawsuits.

Terry Lash, director of nuclear energy at the DOE, confirmed yesterday that his department has an oral agreement with Westinghouse and that the U.S. government is not taking on any additional liability.

Westinghouse requested and the DOE has agreed to give, Mr. Lash confirmed, a letter saying the U.S. government will "help" the company under existing laws in case of any liability lawsuits in U.S. courts.

A Westinghouse spokeswoman said the company is talking to the DOE, "but there are many details to be worked out before a contract can be signed." On the liability issue, the spokeswoman would only say that Westinghouse has "adequate liability protection under existing bilateral agreements."

Nicholas Heymann, an analyst with NatWest Securities, said Westinghouse needs to take a leading role in Russia not just for business opportunities there, but also to promote nuclear power as a safe energy resource in other markets, particularly in the Far East.

Various estimates have put the cost of bringing nuclear plants in the former Soviet Union on par with those in the U.S. at about $20 billion.

Fiat SpA Chairman Giovanni Agnelli told shareholders at the annual meeting that the company expects 1994 results to be "rather better" than break-even. He didn't give specific figures.

Mr. Agnelli also said that he expects 1994 consolidated sales of more than 62 trillion lire at the giant Italian auto maker, up 14% from 1993. In 1993, the company had consolidated sales of 54.56 trillion lire.

Fiat's consolidated sales in the first four months of 1994 were up 10% from a year earlier, he added. No specific figures were given.

Genethon of France, a leading European researcher in the fledgling field of human genomics, forged a cooperation pact with Paris-based biotechnology concern Genset SA.

The three-year, $12 million accord is an important step for commercialization of genomics, a promising but arcane corner of biotechnology in which Europe has managed to hold its own in international competition so far. Genethon, a nonprofit research institute formed in 1990, rose to prominence by producing one of the first maps of DNA benchmarks that scientists use in helping them locate human genes.

The Genethon-Genset partnership may signal a thaw in traditionally chilly relations between French academic researchers and industry. "This is probably a revolution in France," said Daniel Cohen, director general of Centre d'Etude du Polymorphisme Humain, or CEPH, a prominent Paris research institute and one of Genethon's founders.

"The academic world in general has been reluctant to work together with industry in the field of biology and there's been no model for dismantling the barriers. I think from now on the relationship will get closer and closer -- and become increasingly like the U.S.," Dr. Cohen added.

Indeed, Genethon is in talks with a half dozen other biotech companies about joint projects similar to the one with Genset, said Pierre Biranbeau, director of France's Muscular Dystrophy Association, another Genethon founder. "We want to try to gather around us the most competent companies involved in genetic therapy or development of medicines based on our genomic information. The aim is to go further in the direction of curing genetic diseases as fast as we can," Mr. Biranbeau explained.

In an abrupt about-face, he didn't rule out future cooperation between Genethon and international companies. Only two months ago, French authorities intervened to block a proposed cooperation pact between Dr. Cohen's institute CEPH and Cambridge, Mass., biotech concern Millennium Pharmaceuticals Inc.

Dr. Cohen played down allegations in international science journals that the intervention was politically motivated, calling the government's action "multifactorial." He added: "Maybe, when I tried to start up the relationshp with Millennium, the culture in France wasn't there. But after a year Genethon goes out and does the same thing -- which just shows how fast attitudes are changing."

That's partly the result of growing interest in genomics from major pharmaceutical companies. Last summer, AngloAmerican drug giant SmithKline Beecham PLC unveiled a $125 million cooperation accord with Human Genome Sciences Inc., of Rockville, Md. In late March, Switzerland's Roche Holding Ltd. and Millennium announced a $70 million agreement to use the U.S. company's proprietary genomics technologies to develop therapies against obesity and adult diabetes.

FRANKFURT -- Siemens AG of Germany and a group of Russian companies founded a joint venture to market and install modern instrumentation and control systems on Russian nuclear plants.

Through its KWU power-generation group, Siemens will contribute 31% of the starting capital for the Russian venture, called A.O. Nuclearcontrol, the German company said. The new company is based on Siemens technology.

For the past three years, Siemens has pursued a strategy to modernize the nuclear plants in the former East Bloc with its technology. Siemens signed the A.O. Nuclearcontrol agreement on Wednesday in Moscow, it said.

Hans-Dieter Bott, head of business administration for KWU's instrument and control unit, said the company's "Teleperm" technology will bring the Russian plants up to international standards. The new instruments will be concentrated in the control rooms of power plants, it said.

Siemens' Russian partners, grouped under the Russian Ministry of Nuclear Energy, are Atomenergoprojekt, Moscow; OKB Gidropress, Podolsk; Atomenergoexport, Moscow; Zarubeshatomenergostroi, Moscow; Rosenergoaatom, Moscow; Atomtechenergo, Mytishchi; ENIZ, Elektrogorsk; and WNIIA, Moscow.

Siemens' KWU division already joined the Russian partners in November in founding A.O. Interautomatika, a joint venture for installing instruments and controls on conventional fossil-fuel power plants in Russia.

Siemens also already has established a position in the Russian market with Interturbo, a joint venture for large gas turbines founded with the turbine manufacturer LMZ in St. Petersburg.

SANTA MONICA, Calif. -- Cinergi Pictures Entertainment Inc. said that sales from last week's home-video release of its recent motion picture "Tombstone" were much higher than expected and should bolster second-quarter earnings.

Andrew G. Vajna, founder, chairman and chief executive officer of Cinergi, said more than 400,000 units of "Tombstone" had been shipped to video stores. According to the film's video distributor, a unit of Walt Disney Co., this is a near-record for films with a similar level of box-office success; "Tombstone" generated about $55 million at the box office after its release in December. The figure also is considerably higher than Disney's projections, Mr. Vajna said in an interview.

Mr. Vajna declined to say how much revenue would be generated by the video release of the western, which stars Kurt Russell and Val Kilmer.

"We hope to have a profit in the second quarter," Mr. Vajna said. Cinergi had a net loss in 1993 of $4.2 million. It earned $2.3 million on revenue of $19.1 million in the first quarter. The company has been relatively dormant for several years, developing but not releasing films. Now it expects to release two to four films a year, Mr. Vajna said.

Cinergi recently completed an initial public offering at $9 a share in which it raised $30 million in exchange for a 27% public stake in the company. Disney bought a 5% stake. Mr. Vajna holds 60%.

Cinergi also produced "Renaissance Man," which Disney released this summer; it has grossed $20 million so far, a disappointment. Later this summer it plans to release "The Color of Night," starring Bruce Willis.

PRAGUE -- For Deutsche Babcock AG's Heyo Schmiedeknecht, going global isn't just a blueprint for growth -- it's a strategic imperative to insulate the German industrial company from some of the wrenching economic and social changes looming on Germany's horizon.

Faced with cheap labor in regions of Eastern Europe as well as in the big expanding markets of the world, such as China, Southeast Asia, India and Latin America, the high-cost, inflexible labor market of Germany can't continue, Mr. Schmiedeknecht said in an interview before the European Chairmen's Symposium here.

"We in Germany are no longer competitive. And what we are doing now -- in terms of lean management and restructuring -- is not enough," he said. "You can't just talk away the fact that other regions can produce at lower cost and provide good quality. We have to work more, for less money, and be more flexible."

To be competitive, the strategy for a German industrial company such as Deutsche Babcock must be a two-pronged system of re-engineering German operations to leaner, more flexible standards while pursuing strategic footholds in emerging markets, Mr. Schmiedeknecht said. Germany must accept that the structure of its economy slowly will have to shift more toward a service-industry-based economy such as in the U.S.

Since Mr. Schmiedeknecht was brought to Deutsche Babcock as chairman in 1990 to rescue a company that had accumulated roughly one billion marks ($631.1 million based on currency trading Wednesday in New York) in losses in the 1980s, his programs of restructuring the German operations while pushing the company's globalization program has pulled the company back into the black and placed it on a path to becoming increasingly less German in its strategic focus.

"Germany will become a very small market for us as we orient ourselves more globally," Mr. Schmiedeknecht said.

Acknowledging that competitive pressures of emerging markets are threatening an exodus of industrial jobs from Western Europe, Mr. Schmiedeknecht said a company has to seize the trend, rather than fight it.

"Labor-intensive jobs, like building components and machine tools can be better done here in the East. So yes, that means these jobs are destroyed in Germany," said Mr. Schmiedeknecht, noting that Deutsche Babcock now sources roughly 10% of its components from Central and Eastern Europe.

Deutsche Babcock recently closed one of its western German boiler-maker facilities, "because we simply couldn't afford it," he said. Those boilers, instead, are being built in Poland and Slovakia.

While stopping short of calling for American-like labor policy -- which makes it easier for management to hire and fire workers -- Mr. Schmiedeknecht said competition from emerging markets, which don't have the extensive social nets that Germany supports, means German labor gradually will be forced to drop some of the benefits accrued over the past 50 years of nearly continual economic growth.

One step Mr. Schmiedeknecht is taking is to implement a system of flexible work times where workers log more hours in the spring and summer when the company has more business, and correspondingly fewer hours in the down seasons. That system saves the company 200 marks to 400 marks ($126 to $252) a month per person in overtime payments in the high season, while sparing workers the unpredictable swings of higher paychecks in the summer and lower paychecks because of forced short work in the winter.

Regardless of the steps industrialists take to push through structural reforms, however, Mr. Schmiedeknecht is convinced the German economy is headed for a crisis -- soon.

"We have a gigantic deficit problem, the government is piling on an additional 250 billion marks in new debts every year. . . . I predict by 1997 or 1998, we are going to be forced to sharply devalue our currency because we simply will be broke."

Criticizing Germany's politicians for "driving us into a truly Italian or Swedish situation," Mr. Schmiedeknecht said a devaluation of the mark "could make Germany a bit more attractive again as an industrial location, but by then, a lot will have been destroyed."

Therefore, "our strategy is to go global and to shrink our German exposure," he said. Mr. Schmiedeknecht aims to transform a company that last year received 60% of incoming orders from German customers to one that has only 25% to 30% dependence on Germany. Within a few years, Europe will account for only four billion to five billion marks in annual sales, while China, India and the Americas each will account for 1.5 billion to two billion marks and Indonesia another 500 million marks to one billion marks, he predicted.

Particularly important for Mr. Schmiedeknecht is that Deutsche Babcock's business in these areas not simply represent the classic model of German export prowess, but rather local production, driven predominantly by local managers and workers with local wage scales.

"Do you know how many good Chinese managers you can get for the price of one German manager?" Mr. Schmiedeknecht said, explaining his strategy of setting up skeleton holding companies in India, China and Russia to supervise local operations.

"You can't compete against Chinese competition if you have an expensive management team of Germans" getting paid perhaps 15 to 20 times as much as local management, he said. Caution in Russia While confident the Chinese and Indian ventures will pay off well and quickly, Mr. Schmiedeknecht characterizes his Russian efforts as on "standby." The company has taken the legal steps to found a joint venture there, and he believes that when the fields of nuclear-reactor rehabilitation and utility modernization take off, Russia could offer huge opportunities for a company like Deutsche Babcock. But political instability there makes it far too risky for a company, unless in the context of a public-private venture, in which Western governments would go into the region together with industry on infrastructure projects.

And even though the Central European states of Hungary, Poland, Slovakia and the Czech Republic offer many reliable supplier companies for a customer such as Deutsche Babcock, Mr. Schmiedeknecht's interest in large-scale investment in the region has been damped severely.

Because Czech Prime Minister Vaclav Klaus "has pushed all the state's debts off onto companies, the companies' financing is tight and they could easily go broke," making them much less attractive acquisition targets or joint-venture partners, he said.

Moreover, with uncertainty or complicated bureaucracy still clouding issues such as bankruptcy laws and privatization stipulations, "the framework for privatization isn't clear. It's difficult to get a foothold," Mr. Schmiedeknecht said.

After trying unsuccessfully to negotiate a major joint venture in the compressor business with Czech industrial company CKD, Mr. Schmiedeknecht has decided he's more interested in small projects, preferably on green-field sites.

Turning back to the West, Mr. Schmiedeknecht said politicians there could help European industry by having less "provincial" cartel rules. "European firms have to be allowed to cooperate, because when we're on the global stage, we're often going up against companies that are giants compared to us."

Nevertheless, with work, Mr. Schmiedeknecht believes Europe can make a strong comeback. "We have to change our structures, and when we have, we'll be in a good position. Then we will be at least as good, if not better than the Japanese."

SINGAPORE -- Political pressures and financial discord have grounded Singapore Airlines' plans to launch a national carrier for Cambodia.

The collapse of an agreement between the Singapore carrier and the Cambodian government is a setback to SIA's new strategy to enter fledgling aviation markets in Asia. A spokesman for the airline said the project to start Royal Air Cambodge is "suspended indefinitely because of skirmishes in Cambodia."

But a Cambodian official and aviation sources familiar with the deal said it stalled over financial terms demanded by SIA and internal government opposition to foreign management of the national airline.

In November, SIA said it would take a 40% equity stake in Royal Air Cambodge, which it expected would take to the skies by mid-1994. The rest of the equity was to be held by the Cambodian government and private Cambodian investors.

SIA was to make an initial investment of 10 million Singapore dollars (US$6.6 million) and hold four seats on the airline's 10-seat board. It also was to fill senior management positions, including that of managing director, and supply pilots, leased aircraft and technical support, as well as airport services. To fend off competition, SIA won a commitment from Phnom Penh to disband two Thai-owned regional carriers serving Cambodia.

In Cambodia, the first prime minister, Prince Norodom Ranariddh, who was a major force in the deal, hailed its importance for tourism development. But the project was dogged by problems almost from the start. They began when the Cambodian government notified the two Thai-run airlines, Cambodia International Airlines, or CIA, and SK Air, that they would have to cease operations a month before Royal Air Cambodge started scheduled flights.

Thai investors, led by Bangkok-based entrepreneur Udom Tantiprasongchi, who started CIA in 1991, took their case to Phnom Penh.

Officials at SK Air couldn't be reached to comment. Jimmy Gao, CIA's assistant managing director, declined to discuss Royal Air Cambodge. But he said that single-plane CIA, which flies between Phnom Penh and Hong Kong, Singapore, Bangkok and Ho Chi Minh City, planned to buy three new aircraft as part of an expansion program.

OTTAWA -- Canada's economy continued to grow in April, led by substantial gains in construction, mining and manufacturing.

Statistics Canada, a government agency, said yesterday that the gross domestic product increased 0.3% in April from March. GDP is the total value of a nation's output of goods and services.

"Growth is on a roll," said Bank of Nova Scotia economists Aron Gampel and David Rosenberg. They predicted that GDP growth in the second quarter will match the solid annual rate of growth of 4.2% in the first quarter.

Bank of Canada Governor Gordon Thiessen said Canada's expansion "is more robust than many people realize, and overall prospects for continued growth are favorable."

Statistics Canada said mining and oil well activity rose 3.1% in April from March, led by a surge in drilling for oil and natural gas.

Manufacturing output rose 0.8% in April following a 1.3% increase in March. Order backlogs, which have risen for five consecutive months, indicate further manufacturing gains in coming months.

Auto production rose 4.5% in April from March, in response to strong U.S. demand. More than 80% of the vehicles and parts produced in Canada are shipped to the U.S. Construction activity rose 1.9% in April, led by a 6% gain in residential construction.

The economy grew in April despite an upswing in interest rates that prompted a 0.2% decline in the output of the economy's interest-sensitive service sector. Retail sales, a major service activity, fell 1.9% in April, the first decline in five months.

Governor Thiessen said the Canadian dollar's decline against other currencies in recent months has mitigated the interest rate squeeze. The Canadian dollar's fall has boosted activity at Canada's export industries, by making their goods more price competitive on export markets.

The economic pickup has strengthened the federal government's tax revenues. The government's budget deficit in April narrowed to 5.18 billion Canadian dollars from C$6.06 billion a year earlier, the Finance Department reported yesterday.

WASHINGTON -- Armco Inc. agreed to pay $27.5 million into two underfunded pension plans to settle a government lawsuit involving one of those plans, which was terminated by a former Armco unit.

The federal Pension Benefit Guaranty Corp. said Armco yesterday paid the PBGC $10 million to settle the agency's claim involving a shortfall in the pension plan for Reserve Mining Co., the former Armco unit. The PBGC sued Armco in April to recoup about $21.4 million in the pension underfunding, plus interest, for the Reserve Mining plan.

The PBGC, which insures retiree benefits for defined-benefit pension plans, took over the terminated Reserve Mining plan in July of last year. Armco, based in Pittsburgh, has diverse operations that include steel, construction products and oil-field equipment.

Under the agreement, Armco will contribute an additional $17.5 million by July 15 to its current pension plan for hourly workers. That plan, which the PBGC said was underfunded by nearly $300 million in 1992, covers 20,000 workers and retirees.

The contribution far exceeds the amounts Armco would otherwise have paid into that plan over the next two years, and Armco agreed not to use the payment to offset its minimum annual pension funding requirements through 1999, the PBGC said.

Reserve Mining was a general partnership, 50%-owned by First Taconite Inc., a company that the PBGC said was created by Armco to hold its Reserve Mining partnership interest. The PBGC contended that because both Reserve Mining and First Taconite were Armco alter egos, under a separate but related federal court ruling, Armco is liable for the unfunded benefits in the Reserve Mining pension plan. It covers nearly 2,000 former workers and retirees.

Reserve Mining and First Taconite went into bankruptcy proceedings in 1986 and have since been liquidated, the PBGC said. The Reserve mining pension plan was terminated in May 1987.

As a country grows older it learns more about itself and finds old, hidden things in its attic (as well as its basement), and in its wisdom brings these artifacts into the harsh light of the present.

Matthew C. Hoffman, in his June 24 editorial-page commentary "Politics Come to the Smithsonian," seems very disturbed that the Smithsonian has started catering to new markets that want to see different representations of this nation's history. I fail to see the problem.

In the past the Smithsonian wasn't subject to the judgment of the market, and a small number of curators decided how history would be represented to the general public. The present system is no different, except that now, it seems, the curators no longer share Mr. Hoffman's politics.

Mr. Hoffman himself has become a revisionist. He seems to be implying that the general public (whoever they are) was more satisfied with the "old" Smithsonian than with the new. Where is his evidence? Did people donate more in the past? Were there more visitors? Have people been leaving more complaints, fewer kudos in the suggestion box?

No, politics hasn't come to the Smithsonian. Politics has always been there, and Mr. Hoffman is just one more contributor. In fact, he is so caught up in his own politics that he seems unable to accept that history itself changes with our understanding, and that a diversity of educated views makes our understanding richer.

The Indians, as described by Mr. Hoffman, represented "a sophisticated society and religion"; only the weapons of the Europeans were superior.

Isn't that the history of all surviving societies -- they survived because their weapons were superior? Are there any societies with inferior weapons that should have been preserved? How would we know, since they no longer exist, and only the Smithsonian finds satisfaction in what they might have been. Actually, historical evidence indicates that those "sophisticated Indians" engaged in human sacrifice and cannibalism. They also resorted to torture, rape and mayhem, all of which was not uncommon in the warfare of those days, prior to the modern methods of killing by the millions.

As it turns out those with superior weapons survived and we in America are here to enjoy the results. The Smithsonian wonders, "What may happen to Mars if we establish a presence there?" Indeed, what might happen? We might find room for our surplus population and access to mineral rights we have run out of. There apparently are no natives to subjugate, so our presence would be peaceful.

I commend Mr. Hoffman for bringing the ideological revisionism of the Smithsonian Institution to the attention of your readers. For months, our association has been expressing concern over a 1995 exhibit planned by the Air and Space Museum featuring the Enola Gay, the B-29 that dropped the atomic bomb on Hiroshima and helped end World War II. The museum's first script for the exhibit was unbalanced and out of context. "For most Americans," the museum's curators wrote, "it was a war of vengeance. For most Japanese, it was a war to defend their unique culture against Western Imperialism."

Since then, a revised script has appeared with only marginally less focus on the Japanese "victims" of American aggression. It appears that scholarship has indeed taken a back seat to "politics" at the Smithsonian.

Fleet Financial Group said it is merging its Albany and Long Island, N.Y., banks, effective July 1.

The new bank, a combination of the $11 billion Fleet Bank of New York, Albany, and Fleet Bank, Melville (Long Island), will have headquarters in Albany and total assets of $14 billion. It will operate 346 banking offices in the state. No bank offices will be closed as a result of the merger, said Fleet, based in Providence, R.I.

Erland E. Kailbourne, chairman and chief executive of the Albany bank, will continue in that capacity with the merged bank. Thomas A. Doherty, chairman, president and chief executive of Fleet Bank, Melville, will become regional president of the combined institution, Fleet said. Mr. Doherty, 56 years old, informed the company's board yesterday of his plans to retire on Jan. 31, 1995.

Charter Bancshares Inc. said it will acquire the assets of the residential-construction lending division of Farm & Home Financial Corp. for about $75 million.

The company is purchasing the assets from Roosevelt Financial Corp., a St. Louis savings and loan that is acquiring Farm & Home.

Charter Bancshares' acquisition, which will be renamed Charter Builders Group, provides short-term construction loans to Texas-based home builders.

Farm & Home is a savings and loan based in Nevada, Mo. Charter Bancshares is a Houston-based bank-holding company.

Seat SA, the Spanish unit of German car maker Volkswagen AG, said it has proposed to workers a 10% pay cut as part of a strategy to reduce production costs and make Seat more competitive.

Seat said production in 1994 will fall short of forecasts, with 332,000 units to be manufactured compared with the 364,000 units originally planned.

At the end of May, Seat employed 14,000 workers, far more than the 9,500-strong payroll envisioned for the end of 1994 in the company's restructuring plan. Meanwhile, it said, its average worker earns 11% more than the sector average, while wage increases between 1991-93 at Seat "have been significantly higher than those of our direct competititors."

Seat management also wants to do away with certain benefits, such as educational and social funds. It also wants workers to be more flexible with work schedules. The company needs Saturday production during June and July, which are high-sales months.

The next meeting between management and unions for collective bargaining negotiations will take place July 4.

Quick & Reilly Group Inc., Palm Beach, Fla., said its fiscal first-quarter revenue increased about 25%, but net income was flat from a year ago.

For the three months ended May 27, revenue was $75.4 million, compared with $60.1 million a year ago. Net income was $10.3 million, or 93 cents a share, compared with $10.2 million, or 92 cents a share, a year ago.

Chairman and chief executive officer Leslie C. Quick Jr. noted that interest rates increased during the quarter, while market performance and transaction volume declined. But, he said, the discount brokerage is "well-positioned to weather any further market hesitancy."

In New York Stock Exchange trading, Quick & Reilly closed at $25.375, down 25 cents a share.

Blaming continuing start-up problems at a new distribution center, Cambridge, Mass.-based Stride Rite Corp. reported lower sales and earnings for the second quarter and first six months of its 1994 fiscal year.

The shoe company's sales in the fiscal second quarter ended June 3 totaled $161.7 million, off 1.7% from year-ago sales of $164.5 million. Earnings slumped 60% to $7.7 million, or 15 cents a share, in the second quarter from $19.4 million, or 38 cents a share, a year ago.

For the first half of fiscal 1994, net sales were down 7% to $283.8 million from $305.3 million in 1993. Net income in the six-month period fell 62% to $12.5 million, or 25 cents a share, in 1994 from $32.5 million, or 64 cents a share, in 1993. The 1993 six-month results included a charge of $2 million, or four cents a share, due to an accounting change related to income taxes.

Investors apparently had expected worse news. Shares in Stride Rite rose 87.5 cents to $13 in New York Stock Exchange trading. The earnings were "not as bad as people thought," said Josephine Esquivel, a Lehman Brothers analyst.

The company said problems at a new Kentucky distribution center resulted in late deliveries of spring products, more order cancellations and higher operating costs.

Atmos Energy Corp., Dallas, said an early-retirement program would result in a charge of about $1.7 million for the fiscal fourth quarter ending Sept. 30, if all eligible employees participate.

For the 1993 fourth quarter, Atmos had a loss of $2.3 million, or 31 cents a share, on revenue of $62.7 million.

The natural-gas-distribution company said it is offering the voluntary program to 46 of about 340 employees of its Greeley Gas Co. operating division, which it acquired in December 1993. Atmos said employees age 55 and older with at least 10 years of vested service credit in the Greeley Gas pension plan will have until Aug. 15 to accept or decline the offer.

Metallgesellschaft AG of Germany is accused of fraudulently inducing a competitor to enter a joint venture agreement, according to a suit filed in federal court in New York City. The suit alleges that Metallgesellschaft, a diversified industrial company that constructs recycling facilities, obtained control over the competitor's recycling technologies and customers.

Horsehead Resource Development Co., a hazardous waste and resource recovery service company based in New York, seeks damages of at least $500 million from Metallgesellschaft and a subsidiary.

Under the 1990 joint-venture agreement, the suit says, the German company and its subsidiary were to share environmental technologies with Horsehead. The companies were to license and market those technologies in their respective markets in North America and Europe.

Among other complaints, the suit says the German companies "failed to promote" Horsehead's technology in Europe.

Metallgesellschaft officials could not be reached for comment. Horsehead is 45% owned by Horsehead Industries Inc. and 45% owned by the Metallgesellschaft subsidiary.

WASHINGTON -- The House approved a $243.6 billion defense-spending bill for fiscal 1995, which includes funds to improve the readiness of U.S. troops in South Korea.

The bill, sent to the Senate late Wednesday on a 330-91 vote, would provide $250 million to ensure that U.S. forces in South Korea "have the resources to meet any contingency that might rise."

Though representing roughly one-sixth of the total federal budget for the fiscal year that will start Oct. 1, the bill was moved through the House floor in just 16 minutes as lawmakers rushed to conclude business ahead of the Fourth of July recess.

Among other things, the bill would appropriate $2.4 billion for the CVN-76 nuclear-powered aircraft carrier, expected to be built by Tenneco Inc.'s Newport News Shipbuilding & Dry Dock Co. The money represents about half of the total cost of the carrier.

The bill also would provide $2 billion for Air Force procurement of six of McDonnell Douglas Corp.'s C-17 transport aircraft, $466 million less than the administration request.

The measure would also appropriate $2.44 billion for research and development of the F-22 advanced tactical fighter, which is being built by Lockheed Corp. and Boeing Co.

British Bio-technology Group PLC said its pretax loss for the fiscal year ended April 30 widened to #21.5 million ($33.2 million) from #13.1 million a year earlier.

However, the company played down the deterioration, saying it was in line with expectations and largely due to increased spending on research and development and a reduction in interest earnings.

Sales were down 49%, to #3.99 billion from #7.85 billion.

The company said its current fiscal year has "started well." It added that it now has a "very sound financial base" following its May rights issue, the company said.

Still, British Bio said it will try to hold down costs, and that this year the number of staff won't rise above 325. In addition, further partnerships will be sought to develop drugs outside the cancer therapy area.

Chief Executive Officer Keith McCullagh said the company is focusing on developing treatments for cancer with three "breakthrough" drugs currently being tested.

PINAR DEL RIO, Cuba -- On a sleepy Sunday afternoon, eight Cubans are gathered in a steamy garage apartment for contraband beer and conversation. The last thing they expect is an impromptu visit by a gringo announcing he's from something called The Wall Street Journal. Since foreign journalists in Cuba are often tailed by government informers, breaking the ice isn't easy. But one slightly drunk member of the group speaks up without so much as a nudge. "We are proud of the revolution; we like socialism, and we don't want capitalism here," says the wiry factory worker. "Everyone feels the same."

After seven days and dozens of interviews with Cuban city and country folk, I have finally found one person who unabashedly claims to support the government. All other Cubans I have met (excluding those who work directly with one of the ministries) uniformly expressed their hatred for a system that has sapped hope, privacy, freedom and practically any source of physical comfort out of an increasingly desperate population.

However, even this encounter turns into an attack on the government after the defender of the revolution disappears into a back room with two policemen who have wandered by. "That guy is a militant in the Communist Party," says one man in hushed tones. "It's not true that we feel the same." Another man sitting on the bed makes a sign of the cross and nods his head in agreement.

Think what you may about the economic potential of Cuba -- which is as great as any emerging market I have seen -- popular discontent with the Communist government of Fidel Castro is reaching a crescendo. While government agents continue to harass individuals who speak to strangers, and all organized opposition remains strictly forbidden, attempts by the regime to put a lid on dissent are not working. I was allowed into Cuba after several months of high-level negotiation, so presumably my movements were being monitored. Nevertheless, the government could not (nor, in fairness, did it try to) prevent me from hearing the people's complaints about the system.

Complaints are by no means limited to urbanites (who represent about 80% of the population). At a stop near rural San Cristobal, I approach a group of farmers playing dominoes. Again, there is the prerequisite ice-breaking, which I facilitate by passing around my card, a copy of the Journal and my Dow Jones ID.

They begin by talking about their deprivations. Except for children under seven, everyone eats just one meal a day (this is common in cities, as well). Most of the time, that consists of rice and beans. I am shown ration books that indicate they have had no beef and only two chickens per family over the past six months, and we are sitting just a few hundred yards from thousands of government chicken coops. "Those chickens are for the tourists," says one woman. "All we get is the smell." I ask whether they ever get any cheese. A young man pipes up sarcastically, "Cheese, what's that?"

All of these farmers agree that what the country needs is private property and the right to market produce privately. Arrests for selling food are still common, they say. "If there was a referendum on private property tomorrow, 99% of the people would support it," says one farmer.

I ask about a February 1993 election for half of the National Assembly, in which candidates who support the socialist system reportedly received more than 70% of the vote. They all look at me in disgust. "Look, only party organizations, like the party unions or the local Committees in Defense of the Revolution, were allowed to nominate candidates," says a 25-year-old man who looks twice his age. "Many people annulled the ballots by marking a big `NO,' but most people are afraid that somehow the party will find out."

"Tell me, why don't you gringos invade the island?" asks one 45-year-old who works on a state farm. "In 1959 it wouldn't have worked, because too many people supported the revolution. But today 95% of the people would support an invasion to get rid of . . ." Rather than finishing, he pulls on an imaginary beard, a common gesture for referring to Fidel Castro. All agree. I'm invited to play dominoes, but say I have to move on to interview more people. "Why?" I'm asked by the 60-year-old host of the group. "You'll just hear more of the same thing." He's right.

In Havana, the deprivations seem more acute -- perhaps because one can still see how beautiful Havana once was, from the post-colonial townhouses of Old Havana to the deco-style mansions of Miramar and Vedado. Today, the hundreds of thousands of houses and apartments are crumbling shells, dangerously packed beyond which any reasonable housing code should allow. I am invited into many such houses throughout the Havana area by the desperately poor but unfailingly hospitable people who reside there. They invariably blame socialism and the bearded one for their ills.

Since they are more cosmopolitan, Havana residents know a bit more of what they are missing than do people from the countryside or from other cities. There also are more black markets in Havana and government dollar stores. Of course, such options are only for those with dollars: prostitutes, tourist workers (about 80,000 throughout the island, in a population of 10 million) and those who receive dollars from abroad. Even for this minority, black market prices are often prohibitive. Chicken is $1 a pound. A bottle of local beer is $1. A bottle of rum is $3.

For others, who subsist solely on salaries that range between $1.50 and $3 per month, black market prices are simply out of reach. Strictly rationed government supplies are all that's available. "During World War II, you had rations for a few years," says Pablo, a 26-year-old Havana factory worker who lives in a cramped, one-room apartment in Marianao with his wife and eight-year-old daughter. "We've had rations for more than my lifetime. People can't take it any more," he says in English perfected by listening to Miami radio stations. Pablo's child has a bad cough that won't go away, as do many children I meet. He insists I eat his portion of that night's meal: mashed sweet potato with some precious cheese.

Pablo's wife, a strikingly beautiful, tall woman with model-like cheekbones, looks at her long, slender fingers. Her knuckles have been rubbed raw from today's hand washing of their clothes in the shower -- the only part of the apartment with running water. Pablo leans over and kisses his wife. With steely determination he asserts, "People who work as hard as we do deserve more."

Mr. Asman edits the Americas column.

NEW YORK -- Time Warner Inc. said it received permission from state regulators to provide telephone service over its cable-television lines in New York City.

The media giant had earlier forged an initial agreement with Rochester Telephone Inc. as well as regulators to provide phone service over its cable-TV lines in Rochester, N.Y., sometime next year. But New York City -- where Time Warner has almost a million cable subscribers -- is potentially a more lucrative local-telephone market.

Unlike its standing in Rochester, however, Time Warner still lacks an agreement with New York's dominant phone company, Nynex Corp. Such an agreement is crucial because it would enable Time Warner phone customers to call Nynex phone customers, and vice versa.

Time Warner said its expected foray into phone service will lead to a more ambitious effort to launch a "full service network" to deliver phone, cable, video and home-shopping services in many markets. Later this year, Time Warner will begin providing some of these services on a trial basis to about 4,000 customers in Orlando, Fla., a spokesman for the company said.

Natural Wonders Inc., Union City, Calif., said its net loss in the fiscal second quarter ending July 31 will be wider than the approximately $1.9 million, or 25 cents a share, analysts had estimated.

In Nasdaq Stock Market trading yesterday, the company's stock fell 10%, closing at $4.50, down 50 cents.

The specialty retailer didn't specify the extent of the loss. A company spokesman cited "disappointing" sales and distribution problems. A consensus of analysts' estimates is compiled by Zacks Investment Research Inc.

In the year-earlier period, the company had a net loss of $1.6 million, or 22 cents a share, on sales of $20.3 million.

Snyder Oil Corp. said the Overseas Private Investment Corp. signed a letter of commitment for $40 million of financial support for Snyder's Permtex joint venture in Russia.

Snyder said the commitment enables Permtex to negotiate financing with a commercial bank group. The Fort Worth, Texas, oil concern said Overseas is a U.S. government agency that provides financing and political risk insurance for American investments in developing countries.

Snyder said it and its international equity partners own 50% of Permtex and Permneft, Russia's regional production association, owns 50%.

It said Permtex holds exploration and development rights to 300,000 acres in the Volga-Urals Basin of Russia's Perm region, which is located about 800 miles east of Moscow.

Striking workers at de Havilland Inc., a unit of Bombardier Inc., ratified a new three-year contract and will be returning to work Monday, the Canadian Auto Workers union said.

About 1,750 workers went on strike last week at the Downsview, Ontario, aircraft manufacturer after rejecting the company's first contract offer.

Bombardier, a Montreal transportation-equipment company, owns 51% of de Havilland. The Ontario government owns the remainder.

CST Entertainment Imaging Inc. expects to post a narrower loss of less than $300,000, or about one cent a share, on revenue of $1.3 million to $1.4 million for its fourth quarter ended yesterday, according to Jody Shapiro, its president.

The year-earlier loss totaled $1.9 million on revenue of $618,000. Mr. Shapiro, who was named president last October, also said in an interview that the Culver City, Calif., company's goal is to be profitable in the second quarter of fiscal 1995. "I think it's a reasonable goal," he said. The expected fourth-quarter loss, he said, won't be from operations, but will result from depreciation of equipment.

CST, formerly Color Systems Technology, is in the business of colorizing black-and-white films and television programs. The company has had problems turning a profit, but Mr. Shapiro said business is improving.

Robbins & Myers Inc., Dayton, Ohio, said it completed the previously announced acquisition of three business units from Chicago-based Eagle Industries Inc., a subsidiary of Great American Management & Investment Inc., for $124 million.

The maker of fluid-handling and motion-control products said sales last year of the Pfaudler, Chemineer and Edlon units totaled about $170 million.

"This acquisition is a major step forward in our focused fluids management strategy," said Robbins & Myers' Daniel W. Duval, president and chief executive officer, in a statement. He said the acquisition positions the company "as the leader or No. 2 in all of its principal businesses and opens new opportunities for growth in equipment for the process industries."

For the year ended Aug. 31, 1993, Robbins & Myers had sales of about 85.1 million, a company spokesman said. The company's products are used by a variety of processing industries, including chemical, waste-water treatment, pharmaceutical, oil and gas recovery, pulp and paper, food and mining.

Insignia Financial Group Inc., Greenville, S.C., said it submitted an offer to buy Cardinal Realty Services Inc., Reynoldsburg, Ohio.

There are two options in the offer. The first would provide $15 a share in cash, or about $55 million, to Cardinal's 2,000 shareholders. The second option would pay $14 a share in cash plus a $3 nontransferable, noninterest-bearing note payable 10 years or earlier, based on certain events.

The making of the offer is contingent on several conditions, Insignia said, including Cardinal shareholders' approval and the tendering of at least 80% of Cardinal stock.

Insignia and Cardinal manage multifamily apartment complexes.

THE WHITE HOUSE MAPS a new push for health-care reform.

With legislation coming to a head in Congress, more than a dozen cabinet and subcabinet officers will be sent around the country to boost universal health-care coverage. The biggest day is Wednesday when 10 cabinet officers will have events from San Francisco to Sioux Falls. Their motto: "Without universal coverage every American remains at risk."

The White House also will enlist lawmakers to stump for Clinton's plan. Aides give a booklet to Democrats showing polls backing universal coverage. But pollster Stan Greenberg reports a split among voters over whether they would support or oppose lawmakers who support the Clinton plan.

The National Federation of Independent Business, a foe of the plan, arranges 40 meetings between business owners and House members during the recess.

U.S. OFFICIALS STRUGGLE to put the best face on the dollar's dip.

A Clinton slip last week promising a Bentsen statement later in the day undercut a Bentsen-Greenspan pact to stay mum for a while to see how the dollar fared, annoying the Fed chief. Bentsen rejects criticism he hasn't defended the dollar enough. He says he finally spoke up for a stronger greenback this week because of "comments being made by some traders" and to clear up any "misconceptions."

Clinton officials hope the surprise pick of a socialist prime minister in Tokyo will overshadow complaints that the U.S. mishandled dollar policy vs. the yen. White House aide Robert Rubin, a Wall Street veteran, emerges as an influential voice in dollar deliberations. He reminds people that currency traders' statements on the dollar reflect the bets they have made.

PRESSURE ON THE SERBS is mulled short of lifting the Bosnian arms embargo.

The U.S., Britain, France, Germany and Russia discuss a "ladder" of punishments if the Serbs reject a proposed partition map in Bosnia and the Muslims accept it. The first rung would be new ultimatums that the Serbs withdraw heavy weaponry from around the Muslim "safe areas" -- not just Sarajevo and Gorazde. The next step would be air strikes. Only if the Serbs still resist peace plans would a lifting of the arms embargo be considered.

The U.S. and allies will unveil the map next week at a foreign ministers meeting in Geneva. In deference to the skittish Russians, however, they will put off issuing formal deadlines until later in July.

One NATO official warns that if the Serbs unexpectedly accept the map and the Muslims reject it, the Serbs could use that as an excuse to expand the war.

PEROT FORCES and others step up opposition to the world trade pact pending in Congress. A "National Call In" to members of Congress on Tuesday by groups including Perot's United We Stand America generated 50,000 calls, tying up phone lines to the Capitol. The groups charge the pact means loss of U.S. sovereignty.

THEY'RE NO SEINFELDS, but Virginia's four U.S. Senate candidates scored a respectable 1.7 audience rating on "Larry King Live" this week, 21% above the Cable News Network show's June average. However, they didn't match Wednesday's 2.0 rating for Michael Fay, the youth who was caned in Singapore.

COMING HOME: Clinton will use his trip abroad next week to try to boost his drooping poll ratings by seeking to show that he is a leader of the post-Cold War world. One ploy will be to take part in ceremonies to bring home U.S. troops from Berlin who are guarding the former Iron Curtain.

RARE PRAISE: German Chancellor Kohl's top foreign-policy adviser, Joachim Bitterlich, applauds Clinton foreign moves from GATT to NATO expansion while griping that European integration got the cold shoulder from the Bush team. "If I compare two years ago, three years ago and now," he says, "there is tremendous progress."

CLINTONITES SEEK to ease tensions with the Catholic Church on population. Gore publicly stresses areas of agreement on a United Nations population-conference report that the pope dubs as both pro-abortion and antifamily. One concern is that a spat with the church could hurt Clinton with Catholic voters. It also could add to the perception that Clinton isn't adroit in handling international affairs, says political analyst Kevin Phillips.

Clinton aides don't foresee a serious problem. Many Catholics don't see population issues the same way the Vatican does; in a poll done for the Pew Global Stewardship Initiative, virtually identical shares of Catholics and non-Catholics-58% and 59% respectively-favor American sponsorship of voluntary family-planning programs in developing countries.

A group called Catholics for a Free Choice sends Clinton a letter strongly supporting the U.N. conference report.

MINOR MEMOS: Ohio GOP Chairman Robert Bennett says some state-party donators have threatened to stop giving because they think he is Clinton's Washington lawyer Bob Bennett. . . . Outgoing Clinton staff chief Thomas McLarty, criticized for being too easy-going, says of successor Leon Panetta: "What this White House really needs is a chief of staff who can read Machiavelli in the original Italian." . . . New Fed Vice Chairman Alan Blinder, appearing with a sprained ankle, tells visiting bank economists that he hurt it defending the dollar.

NORTHBROOK, Ill. -- Allstate Corp., one of the nation's biggest sellers of personal insurance, said it will halt sales of new homeowners policies in California, sharply increasing the prospect of an insurance availability crisis.

The company will continue to renew policies of existing customers, but the ban on new business takes effect today. Haunting the insurer was the possibility that it would be swamped by more than 230,000 California homeowners who will flood the market over the next two years as Los Angeles-based 20th Century Industries abandons the homeowners' market because of heavy earthquake losses.

Allstate, with $950 million in reported quake losses, has a 17% share of the California market. Its decision follows similar ones by other big insurers. Last month, Farmers Group Inc., a subsidiary of London-based B.A.TT Industries PLC, said it will stop sales of new residential and commercial policies. Earlier, State Farm Mutual Automobile Insurance Co., which insures about one in four California homeowners, announced restrictions on new business.

Allstate said it is acting in response to a surge in demand for homeowner and earthquake insurance since the Jan. 17 Northridge earthquake, the nation's second-costliest disaster to insurers, with $6.4 billion in estimated losses.

"We did not want to take actions that would create further problems in the marketplace, but we could not afford to be the only game in town," said Jerry Choate, president of Allstate Property & Casualty.

The action by the big insurer will create headaches for policyholders dumped by 20th Century, and others. The homeowners can obtain fire and quake coverage through a state-run insurance program called the "fair" plan, but the coverage is more bare-bones than many homeowners prefer. California Insurance Commissioner John Garamendi expanded fair plan availability last month and asked the governor to declare a moratorium to stop companies from refusing to renew homeowner policies.

The insurers complain that approved premium rates aren't adequate to cover insurers' exposure to earthquakes. But Allstate and most other insurers have yet to seek rate increases, partly, they say, because damage claims continue to rise.

"Companies are continuing to receive claims on a consistent basis," said Steve Goldstein, a spokesman for the Insurance Information Institute, a trade group. "Everyone needs time to determine exactly how many people they can insure and at what price."

HarCor Energy Inc., Houston, said it acquired a 75% interest in closely held Bakersfield Energy Resources Inc.'s oil-and-gas properties, gas-processing plant and gathering lines for $42 million and securities valued at about $4 million.

HarCor said the acquisition more than triples its reserves by adding 6.6 million barrels of oil and 46.8 billion cubic feet of natural gas. Bakersfield Energy, based in Bakersfield, Calif., will remain the operator of the properties and the gas-processing plant.

In addition to cash, HarCor agreed to pay 25,000 shares of HarCor common stock, 30,000 shares of junior convertible preferred stock and a seven-year callable warrant to acquire one million HarCor common shares at $5 each.

NEW YORK -- Signs of more strength in the economy combined with continued weakness in the dollar and rising commodity prices to send bond prices down more than a point yesterday.

The scope of the declines that Treasury securities suffered and an unwillingness by investors to commit new cash in such a turbulent environment raised fears that the bond market is on the verge of a renewed climb in interest rates.

"The market has been in a trading range for 13 weeks," said Michael Krauss, a fixed-income technical analyst at Lehman Government Securities Inc. "What may be going on here is the beginning of another down leg in the bond market."

Yesterday, the price of the benchmark 30-year Treasury bond finished down a point, or $10 for a bond with a $1,000 face value, at 84 3/32. Its yield, which moves in the opposite direction from the price, rose to 7.61% from 7.51% late Wednesday.

If nothing emerges to rescue the market from continued declines, Mr. Krauss said, the yield on the 30-year bond could be on its way to a 7.75% and possibly 7.90%. "I don't think the bond will see a sustained move well beyond 8%," he added. "If it got there, it would be a buying opportunity."

Traders cited a long list of reasons behind the bond market's collapse yesterday. "You didn't have to look far for a reason to sell," said Stephen Gallagher, a money-market economist at Kidder Peabody & Co.

Bond prices began the session heading modestly lower, with most traders expecting a quiet session for the last day of the quarter. But at midmorning, the bottom fell out of the market in response to new data suggesting burgeoning inflation pressures and solid economic growth. Bond investors fear inflation because it reduces the returns of fixed-income investments.

The main source of concern for bond traders was an increase in the prices-paid portion of the Chicago Purchasing Managers Index. The prices index rose to 69.7 in June from 63.6 in May. An index reading above 50 reflects rising prices.

The increase in the Chicago prices index raised fears that the National Association of Purchasing Management report due out today will show a similar increase in prices. "They tend to go in the same direction most of the time," said David Greenlaw, an economist at Morgan Stanley & Co.

At the same time, traders were confronted with a larger-than-expected rise in factory orders and news that the Conference Board's help-wanted advertising index jumped six points last month. Traders, increasingly jittery over forecasts for a strong June employment report next week, seized on the Conference Board data as another reason to sell. "It was May data . . . but it's more evidence that hiring plans are increasing," said Mr. Greenlaw of Morgan Stanley.

Bond dealers were also unnerved by the sight of the dollar falling in intraday trading to a new post-World War II low of 98.37 yen and by a one-point rise in the KR-CRB Index of 21 commodities. Widespread rumors of heavy selling of mortgage-backed securities only added to the weight on the bond market, putting the greatest pressure on the five-year to 10-year note sector. "You can take your pick of the reasons why the market was down," said Neil DeSarno, head trader at S.G. Warburg & Co.

Investors, meanwhile, weren't enticed by the higher yields. Money managers were able to cite end-of-quarter restrictions, a long holiday weekend, the coming Federal Open Market Committee meeting and next Friday's employment report as keeping them sidelined. Most important, they said, the market hasn't convinced them that it can rally.

"A lot of portfolio managers might view these real rates of return positively, but you're not going to take the plunge until you see the market behave better," said Lawrence Waldorf, portfolio manager at First Investors Management Co.

Jeff Tyler, a portfolio manager at the Benham Group, said that although he believes the bond market is not on the verge of a free fall, he wants to be safe. "I'd be more than happy to give up a bit of a move to the upside for more protection from a move to the downside."

There is an abbreviated trading session slated for today in advance of the July Fourth holiday on Monday. The Public Securities Association, an industry trade group, has recommended a 2 p.m. close. U.S. bond markets will be closed on Monday.

United Airlines Inc. and its parent, UAL Corp., sold their long-awaited split-rated debt and preferred-stock offerings yesterday.

Those offerings dominated the new-issue market, which saw a total of about $1.4 billion of corporate and agency debt sold. The only other corporate deal came from Saga Petroleum AS, a Norwegian oil and gas producer.

UAL launched a $765 million preferred-stock offering at a 12% dividend yield last week, but cut the size of the offering by $355 million at pricing and increased the dividend yield to 12.25%.

In the midst of yesterday's tumultuous Treasury market, United Airlines sold $741.2 million of debt in two parts, but only after the deal was scaled down from its original $765 million starting point. United sold $370.2 million of 10-year notes at par to yield 10.67%. United's $371 million offering of 20-year debentures was priced at par to yield 11.21%.

"United is a survivor," said Robert Hickey, a portfolio manager at Van Kampen Merritt Management, Oakbrook Terrace, Ill., who participated in the bond issue. "At this point and time, we think there is positive momentum behind the bonds."

An announcement by Bell Atlantic Corp. and Nynex Corp. that they are combining their cellular properties, pushed down prices of other cable company debt, including that of Nextel Communications Inc.

Prices on Nextel Communications 9.75% senior notes maturing in 2004 fell to 56 3/4 from 58. The yield increased to 11.25% from 11%.

A trader said that prices on Nynex and Bell Atlantic's debt were unchanged. Both Moody's Investors Service Inc. and Standard & Poor's Ratings Group affirmed the companies' ratings following the announcement.

Meanwhile trading in the investment-grade and junk bond markets was mostly quiet, with spreads mostly unchanged on investment-grade paper and prices on junk bonds down about 1/4 point.

Many foreign bond markets also posted sharp declines yesterday, mainly on new inflation concerns and after encountering strong resistance following gains earlier in the week.

The United Kingdom purchasing managers index rose to a record high in June, and the 9.00% gilt maturing in 2008 finished at about 102 21/32, down 1 3/4 from Wednesday, to yield 8.65%.

German government bunds ended sharply lower after heavy selling of bund futures contracts, leaving players stunned. The 6.25% bund maturing in 2024 finished at 84.09, down more than a point on the day, to yield 7.61%, up from 7.51% a day earlier.

"It's a horrible day," one Frankfurt trader said, adding that the market went entirely against his expectations. "It's useless to recommend anything to your clients."

French treasurys also saw volatile dealings that culminated in a late round of selling. Traders said futures were sold heavily by nonresident, particularly U.S., institutional accounts, which overwhelmed domestic fund buying in cash and caused the market to close at the lows, sending a bearish signal for today . The 6.00% government bond maturing in 2025 dropped 1.79 point to 76.60 to yield 8.07%.

Prices of mortgage securities ended lower, in line with Treasurys.

But talk that prices were under pressure from a big liquidation of mortgage-backed securities wasn't true, said Allen Siegal, head pass-through trader at CS First Boston.

Rumors that Nomura Securities International was planning to liquidate its mortgage positions rippled through the market early in the session, but the rumors were flatly denied by a senior mortgage official at Nomura. The talk had little real effect on trading.

The rumors about Nomura were triggered by word that the firm was no longer going to underwrite collateralized mortgage obligations issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corp. and the Government National Mortgage Association.

The senior official confirmed the firm was leaving the new-issue market, but said Nomura had no plans to liquidate any of its mortgage positions.

In secondary trading, Government National Mortgage Association 8% issues for July delivery ended 19/32 lower at 98 10/32. Federal Home Loan Mortgage Corp. Gold 8% issues ended 15/32 lower at 98 21/32. Federal National Mortgage Association 8% issues ended 14/32 lower at 98 18/32.

Prices of municipal bonds ended flat to slightly lower.

Among secondary issues, the Los Angeles Department of Water and Power's 6.30% bonds of 2024 ended flat at 98 3/4, to yield 6.375%. The New Jersey Economic Development Authority's 6.40% bonds of 2032 finished 3/8 lower at 97, to yield 6.58%.

Today's trading should be very thin, with no new issues and no scheduled data to keep players tied to their desks ahead of the Fourth of July holiday Monday.

Meanwhile, it's still uncertain when there will be a final decision on New York City's financial adviser, due to continued disagreement between the offices of Mayor Rudolph Giuliani and Comptroller Alan Hevesi. The firm that serves as adviser fills a number of roles, including choosing underwriters and evaluating proposed financings.

As widely reported this week, Mr. Giuliani's office favors the selection of a single adviser for the handling of New York City's debt issues -- Public Resources Advisory Group -- which is based in New York.

Mr. Hevesi's office, on the other hand, has called for the selection of both Public Resources Advisory Group and Philadelphia-based P.G. Corbin & Co., which is a minority-owned firm.

One of Mr. Giuliani's deputy press secretaries said that the two sides remain at an "impasse" right now, making it unclear when a final choice will be made.

New York City, which is one of the largest municipal issuers in the U.S., has sold about $5 billion of debt annually in recent years.

Miles Inc. said it paid Massachusetts $200,000 to settle a claim that the company violated state kickback laws by paying pharmacists to counsel patients to purchase one of its products.

Under its Pharmacy Information Program (PIP), the Pittsburgh drug manufacturer illegally paid a $35 fee each time a pharmacist counseled Medicaid and private insurers' patients about Adalat CC, a hypertension drug, Massachusetts Attorney General Scott Harshbarger alleged. In April, Miles paid $605,000 to settle claims by 11 states, including Massachusetts, that PIP violated patient privacy.

Miles, a pharmaceutical and chemical subsidiary of Germany's Bayer AG, denied wrongdoing in both instances and said it settled to avoid the time and expense of litigation.

Massachusetts is continuing its investigation, focusing on large pharmacy chains' implementation of PIP. The U.S. Health and Human Services Department is investigating whether Miles violated federal kickback law.

FINA Inc. said it is spending between $75 million and $100 million to expand its La Porte, Texas, polypropylene plant, making it the largest polypropylene plant in the world.

The Dallas oil and petrochemical company said the expansion will add an eighth production line and increase the plant's annual capacity 400 million pounds, to 1.4 billion pounds.

FINA said engineering for the project began in late 1993, and the project will be complete by late 1995.

The company said polypropylene is a plastic material used in home furnishings such as carpeting and upholstery fabrics; flexible packaging films for snack-food packages; rigid packaging for various food, cosmetic and medical applications; and housewares, toys and automotive parts.

Advanced Logic Research Inc. said it will report a loss of as much as $1.5 million, or 13 cents a share, for its fiscal third quarter, reflecting a sharp drop in sales from previous quarters amid a product shift.

Analysts estimated the Irvine, Calif., computer maker would report earnings of $580,000, or five cents a share, for the quarter, which ended yesterday. Advanced Logic had a loss of $2.7 million, or 24 cents a share, in its year-earlier third quarter.

Revenue will be "modestly higher" than the $36.1 million recorded a year earlier, the company said. Second-quarter revenue was $48.3 million.

A company spokesman said customers delayed purchases in anticipation of new machines equipped with Intel Corp.'s Pentium microprocessor, which the company began shipping this week.

Advanced Logic stock gained 37.5 cents yesterday to close at $5.125 a share on the Nasdaq Stock Market.

Exar Corp. said it would post a fiscal first-quarter charge of $17.3 million, or $3 a share, related to its recent purchase of Micro Power Systems of Santa Clara, Calif.

The charge will result in a sizable net loss for the period ended yesterday, but a spokesman said the company won't report the extent of the loss for several weeks.

The San Jose, Calif., maker of integrated circuits said the write-off reflects unfinished technology development projects at Micro Power.

Analysts had expected the company to earn $3.5 million, or 60 cents a share, according to Zacks Investment Research. A year ago, the company had net income of $3.9 million, or 55 cents a share.

Mobil Corp., Fairfax, Va., said its Indonesian exploration and producing affiliate acquired a 50% interest in a production-sharing contract for the North Aceh offshore block in Sumatra.

The oil company said the contract is held by a unit of Tokyo-based Indonesia Petroleum Ltd., which has had the license for the block since 1982. Mobil said that Indonesia Petroleum has drilled five exploration wells on the block, and that one, the Jambu Aye Utara No. 1, tested for natural gas and condensate.

Mobil also said that it signed a joint operating pact with Indonesia Petroleum, and that they plan to drill two deepwater exploration wells in the block, with the first to be drilled later this summer.

ReSound Corp., Redwood City, Calif., said that shareholders filed a lawsuit alleging violations of securities laws against the company, its directors and officers, and three investment banks that underwrote its stock in a March 1993 offering.

The complaint alleges that the defendants made false and misleading statements that inflated the stock price of the hearing-aid manufacturer and subsequently caused losses for shareholders when the price collapsed. The suit was filed on behalf of the shareholders in federal court in San Francisco by the San Diego law firm Milberg, Weiss, Bershad, Hynes & Lerach and seeks class-action status.

The investment banks named were Montgomery Securities, and Volpe, Welty & Co., both based in San Francisco, and New York-based Furman Selz Inc. Spokesmen for the firms could not be reached to comment.

CHICAGO -- Keith Crandell is a high-tech Johnny Appleseed, cultivating research institutions for ideas that could grow into big money makers.

One day he is at Argonne National Laboratories, crafting a business strategy for a liquid-metal technology. Another day he is at the University of Chicago, helping commercialize water-pollution technology stemming from research to foil ship barnacles.

The scientists need Mr. Crandell's green thumb. With defense cutbacks and budget crunches, the nation's top universities and scientific institutions have watched their government funding sink, to 58.7% of research costs in 1992 from 66% in 1976. To keep research afloat, these institutions have had to pump in big sums of their own money. And they are raising it by holding technological bake sales.

Since 1980, when the government first allowed universities and laboratories to reap commercial profits from federally funded projects, top institutions have been licensing their research. Now, more and more think the big money is in commercializing the research themselves. So they're turning to technology-transfer experts like the 33-year-old Mr. Crandell to mold professors and administrators into entrepreneurs.

The task is proving tougher than the institutions could have imagined. Of the hundreds of such programs set up in recent years, one after another has been dragged down by political infighting, conflict-of-interest charges and waste. A few, like Mr. Crandell's, are getting results. But others have had to scale back drastically.

Nowhere has the controversy been more heated than at the University of California system, where a plan for a $100 million technology-transfer fund generated such rancor it was abandoned.

The idea was proposed five years ago by university technology-transfer official Carl Wootten. He calculated that financing commercial development of university research and owning a stake in those ventures would pump in annual revenue of more than $200 million by the year 2000 -- four times what the university now derives from licensing research.

But the specter of turning academicians into businessmen unnerved the university community. Many felt the idea raised prickly questions about conflict of interest and the propriety of commercializing basic research. A university task force recommended a slow start to avoid inflaming passions on the issue.

Before the program could even get started, turmoil erupted. Articles in the San Francisco Examiner and an industry newsletter, Technology Access Report, claimed that the technology-transfer office had jumped the gun and was secretly investing in inventions before it had authorization. The Examiner also accused Mr. Wootten of violating state conflict-of-interest rules by personally investing in a business run by a longtime friend and then steering some $375,000 in university contracts to that friend's firm.

The accusations stoked smoldering opposition. A group of 43 University of California scientists, including Nobel Prize winners Michael Bishop and Harold Varmus, wrote a letter asking university President Jack Peltason to abandon the venture fund. They contended the plan would compromise science by pressuring academics to pursue profit-making.

Meanwhile, Silicon Valley venture capitalists were lobbying university and state officials to kill the project. Since many made their fortunes taking inventions from universities and commercializing them, few had any interest in having a middleman there to slow the process and eat into their profits.

The university technology office denied jumping the gun on investments, and a university audit committee cleared Mr. Wootten of all conflict-of-interest charges in January. But it was too late to save the fund. The university decided to shelve the project. In March, it went a step further and curtailed activities of its highly successful central technology licensing office, ceding to each of its nine campuses and three laboratories authority to develop technology transfer policies. The decentralization was the death knell for Mr. Wootten's grand plan.

Such controversies are making Washington lawmakers take notice. The Senate began hearings on technology-transfer issues in April. The National Institutes of Health are revising regulations governing the relationship between government-funded scientists and industry. And the Department of Commerce is seeking to modify licensing requirements set out in the Bayh-Dole Act of 1980, the law that fostered the current technology-transfer system by lifting the government's ban on licensing federally funded research.

These agencies are hoping to establish new guidelines before the tensions between commerce and academia become crippling. A major roadblock has been that "there is no overarching, federally mandated conflict-of-interest policy for federally funded researchers today," says Nelson Dong, a Minneapolis attorney who specializes in technology-transfer issues. With no rules of the road to follow, most universities have proceeded timidly in exploiting their technologies.

Despite the headaches, the potential payoff for commercializing research is increasingly alluring. "Every campus is hoping it can find new sources of revenue," says John Preston, head of the licensing office at Massachusetts Institute of Technology.

But Mr. Preston warns that most programs "certainly won't make money for five or more years." And Mr. Dong notes that "only 50 or so" of the scores of university-based licensing operations that have sprung up in recent years are generating any significant income.

The programs are kept afloat by the hope of finding that single, elusive blockbuster -- for example, a gene-splicing patent developed by molecular biologists Stanley Cohen and Herb Boyer that is expected to bring $200 million to Stanford University and the University of California.

To hit such jackpots, universities must risk their own capital. And in doing so, they find themselves having to set up virtual venture-capital funds -- often with sorry results.

To manage and fund its technology-transfer efforts, Johns Hopkins University in 1988 formed an independent corporation called Dome Corp., along with a development arm, Triad Investors Corp., capitalized by the university and outside investors. The goal was to turn inventions into prototypes and create new companies to market the resulting products.

But of the $20 million in capital that the program was expected to raise, only $5 million materialized -- $3 million of it from the university itself. Many institutional investors shied away, fearful of losing money in an untested venture fund that lacked experienced management.

By the beginning of 1990, the fund's spending had put it almost $2 million in debt, and Dome was more recognized for its lavishly appointed offices overlooking the Chesapeake Bay than for any deals it had fostered. University officials decided the idea needed radical revamping. "We tried to do too much too quickly," Theodore Poehler, vice provost for research, says now.

The university recruited Barbara Plantholt, a venture capitalist from Baltimore specializing in seed investing, to head Triad and restructure the technology-transfer operation. Her solution was to abandon the entrepreneurial approach altogether: Instead of launching entire companies, Johns Hopkins would limit its involvement to licensing technology and building prototypes.

That strategy has given the program a modicum of success. Triad is negotiating licenses worth more than $3 million on five university-developed prototypes, including a device that helps patients who have had their larynx removed to speak. "Our biggest opportunity is in licensing out these products, not in building startups," Ms. Plantholt says.

Given the right conditions, however, an entrepreneurial approach to technology transfer can work. Take the success of Arch Development Corp., started in 1984 by physicist Walter Massey, vice president of research at the University of Chicago and a former administrator at nearby Argonne National Laboratories.

To bridge the gap between research and commerce, Dr. Massey first organized a task force of leading scientists and area businessmen. "Not only was it important to get their input, it also was important to sell the concept to them," says Steven Lazarus, Arch's president.

Two years later, Arch launched a venture-capital fund to commercialize and take equity stakes in inventions developed at the University of Chicago and Argonne. The bulk of the money -- $9 million -- came from four investors, including the university's endowment, State Farm Insurance Co. and two venture-capital funds.

Through Arch, Mr. Lazarus and six other professionals -- Mr. Crandell among them -- have started 17 companies and are working on several more. Yet Arch remains highly selective.

"Our whole job is to be cynical about whether these products can ever find a marketplace," Mr. Lazarus says. When the market for a laptop-computer system for gauging patient medical histories proved too elusive, Arch sold the technology to Nellcor Inc., a California medical company. Another project, an information-retrieval system for literature searches, was jettisoned because it seemed too arcane, he says.

Early this year, Illinois Superconductor Corp. became the first company in Arch's portfolio to go public. The $1 million that Arch invested now is worth more than $8 million.

"Arch succeeded with us because they didn't try to do too much themselves," says Ora Smith, chief executive officer of Illinois Superconductor. Arch's approach was to take superconductivity, a technology with diverse applications, and focus it on a single area: uses in wireless telecommunications. Then Arch hired professional managers, including Mr. Smith, who came from a Silicon Valley superconductor startup. "They never tried to micro-manage," Mr. Smith says.

Mr. Lazarus says Arch's mission is straightforward. "We are in this to make money," he says. "Most scientists we work with like the idea of making money."

He adds: "Are we corrupting them? I don't think so. But this, too, remains to be seen."

THE COUPON for the second tranche of a $200 million issue of Health & Rehabilitation Properties Trust notes floats and pays quarterly at 72 basis points above the three-month London Interbank Offered Rate. Yesterday's New Securities Issues column incorrectly said the coupon pays quarterly at 95 basis points above the three-month Libor.

A $200 MILLION (proceeds) issue of Videotron Holdings PLC senior discount notes was priced at 58.32 to yield 11.125%. An item in yesterday's New Securities Issues column incorrectly stated the amount was $150 million.

EARNINGS ESTIMATES for Humana Inc. were raised to an average of 92 cents a share for 1994 from an average of 87 cents, according to First Call, a securities-analyst information service of Thompson Financial Networks. In yesterday's Investment Insight on the Money & Investing page, the current and previous average earnings estimates were misstated.

National Insurance Group Inc. said it would post an unexpected second-quarter loss of as much as $300,000, or six cents a share.

The company cited lower revenue stemming from a slowdown in the mortgage-banking industry, which it serves, and a $750,000 restructuring charge for relocating operations.

Analysts had expected the insurer to report net of about $650,000, or 13 cents a share, for the quarter, according to Zacks Investment Research. A year earlier, the company earned $1.1 million, or 27 cents a share.

Trading in the company's stock was halted shortly before the announcement yesterday. The stock was unchanged at $5.50 in Nasdaq Stock Market trading.

Motorola Inc.'s long-awaited Envoy portable computer may not arrive on schedule, a company executive said this week.

The company, based in Schaumburg, Ill., had reiterated as recently as last week that the new device would ship this summer. But Randall Battat, head of the company's wireless data group, appeared to back away from that commitment by stating during a technical conference that Motorola now expects the first shipments sometime in the second half of the year.

Envoy, which communicates by radio links, relies on software called Magic Cap from General Magic, a start-up in Mountain View, Calif. A spokeswoman for the software company said it is within a couple of weeks of delivering Magic Cap to Motorola.

United Parcel Service of America Inc. lost a round in its legal battles with the Teamsters union when a federal judge rejected a lawsuit seeking more than $100 million in damages from a one-day strike.

U.S. District Judge Joyce Green in Washington dismissed the suit yesterday, saying the dispute came under a collective bargaining agreement and should be settled through arbitration.

Atlanta-based UPS stressed that the decision didn't call into question the merits of the case, and the company would "continue to seek damages."

An attorney for the Teamsters said the strike proved that UPS "should deal with the union on vital issues like worker safety, rather than litigating."

The lawsuit claimed that a Feb. 7 strike by union members over higher package-weight limits was illegal. The Teamsters called the strike -- the first national walkout in UPS history -- to protest the company's decision to raise its package-weight limit to 150 pounds from 70 pounds.

UPS originally sought $50 million in the suit, claiming the strike had an impact on customer confidence and the company's long-term credibility.

KeyCorp, based in Cleveland, bolstering its presence in Indiana, said it agreed to acquire First Citizens Bancorp of Indiana in a tax-free stock transaction with an indicated value of about $50.8 million.

KeyCorp said it will issue common shares for each share of First Citizens Bancorp common stock outstanding, to equal a value of $37 a share. The company will repurchase an equivalent number of its common shares before the completion of the acquisition, which is expected around the end of the year.

KeyCorp, which has $61.5 billion in assets, said the transaction "will be accretive to earnings" next year.

First Citizens Bancorp, which is based in Anderson, Ind., has nearly $350 million in assets. Victor J. Riley Jr., KeyCorp's chairman and chief executive officer, said the proposed acquisition "further strengthens our franchise in central Indiana."

The announcement was made after the close of trading. KeyCorp closed at $31.875 a share, down 50 cents, in trading on the New York Stock Exchange.

Resource Recycling Technologies Inc. terminated discussions to acquire Pure Tech International Inc.'s glass-recycling and material-recovery divisions.

RRT, a Vestal, N.Y., waste-recycling company, said it also canceled plans to acquire exclusive marketing rights to a reverse-vending machine developed by Pure Tech, based in Somerset, N.J.

Larry Schorr, RRT's president, said although RRT had signed a nonbinding letter of intent to acquire the divisions, the company "wasn't completely satisfied" with the plan. The price wasn't disclosed.

Michael Nafash, chief financial officer of Pure Tech, said the two companies "just couldn't come to terms." He added that Pure Tech is talking with several other companies interested in buying the divisions, but he declined to identify them.

NEW YORK -- CBS Inc. Chief Executive Officer Laurence A. Tisch says his company isn't in play. He seems to be one of the few who think so.

Yesterday, CBS and QVC Inc. confirmed that they are in merger talks about "a possible business combination" encompassing both the nation's current No. 1 broadcast network and the cable industry's most innovative home-shopping network. CBS's stock soared 19% on the news, in a sign that the market believes another bidder may be in the wings.

"The company is definitely in play," contends Raymond Katz, an analyst with Lehman Brothers. "CBS has essentially said it is very amenable to going out and doing a business combination, changing its ownership and capital structure."

If the CBS-QVC combination goes through, the approximately $7.2 billion deal would reshape the broadcast industry: It would vault a brassy cable firm that made its name hawking the likes of cubic zirconium jewelry to near-equal footing with the vaunted "Tiffany network," known for classy programs such as "60 Minutes" and "Murphy Brown."

The pairing, both companies stress, would be a "strategic merger." But when pressed, neither side could articulate yesterday exactly what that strategy would be. Asked about synergies, Barry Diller, chairman and chief executive officer of QVC, who would run the combined company, said, "There are some here for sure. I don't know where they are yet. To say now would be an idiot's game."

Mr. Diller did say that home-shopping shows wouldn't suddenly appear on CBS: "The goal isn't to fudge them together." But that assurance didn't stop David Letterman of CBS's "Late Show" from coming up with a Top Ten list of "Ways CBS will be different after merging with QVC." No. 10 on his list: "You know that stopwatch on `60 Minutes' -- It's yours for $49.94!"

More than anything else, the proposed merger appears to be a way to bring in new blood to run CBS, which is losing momentum with advertisers and with its affiliates, a number of which it recently lost to rival Fox Broadcasting Co. Mr. Diller, 51, a former TV programming wunderkind, would become CBS's chief executive officer and president, and chairman of its executive committee. Mr. Tisch, 71, would remain chairman of CBS. He probably would stay on only two years, he said.

While the proposed transaction, a complex stock swap, appears convoluted, it is in fact painstakingly structured to avoid any appearance of putting CBS on the auction block. "It's a real merger," said Mr. Tisch, in a joint interview with Mr. Diller in Mr. Tisch's 35th-floor office at CBS's Manhattan headquarters, known as Black Rock. "One of the assets is that Barry will come in as chief executive. Barry is going to be the boss here. He's going to run the company."

Mr. Tisch noted he has been at CBS for "eight years now. I've enjoyed it immensely. It's time to move on." He said that "I might have stayed longer if a person like Barry Diller hadn't come along. I wanted to make sure the future is ensured. This is the perfect timing for me."

Yet CBS's future is far from ensured. The network has been rumored to be for sale for years, and Wall Street speculation is rife that a rival bidder will emerge. Most frequently mentioned: Walt Disney Co. Investment bankers say Disney has had discussions about a merger in the past and has reviewed CBS's numbers, although they note that Disney has never made a purchase the size of CBS. "Barry is scared to death" that Disney Chairman Michael Eisner "will jump in," one industry executive claims. (Disney executives decline to comment.)

Other names of potential bidders spreading through Wall Street yesterday included media billionaire John Kluge, who declined to comment. Ted Turner, whose Turner Broadcasting System Inc. made a run at CBS in 1985, isn't thought likely to jump in, since his company is 25% owned by Tele-Communications Inc., which also owns a chunk of QVC.

Bidding for CBS would be an expensive proposition: At yesterday's closing price, its market capitalization is $5.16 billion.

Analysts note that extremely heavy trading of both CBS and QVC shares, both of which had delayed openings yesterday, indicates a Wall Street feeling that this affair is far from over. CBS shares jumped $50 a share to close at $313 in New York Stock Exchange trading. QVC closed at $38 a share, up $5.625, in Nasdaq trading. Thus, the value of the proposed deal jumped by about $1.2 billion yesterday afternoon. The $7.2 billion estimate for its value includes a $2.9 billion dividend CBS would pay its shareholders.

Mr. Tisch, asked directly if CBS is in play, said, "I don't think so. This transaction is so right for both companies I don't anticipate another bidder coming in."

But Mr. Diller said that "it's not for us" to say. "If we get another bid, we get another bid."

Mr. Diller can afford to be cavalier, because his proposed deal gives QVC a built-in edge: Even if another bid does come in for CBS, the rival would have to win regulatory approval, a process that could take a year or more. Because QVC isn't acquiring control of CBS, it doesn't have to go through that lengthy process.

For Mr. Tisch, the proposed deal is a step toward trying to end a string of disappointments. In December, Fox outbid CBS for the right to air National Football League games, a franchise that CBS had held for 38 years and that helped define the network. In May, Fox wooed away eight of CBS's largest affiliates in such cities as Detroit and Atlanta by investing $500 million in New World Communications Group Inc. CBS at one point under Mr. Tisch passed on the opportunity to buy the stations.

Under him, CBS was the least active of the networks in the international arena, declining to make major strategic investments overseas. And Mr. Tisch shed many of the assets that diversified entertainment companies are today seeking, such as CBS Records and its publishing operations. Mr. Tisch also failed to groom an in-house successor.

However, he has had some big successes, including record ratings for the 1994 Winter Olympics and luring Mr. Letterman away from NBC. CBS also has been the leader in prime time for three years.

Proposed terms of a deal with QVC call for the home-shopping channel to merge into CBS. QVC shareholders would end up with 46.4% of CBS on a fully diluted basis. Each share of QVC would be converted into a combination of 0.0486 of a share of CBS common and 0.1931 of a share of a new series of CBS nonvoting convertible exchangeable preferred stock.

CBS shareholders, meanwhile, would convert each share of common into 0.4009 share of the new CBS common, and receive a cash dividend of $175 a share. They would end up owning 53.6% of the new CBS.

Loews Corp., 31%-owned by Tisch family members, currently owns just under 20% of CBS, and would own about a 10% stake of the new CBS after a merger. Mr. Diller, who owns 13% of QVC on a fully diluted basis, would end up with a 4.7% stake in CBS. He would also be one of five QVC-designated directors on CBS's 12-member board.

John Tinker, an analyst with Furman Selz Inc., says the deal is "cleverly structured" because technically CBS would be buying QVC and CBS shareholders would retain control. In general, takeover law says if a company puts itself up for sale, it must accept the best bid, but in a "strategic alliance," companies have more discretion to ignore other offers.

The distinction between "sale" and "strategic alliance" dates back to a 1986 court decision involving Revlon Inc. That decision held that once a company puts itself up for sale, it must open up the bidding process to other suitors. The Delaware Supreme Court applied this logic last year in ruling that, after proposing a merger with Viacom Inc., Paramount Communications Inc. would also have to consider a bid from QVC.

On the other hand, in assessing the Time-Warner combination earlier, the same court found that the separate companies, rather than changing hands, were forming a strategic alliance to improve their competitiveness in the marketplace. Thus the court allowed Time to disregard a bid by Paramount.

Regardless of how the law shakes out, as a practical matter CBS directors would come under tremendous pressure if someone put a favorable offer for the company on the table. Some traders speculate Mr. Tisch might actually welcome such an offer.

"He's a value player," said one investment banker. "At some price, he will always be a seller." Despite vehement denials from him, CBS has been for sale for two years for the right price, say some people familiar with the situation.

Mr. Tisch said yesterday that "we haven't entertained any other" offers. "We've always wanted to be an independent broadcasting company, and I think this enhances that position. We'll be a bigger broadcaster than before."

Asked how long the companies had been in discussions, Mr. Diller replied, "It's been a bit of a movable feast." Discussions went from "generic talks to specific talks" about a month ago, he added.

Credited with playing matchmaker for the two firms is Martin Lipton, an attorney with the New York law firm of Wachtell, Lipton, Rosen & Katz, who has represented both Mr. Tisch and Mr. Diller in the past. Mr. Lipton has invented a host of anti-takeover devices including the so-called poison pill, and he helped work out the complex financial structure for the QVC-CBS plan. "Lipton deserves all the credit in the world," says Herbert Allen Jr., an investment banker with Allen & Co., which is advising QVC in the merger.

Mr. Tisch kept the talks a closely held secret, even from his staff. At a June 1 press conference at an affiliates' meeting in Los Angeles, Mr. Tisch was asked about diversification. "Why?" he shot back. "We have over a billion dollars in the bank in investments earning money every day. There is no better cushion in the world." He added that he saw no need "to make silly deals just for the sake of announcing something." Though rumors were swirling of a CBS-QVC combination, Mr. Tisch insisted that CBS wasn't for sale.

Many CBS executives had heard the speculation, however, and "we all knew that one of these days one of the rumors would come true," says one executive. Even such top brass as CBS Broadcast Group President Howard Stringer, as well as CBS's general counsel and its executive vice president of finance, weren't brought into the loop until late last week.

Mr. Tisch wouldn't say how the deal would be financed, other than to comment that it would be "through normal banking channels."

While Messrs. Diller and Tisch didn't spell out any definite plans for how CBS and QVC would fit together, Mr. Diller noted that QVC recently produced a successful show selling soccer merchandise that ran on ESPN following a World Cup soccer match.

"Barry is a very intelligent man," Mr. Tisch said. Together with CBS employees, he added, "they'll find things to do that enhance value."

And down the road, many predict Mr. Diller will harness the broad reach of CBS -- into 94 million homes -- with the selling and promotional power of QVC. A top TCI executive who declines to be named says, "Think about running a 30-second ad after a top-rated show like `Northern Exposure.' The ad says `Anything you just saw on the show we can sell it to you.' Then selling on TV gets interesting."

The pairing of QVC and CBS would be ironic because Mr. Tisch long has been a fierce cable opponent. CBS has avoided investments in the cable industry, while its broadcast brethren bought into it. Mr. Tisch proselytized about the strength and attraction of network television -- brought to homes by the big reach of the broadcasting industry, not cable.

Today Capital Cities/ABC Inc. owns stakes in the hugely successful ESPN, as well as Lifetime and Arts & Entertainment Network. General Electric Co.'s NBC controls or partially controls CNBC, America's Talking, American Movie Classics, Court TV and a string of regional cable sports networks.

By contrast, Mr. Tisch, testifying against cable interests in Washington, has often squared off against the cable industry's de facto leader, John Malone, TCI's chief executive officer. TCI owns about 13% of QVC and would own 4.8% of the new CBS under the planned deal. Another cable operator, Comcast Corp., also owns 13% of QVC on a fully diluted basis and would also have 4.8% of the new CBS. (FCC rules say a cable operator's voting stake in any broadcast property in its market must be under 5%, and it can't have a board seat.)

Yesterday, Mr. Tisch displayed some unexpected warmth toward his old foe. "I think John Malone is brilliant," he said. "Very smart, but tough."

Why did Mr. Tisch change his mind about cable now? CBS simply hadn't found a suitable cable niche before, he said, but "QVC is an odd bird," and its electronic retailing is a unique category of programming. He added that CBS had considered launching its own cable service, but it would take 10 years to grow, and the network just didn't want to wait that long.

For TCI and Comcast, the bid suggests that cable is ready to befriend an old enemy -- broadcast TV -- to prepare for a new one: telephone companies. "Content is king. End of debate," says Mr. Tinker of Furman Selz. "The question is how do you get hold of it. When `telcos' and others start overbuilding cable companies, the ones with access to popular programming are the winners."

If a QVC-CBS combination goes through, CBS will have control of a prime cable property. Much of cable's interactive future will be tied in home shopping, and thus far QVC has proved to be a very profitable enterprise. Its 1993 net income was $59.3 million, or $1.18 a share, on revenue of $1.2 billion. In calendar 1993, CBS reported net income of $326.2 million, or $20.39 a share, on revenue of $3.51 billion.

And CBS would also gain a manager hailed in Hollywood as a programming wizard with creative ideas in a fast-evolving environment. Mr. Diller started out as a young man in the mailroom at the William Morris agency, rose to a top post in programming at ABC, where he introduced the "Movie of the week," then began running the Paramount Pictures studio when he was only 32 years old.

After Paramount, he defied conventional thinkers in the late 1980s and built a fourth network, Fox, with shows like "The Simpsons," and "Beverly Hills 90210." Last year he attempted to take control of Paramount, but lost after a long and bitter fight with Mr. Redstone. After that disappointment, CBS offers an opportunity he is eager to take.

"In many ways, CBS has been left behind," says Mr. Tinker of Furman Selz. "Diller will help them become real players."

DENVER -- Associated Natural Gas Corp. said it completed its acquisition of Grand Valley Gas Co. for stock.

Associated said it agreed to issue 1,584,106 of its common shares to acquire Grand Valley, a Salt Lake City natural-gas concern. Associated closed unchanged at $32 in composite New York Stock Exchange trading yesterday, giving the transaction an estimated value of $50.7 million.

WASHINGTON -- The Federal Trade Commission said Sara Lee Corp. agreed to divest itself of two small shoe-care brands to settle allegations that their acquisitions violated federal antitrust laws.

The proposed consent agreement calls for Chicago-based Sara Lee to sell its Esquire and Griffin brands to Hickory Industries Inc., a Hickory, N.C., shoelace maker, for undisclosed terms. If the divestiture falls through, the government can appoint a trustee to find a new buyer.

The Esquire and Griffin brands have combined annual sales of about $3 million, Sara Lee said. Their array of household products includes Kiwi, the largest-selling shoe polish in the U.S.

The FTC complaint said that Sara Lee acquired Esquire from Knomark Inc., a unit of Papercraft Corp., in 1987 and bought Griffin from Reckitt & Colman Inc. in 1991. In neither case did the company report the acquisitions to the FTC or the Justice Department, the FTC said.

Combined, the two brands represented about 4% of the domestic market for shoe polish and other items, but the FTC said the acquisitions gave Kiwi well over 90% of the domestic shoe-care market among grocery stores, drugstores and mass-merchandise retailers.

In announcing the agreement, the FTC said it settles charges that the acquisitions had "substantially lessened competition . . . and tended "to create a monopoly in the relevant market."

The settlement prohibits Sara Lee from making similar acquisitions without prior government approval.

Separately, Sara Lee said it will close three sewing plants as part of a plan to reduce capacity in the domestic fleecewear business. More than 1,000 jobs will be affected. The company's Champion Products operation will close plants in Norwich, N.Y., and Slocomb, Ala., by Nov. 1 and its Knit Products business will close a facility in Midway, Ga., today.

BURLINGTON Northern agreed to acquire Santa Fe Pacific for $2.7 billion in stock, creating a 33,000-mile railway system, the nation's largest. Santa Fe Chairman Robert Krebs will become president and chief executive of the combined company and the heir apparent to Burlington Northern's chairman, Gerald Grinstein.

BankAmerica put more money into its money-market funds to make up for losses on derivatives, pumping another $50.5 million into two funds.

Shares of CBS and QVC jumped as the companies confirmed they are discussing a possible combination. CBS shares rose $50 to $313 while QVC shares gained $5.625 to $38.

Bally Entertainment is seeking federal antitrust clearance to acquire up to 25% of Circus Circus Enterprises. Meanwhile, Circus's chairman is coming under pressure to depart, people familiar with the situation say.

Bond prices tumbled on concerns about the dollar and renewed inflation fears. The Treasury's 30-year issue lost a point to yield 7.61%. The Dow Jones industrials sank 42.09 to 3624.96, but the Nasdaq index rose a bit.

Rising interest rates and a falling dollar hurt the underwriting business in the first half of the year, with the volume of new stock and bonds sold plummeting to $437.8 billion, an 18% drop from the year-earlier period.

The U.S. signaled it wants lower interest rates in Japan and Germany, and postponed action against Japan over alleged unfair trade practices.

GM will lift prices on 1995 cars and trucks by an average of 2.5%, more than last year's increase but less than the 4% to 6% hikes expected from Japanese firms hurt by the strong yen.

The antitrust investigation of Microsoft has moved to its final stages and action could come within weeks.

Disposable personal income rose an inflation-adjusted 1% in May, while personal consumption was up 0.2%. New orders for manufactured goods advanced 0.6% in the month.

GPA Group is seeking to sell $950 million in bonds backed by aircraft leases. GE Capital, which helped bail out GPA last year, is expected to buy about $150 million of the offering.

GE Capital is purchasing Harcourt General's insurance units for $400 million, building up its annuity business.

UAL raised $1.15 billion in a bond and stock offering, falling short of the $1.5 billion Wall Street had expected.

Olympia & York's U.S. subsidiary moved forward in its debt-reorganization effort, agreeing to restructure a $970 million package of loans.

Allstate will halt sales of new homeowners policies in California, the latest insurer to restrict sales there.

State securities regulators are cracking down on alleged investor scams on on-line computer services.

Du Pont plans to streamline its European nylon operations, cutting about 1,200 jobs and creating a venture with France's Rhone-Poulenc.

Donald Trump is yielding majority ownership in a stalled Manhattan development to a group of Hong Kong investors in exchange for financing.

Stocks: Volume 292,733,720 shares. Dow Jones industrials 3624.96, off 42.09; transportation 1595.68, off 9.93; utilities 177.17, off 0.99.

Bonds: Lehman Brothers Treasury index 5041.31, off 46.81.

Commodities: Oil $19.37 a barrel, up 54 cents. Dow Jones futures index 147.95, up 1.55; spot index 142.87, up 2.99.

Dollar: 98.50 yen, off 0.25; 1.5877 marks, up 0.0022.

Sunshine Broadcasting Network Ltd. of Australia announced a takeover bid for Wesgo Ltd.

The offer is one Sunshine share and 1.15 Australian dollars (83.72 U.S. cents) in cash for every two Wesgo shares. Sunshine Broadcasting already holds about 10% of Wesgo.

Terry Kennedy, chairman of Sunshine Broadcasting, said he estimates the offer values Wesgo at A$90 million (US$65.5 million).

Sunshine Broadcasting is a regional television network company operating from its base in southeast Queensland. The company also owns a small FM radio station at Gosford, on New South Wales's central coast.

Wesgo owns radio stations in New South Wales, Victoria and Queensland, including stations in Sydney and Melbourne.

Burlington Northern Inc. agreed to acquire Santa Fe Pacific Corp. for $2.7 billion in stock to create the nation's largest railroad.

The combination would be a 33,000-mile Western railway system strong in both bulk commodity shipments and the rapidly expanding business of moving truck trailers and containers by rail. Its combined operating revenue from railroads last year was $7.1 billion, more than first-ranked Union Pacific's $4.9 billion from rail operations.

The merger "creates a tremendous Western franchise," said Anthony Hatch, an analyst at PaineWebber Inc. "It solves major problems of both carriers . . . and fills in the holes."

For Burlington Northern, which already operates the nation's longest railroad, it also solves the question of who will succeed Gerald Grinstein, its 62-year-old chairman, who is expected to retire in a few years. Santa Fe's aggressive chairman, Robert D. Krebs, 52 years old, will become president and chief executive of the combined company, to be called Burlington Northern Santa Fe.

Industry observers said the acquisition, which comes as the railroad industry is experiencing peacetime growth and health for the first time since the 1920s, could spark a race to establish transcontinental rail systems by merging Eastern and Western carriers.

The Burlington Northern-Santa Fe transaction faces lengthy proceedings before the Interstate Commerce Commission, which must approve railroad acquisitions and might attach conditions requested by competitors. Because the railroads have few overlapping operations, and there is competition where they do, the ICC is less likely to challenge the deal, executives at both companies said.

Indeed, the railroads' top executives stressed this feature of the combination. Most cost savings, they suggested, would be at the staff level.

The transaction calls for Santa Fe shareholders to receive 0.27 share of Burlington Northern common stock for each Santa Fe share. At yesterday's closing price, that would give Santa Fe stockholders Burlington shares valued at $14.41.

In addition, Santa Fe plans to spin off to holders its stake in a gold mining unit. Santa Fe shareholders will receive about $8.16 a share in Santa Fe Pacific Gold Corp. stock. Including the shares of Santa Fe Pacific Gold, one of North America's 10 largest gold producers, Santa Fe holders will receive stock valued yesterday at a total of $22.57, a premium of about 10%.

Although the two companies had held talks a year ago, the Santa Fe's gold mining business was an impediment, Mr. Krebs said in an interview, because Burlington Northern didn't want to meet Santa Fe's price. Santa Fe subsequently took the unit public, and the Internal Revenue Service recently ruled the shares could be distributed tax-free, making the railroad acquisition possible.

In New York Stock Exchange composite trading yesterday, Burlington Northern shares fell 12.5 cents apiece to $53.375, Santa Fe Pacific shares rose 25 cents apiece to $20.625 and Santa Fe Pacific Gold shares were unchanged at $13.875.

The agreement, if finally approved, would combine the strengths of Santa Fe, based in Schaumburg, Ill., in handling the fast-growing trailer and container freight business to the West Coast with the huge bulk commodity shipment business of Burlington Northern, based in Fort Worth, Texas. Santa Fe customers would enjoy single-line rail service to the Pacific Northwest while Burlington customers would gain access to California markets.

In today's rail rivalry with truckers, "you want to be in intermodal. That is the hot area," Mr. Hatch said. "The combination means they're going to have a quarter of their business dedicated to that and that's great."

Mr. Grinstein also said the acquisition will put Burlington Northern in a better position to pick up traffic to California and Mexico, including Midwestern grain shipments that have increased since the signing of the North American Free Trade Agreement. He said Union Pacific and Southern Pacific now have more destinations on those routes.

Messrs. Grinstein and Krebs played down speculation that the acquisition was driven by Burlington Northern's desire to find a successor. But Mr. Grinstein said of Mr. Krebs, "He's certainly an attractive executive, and the board thought he should lead the company." Mr. Grinstein will be chairman of the combined company.

The acquisition also raises questions about who will buy Kansas City Southern Industries Inc.'s rail operations. The company said in May that it was in talks with possible buyers. Both Burlington Northern and Santa Fe were considered by analysts to be logical buyers, but that seems less likely now. Yesterday, top executives of both companies said completing their combination would keep them busy, but didn't flatly rule out a look at Kansas City Southern's rail business in the future. Kansas City Southern had no comment.

The transaction, the subject of speculation for several months, is yet another signal of the remarkable turnaround in railroad industry fortunes, aided by lower costs and a reviving economy. Rail lines are even exploiting an unaccustomed shortage of capacity, unheard of since World War II, to put through some price increases. Industry spending on track and locomotives, including an expected 25% boost at Burlington, is expected to rise 10% this year from healthy 1993 levels.

There has been less pressure in recent years for railroads to merge, in part because they have achieved major productivity gains through labor agreements that have reduced industry labor costs by more than $1 billion a year.

But both Burlington Northern and Santa Fe have looked for ways to combat Union Pacific's dominance in the West, where it enjoys superior access to ports and population centers. In addition, Union Pacific's traffic mix is heavy on lucrative shipments of coal, automobiles, chemicals, containers and food products. And the railroad has good traffic density, wellhoned management, and a more modern locomotive fleet.

In any ICC proceeding, Union Pacific probably would seek to gain access to a combined Burlington-Santa Fe system to reach points in the Southwest. But some analysts believe Union Pacific might not wage a fierce battle to block the proposed merger because it currently is seeking ICC approval to acquire voting control of Chicago & Northwestern Holdings Corp., a Midwest railroad. Both Burlington Northern and Santa Fe have withdrawn their initial opposition to that transacton.

The announcement prompted Standard & Poor's Ratings Group to revise its longterm outlook on the two companies to "positive" from "stable," noting no debt is involved. S&P cautioned, however, that ICC approval isn't certain and could take a while. The merged system, S&P added, could "disadvantage" Southern Pacific Rail and Union Pacific and "raise political concerns."

Burlington Northern, already the nation's longest railroad, operates 24,500 miles of track in 25 states and two Canadian provinces. Santa Fe's Atchison, Topeka and Santa Fe Railroad has 8,536 miles of track in 12 states and service to Mexico. Santa Fe last year had net income of $338.8 million, or $1.81 a share, on $2.73 billion in revenue, while Burlington had net income of $296 million, or $3.06 a share, on revenue of $4.69 billion.

In the $1.56 billion gold company spinoff, shareholders of record Sept. 12 will receive one share of Santa Fe Pacific Gold for approximately every 1.7 shares of Santa Fe Pacific. And Santa Fe Pacific Gold will become a separate entity effective Sept. 30. The company went public June 15 at $14 a share.

Both Burlington Northern and Santa Fe have found common interests in the past. They cooperated, for instance, by instituting service from California to the South using tracks of both systems, and gained market share from trucking companies. In addition, when tracks of both railroads were washed out last summer by the severe Midwest floods, the two railroads worked closely together to reroute trains.

Burlington Northern has been struggling for years to identify a successor to Mr. Grinstein, an attorney who came to the railroad company from Western Airlines as chief executive in 1989. Critics assert he took too long to master the railroad and achieve needed productivity gains. But succesful completion of the acquisition would be a significant legacy.

It has been understood that Mr. Krebs, a rail industry veteran of more than 30 years, has been willing to negotiate about moving to Burlington Northern, but has insisted that the Santa Fe railway be part of the package.

Daniel Pearl contributed to this article.

Edward Carlough, 62, former president of the Sheet Metal Workers International Association, of cancer.

NEW YORK -- The bold decision by Bell Atlantic Corp. and Nynex Corp. to create a $13 billion cellular-phone juggernaut will almost surely spark new deals between other Baby Bells seeking the financial muscle and critical mass to compete in a new era of wireless services.

The two regional telephone companies confirmed plans yesterday to merge their wireless operations to create a new cellular force with 1.8 million subscribers, $1.12 billion in annual revenue and yearly cash flow of as much as $400 million. The new company, as yet unnamed, would immediately vault to the No. 2 position in the domestic wireless market, trailing only McCaw Cellular Communications Inc.

With about $13 billion in combined assets, the merging companies -- which must first win the approval of the Justice Department and federal regulators -- would have deep pockets to pursue the rich auction of new licenses for wireless "personal communications services." The federal government is to auction off the PCS licenses later this year.

The two new partners also hope to expand their cellular business rapidly. Together they would cover a population of 55 million -- and they foresee acquiring and building enough new cellular systems to more than double that to 120 million by the end of next year. That critical mass would make the partnership a nationwide player and could eclipse the potential customer base of No. 1 rival McCaw, which is being acquired by AT&T Corp.

Some observers think the Bell Atlantic-Nynex deal undercuts the Bells' arguments against the pending AT&T-McCaw transaction. But Bell Atlantic and Nynex executives disagree, arguing that the AT&T deal is a "vertical" play that will lash together several businesses, while theirs is a "horizontal" move aimed at linking two wireless businesses. Never mind that all seven Baby Bells are pushing to enter the long-distance and equipment markets.

All of the Baby Bells have had discussions with a host of wireless players in the past year, pursuing partnerships or outright mergers to expand existing service territories and gird for future competition. The Nynex-Bell Atlantic deal may put more urgency into the courtships.

"Everybody has been waiting for somebody to take the first step -- and this is it," said Mark Macgillivray, managing director of H&M Consulting in Sunnyvale, Calif. But with two of the most-lucrative regions now trying to link up, "it narrows the choices of others. Now they have to start pairing," added George Dellinger of NatWest Securities. The new transaction, Steven Yanis of Kidder, Peabody & Co. said, is "a wake-up call to get bigger to try to get more of a national presence."

Bell Atlantic and Nynex began pursuing a cellular merger in February -- about the same time that Bell Atlantic's multibillion-dollar pact to acquire cable giant Tele-Communications Inc. collapsed. Perhaps taking a lesson from its stinging experience with TCI, Bell Atlantic this time didn't announce its intention to do a deal with Nynex, instead waiting for harder terms and a definitive agreement.

That agreement is expected to be submitted to the Securities and Exchange Commission today.

Should the combination win approval and work smoothly, it raises the possibility that the two Baby Bells may someday seek to merge their entire companies.

Bell Atlantic and Nynex, after all, possess the two most-lucrative telecommunications markets in the U.S. One-quarter of the U.S. population resides in their service areas, which cover the mid-Atlantic and Northeast regions.

Indeed, the chief executives of both Baby Bells, when pressed, don't rule out the possibility that their alliance might one day lead to a merger of their core telephone operations. Raymond Smith, Bell Atlantic's chairman and chief executive, said in an interview that the subject hasn't been discussed, but that "anything is possible." William Ferguson, Nynex's chairman and chief executive officer, likewise played down the notion of merging the two companies' core operations, but said it was "a possibility. Who knows?"

Even as they were inking the transaction announced yesterday, the two Bells continued to talk to other entities in search of a third would-be partner. One likely prospect: AirTouch Communications , the former cellular arm of Pacific Telesis Group, which some industry executives said was close to striking a deal earlier this year to buy Nynex's cellular unit. Another likely partner might be Sprint Corp., which has a 10% share of the greater New York City market and has worked with both Bell Atlantic and Nynex for years. Bell Atlantic and Nynex executives say a third partner wouldn't have to come in by acquisition; it could simply form an alliance.

The underlying strength of the cellular merger lies in the two Bells' neighboring regions. People often travel among nearby states, presenting great opportunities for interregional calling and cellular "roaming," said Lawrence Babbio, Bell Atlantic's chief operating officer.

That is why any future cellular mergers might focus on neighbors, he added. BellSouth, for example, has the strongest cellular company among the Baby Bells; it shares a five-state border with Southwestern Bell, a Sunbelt sibling that also has a strong cellular company.

The Bell Atlantic-Nynex coupling would allow the new company to save "tens of millions" of dollars annually by merging marketing, billing, equipment purchases and other activities, said Frederic Salerno, Nynex's vice chairman.

Under terms of the deal, Bell Atlantic would hold a commanding 62.35% ownership stake because its cellular business is larger than Nynex's. Bell Atlantic also would transfer $87 million in debt to the new business, its only debt as it starts out.

Nynex would own 37.65% of the combined cellular company and could raise its stake by the extra 2.35% it would take to push its stake to 40% -- if it pays $500 million to the new company. Nynex's option expires when the deal is closed, or if the Bells enter "serious" discussions with another partner, Bell Atlantic's Mr. Babbio said.

The $500 million option by Nynex would amount to a net gain of about $311 million for Bell Atlantic and would value the new entity at about $12.76 billion. That figure is based on price of $235 per "POP," or person who lives in the area covered by the new cellular company. On the open market, those same "POPs" would sell for close to $300 apiece, executives said.

The merger of the cellular businesses of Bell Atlantic and Nynex would form the nation's second-largest cellular operator.

CHICAGO -- After investigating allegations that traders at Goldman, Sachs & Co. may have sought to manipulate municipalbond futures prices, the Chicago Board of Trade said it has uncovered no irregularities in the pricing of its contracts.

The prices of the CBOT's muni-bond futures contracts are derived from an index based on prices for 40 municipal bonds as quoted by six "interdealer" brokerage firms, which act as brokers' brokers. Goldman routinely faxes price quotes to these interdealer firms to be used in pricing the CBOT index.

A CBOT executive said yesterday that the exchange had received verbal complaints from muni-bond traders that Goldman may have faxed artificially high bond quotes in an effort to inflate prices of expiring futures contracts based on the bonds. But after reviewing trading records and other materials, the executive said, "Our Office of Investigations and Audits came to the conclusion that they couldn't find any improprieties."

The exchange released the following one-sentence statement on the result of its investigation: "The Chicago Board of Trade has uncovered no irregularities in the pricing of its municipal-bond index." In its own statement yesterday, a spokesman for Goldman said the exchange's investigation "approved our procedures and eliminated any doubt about the correctness of our actions."

BETHLEHEM -- Mayor Elias Friej likes to call his city the Christian capital of the world. But the little town revered as the place where Mary gave birth to Jesus is no longer a Christian city.

Bethlehem now is more than two-thirds Muslim. Over the years, thousands of local Christians moved abroad, and the Muslim birthrate far outpaces that of Christians who stayed behind. Once elections are held here as part of the implementation of Palestinian self-rule in the West Bank, the Christians will probably lose control of City Hall, and the patronage that goes with it.

Because of their higher education, greater affluence and larger concentration in urban areas, Christians have wielded influence that has exceeded their numbers: just 3% of the Palestinian population in the West Bank and Gaza Strip. Now all that is changing. Muslims are leaving villages in greater numbers and moving to cities such as Bethlehem (population: 32,000) in search of jobs, pushing Christians out of fields they traditionally dominated. Greater Bethlehem had five mosques in 1970; now there are close to 70.

"It's difficult to adjust to being the minority after we were once the majority here," says Hanna Dakkart, a Christian who works as a driver. "But I don't think there will be a Christian majority in Bethlehem ever again. Muslims won't sell property to a Christian; they are committed to the religious aspect of owning land more than Christians."

For Christian leaders, the shrinking presence of their flock in the Holy Land raises fears that the church may disappear from Bethlehem. The archbishop of Canterbury last year predicted that Jerusalem and Bethlehem would one day become a Christian version of Disneyland, with churches serving as museums for tourists rather than part of a Christian community's daily life.

That sentiment is echoed by the Rev. Robert C. Assaly, director of the Middle East Council of Churches. "The Christian community is losing its institutions," he says, "and so we're losing our role as a ministry to the community."

Home of some of Christianity's holiest sites, Bethlehem -- 10 miles south of Jerusalem in the West Bank -- has seen a power struggle as Muslims steadily encroach on Christian influence. While Christians still make up the bulk of the town's merchants, their facilities and clubs have been attacked by Muslim extremists. Graves, crosses and statues have been desecrated.

There have been physical attacks, too: Molotov cocktails have been hurled at the home of Mayor Friej, a Greek Orthodox Christian; Muslims are suspected. And Bishara Awad, a teacher at the Bethlehem Bible College, says he was once beaten by three masked men as he taught a class.

While religious tension is still far from the violence that marks sectarian rivalries in Lebanon -- Bethlehem's Muslims and Christians united in opposition to Israel's occupation -- it does cause concern.

"We've lived with our neighbors in peace all our lives," says Mr. Dakkart, the Christian driver. "They are tolerant and respectful of others' beliefs. But now I am uneasy. It's not just the fact that the Christian population here is decreasing, but that I see more religious extremity. . . . There are more people calling for an Islamic state and trying to bypass the Christian presence totally."

Mr. Dakkart's wife, Miriam, says she always takes care to dress modestly when shopping in town, because Christian women wearing short dresses have had eggs and tomatoes thrown at them.

One of the greatest symbols of the shifting influences is the Holy Land Christian Mission's Children's Home, just down the road from Manger Square. It opened in 1949 for children seeking shelter in a "Christian atmosphere." Most workers and children now are Muslims.

And Vatican-sponsored Bethlehem University has become a microcosm of the emerging strains. The sole Christian university in the West Bank, the college was founded in 1973 to provide a way for Christian students to obtain a higher education without going abroad.

It hasn't stopped some. Fuad Canavati, a Greek Orthodox restaurateur, worries about who will run his eatery when he is no longer able to work. "One by one my kids are starting to talk about going abroad," he says. "I'm scared that if they leave, they'll never come back." He says some Christian families have disappeared from the local population register as the young emigrate and their relatives join them. "Some of our friends, they have three generations living abroad." It is estimated that there are 100,000 Christians from the Bethlehem area now living in South America, for instance.

Though the university's top officials still come mainly from the ranks of the school's Catholic founders, nearly 70% of the 2,000 students are Muslim. And Dean of Arts Manuel Hassassian, an Armenian Christian, estimates that 10% of the students back the Islamic extremist group Hamas. By promoting a social agenda, the Islamic bloc is gaining influence.

Muslim students have launched a high-profile drive to build a mosque on campus, saying they need a place solely for religious purposes. More than 500 students signed a petition. When the university refused, they persuaded local Islamic leaders to condemn the administration.

At City Hall, Mayor Friej, who was recently appointed by Palestine Liberation Organization leader Yasser Arafat to serve as minister for tourism on the Palestinian governing authority's ruling council, is waiting for the go-ahead from the PLO on a $150 million investment project to ensure that Bethlehem remains a tourist center. It calls for building 3,000 hotel rooms, as well as nightclubs, swimming pools, tennis courts and a parking garage that could hold up to 200 tour buses.

According to the Israeli Tourism Ministry, more than 60% of the two million tourists who visited Israel last year were Christians, and Bethlehem was the third-most-popular destination, after Jerusalem and the Sea of Galilee.

But does Bethlehem need a Christian mayor? Mr. Friej says it does, and the 77-year-old, who was elected in 1976, plans to seek re-election. Dismissing calls to replace him with a Muslim, Mr. Friej says the majority understands that Bethlehem must have a Christian mayor because "just as Mecca is the spiritual capital of the Muslims, Bethlehem is the spiritual capital of the Christians."

At a club for former prisoners in downtown Bethlehem, PLO leaders don't seem to share Mr. Friej's belief. "Religion won't be a factor in who is chosen for the job," says Issa Karkah, a senior PLO official.

Muhammad Taqtah, a member of the PLO prisoners' committee, bristles at the suggestion that there are sectarian tensions in town. Slamming his fist on a table, he says Muslims and Christians shared prison cells in the fight against the Israeli occupation, and will continue to be together after the Israelis are gone. The Christians, he continues, have nothing to fear: The Palestinian state will be a secular one, and while Islam may be the state's official religion, it is a religion that respects and protects minorities.

To prove his goodwill, Mr. Taqtah takes off the wall a picture of Jerusalem's Dome of the Rock, Islam's third-holiest shrine. Reverentially, he traces the outline of the mosque's blue tiles and gold cap. Then his finger points to a nearby brown building, the Church of the Holy Sepulchre, believed to be the site of Jesus's tomb. "This is a symbol of the way Islam and Christianity coexist in peace," he says.

But many of Bethlehem's Christians might notice that the church stands deep in the picture's background, lost in the shadow cast by the radiant mosque.

HONG KONG -- It can be the kiss of death for a stock market, but in Indonesia's case, a heavy supply of new issues is actually making some fund managers smile.

True, the glut of cash calls has contributed significantly to the overall weakness of the Jakarta market. True, Indonesian interest rates have risen sharply in recent weeks, and that always makes fund managers rather twitchy. And yes, rioting in the city of Medan, scandal at the state-owned bank Bapindo and a recent clampdown on the press didn't exactly buoy sentiment among foreign investors, who typically account for as much as 80% of turnover on the Jakarta exchange.

So what's the good news? Initial public offerings, or IPOs, are looking cheap, and fund managers say that with so many companies tapping the market -- 17 to date this year -- they can afford to be picky.

The largest of the forthcoming IPOs is PT Indosat, the Indonesian international telecommunications company. Investment bankers expect Indosat to raise $500 million to $1 billion in its global offering, which is likely to take place toward year end. Among issues now approaching the formal offering period are those for PT Bank Bira, PT Bank Rama and PT Wicaksana Overseas.

IPOs appear cheap relative to the market partly because of rules set by Bapepam, Indonesia's stock-market regulator. The agency requires companies that apply for a listing to offer shares at a price of no more than 15 times projected per-share earnings for the current year, in effect capping the maximum issue price.

Tim Shannon, assistant director at Crosby Securities (HK) Ltd., says the overall Jakarta market's projected 1994 price/earnings ratio is now 18.5, though some more-liquid stocks are trading at P/E ratios as high as 23.

While the cheap IPOs are welcome, fund managers say they still must hunt for quality. "We've had an awful lot of banks and property companies listing. It's not enough to be cheap, they have to be unique," says Jamie Sandison, fund manager for Edinburgh Fund Management Ltd.'s Edinburgh Java Trust PLC.

Fund managers see little to set the various property companies apart, but they are more willing to pick and choose among the bank issues.

"I like the banking sector even though interest-rate spreads are under pressure," says Ray Jovanovich, senior portfolio manager at Indosuez Asset Management Asia Ltd., who bought PT Bank Mashill for his portfolio and intends to buy Bank Bira.

Bank Mashill raised $31 million in its IPO in March, offering shares at 3,450 rupiah ($1.60) each, for a projected P/E ratio of 11. However, since their listing on April 22, the shares have plunged, closing Wednesday at 2,500 rupiah, for a P/E ratio of about eight, according to PT Peregrine Sewu Securities, which was lead manager for the issue. But Mr. Jovanovich says that he still likes the stock and increased his holding when the price fell to 2,500 rupiah.

Meanwhile Bank Bira's IPO is awaiting formal approval from Bapepam. The subscription period is set for July 5-7, and listing is to take place in late July, according to lead manager PT W.I. Carr Indonesia. The indicated offer price is 2,400 rupiah, giving a 1994 P/E ratio of 10.

Mr. Sandison at Edinburgh Fund Management also believes that "PT Bank Bira looks interesting and is very professionally managed in a niche business, namely corporate lending." He says the indicated price is attractive, and adds that while "there is likely to be a margin squeeze, lending growth is very strong and should offset this, so even pricing that margin squeeze in, you are looking at healthy profits" for Indonesian banks.

And with Indonesia's state banks facing financial difficulties, private-sector banks stand a good chance of increasing their market share, some analysts say.

Another favorite among Indonesia fund managers is PT Wicaksana Overseas, a distributor of consumer products for Proctor & Gamble Co. and B.A.TT Industries PLC, among others. PT Jardine Fleming Nusantara, lead manager for the issue, says subscription will be in the first half of July, pending final approval from Bapepam, with listing expected by early August.

Wicaksana hopes to issue shares at 3,250 rupiah apiece -- a price that Jardine Fleming says represents a projected P/E ratio of around 14. Simon Lee, senior fund manager at Sun Hung Kai Fund Management Ltd. who manages the SHK Indonesian Fund, says he likes Wicaksana stock for his portfolio because of its pricing and because "it's a high-quality consumer distribution company."

The flood of new stock this year already has damped the overall market. In some cases, investors have simply cleared out a few of the more liquid stocks trading at high P/E ratios in order to pick up the new issues. The Composite Index, which closed Wednesday at 457.74, is down 22% from the start of the year.

According to figures supplied by W.I. Carr, Indonesian companies have raised an estimated 1.796 trillion rupiah from IPOs and an additional 3.146 trillion rupiah through rights issues so far this year. If prospective issuers stick to their schedules, total cash calls this year could top 10 trillion rupiah, compared with 4.4 trillion rupiah in 1993.

"Of course there's concern in the short term about the number of IPOs, as it's bound to cap the performance of the market," says Mr. Sandison. But he adds that "longer term, it's good for the market as a lot of attractive companies want to list, so gradually the market is getting bigger."

Some companies have been forced by the weak market to cut the number of shares offered, reduce the indicated offer price, or postpone their issues. PT Bank Rama, for instance, has slashed its issue price from 3,000 rupiah per share to 2,350 rupiah, for a projected P/E ratio of 10, according to Crosby Securities, lead manager for the overseas portion of the offering. The subscription period closes on June 30, and listing is due Aug. 8.

Investment bankers say some companies have preferred to cut the share price rather than delay the issue and risk the hassle and expense of having their figures re-audited. And as one broker noted, these deals tend to go ahead through "a mixture of greed and fear: Underwriters want the fees and the companies want to go public now in case things get worse."

The cost of BankAmerica Corp.'s bailout of its money-market funds soared as it pumped an additional $50.5 million into two of the normally sedate Pacific Horizon funds to make up for losses on derivatives.

The past week's infusion, coming atop an earlier $17.4 million addition to the capital of one of the funds, suggests that BankAmerica narrowly avoided having the two money funds' value slip below $1 a share.

"Breaking the buck" like this would roil the $600 billion money-fund industry, by causing a loss of principal to shareholders who have never seen such a thing. A rash of money funds around the country are quietly being bailed out of derivatives losses. But the BankAmerica funds have received the largest reported cash infusion so far: $67.9 million overall.

BankAmerica said the latest move will have a $30 million after-tax cost to the company. But it said it still expects to report that second-quarter earnings exceeded the first quarter's $1.27 a share. In last year's second quarter the company earned $488 million, or $1.20 a share. Results are due out July 20.

BankAmerica suggested that it has finally solved the problem. In a statement late yesterday, it said its Pacific Horizon Prime Fund and Pacific Horizon Government Fund "have completed the sale of all U.S. government-agency structured securities" held by the two money funds. None of the other Pacific Horizon money-market funds hold such securities, the company noted.

Several weeks ago, BankAmerica confirmed that it had made the first capital addition (after-tax expense: $10 million) to the Pacific Horizon Prime Fund. That move came after the fund was forced to sell some investments at a loss to meet heavy withdrawals by departing shareholders.

Separately, the Securities and Exchange Commission is planning to send a letter soon to fund-industry executives, warning that money-market funds shouldn't be investing in some of the more volatile securities. The SEC permits money funds to invest in certain floating-rate securities as long as there is a reasonable expectation that they won't fall below face value for an extended period. But the SEC worries that some of the newer derivatives may involve higher risks than money funds should be taking.

Money market funds are supposed to be structured so that the principal value remains stable and only the yield fluctuates. Many investors have come to view money funds as a substitute for bank accounts. But money funds across the nation are facing increasing pressure to bolster yields in a climate of historically low interest rates. Derivatives were suppposed to do that job. But derivatives are enormously complex financial arrangements whose return is based on, or derived from, the price of some other asset. When interest rates started to climb this year, some derivatives slid in value.

At BankAmerica, it's believed that the latest infusions were made this week. The previous infusion was in early May. BankAmerica had said the first capital injection was "equal to realized losses on early sales of securities to meet redemption requirements" and that the securities in question included some derivatives.

Assets of BankAmerica's Pacific Horizon Prime Money Market Fund now total about $3.5 billion, according to Money Fund Report, a newsletter published by IBC/Donoghue in Ashland, Mass. That's a 27% decline from $4.8 billion in the first week of June. BankAmerica says the Government fund had about $697 million at the end of May.

The Pacific Horizon Prime Money Market Fund could have fallen below $1 a share, according to those close to the fund. So BankAmerica Corp. sold the derivatives at a loss and put up the cash to protect shareholders from feeling any pain. The reported net asset value, or NAV for the fund, was stated as $1 a share every day from Friday June 24 through this week.

In early June, Zweig Cash Fund, a government money-market fund with $99 million in assets, disclosed that its adviser put $415,000 into the fund to make up for losses in derivative securities. First Boston Institutional Money Market Fund also has incurred losses on investments in derivatives, as reported earlier.

The annual expense ratio BankAmerica charges on the assets of the Pacific Horizon Prime money-market fund range from a low of 0.03 percentage point for big institutional customers to a high of 0.35 percentage point for individuals. Based on those figures, the capital infusions could wipe out more than 14 years of expenses collected on the fund. However, BankAmerica points out that because the cash infusions are tax deductible, its actual after-tax cost for reimbursing the two funds is only about $40 million, with the biggest share belonging to the Pacific Horizon Prime fund.

WASHINGTON -- President Clinton has faced, and surmounted, the first stage of the official investigation into the Whitewater controversy.

Yesterday, Whitewater prosecutor Robert Fiske declared that Clinton aides did nothing illegal when they discussed a politically sensitive investigation of an Arkansas savings and loan. Mr. Fiske also reaffirmed a police assertion that Deputy White House Counsel Vincent Foster killed himself.

But there are more hurdles ahead. The president still has to endure a long summer of public inquiries and revelations about his past.

Another Fiske report about whether White House aides obstructed an investigation of Mr. Foster's death when they took documents from his office is expected to be released in the next few weeks. Congressional hearings next month will publicly examine the same questions that Mr. Fiske has quietly pursued since February. Meanwhile, the president's newly established legal defense fund will continue to be a lightning rod for criticism. And Paula Jones, the former Arkansas state employee who has sued Mr. Clinton for alleged sexual harassment, will be in the news as her lawyers spar with the president's legal team this summer.

Still, Mr. Fiske's report yesterday contained mostly good news for the president, even as it put the spotlight on the Whitewater affair once again. The independent counsel looked into more than 20 meetings and telephone conversations between Treasury Department staff members and White House aides about Madison Guaranty Savings & Loan and a Resolution Trust Corp. investigation into the thrift's 1989 collapse. Mr. Fiske and a Washington grand jury looked into whether any of these contacts amounted to obstruction of justice, concluding that they didn't.

The meetings and phone calls concerning Madison were politically sensitive because the S&L's owner, James McDougal, was a partner of the Clintons in their Whitewater real estate investment. Mr. Fiske has been investigating whether money from Madison was improperly diverted to Whitewater or Mr. Clinton's 1984 gubernatorial campaign.

But in his report, Mr. Fiske said that "the evidence is insufficient to establish that anyone within the White House or the Treasury Department acted with the intent to corruptly influence an RTC investigation." He said that no criminal prosecution was justified.

Nevertheless, Mr. Fiske stopped short of clearing the officials completely. "We express no opinion on the propriety of these meetings, or whether anything that occurred at these meetings constitutes a breach of ethical rules or standards," he said.

Lloyd Cutler, special counsel to the president, acknowledged yesterday that "some of these contacts may have been inadvisable in hindsight." He said that he would now conduct his own investigation and would take "remedial" action if necessary. He said the White House would also cooperate with pending investigations by the Office of Government Ethics and the Treasury inspector general that were put on hold while Mr. Fiske finished his work. Treasury Secretary Lloyd Bentsen said yesterday he had requested that those inquiries now resume. Both Mr. Cutler and Mr. Bentsen said they would cooperate with congressional panels.

Meanwhile, Rep. James Leach (R., Iowa), who has doggedly pushed for investigations into Madison and Whitewater, noted ominously yesterday that Mr. Fiske's report "covers less than 5% of the Madison-Whitewater affair."

At the very least, these events will produce what could well be a drumbeat of bad publicity for the president, and it couldn't come at a worse time. This autumn, Mr. Clinton will face a pivotal point in his presidency. Indeed, just as he faces renewed scrutiny on Whitewater, Congress will be deciding the fate of his chief domestic priority, a health-care overhaul.

The White House is worried enough about that prospect that it is planning an offensive to bolster the public image of the president's character. Thomas McLarty, now a White House counselor, has been specifically assigned to take a lead role in the effort to defend the president's honor.

Mr. Fiske may be the first witness when House hearings begin July 26. Senate hearings will begin by July 29. Both panels have requested numerous documents from administration officials. The Democrats don't want to tread into areas Mr. Fiske is still investigating, and the scope of the hearings has become the subject of much partisan sniping.

Mr. Fiske also released a voluminous report on Mr. Foster's death, which he concluded was a suicide. Since Mr. Foster's death last summer, there had been unsubstantiated speculation that he had been murdered or that his body had been moved, perhaps even by administration officials.

Mr. Cutler said he hoped Mr. Fiske's conclusions would "put to rest the irresponsible speculations, many of them politically motivated, that something more sinister occurred."

Mr. Fiske's 58-page report was an attempt to do just that. Citing forensic evidence reviewed by four pathologists, Mr. Fiske said that Mr. Foster's wound was self-inflicted and that his body hadn't been moved from Fort Marcy Park in Virginia.

In addition, Mr. Fiske documented Mr. Foster's despondent state and said it couldn't be attributed to the Whitewater affair. Whitewater-related files had been found in Mr. Foster's office by White House aides after his death and then distributed to President Clinton's private attorney.

Mr. Fiske said that in the last six to eight weeks of Mr. Foster's life, the former deputy White House counsel appeared exhausted, had difficulty sleeping and lost weight. He told his sister he was "battling depression," considered consulting a psychiatrist and had started taking an antidepressant.

Mr. Foster's friends and colleagues told Mr. Fiske's investigators that criticism of administration officials following the White House Travel Office controversy of May 1993 was the "single greatest source of his distress." Mr. Foster and others in the White House had come under attack for the handling of allegations that the Travel Office was mismanaged.

Mr. Fiske also said that Mr. Foster was "distraught" over critical editorials in The Wall Street Journal, which, among other things, attacked Mr. Foster and other former members of the Rose Law Firm who had joined the Clinton administration. Robert L. Bartley, the Journal's editor, said yesterday that "our assessment of the mores of the Rose Law Firm has been confirmed by events" and that he hoped Mr. Fiske would drop his opposition to the release of Park Service and FBI reports on Mr. Foster's suicide.

Even the month-long pause before the congressional hearings isn't likely to provide Mr. Clinton with a break from Whitewater angst. One lawyer familiar with the investigation predicted that one or two more embarrassing revelations are likely about the handling of the contents of Mr. Foster's office. Although they won't "suggest illegal conduct," he says, they could have people "buzzing."

Meanwhile Mr. Clinton's legal fund, which will accept donations of as much as $1,000, probably will generate criticism that he will take money from almost anyone, including lobbyists whose job it is to influence his government.

And finally, Mr. Fiske will now be able to turn his full attention to the Little Rock, Ark., phase of his investigation, which could drag on into next year and shed far more light on the Clintons' personal investments.

Viveca Novak contributed to this article.

NEW YORK -- Smaller issues finished marginally higher on the day, but they posted a second-quarter loss and a sharp first-half decline overall.

According to Frank Russell Co., the Russell 2000 Index of small-capitalization stocks lost ground in back-to-back quarters for the first time since the first half of 1984.

The Russell 2000 yesterday edged up 0.11 point, or 0.05%, to 240.29 on the day, while the Nasdaq Stock Market's Composite Index advanced 1.95 points, or 0.28%, to 705.96, on "window dressing," or the end-of-quarter efforts by some money managers to buy certain strong issues to make their portfolios look good in quarterly reports.

Bigger issues weren't similarly graced, with the Dow Jones Industrial Average tumbling 42.09 points to 3624.96.

Peter Coolidge, a senior equity trader at Kidder Peabody, said small stocks benefited from bargain hunting, while larger issues fell prey to the unwinding of positions at the quarter's end.

Small-cap stocks corrected more than their larger brethren during the second quarter and the first half, which made them ripe for buying opportunites today, Mr. Coolidge said.

During the quarter, the Russell 2000 fell 10.77 points, or 4.3%; the Nasdaq Composite sank 37.5 points, or 5.0%. However, the Dow industrials fell only 11 points, or 0.3%.

Since the year began, the Russell 2000 has fallen 18.3 points, or 7.1%; the Nasdaq Composite has lost 70.84, or 9.1%. The Dow industrials are down 129.13 points, or 3.4%.

The benchmark 30-year Treasury bond fell a full point yesterday, with its yield climbing to 7.61% amid higher commodity prices and stronger-than-expected economic news. The dollar hit another post World War II low against the yen.

Nasdaq volume was 281.7 million shares. Advancing issues surged past decliners, 2,046 to 1,243.

End-of-quarter worries caused shares of Gupta to skid 1 1/2 to 9 1/4, a 52-week low. One analyst said the sell-off was due to dumping of the stock with the end of the quarter. Other analysts said they expected to see some Wall Street earnings estimates, which range from five cents a share to 15 cents a share, come down for the period. In the year-earlier second quarter, the Menlo Park, Calif., maker of software tools reported net income of seven cents a share.

Other stocks in the group also fell, as concern over Gupta spilled over. Powersoft Corp., Burlington, Mass., retreated 2 1/2 to 48 1/2; Brock Control Systems Inc., Atlanta, declined 3 1/16 to 12 7/16; and Knowledgeware, Atlanta, slipped 5/8 to a 52-week low of 5 1/2.

National Home Centers, Springdale, Ark., plunged 1, or 13%, to 7, a 52-week low, apparently on word that A.G. Edwards & Sons analyst Stephen Latz cut his earnings estimate for the company. Neither Mr. Latz nor the company was immediately available for comment.

Weak fiscal fourth-quarter earnings pulled Biocraft Laboratories down 1 3/4 to 13 1/2 on the New York Stock Exchange. After Wednesday's close, the Fair Lawn, N.J., drug company said net income for the period fell to five cents a share from a year-earlier 27 cents a share.

In addition, Merrill Lynch cut its intermediate-term rating on Biocraft to "neutral" from "above average" but maintained its long-term "above average" recommendation.

Also in the medical sector, Martek Biosciences jumped 2 to 10 after receiving a U.S. patent for Celtone, the Columbia, Md., concern's cell-growth medium for bacteria and yeast, which uses stable isotope biochemicals derived from microalgae.

In merger news, Omnicare added 1 1/4 to 33 on the Big Board. The Cincinnati prescription company acquired Lo-Med Prescription Services in a stock swap valued at $12 million.

Buttrey Food & Drug Stores climbed 1 1/8 to 6 1/8. A column in The Wall Street Journal reported that Robert Perkins of the Omni Investment Fund in Chicago believes the Great Falls, Mont., grocery chain will likely soon return to its previous level of profitability.

BMC West, Boise, Idaho, a fast-growing distributor of building materials, soared 2 1/2 to 22 1/4. The same Journal column quoted Miles Seifert, chairman of Gray Seifert, a New York investment firm, calling BMC a "great stock."

Mesa Airlines gained 3/4 to 9 7/8. The Farmington, N.M., carrier said its board has authorized the repurchase of as much as $25 million in common shares. Mesa said the board's decision allows management to decide when to purchase the shares and at what price.

Meanwhile, some analysts say, the rest of the year may not get much brighter for smaller issues.

"Small-cap stocks will probably bear the brunt of market uncertainty for the rest of the year," said Eugene E. Peroni, director of technical research at Janney Montgomery Scott. "A continual reduction in speculation for this year will not bode well for many of the secondary stocks."

Continuing uncertainty about interest rates, the dollar and the economy will likely keep investors on their toes for some time to come, he added. Volume may continue to be light as investors fret about external pressures and shy away from smaller, more volatile issues.

WHILE MOST companies go one-on-one with their outside law firms when they negotiate legal bills, several big California banks have found power in numbers. The banks have joined forces to require a uniform method of billing from all the law firms they retain.

This appears to be the first time members of an industry group have banded together in an effort to control their legal bills. Without quite departing from the hourly billing system, they have taken a significant step in that direction. Under the banks' plan, attorneys must record everything they do with a number chosen from a set list of tasks -- such as "depositions" (task #330), "pleadings" (#210) or "experts and consultants" (#140).

The bills are then organized according to task, and clients can readily see how lawyers' hours were spent. In contrast, traditional legal bills list everything done by every lawyer on a given day and usually lump different activities into the same time entry.

"Task-based" billing systems, in one form or another, have been pushed for the past couple of years by consultants and purveyors of software packages that can put the systems into practice. A growing number of companies, such as Aetna Life & Casualty Co. and the Mutual Life Insurance Co. of New York, now request that lawyers bill by task on some matters.

The California agreement was the brainchild of Michael Connell, vice president and associate general counsel of the Bank of California. Like many corporate executives, he had been looking for alternatives to typical bills in an effort to save money and spot inefficiencies. "Existing bills are a sea of meaningless information," Mr. Connell says. "On a small matter, it's fairly easy to see what happened, but on a large case it becomes difficult to look at a chronological bill and understand how resources were allocated."

TASK-BASED billing can incorporate hourly rates. But by giving companies an idea of how much money they usually spend on a given category, the system can help them break free of hourly bills to offer law firms flat fees or other arrangements. Presumably, too, clients could use task-based bills to compare the efficiency of different law firms.

Bank of California uses about 25 outside law firms for its litigation, and each of those firms has a number of other bank clients. Thus, says Mr. Connell, "I thought it would be beneficial to law firms if they didn't have to deal with different billing formats."

Mr. Connell assembled a group last year that included lawyers from Bank of America, Wells Fargo Bank, First Interstate Bank and others. After meeting in Los Angeles, that group adapted the Dewey Decimal-style system of 42 three-digit codes from a model developed recently by the American Bar Association. (There's a Babel of others out there, too: The American Corporate Counsel Association, the in-house lawyers' trade organization, proposed a task-based system with 120 two-digit codes. And Price Waterhouse's legal consulting group is working on one likely to be based on words rather than numbers, a spokesman says.)

Mr. Connell sent the format last month to a handful of law firms and asked them to begin implementing the system. Their reaction, he says, has been "mixed." James Roethe, senior vice president and director of litigation at Bank of America, says some of his outside law firms, including San Francisco's Heller, Ehrman, White & McAuliffe and Pillsbury, Madison & Sutro, responded that task billing is "something they thought they could do." A partner at San Francisco's Severson & Werson, which is spending $150,000 on software that will accomodate task-based billing, says the change will enable the firm to budget itself more effectively.

But some lawyers who have been asked to implement task-based billing complain about costs of new software and training. Others resent the suggestion that the complexities of legal analysis could be reduced to coded categories, much like merchandise in a catalog.

No doubt there will be some squishing and fudging as lawyers attempt to pigeonhole each epiphany and half-hour phone call into line-items like "case analysis/strategy" (task #130) or "other/administration" (task #150). One associate at a Washington law firm gripes: "As it is, we spend 25% of our day filling out time sheets. Now we're going to have to figure out what little number to attach to everything?"

LAWYER grumbling may not be the only pitfall. Some experts question whether the banks' unusual arrangement, first reported by California Lawyer magazine, might raise antitrust issues. While it's not price-fixing per se, says Washington lawyer Garret Rasmussen, it "raises serious" antitrust questions. Mr. Rasmussen, a partner at Patton, Boggs & Blow, adds, "There's something unusual going on" when competitors get together. "Why are the banks doing it collectively? You have to wonder what was achieved that couldn't be achieved by doing it individually."

Most of the recent attention on civil cases has focused on so-called tort cases alleging personal injuries. But the largest and fastest growing part of the state civil caseload involves family matters.

Source: State Court Caseload Statistics Annual Report 1992 (February 1994), involving data from 27 state courts.

NEW YORK -- Rising interest rates emptied out the once-booming market for mortgage-backed securities during the second quarter.

Issuance of mortgage-backed securities, which represent pools of mortgages that are packaged into bonds for sale to investors, plunged 70% to $30.2 billion in the second quarter, the lowest level since the fourth quarter of 1990, according to Securities Data Co.

"Right now, the mortgage-backed underwriting market is dead," says Rajiv Sobti, managing director in charge of quantitative research at Donaldson Lufkin & Jenrette Securities Corp. "Nobody wants to buy the more volatile tranches of collateralized mortgage obligations and even if they wanted to buy them now they can get them cheaper in the secondary market," giving Wall Street little incentive to create CMOs, which are mortgages repackaged into a security, with each piece sold to different types of investors.

Yesterday, a senior official at Nomura Securities International said it will no longer underwrite CMOs issued by the big mortgage underwriting organizations such as Federal National Mortgage Association.

"The profitability and liquidity are all but gone," in this segment of the market, says a Nomura spokesman.

The steep drop in mortgage-backed issuance comes amid a shake-up in the ranking of Wall Street's top underwriters of mortgage-backed securities.

General Electric Co.'s Kidder Peabody Group Inc. managed to hold onto its top spot despite expected mortgage losses of as much as $30 million this quarter. Kidder Peabody brought $6.6 billion of mortgage-backed securities to the market in the second quarter, garnering 21.8% of the market. But the volume of deals plummeted by 75% from the first quarter, as a result of the market turmoil. Kidder recently said it has slashed its mortgage inventories to $10 billion from $16 billion earlier this year.

Salomon Inc.'s Salomon Brothers and CS First Boston, a unit of CS Holding, which were ranked seventh and sixth respectively a year earlier, grabbed the second and third spots this quarter, displacing Lehman Brothers Holdings Inc. and Merrill Lynch & Co.

Meanwhile, Bear Stearns Cos., the fifth-ranked underwriter of mortgage-backed securities a year earlier, slipped to ninth place, bringing $1.8 billion of mortgage-backed securities to market in the second quarter, according to Securities Data.

Blaine Roberts, senior managing director in the fixed-income department at Bear Stearns, says it is meaningless to read anything into one quarter's performance. He points out that in the first half, Bear Stearns was the second-ranked underwriter of mortgage-backed securities.

The steep drop in mortgage-backed securities issuance comes as rising interest rates in the second quarter ended the stampede by homeowners to refinance their mortgages. That scramble to refinance drove issuance of mortgage-backed securities to record levels in 1993, as Wall Street investment bankers scurried to repackage home mortgages into exotic securities for investors.

But with mortgage refinancings falling steeply in the second quarter, there are fewer home loans available today for bankers to reshape into securities.

What's more, the well-publicized collapse of Askin Capital Management's $600 million hedge funds have made many investors more skittish about buying the more speculative parts of collateralized mortgage obligations. The Askin affair led to losses at some of the largest underwriters of mortgage-backed securities, including Kidder Peabody and Bear Stearns.

"There is still some overhang in the mortgage-backed securities market from the liquidations and the dislocations that were caused by the hedge funds," says Mr. Roberts. "But I think we have seen the bottom, and I am cautiously optimistic that we will see some improvement" in the third quarter.

Though Mr. Sobti sees the mortgage-backed securities market recovering by the end of the third quarter, he says players in the mortgage-backed securities market are victims of a vicious cycle.

"In a highly volatile and technical market, the Street has a hard time hedging certain derivatives that are components of CMOs," says Mr. Sobti. As a result, Wall Street firms are less willing to carry inventories of unsold portions of CMOs.

"Dealers are reluctant to create new deals unless they can distribute them in short order, because they don't want to carry a lot of inventory," says Mr. Sobti.

Steven Point, portfolio manager at Glenmede Trust Co. in Philadelphia, which has $7 billion in assets under management, says that while he is seeing a bit of pickup in interest for CMOs, he fears that investors in mortgage-backed securities may be caught by swinging from one extreme to another.

"Last year, investors were concerned that prepayments would accelerate, and they weren't positioning their portfolios to defend against the lengthening in maturities when rates rise and refinancings slow," says Mr. Point. "But now, with interest rates rising, investors are less concerned about prepayments, and they are paying a lot for higher-coupon securities, which could be called away if rates were to fall again."

Abby Schultz and Thomas T. Vogel Jr. contributed to this article.

RECYCLING REQUIRES both a commitment to the environment and, more often than not, a willingness to overlook the ugliness of the recycling equipment.

Now two companies are trying to bring beauty and order to recycling the 30 billion plastic grocery bags consumers carry home each year. Drawing on Australian models, both are selling small cotton duffels with holes at each end for receiving and dispensing used grocery bags. Both companies claim their products make it easier to return bags to a recycling center or to save them at home for lining trash cans or collecting kitty litter.

SuperSock by Armstrong Associates, San Francisco, is marketed as the upscale storage bag. Made of heavy canvas, it holds some 25 bags and sells for $9.95. Joanne von Zwehl of Locust Valley, N.Y., says she and her husband use a half-dozen SuperSocks to organize socks, underwear and fruit, as well as grocery bags, on their 40-foot motor yacht.

The Bag Bag is an economy model. Made of thinner fabric by Bag Bag, Newport Beach, Calif., it holds up to to 60 grocery bags and sells for $2.99.

Both sock and bag carry recycling chic beyond where Heller, New York, brought it early in the decade. Heller hired New York's Cousins Design to create BagRecycler, an elegant box of rigid plastic that retails for about $8.

WHO OWNS THE sky?

A couple of companies claim they do, when it comes to keeping 15 million night-shift workers awake on the job.

Coffee doesn't do the trick. So the companies are applying basic research on the effect of light on the human biological clock. Properly applied, bright light can fool workers into staying awake in the wee hours and not sleeping until they get home.

ShiftWork Systems, Cambridge, Mass., has installed lights at sites where human error could be catastrophic, including control rooms at San Diego Gas & Electric's South Bay power plant, an oil refinery in Delaware and the Nuclear Regulatory Commission's main operation center. ShiftWork's computer-controlled bright lights vary in intensity and duration according to the average sleep cycle of each control room crew.

Meanwhile, Spazio SAS in Milan has installed its own "artificial skylights" in five windowless chemical plant control rooms in Italy and in one in Texas. During the day or night, the Spazio systems vary the amount, color and direction of the light. The company says it can help workers stay alert and happy not just during night shifts but also during the day in windowless offices, shopping centers and hospitals.

ShiftWork President Theodore Baker says Spazio is "doing the same thing" as his company. Spazio partner Douglas Skene says that by better mimicking the sun, his company affects both the human body and the human psyche.

ABIR MULLICK has designed a new version of a product that has been very hard to sell: a bath for all ages and abilities.

The Buffalo University architect and like-minded designers say that universal baths and bathrooms would eliminate the stigma that older people often feel with the installation of grab bars and other geriatric devices.

Mr. Mullick's universal bathing unit would consist of fiberglass panels, each with different built-in features. When assembled and their joints sealed with water-tight gaskets, the panels would form the tub and shower stall. Six panels would make a full-size tub, with or without doors, and three panels would make a small tub into which a parent or caregiver could more easily lean.

This modular panel system would allow people to change their baths as their needs changed and to design according to taste. "It's democracy of plumbing rather than autocracy," says Mr. Mullick.

Once he gets his patents, Mr. Mullick plans to start peddling his democratic bath to industry. If history is any guide, it will be a hard sell. A few years ago, Herman Miller, the Zeeland, Mich., office furniture maker, asked Design Continuum, Boston, to create a universal bathroom, including toilet, sink and tub.

The resulting Metaform Personal Hygiene System won a gold award last year from the Industrial Designers Society of America. But Herman Miller tried hard but failed to commercialize the system and now hopes to sell it back to Design Continuum. Gianfranco Zaccai, the design firm's chief, says "industry hasn't really figured out" the difference between universal design and design for old people.

Maybe so, maybe no. "I'm not sure I believe in universal design," says Mary Reid, director of industrial design at Kohler, a maker of plumbing fixtures. "People are different, and universal design can become mediocre for either end of the spectrum."

STAMFORD, Conn. -- GE Capital Corp. plans to purchase Harcourt General Inc.'s insurance units for $400 million, a move that will further increase the finance giant's annuity business.

For Harcourt, the sale furthers the company's efforts to focus more acutely on the publishing industry, and builds up a cash horde that analysts expect will soon be used for a large acquisition. After the sale of the insurance unit, Harcourt said it will have $800 million in cash.

Although Harcourt gave no indication of specific purchases under consideration, analysts say the company would be interested in the Simon & Schuster assets of Viacom Inc. if they are put up for sale, as some in the industry have speculated.

"We continue to look for acquisition opportunities to enhance the company's growth prospects," said Robert J. Tarr Jr., Harcourt's chief executive, in a news release. Harcourt spokesman Peter Farwell said the company wanted to get out of insurance because "in that business you have to be very large" and Harcourt did not want to buy other insurers.

Harcourt's insurance units have assets of about $3 billion and revenue of about $550 million, with an emphasis on annuities. Harcourt, based in Chestnut Hill, Mass., expects to receive about $375 million after taxes from the insurance sale.

Harcourt closed at $35.125, down 75 cents, in New York Stock Exchange composite trading.

Under the agreement, GE Capital, a unit of General Electric Co., would acquire all of the insurance businesses of Harcourt General Insurance Cos., including Federal Home Life Insurance Co., PHF Life Insurance Co. and Harvest Life Insurance Co. In addition to annuities, the company sells life, health, credit and accident policies.

GE Capital has been building its annuity business since early last year, when it purchased GNA Corp. for $525 million. Soon after, GE Capital purchased United Pacific Life Insurance Co. for $512 million, bringing its annuity business to $12 billion in size. The Harcourt units add another distribution arm since they have their own team of agents. GNA has traditionally sold its products through banks. Annuities are insurance products that resemble mutual funds, but offer tax-deferred returns.

"This is a well-run company with a good track record which will add product breadth and distribution capability to our existing portfolio of services," said Patrick Welch, GNA's president and chief executive officer. "We will continue to expand its distribution network and develop its valueadded products."

Harcourt has been saying for a while that it might sell the insurance business, and tried but failed in a bid for the publishing assets of MacMillan Inc. Last September, the company spun off its movie-theater business to shareholders.

Martin Romm, an analyst with CS First Boston, described the sale as a good deal for Harcourt and a fair price. "They are going to receive net proceeds of $375 million after taxes, which is the equivalent of about $5 a share or so," he said. He said Harcourt is "very interested" in expanding its publishing activities, especially educational books -- professional and technical, college and high school and elementary levels. Mr. Romm said he thinks Harcourt will be waiting to see if Viacom tries to dispose any of its Simon & Schuster businesses before considering another large purchase.

DALLAS -- Greyhound Lines Inc. posted an 11% drop in bus traffic in May, compared with a year earlier.

Revenue passenger miles fell to 406,160 from 456,954. In the first five months of the year, revenue passenger miles fell 13% from a year earlier. A revenue passenger mile is one paying passenger traveling one mile.

In the hard-charging 1980s, health-club advertising glorified the perfectly toned and chiseled body, as exemplified by such icons as Cher, Victoria Principal, Don Johnson and Glenn Frey of the Eagles.

Now in a major shift in advertising strategy, Bally's Health & Tennis is relying on regular customers like Beth from Costa Mesa, Calif., to make its fitness pitch. Beth is seen rock climbing in a new commercial while telling viewers: "I think I climb because I'm afraid of heights. . . . There is nothing better than being able to conquer that fear. That's why I work out at Bally's, so I can do more on the rocks."

The theme of the company's new $50 million advertising campaign: "If you can get here {Bally's}, you can get there a {mountain top}."

"A message saying everyone could have a perfect body doesn't wash anymore," says Sandy Silver, vice president of marketing, who joined Bally's last November from McDonald's. "We now want to present a more realistic view of a health club. The campaign is based on a person's individual goals. It is based on a buzz word for marketers in the 1990s: personalization."

Other marketers have been slow to pick up on the change in consumer psychology. For example, Coca-Cola's diet Coke tried a campaign last year that epitomized the sensibilities of the 1980s. Its slogan, "Taste It All," was a message that reflected a 1980s belief that you could have it all, critics say. The campaign quickly flopped, and now the soft-drink company is playing up refreshment in its ads.

The Bally's campaign, the first from the company's new ad agency, Hal Riney & Partners of Chicago, is directed mainly at people 18 to 34 years old, traditionally the most desirable demographic group for advertisers. "We're trying to understand their lifestyle," says Mr. Silver, "and at the same time explain to the consumer that they shouldn't think of health clubs as the end, but rather as the means to an end."

Riney is producing four additional ads featuring actual Bally's customers that will air shortly. The ads will include a 58-year-old man who competed in the Senior Olympics, a 22-year-old New York City taxi driver who wanted to stay fit even as he spent all day sitting behind the wheel and a couple who wanted to prepare for a hiking vacation.

Bally's and its 12 subsidiaries, which include Jack LaLanne, Vic Tanny, Vertical Clubs, Sports Connection and Nautilus Plus, have a total membership of 4.5 million in 44 states, up from 4.2 million in 1993.

Riney is preparing another campaign, to begin running this summer, that will "interrupt" the "If you can get here" commercials. The ads will feature Mike Lucci, Bally's Health and Tennis president and chief executive officer, and will be used to announce that the 12 chains with different names will be unified under one name: Bally's Total Fitness.

Mr. Silver says Bally's decided to change the name of its facilities after "extensive consumer research" that told the company "what people wanted out of a health club." Another reason, says Mr. Silver, is that, "I want to build some brand equity into the Bally's name. Consumers have more confidence in a national name."

John Bernbach resigned as vice chairman of Omnicom Group's DDB Needham, effective immediately, less than one month after saying he had no plans to leave the agency. He will continue as an Omnicom director.

Although Omnicom presented the resignation as voluntary, industry officials said it wasn't. Mr. Bernbach was out of the country yesterday and couldn't be reached to comment. A Needham spokesman declined to comment beyond the official statement in which Bruce Crawford, president and chief executive officer of Omnicom, said, "We are saddened Mr. Bernbach has chosen to leave . . . ."

Mr. Bernbach, 50 years old, said in a statement: "There are some specific intriguing business and professional opportunities that have come to me and I felt that now is the moment to pursue them. After 22 years with this company, it is a terribly difficult decision to leave, but I believe it is necessary to do so in order for me to explore these serious options in the greater depth they deserve."

There was widespread industry speculation that Mr. Bernbach, whose father, William, was a founder of Doyle Dane Bernbach, one of the predecessor agencies of DDB Needham, would leave because he no longer had responsibility of the $40 million Seagram account. And earlier this month, Seagram severed its 32-year relationship with Needham, further fueling the belief that Mr. Bernbach's days at the agency were numbered.

But as recently as June 6, Mr. Bernbach said he wouldn't leave Needham, "My father's name is on the door," he said. "I am a member of the Omnicom board. I have no plans of going where the Seagram business goes."

Mr. Bernbach also said he has been approached by other agencies recently about defecting. "Like anyone else who is doing a good job," he said, "you hear from other people." He added that he hasn't heard from the one agency most often rumored to be his next place of employment: Wells Rich Greene BDDP. Mr. Bernbach is a close friend of David Sklaver, president of Wells Rich New York.

Separately, Needham is exploring the possibility of changing its name. Oddly, one possibility mentioned is the Bernbach Group.

Coca-Cola's diet Coke brand is introducing a 60-second commercial Sunday during the Wimbledon tennis tournament on NBC. The ad, emphasizing the beverage's contour bottle, is produced not by diet Coke's agency, Omnicom Group's Lowe & Partners/SMS, but by Fallon-McElligott in Minneapolis.

Fallon has the assignment of introducing the contour bottle in all Coke advertising, including Coke Classic. It also redesigned the diet Coke can.

The ad features an elephant swimming to a raft where a woman is sunbathing and drinking the soft drink. The woman is unaware of the elephant as he removes one can of diet Coke and replaces it with a bag of peanuts and then swims away.

A Coca-Cola spokesman says another version of the ad will be used to promote Coke Classic outside the U.S.

WHO'S NEWS: William B. Perkins, 40 years old, joining Lord, Dentsu & Partners in New York as managing partner.

Tony DeGregorio, 47, named executive vice president and executive creative director at TBWA Advertising.

EQUITABLE: Omnicom Group's BBDO said it resigned the Equitable Life Assurance Society's Equitable account after eight years. Billings were estimated at less than $6 million. The account is being reassigned to Omnicom's Merkley Newman Harty.

Howard Upton's poem called "Civic Shock."

But the content? What a crock!

Of Main Street on Sam Walton's store.

And taxes in gobs.

Is someone else offering more?

Had started before our arrival.

And there spent their kitty.

And that threatened small towns' survival.

The values are just down the block.

With plenty of Wal-Mart Stores stock.

When some firms are folding.

And marking down that green-and-blue sweater.

This summer, tourists will inundate the halls of Smithsonian museums in Washington to gawk at towering rockets, landscape paintings and Archie Bunker's chair. Although the thousands of cultural artifacts that make up "America's Attic" continue to draw crowds, there has been a gradual change in the Smithsonian's character over the past half-decade. Each year, the institution comes to resemble its former self a little less. Each year, a portion of the national heritage it represents has been lost to a campaign of ideological revisionism.

The transformation of the Smithsonian is especially evident in the Air and Space Museum, which is famous for its restored aircraft and rocketry. There, planetarium shows and nostalgic aviation exhibits have begun to reflect the Smithsonian's more enlightened approach to museum exhibits.

The museum's Einstein Planetarium, for example, instead of providing a glimpse of the starry heavens, looks at the genocidal rapacity of Western explorers. "Exploring New Worlds," a recent planetarium show, educates visitors about Columbus's "encounter" with America ("discovery" is no longer politically correct). In what is essentially a propaganda film projected on a planetarium ceiling, the visitor is treated to images of exploring vessels and American Indians.

The "encounter" between Europe and America led to "frantic exploration and exploitation by Europeans," the film explains. "Trade with the so-called new world, as well as outright plunder, filled royal coffers with gold." What's more, "millions of native Americans perished from new diseases that the Europeans brought with them. Sophisticated societies, religions, and whole nations were destroyed in a misguided attempt to convert them to allegedly superior ways. Yet only the weapons were superior."

The Air and Space Museum's assault on exploration continues in "Where Next, Columbus?" -- an exhibit that asks the question with more trepidation than enthusiasm. It begins with another penitent look at the "conquest" of America, accompanied by sparse illustrations of conquistadors and Spanish sailing vessels. The visitor is reminded that "for the Native Americans, the encounter was an invasion. For the Europeans, it was an opportunity for expansion and conquest." Another wall panel notes sadly that "exploration and power went hand in hand as local inhabitants were vanquished."

Lest the visitor miss the point, the exhibit argues that the brutalities of European explorers should be understood as an indictment of the whole Western mindset. A wall panel explains that "exploration is a cultural enterprise. A society or nation decides to explore italics in original. . . . Explorers are actors in a drama that represents the choices of their culture." To illustrate the nature of this "cultural enterprise," a film of New Zealand natives being bullied by European mining prospectors is played on a video screen.

Having established the premise that exploration is a debased and unenlightened undertaking, the exhibit attempts to extend it to the theme of space travel. An interactive video display, featuring individuals discussing the purposes of space ventures, includes repeated appearances by an "environmental activist" who offers such sagacities as: "I would really regret the day that I looked in my telescope and saw bulldozers on the moon. I think that we don't have the right to do that."

At the conclusion of the exhibit, a lighted display leaves the visitor with the profound question, "Does Mars Have Rights?" Below, the display asks: "Is human exploration of Mars an act of destiny or of arrogance? Historically, the arrival of explorers have not always been benign. The native ecology is disturbed by human presence, especially the microbes and technology that explorers bring with them. What may happen to Mars if we establish a presence there?"

The Smithsonian's most ambitious reconstruction project is that of its oldest museum, Arts and Industries. Since 1881, this museum has housed artifacts from the Centennial Exhibition of 1876, in a glorious tribute to American technology and culture. Its exhibits include a restored Jupiter locomotive, towering iron turbines and hoisting machines, and various curiosities from the 50 states. American flags and tricolor banners hang from the walls and ceilings. The atmosphere is one of unapologetic celebration.

In 1991, one of its four exhibit halls was cleared out and replaced with the Experimental Gallery, a special forum for temporary exhibits. One of the Experimental Gallery's recent projects, "Etiquette of the Undercaste," had the distinction of being the first PG-13 exhibit in Smithsonian history; parents were advised not to allow children 12 and under to go through. Designed by housing activists, the exhibit purported to guide the visitor through the travails of a homeless person, although in some ways it perversely resembled a carnival funhouse.

On an accompanying Walkman headset, the voices of transients provided narration. Visitors were required to enter by reclining on a simulated morgue drawer, which slid shut, symbolizing their death. Reborn inside the exhibit as crack babies and drawn inexorably to lives on the street, they listened to cursing voices urging them to commit a short-change scam, sell drugs and drop out of school. At one point, the visitor lay on a hotel bed and listened to the sound of a prostitute having sex. A woman's voice asked: "Who is smarter, the girl who gets paid for it or the one who gives it away for free?"

The Experimental Gallery was only the beginning in the long-term transformation of the Arts and Industries Museum. The Smithsonian, in fact, is slowly removing the contents of the surviving four wings, and shipping them off to shadowy warehouses. When the purge is complete, the building is to be renamed the National African-American Museum. In the place of its color-blind celebration of American culture and technology the Smithsonian will carve out an ethnic enclave.

What do visitors think of the new Smithsonian? Because the institution receives more than 80% of its funding from the federal government, it has never been subject to the judgment of the market. The only vote of confidence allowed the visitor is a donation box, recently placed in the museums in an attempt to generate additional revenues. Smithsonian Undersecretary Constance Berry Newman attributes their barrenness to an unobtrusive box design. "We were very subtle, so subtle that the public didn't get it," she explained to the Washington Post recently. Perhaps the Smithsonian doesn't get it.

Mr. Hoffman is a policy analyst at the Competitive Enterprise Institute in Washington.

CHICAGO -- Some grain traders raised their estimates of the U.S. corn and soybean harvests in the wake of Agriculture Department surveys showing that a dry spring allowed farmers to plant more land than planned.

The odds for a big rebound in U.S. grain production were bolstered by National Weather Service forecasts for normal precipitation across much of the Midwest farm belt this summer.

The government's updated planting surveys also signal that spring wheat and durum harvests in Northern Plains states will probably swell this year. That would help stanch the flow of Canadian grain into the U.S., which has been a growing sore point between the two trade partners.

Allendale Inc., Crystal Lake, Ill., raised its soybean harvest estimate to 2.17 billion bushels from its original forecast of 2.1 billion bushels. AgResource Co., Chicago, increased its soybean harvest estimate to about 2.15 billion bushels from 2.125 billion bushels. AgResource's corn harvest estimate is climbing to about 8.8 billion bushels from 8.5 billion bushels. Estimates by traders of the coming corn harvest range from 8.6 billion bushels to nine billion bushels.

One source of potential trouble are the forecasts for above-normal temperatures across the Midwest during the next 30 days, and for the next three months over eastern corn belt states such as Indiana and Ohio. Hot temperatures increase the moisture demand of crops, and can disrupt pollination. The corn crop will be in the throes of its critical reproductive stage by mid-July.

The hot outlook helped lift corn prices yesterday. Also, many traders had expected the government to raise the official corn planting estimate even higher than it did. In trading at the Chicago Board of Trade, the corn contract for July delivery rose three cents a bushel to settle at $2.4925 a bushel.

The Agriculture Department said its early June survey found corn farmers planted 78.8 million acres instead of the 78.6 million acres originally forecast in March. Some traders had speculated that corn acreage would hit 79.3 million.

The government said soybean farmers planted 61.8 million acres, up from the 61.1 million acres forecast in March. Soybean prices dropped because private analysts had figured that farmers would trim their soybean plans to plant more corn. But a May rally in soybean prices apparently proved too attractive. In trading, the soybean contract for November delivery dropped 6.25 cents a bushel to settle at $6.2875 a bushel.

Grain prices have gyrated wildly this year because anything less than bumper harvests this autumn could cause shortages. U.S. grain stocks are low because excessive rain and record flooding last year across the Midwest slashed corn and soybean production. Farmers harvested 6.34 billion bushels of corn and 1.81 billion bushels of soybeans.

In early June, according to Agriculture Department figures released yesterday, 2.36 billion bushels of corn had to last U.S. livestock producers, food companies and exporters until the autumn harvest -- an amount down 36% from the same 1993 date. The soybean supply in early June was 555 million bushels, down 19% from the same 1993 date.

Assuming normal growing conditions, the Agriculture Department's early June planting survey indicates that combined spring wheat and durum harvests could climb about 14% this summer. The government said farmers planted 18.2 million acres of spring wheat and 2.7 million acres of durum, indicating total production of roughly 720 million bushels.

Poor-quality crops in the Northern Plains last summer, among other things, prompted U.S. millers and pasta makers to import about 100 million bushels of grain from Canada. Some traders expect the volume of Canadian grain to shrink to about 70 million bushels in the wake of the coming harvests.

Canadian grain exports might also be held in check by prospects there for smaller crops this year. Analysts figure that spring wheat acreage is down 26% from last year.

The government's acreage survey was released before the opening of trading yesterday. Hog prices are expected to sink at the start of trading today at the Chicago Mercantile Exchange because an Agriculture Department report released late yesterday signaled a bigger-than-expected U.S. hog herd.

The department said 60.1 million hogs and pigs were on U.S. farms on June 1, up 3% from the same 1993 date.

Jim Sigmon, vice president of the commodity department at Securities Corp. of Iowa, said he expects cash hog prices to decline to as low as 35 cents a pound during autumn. Such a price is unprofitable for most small hog farmers.

In trading at the Chicago Merc yesterday, the hog contract for October delivery rose 0.02 cents a pound to settle at 42.75 cents a pound.

ENERGY: Petroleum futures prices rose sharply for a combination of reasons, including continuing civil unrest in Yemen, the possibility of an oil workers strike in Norway and the expiration of the July products contracts. In trading on the New York Mercantile Exchange, August crude rose 54 cents a barrel to close at $19.37. Market watchers said crude prices could take a tumble if oil exports from Yemen aren't disrupted or the Norwegian strike doesn't occur because the likelihood of those events is already baked into prices. Hunt Oil Co. of Dallas confirmed that its facilities in Yemen's Marib oil field were hit in an air raid, but gave no details. Heating oil for July rose 1.01 cents to 50.59 cents a gallon, as the contract expired. August heating oil finished the session .86 cent higher at 50.52 cents a gallon. July gasoline rose .47 cent to finish its last session at 53.02 cents a gallon and August gasoline rose .70 cent to close at 53.59 cents a gallon.

WASHINGTON -- The Securities and Exchange Commission, responding to recent disclosures that some mutual fund companies have occasionally provided the public with inaccurate pricing information, has given the industry two weeks to come up with a plan to ensure that prices disseminated by funds are accurate.

In a letter sent Tuesday to the Investment Company Institute, a mutual fund trade group, and the National Association of Securities Dealers, SEC Chairman Arthur Levitt Jr. asked the organizations to describe the "nature and extent of existing pricing problems in the mutual fund industry."

This is the first time Mr. Levitt has addressed the problem of inaccurate fund prices being published by the nation's press. The issue has jolted Wall Street, following a recent admission by Fidelity Investments that it knowingly reported day-old numbers for about 150 funds instead of the actual closing prices.

The disclosure also revealed how easily inaccurate prices can make their way into publication. Fund managers say inaccuracies are inevitable because of the daily deadline squeeze.

Currently, funds send their data every afternoon to the NASD, a self-regulatory group in Washington. The NASD in turn fires off the data electronically to newspapers.

A Socialist prime minister has been named in Japan, the first since the nation became an ally of the West. His designation is best seen as the last-gasp act of the Liberal Democrats (LDP). Coming at an hour of financial crisis in world markets and on-and-off nuclear blackmail next door, this is hardly just Kabuki theater. And yet it is so hard to take seriously because the marriage is so absurd. The LDP and the Socialists? It would be like Gorbachev in the waning days reaching out to Zhirinovsky.

To be sure, Prime Minister Tomiichi Murayama at age 70 has seen enough of history to be wise to the worst foolishness. Yet his party has behaved more like a fringe group in a one-party state, spared any sense of responsibility.

Japan's Socialists have been the party of isolationist pacifism and radical unions. Also, they've been on the take from the pachinko gambling rings run by north-leaning Korean nationals in Japan, graft that is now more significant when Tokyo holds a potential veto on steps to curb Kim Il Sung's nuclear threat. Recently, some party members have tried on a new image, leading participation in the short-lived reform coalitions that have sought to govern Japan this year.

Still, below the soft-spoken Mr. Murayama is a cabinet that throws together jingoists, disciples of the old Tanaka dynasty and some leftists who are disturbingly soft on North Korea. Mr. Murayama has found himself in bed with the political establishment he's criticized for 40 years.

Their most pressing interest is to try to sidetrack reform of an electoral system that has sustained both the LDP and the Socialists. After last year's upheaval, a panel was asked to draw up a more standard parliament of single-member districts that many believe would lend itself to a more genuine two-party system less vulnerable to the dominance of the interest groups that have held sway over the LDP and Socialists.

The fate of the Socialist-LDP axis, and indeed of Japanese politics generally, may rest with LDP mavericks such as power broker Ichiro Ozawa, who figured so mightily in the unraveling of the governing party and its replacement by reformers. There may still be enough of an opposition to business-as-usual to put this new coalition in immediate jeopardy.

In the meantime, don't expect much movement to resolve impasses with the U.S. or to embark on tax changes, good or bad, that could reposition the Japanese economy. More troublesome is the Korean situation, should it flare anew. An LDP pacifist heads the foreign ministry, and it is hard to see this government standing up to a full-fledged military crisis.

The best face to be put on this bizarre turn is to view it as the last patchwork on a crumbling ruin, namely the unstable and ultimately dangerous LDP domination of Japanese politics and the accompanying usurpation of power by the professional bureaucracy. Sometimes even absurdist productions can yield up important truths.

Business's Beltway reps are winning no awards this year for keeping in touch with their membership on health care. First the Chamber of Commerce endorsed employer mandates, then rejected them after hearing from its members. Now the National Federation of Independent Business, a leader against some mandates, has praised Senator John Chafee's "triggered mandate" plan as the "best chance" for health care reform. Some NFIB members exploded, so yesterday it put out "strong support" for Bob Dole's market-based plan -- without withdrawing its praise of the Chafee plan. Business groups haven't figured out that the political center of gravity has moved away from any health care mandate. We're not surprised their dissident members are forming a new group, the Small Business Survival Committee, to fill a market niche for principled opposition to government-mandated health care.

The House late Wednesday passed a $243.6 billion defense appropriations bill that is being hailed by liberal Democrats and the press as nothing more than the nuts and bolts of military readiness. More specifically, many in Congress are crowing that the bill trims nondefense items that have long been a part of the defense budget. While the bill makes a few strides in that direction, there's still a long way to go.

The largest and most-lauded cut is the halving of the Clinton administration's proposed $1.8 billion expenditure for university research projects. Lest one think this $900 million cutback is going to directly affect military readiness, it should be remembered that much of this money goes to university expenses, such as building maintenance and utility bills, not research. And much of the research has absolutely nothing to do with defense, but rather is another way for the administration to fund its pet high-tech programs at the expense of the defense budget.

The other high point of the bill is its defeat of the administration's proposal to transfer those peacekeeping costs that are now incurred by the State Department to Defense, without an increase in funding. According to Rep. Jon Kyl (R., Ariz.), if this transfer had been allowed, it would have severely affected U.S. military readiness." They tried to portray it as a simple transfer," said Mr. Kyl, "but without funding it, that money for peacekeeping would have had to have come out of some unit's operations budget."

U.S. costs for peacekeeping for fiscal 1995 are estimated at $300 million, but looking back at previous budgets, it surely will far exceed that. In fiscal 1993, the defense budget alone was hit for $1.4 billion for peacekeeping. The fiscal 1994 estimate is $1.1 billion, but it's sure to go higher.

Those two victories aside, the bill still does two terrible things. First, it cuts some essential defense programs. Gone is $580 million of future research funds (separate from the university grants mentioned above) for the C-17 cargo transport plane; gone is $490 million in research funds for ballistic missile defense; gone is $100 million for advanced versions of the F/A-18, the Navy's frontline fighter/attack plane.

Second, the bill also leaves a lot of the nondefense fat in the defense budget. Here are a few examples:

-- Sporting events. Four million dollars for the Summer Olympics. The fiscal 1994 defense budget included $2 million for the Summer Olympics and $6 million for the World Cup. A call to World Cup headquarters revealed that the money went for security devices, such as surveillance cameras and metal and bomb detectors.

-- Environmental programs. There is currently a debate in Congress as to whether the next round of base closings, slated for 1996, should continue, in part because of the increased environmental cleanup costs. What isn't discussed is that these costs come directly out of the operations and maintenance budget of the defense budget. Slated for fiscal 1995 is $1.9 billion for the Defense Environmental Restoration Program; $508 million for the Base Realignment and Closure Environmental Act; $2.2 billion for environmental compliance at military bases (to a large extent, taking defense operations budget funds to pay fines to other federal agencies); $106 million for conservation; $392 million for pollution prevention, and $299 million for Environmental Technology.

-- Defense Conversion/Dual Use. This, according to Rep. Robert Dornan (R., Calif.), is the Clinton administration's "dishonest way to transfer funds from defense to social programs." The fiscal 1995 budget includes $242 million for Electronics and Materials Initiatives; $411 million for Manufacturing Technique Initiatives; and $400 million for Computer System and Communications Techniques. All told, there is $2.2 billion scheduled to come out of the budget for these programs, most of which are civilian projects.

-- Personnel. There are a number of programs that use defense funds to provide civilian job training to those discharged from the service due to manning cutbacks -- for example, $65 million for Troops to Teachers and $15 million for Troops to Cops. Also funded is $3 million for a bilingual pilot program; $69 million in economic aid to soften the impact of the closing of the Philadelphia Shipyard; $60 million for Junior ROTC expansion; and $71 million for the National Guard Youth Opportunity Pilot Program. These last two are particularly galling considering troop levels are slated to be cut to near 1930s levels and many ROTC graduates are being told they don't have to fulfill their service obligations.

Finally, a few items listed under Miscellaneous R&D Programs/R&D Earmarks: $20 million for AIDS research; $149 million for Navy and Army "Industrial Preparedness"; $9 million for the Medical Free Electron Laser; $25 million for Historically Black Colleges & Universities; $613 million for Experimental Evaluation of Innovative Technology, and $117 million for Manufacturing Technology.

These are just a few of the many nondefense items that remain in this allegedly streamlined defense bill. Many in Congress unabashedly use the defense budget to secure make-work pork projects for their constituents back home. For the sake of the men and women who are asked to leave their homes and defend this country with fewer and fewer funds devoted to that very purpose each year, it would perhaps do our representatives some good to go back to their districts and recall what the holiday we're about to celebrate is all about.

Mr. Yost is a member of the Journal's editorial page staff.

Amid all the loud confusion surrounding the various health care proposals wending their way through Congress, medical savings accounts are quietly gaining favor. They are sponsored by more members of Congress than any other -- 208 -- and offer the best hope of effecting true reform of the American health care system while preserving consumer choice of doctor and an unfettered physician-patient relationship.

Although the event received little media attention, the House Ways and Means Committee approved medical savings accounts by acclamation last week, and Sen. Bob Dole, the minority leader, is hoping to unite Republicans behind a new health care bill that contains, among other provisions, medical savings accounts. So far, with 39 of the Senate's 44 Republicans signed on, the minority leader's measure has more sponsors than any other Senate bill. This puts Mr. Dole in a strong bargaining position.

The accounts (also called Medisave accounts or medical IRAs) are a market proposal that has attracted sponsorship of influential Democrats: Robert Torricelli of New Jersey, the House whip at large; L.F. Payne of Virginia and Andy Jacobs of Indiana, members of the House Ways and Means Committee; Roy Rowland of Georgia (a physician); Sen. David Boren of Oklahoma (a member of the Senate Finance Committee); and Bob Kerrey of Nebraska. Its GOP sponsors include Sen. Dole, House Minority Leader Bob Michel and virtually all the rank-and-file members, making it the most bipartisan proposal in Congress.

The idea behind medical savings accounts is simple. A worker and his employer might now be paying $4,500 a year for a family policy with a $200 deductible. Using the same $4,500, they could buy a high ($3,000) deductible policy for about $2,000 and put the other $2,500 into an MSA. The MSA is the property of the worker. If the family has medical expenses during the year, it pays for them out of the MSA. If the family has a medical catastrophe, it's covered by the insurance. But if it spends less than $2,500 during the year, the money stays in the account tax free. The proposals being offered would allow deposits of as much as $3,750 a year (Ways and Means bill) or $4,000 (Dole bill) into an MSA.

Golden Rule Insurance Co., for example, has a medical savings account plan in operation. Its employees can choose a traditional $500-deductible plan or one with a $3,000 deductible. If they choose the latter, Golden Rule deposits $2,000 into their medical savings account in 12 equal installments. The first $2,000 of medical expenses is paid from the account, the next $1,000 is out-of-pocket and everything above $3,000 is paid by the employer. Last year, 80% of Golden Rule's employees chose the medical savings account option, and in 1994 the number is up to 90%.

The problem with current MSAs is the tax law, which now allows conventional insurance premium payments to be deducted from income but taxes deposits to an MSA as employee income. To create a level playing field on which MSAs can compete against health maintenance organizations and other health care plans, MSA deposits must receive the same tax treatment as insurance premiums.

What is gained from an MSA? For one thing, a very large cost savings. Since about 94% of any company's medical claims are less than $3,000, most of the time MSAs would pay these bills and, therefore, insurance companies would not be involved, leading to a huge reduction in administrative costs.

Perhaps more important, you, rather than a bureaucrat working for the government or a clerk working for an insurer, would be making the ultimate decisions on whether a dollar should be spent on health care or something else. Moreover, if you changed jobs or became unemployed, money from the MSA could be used to continue insurance coverage, or buy a new policy, or pay small medical bills in the interim. The money that accumulates in the account could be withdrawn at any time on payment of taxes and a 10% penalty, or at the time of retirement rolled over into an IRA or retirement plan. Thus, there would be an incentive to manage it carefully.

Hillary Clinton has objected to MSAs because, she said, many people would save the money and skimp on health care "unless {they are} required to be responsible." But, of course, people are responsible. A survey of Golden Rule employees found that one out of five had used the MSA for a preventive medical service they would not have purchased under the traditional insurance plan -- and still Golden Rule's health care costs were 40% lower than they would have been without MSAs.

If large numbers of individuals controlled their own health care spending, doctors and hospitals would negotiate package prices and discounts with them. If you doubt it, look at cosmetic surgery, where most spending is not covered by insurance. It's easy enough to get comparative prices now from a cosmetic surgeon; why couldn't people get comparative prices, perhaps of under $3,000, for a gall bladder operation? Neither is there any reason people couldn't take advantage of price discounts negotiated by their employers or by voluntary cooperatives they might choose to join.

The National Center for Policy Analysis estimates that allowing individuals to control their own health care costs through a combination of MSAs and catastrophic health insurance would reduce total U.S. health care spending by as much as one-fourth. Some other changes are needed: guaranteeing that once you have insurance you will always be able to renew it, and abolishing state-mandated benefit laws that price one-quarter of the uninsured out of the insurance market. The Dole plan covers this ground.

The only losers under such a system would be fans of government -- those who want more control over the health care industry and over your life. And that's good.

Mr. du Pont, former governor of Delaware, is policy chairman of the National Center for Policy Analysis in Dallas.

Graduation season is drawing to a close. Once again pop stars and politicians, professors and talk show pundits have taken to podiums across academe. They've told graduates that America is facing difficult times. They've told them how we can make this country great again.

At my own Wesleyan University commencement this spring, Gov. Lowell Weicker dared us to agitate for change and to hold fast to our core beliefs. At my old high school, whose graduation ceremony I attended a few weeks ago, the principal challenged students similarly. Choose your words carefully, he said. Strive to achieve your parents' hopes and dreams. Stay away from evils, such as drugs.

In many ways my high school graduating class was more fortunate than this year's crop. We watched Douglas Ginsburg's Supreme Court nomination sink as the consequence of a bad decision, his use of marijuana as a young professor. We saw the pictures of Gary Hart and friends aboard the yacht Monkey Business and the whirlwind that followed their publication. We heard it said that John Tower's conduct toward women called into question his ability to set an appropriate example. These images tinctured our minds. For the ambitious young men and women among us, these public tragedies are still reminders of what happens if we don't follow our moral maps.

Today's newly minted high school graduates are living in a different age. Their political senses were shaped by the 1992 election, the most exciting political event they have experienced. Did Bill Clinton inhale? What to make of Gennifer Flowers's secretly recorded tapes and bawdy stories? Political careers now outlive disclosures of infidelity and drug use.

Lying, too, can be excused, even justified. Shortly after the election, Brookings Institution scholar Thomas Mann told the press that Americans would be "condemning" Mr. Clinton if he didn't back away from his campaign promises; he would be an "irresponsible president" if he stuck to them.

Teenagers with grand ambitions now see that behavior that they were taught was indecent, illegal, can be engaged in without consequence. Seems people no longer care as much about these things.

Researchers recently reported a sharp jump in marijuana smoking among high school students. They said it was an indication that after more than a decade of decline, drug use may be on the upswing. The nearly 50,000 junior and senior high school students around the country who were surveyed said they were less worried about the risks of drugs than students had been in recent years. They also said they were less critical of drug use by others.

When I was in high school, the public fall of so many political stars said to us that immoral, irresponsible behavior is simply beyond the pale. Aspire to do great things? Then drug use and philandering will catch up to you. This is not the worst message to give to teenagers. We seem to have forgotten that.

When we speak about the fundamentals for making our country good and great, two of the most important are moral standards and values. How better to teach these fundamentals than holding our political leaders to them?

Mr. Gottlieb, who graduated this spring, was editor in chief of the Wesleyan Argus.

WASHINGTON -- As Congress goes home for the holiday recess, health-care reform is tottering between compromise and a political showdown that could destroy the chances for major legislation this year.

The divisions among lawmakers were dramatized yesterday when major health finance committees took entirely opposite positions on the central issue of whether employers should be required to help pay for their workers' insurance.

By a 20-18 margin, House Ways and Means Committee Democrats won adoption of a landmark bill demanding huge contributions from business to achieve President Clinton's goal of universal coverage. Yet across the Capitol, a little more than an hour before, the Senate Finance panel twice voted 14-6 to kill even standby versions of the same type of employer mandate.

The sour Senate mood was captured by Republican Leader Robert Dole, holding his aching jaw after a visit to the dentist. "The bottom line is, this is a tax. It's a delayed tax," said the Kansan and wouldbe presidential contender. Down the street at the White House, Mr. Clinton was responding in kind by painting Mr. Dole's own hastily drafted reform plan this week as "politics as usual."

"It does a little bit for the poor; it leaves all the powerful vested-interest groups with everything they've got," the president said. "And it walks away from the middle class and small business."

With the July Fourth recess about to start, the Finance panel may linger tomorrow to try to finish its bill. But the holiday marks a transition in the health debate. When lawmakers return, it will move from disparate committee fiefdoms and toward the floors of both houses.

The administration is hoping that a larger forum -- and more-focused choices -- will help its cause. But the fundamental issue of whether to adopt any sort of employer mandate has become a heated, partisan battleground, thanks to the strong opposition of the business community and its Republican allies. As the Senate vote illustrates, the prospect of compromise on that key issue is increasingly bleak.

Plans without a mandate must rely on subsidies to help low-income families that want to buy insurance. While these voluntary steps could achieve significant reform, the costs would be so high that they may be no more politically feasible than the mandate itself.

Mr. Dole's plan, one of the least costly, would commit on average about $20 billion annually over the first five years. A group of moderate Republicans is proposing a more ambitious five-year budget of $246 billion, or almost $50 billion a year for the same period; preliminary budget estimates indicate the annual cost of that plan could grow to near $100 billion annually by 2003 and 2004.

The choice between subsidies and a mandate shows how the real challenge of the president's universal coverage pledge is an economic one. Insurance market reforms, by themselves, would do little for millions of poor and working-class families that can't afford coverage. But as the bidding now illustrates, neither party is comfortable walking away without seeming to have tried to do something to help those families.

This by itself is some triumph for the president. By carefully framing the floor debate, the House Democratic leadership now hopes to use members' discomfort to the administration's advantage, pushing through more-comprehensive legislation. The Senate, with looser procedures, will be a more difficult arena. The multitude of plans, none yet strong enough to pass, is designed in part to give political cover to lawmakers who are afraid of seeming to do nothing.

The temptation to seek cover rather than change was seen in events leading up to the plan put forward by Mr. Dole. Whatever the merits of proposal, Mr. Dole himself didn't see the outline crafted by his staff until the day before he announced the proposal. And many of his colleagues who quickly embraced the alternative still appear unfamiliar with many of the details.

The show of GOP unity was accompanied by some heavy-handed pressure on the National Federation of Independent Business to support Mr. Dole's plan. The small-business group has been an unrelenting foe of any employer mandate but had expressed support for a plan put forward by a bipartisan group of Finance Committee moderates.

"Disappointment does not begin to cover our response to your sellout; outrage does," said Sen. Malcolm Wallop (R., Wyo.), a finance panel conservative in a letter this week to John Motley, the NFIB's vice president. Mr. Motley, who was careful to show support for the Dole plan at a press conference yesterday, said his group will likely back floor amendments to move the moderate plan to the right. But he draws a line between himself and those conservatives who want no legislation this year.

"Some of them would prefer the worst of Finance Committee bills," Mr. Motley said. "They want a chance to kill it. We want a bill."

Within the Finance Committee, a centrist bloc led by Sen. John Chafee (R., R.I.) remains the best hope for some compromise. Some liberal Democrats are lending support to that effort, if only to advance the bill to the floor.

After the committee's defeat of the standby employer mandate, the panel voted 12-8 to adopt a much milder provision that would take effect if subsidies and market reforms fail to achieve 95% coverage by the year 2002. Even then, the measure only would order a commission to make recommendations to Congress as to what further steps are needed to reach the 95% standard.

A second test of the strength of the centrist group came on an 11-9 vote supporting a proposed tax on insurance companies to discourage them from offering high-cost health plans. Labor unions strongly opposed the tax, which is expected to raise $14 billion to $17 billion over a 10-year period, according to preliminary administration estimates. But eight Democrats, including Majority Leader George Mitchell (D., Maine), joined Mr. Chafee and the two other swing Republicans, Sens. David Durenberger of Minnesota and John Danforth of Missouri, in supporting the proposal.

Mr. Danforth, who is retiring this year, delivered an emotional appeal for the tax as a cost-control device. His remarks reflect the conflict among Republicans, who worry about the deficit even as they embrace subsidies as an alternative to a mandate. "I really don't want my last act in public life to be to create something that turns out to be a monster without some mechanism to control the cost of it," he said.

If anything, the Ways and Means bill is even more dependent on employer-financing than the president's initial proposal. And while trimming proposed benefits, the bill leans to the left by proposing a Medicare-like insurance plan for small-business employees who can't afford private coverage.

This government-run option is sure to be a target on the floor next month, but it lends itself to a possible compromise as Democrats try to reduce the cost of the employer mandate. The goal already is to provide low-cost insurance for small employers. One possibility would be to save more by beginning with a scaled-back benefits package, then phase in a more generous plan over time.

The danger for the administration is that if it moves too far to the right, it risks losing liberal support without having any guarantee of winning significant Republican support. Among the four Ways and Means Democrats opposing the bill yesterday was Rep. Jim McDermott (D., Wash.), the leading House advocate of a government-run, single-payer health system.

The partisan skirmishing provoked a blunt, bittersweet lecture from the committee's former chairman, Rep. Dan Rostenkowski (D., Ill.), who said he sometimes missed the days of a Republican White House, when the GOP had to be more compromising to advance its agenda.

"We were a helluva lot more cooperative with Ronald Reagan and George Bush than I see the minority being with this president," Mr. Rostenkowski said. And clearly depressed by the proceedings in the Finance Committee yesterday, Sen. Jay Rockefeller (D., W.Va.) said cryptically, "The Congress will finish much earlier than you think. That will play out in the next few days."

BRUSSELS -- The OECD forecast that the European and Japanese economies will overtake U.S. growth rates by 1996. But it also warned that the strong yen threatens Japan's recovery and urged lower European interest rates to sustain the Continent's own comeback.

In a longer-term view of leading economies through the year 2000 contained in its June economic outlook, the Organization for Economic Cooperation and Development also projected U.S. annual inflation rising to a peak of 3.4% in 1997 from 2.1% this year, before falling off the following year. By contrast, Japan's inflation of 0.8% this year is expected to peak at 1.1% in 1996. German inflation, currently at about 3%, is forecast to slip to 2% or slightly below for the rest of decade.

The growth forecasts for Europe were more upbeat than most economists' expectations only a few months ago, when many still expected Europe to recover from its recent recession only gradually and fall short of the brisk growth rates needed to begin reducing the region's average 12% unemployment rate.

The OECD, a Paris-based coordinating group for the world's 25 leading industrial economies, said that the world recovery was spreading and gathering steam. Real, or inflation-adjusted, economic output among OECD producers should grow an average of 2.5% to 3% for the rest of the decade, it said.

U.S. economic growth is expected to peak at 4% this year, slip to 3% in 1995, and then average between 2% and 2.5% for the rest of the decade. But as the momentum of the U.S. recovery subsides, latecomers Japan and Western Europe should just be hitting their stride, according to the OECD projections.

Output in Japan and Western Europe is seen growing by average annual rates of 3.75% and 3%, respectively, from 1996 through 2000. But the OECD attached heavy conditions, especially for Europe, and Germany in particular. Overdue restructuring of the public and private sectors will have to be carried through to revitalize consumer demand and capital investment by industry.

The OECD warned that there are no grounds for complacency. The group said that its forecasts assumed the continued implementation of plans to significantly shrink budget deficits, perhaps to between 1% and 2% of gross domestic product by the year 2000. GDP measures a country's total output of goods and services, less foreign receipts. Even that effort would suffice to only stablize gross public debt levels, which average as much as 75% in the OECD as a whole, up from 60% in the late 1980s.

"Were there significant slippage in implementing consolidation programs, or were growth not sustained, the situation could be substantially worse," the OECD contended. For example, it calculated that only half a percentage point less growth could boost average debt levels to 85% of GDP by 2000.

The OECD credited the global monetary easing with helping to haul industrial economies out of the recent cyclical downturn. It observed that the U.S. has switched from monetary stimulation to a "neutral" mode, notwithstanding its tightening earlier this year to offset potential inflation pressures.

In the near term, it said the U.S. Federal Reserve should work to stabilize unruly U.S. credit markets by convincing market participants of its willingness to act quickly to keep inflation under control. Once that message has been sent and digested by markets, upward pressure on long-term interest rates should recede, the OECD asserted.

The OECD said Germany needed to be pragmatic in its approach to monetary targeting, despite German money supply growth that has running at more than double the 4% to 6% range set by the Bundesbank for money expansion this year. Financial markets worry that the overrun could raise inflation alarms at the central bank and soon reverse Germany's monetary-easing policy, despite falling inflation rates.

"As improved inflation prospects unfold, there may be scope for some further reduction in short-term interest rates," the OECD said. "Such downward moves would help France and other countries that maintain strong links with the Deutsche mark to ease monetary conditions further."

The OECD urged that even greater cuts in European interest rates may be needed if recovery turns out weaker than expected, claiming that only substantial increases in domestic demand can help cure Western Europe's joblessness problem.

Japan also was deemed needing faster domestic-demand growth to support recovery, particularly as net export volumes continue to retreat. Japan, like most OECD nations, is viewed as having exhausted its maneuvering room for further fiscal stimulus. Japan's short-term interest rates already are near all-time lows. But further reductions might help Japan's export trade by weakening the yen, currently at record highs against the dollar, and a threat to Japan's recovery, the OECD said.

MOSCOW -- The Russian parliament and the U.S. Congress are now considering whether to ratify the Chemical Weapons Convention signed by 156 countries last year in Paris. The treaty bans the development, production, storage and export of chemical weapons, and mandates all signatories possessing such arms to dispose of them over a 12-year period.

I spent 26 years of my life in chemical weapons development for the Soviet and then Russian armed forces, and I personally witnessed the internal Russian discussions that preceded the signing of the chemical weapons treaty. Based on my experiences, the treaty as it stands will help, not hinder, Russia's production of deadly chemical weapons.

When the treaty negotiations began two decades ago, the massive Russian poison stockpile had to be destroyed and replaced with new classes of binary chemical weapons that would be safer to store, transport and handle. The way a binary weapon works is that, after a new poisonous substance is synthesized and tested in a laboratory, it is broken down into two relatively harmless compounds. These compounds are stored in separate containers and are thus perfectly safe to transport and stockpile. They can even be stored side-by-side in the same artillery shell or missile warhead. Only when they are fired are they combined to form a weapon of mass destruction.

It is very easy to produce binary weapons without detection under the guise of agricultural petrochemicals. The products easily pass all safety tests and become registered with the government as legitimate commercial products. The plant receives a license for production and goes into operation. Neither the firm's leaders, its staff, nor international inspectors know that the chemicals are a component of a new binary weapon.

As the public talks toward banning chemical weapons progressed, the more intense became Russia's secret development and testing of binary weapons. The greatest results were achieved between 1985 and 1991, a period when the Soviet Union was opening up to the West as never before. During that time, our laboratories created Substance A-230, a weapon about which I can only say that its killing efficiency surpassed any known military toxin by a factor of five to eight. Large-scale tests of this substance took place on a proving ground near Nukus, Uzbekistan, in 1989. Viktor Petrunin, director of the State All-Union Research Institute of Organic Chemistry and Technologies told me and other employees in a staff meeting that the results were "outstanding."

Two more major achievements took place in 1990 and 1991. First, a binary weapon based on a compound code-named Substance 33 passed site tests and was put into production for the Soviet army. To mark the occasion in April 1991, Communist Party General Secretary Mikhail Gorbachev awarded the coveted Lenin Prize to Generals Anatoly Kuntsevich, Igor Yefstafiev and Aleksandr Fokin, Deputy Minister of Chemical Industry Sergei Golubkov and Mr. Petrunin.

The second development was the synthesis of a binary weapon based on Substance A-232, a toxin similar to A-230. This new weapon, part of the ultra-lethal "Novichok" class, provides an opportunity for the military establishment to disguise production of components of binary weapons as common agricultural chemicals; because the West does not know the formula, its inspectors cannot identify the compounds.

The golden age of the military chemical complex coincided with the successful completion of talks preceding the signing of the chemical weapons treaty. Amazingly, the Russian team at the international negotiations was directed by the aforementioned Lenin Prize winners. With the new binary weapons ready for production, the team succeeded in inserting loopholes into the convention that allowed Russia to proceed with its secret program.

The treaty, both sides agree, permits the signatories to continue chemical weapons research. But in my entire career I found no one who differentiated between "development" of new weapons and "scientific research" aimed at creating new weapons. To Russia's military-chemical complex, the concepts are one and the same.

Another major loophole is that the list of prohibited poisons does not include what are known as Substance A-230, Substance A-232, Substance 33, or other toxins. If a weapon is not listed, then it cannot legally be banned, to say nothing of being controlled. The chemical generals are banking on this technicality.

Russian reformers and the West can address this extremely important shortcoming by adding a protocol prior to ratification. At the very least, the U.S. and Russia must make a bilateral agreement beforehand to define and ban these and all other poisons designed to maim and kill. Critics of this idea say it would delay ratification. But ratification of the convention as it stands will only give the chemical generals the political cover they need to destroy their old and hazardous stocks with American aid, and to produce deadly new toxins.

A number of my American friends tell me that these important points can be considered after the treaty is ratified. Given my personal and professional experiences with the authors of these loopholes, I cannot share this optimism.

I can cite two examples of how the chemical weapons chiefs have tried to camouflage what they are doing. While my colleague Lev Fedorov and I were writing an article exposing the covert program for the weekly Moscow News, the chemical generals, apparently informed of the story in advance, drew up decree No. 508-RP. The decree, including a provision to prevent the proliferation of products that can be used to produce chemical weapons, was signed by President Boris Yeltsin on Sept. 16, 1992 -- the very day our story was published and the day I gave interviews to Izvestia and the Baltimore Sun. The decree sounds good, but there was a catch to No. 508-RP. The decree's list of banned products included the ingredients for American binary weapons, but not for Substance A-230, Substance A-232 and Substance 33. Nor were the Substance 33 ingredients listed in a document -- "The Complex Program for Gradual Disposal of Chemical Weapons in the Russian Federation" -- signed by 20 high chemical officials and submitted to the Russian parliament earlier this year.

Fifteen thousand tons of Substance 33 have been produced in the city of Novocheboksarsk in the upper Volga region between Nizhny Novgorod and Kazan. But our generals have told the U.S. that Novocheboksarsk is turning out another substance known as VX, which is also found in American chemical weapon stockpiles. Before I broke with the chemical weapons industry, I did not understand why military officials went through the painstaking process of altering technical documentation issued by the Novocheboksarsk plant concerning Substance 33, claiming that the toxin was actually VX. It made no sense to me at the time. Now it does. Not only have the chemical weapons authorities attempted to deceive the U.S., but they have tried to deceive Russia's elected political leaders as well.

According to the Wyoming Memorandum signed by Moscow and Washington, each party to the treaty must provide a list of "chemical names for all the chemicals defined as chemical weapons" four months prior to signing. A full accounting should have been provided to the U.S. by September 1992. It was not, and I was thrown in Lefortovo Prison for 11 days in October 1992. (I was tried this January and hauled back to another prison for several days.) Our generals see the implementation of the treaty with its loopholes as a way to dispose of their obsolete and hazardous stockpiles with American taxpayers' help, while preserving their new classes of toxins and, even worse, permitting their sale abroad for hard currency.

Before ratifying the treaty, Russia and the United States must close the loopholes and include effective verification measures by using independent outside experts and nongovernmental organizations. President Yeltsin must fire all officials involved in cheating, deception and covert production. These measures will ensure the integrity of the disarmament process, and will help all people of goodwill avoid worrying that the hard-line generals will make fools of us yet again.

Mr. Mirzayanov is a veteran Soviet chemical weapons scientist. He was jailed in 1992 and early 1994 for having revealed Moscow's continuation of covert chemical weapons production.

DALLAS -- Zale Corp. said three senior executives resigned from the unit that accounts for about two-thirds of sales at the largest U.S. jewelry retailer.

The company said Jerry Daws resigned as president of its Zales/Gordon's division. Also leaving were Terry Garcia, senior vice president of merchandising, and Glenn Stewart, marketing director.

A Zale spokesman declined to comment on the resignations. The three executives couldn't be reached for comment.

A person familiar with the company said the departing executives weren't "hands-on" enough to satisfy Zale's new top management, which was installed after the company emerged from bankruptcy-law proceedings last year.

A Zale spokesman said the departing executives won't be replaced and that the division's managers will report directly to the parent company's president and chief operating officer.

Mr. Daws, 49 years old, and Mr. Stewart, 41, were hired by Zale just over a year ago. Mr. Garcia, 41, had been at the company for 22 years in various positions.

The Zales/Gordon's unit, which operates the Zales and Gordon's jewelry chains, had sales of about $597 million in the fiscal year ended March 31.

Now that President and Mrs. Clinton have established their Legal Expense Trust, I'm thinking about writing a check for $500. Since Mr. Clinton will be informed of my gift, maybe I'll get that interview he's somehow always resisted. Come to think of it, if I double my gift to $1,000, maybe I'll get Hillary too.

I'm only dreaming, of course, but I wonder how many donors to the first presidential defense fund in history will in fact be making such quid-pro-quo calculations. That's just one of the many reasons Americans might worry about the spectacle of the U.S. head of state panhandling for dollars.

Another reason is Ronald Olson, one of the new fund's trustees. Be not misled by Theodore Hesburgh and Barbara Jordan, two upstanding Democrats who are also trustees; they're the ethical showhorses. Mr. Olson is the cash cow. As a trial lawyer in the Los Angeles firm of Munger Tolles & Olson, Mr. Olson stands at the confluence of two mighty rivers of money -- the trial bar and Hollywood.

In 1980, Mr. Olson served as Southern California finance chairman for then-Sen. Alan Cranston, who later became a campaign-finance legend as one of the Keating Five. Federal records show Mr. Olson is a generous donor to many Democrats, especially those like Sen. Ernest Hollings who vote to protect the interests of the plaintiff's bar.

So here we are in late 20th century America: A president who is sued for harassment under the flimsy legal standards encouraged by the trial bar now has to go back to that same trial bar to raise money to defend himself. Is this a great country or what?

It's always possible Mr. Olson's motives are as patriotic as George Washington's. But how are we to know? Perhaps instead we are now establishing a new standard for political loyalty. Ambassadorships have always gone to big campaign givers. Will lawyers who want to be judges now feel they have to give to the legal defense fund?

The precedents being set here aren't reassuring. The trust agreement says that, after all legal expenses are paid, any remaining cash will go to Mr. and Mrs. Clinton. They say they'll turn it over to charity, but the trust agreement includes no such promise. There's nothing to stop them from turning it into a retirement fund after they leave office.

The White House claims that by accepting no more than $1,000 from any individual the Clintons are behaving better than the Senate, whose members can accept $10,000. Leaving aside that Congress isn't exactly the gold standard for ethics, Bob Packwood has one vote. A president has the power to pardon, to appoint, to let contracts, to regulate, to veto and in general to influence all legislation that passes through Congress.

Indeed, that's why Congress passed a law (5 U.S. Code 7353) that says executive branch officials can't "solicit or accept" gifts from people whose interests they might affect. In view of this ban, I asked a senior White House official for the defense fund's legal rationale.

"We have no written opinions," he said, in a remarkable admission. Nothing from Justice's crack Office of Legal Counsel. Zip from White House Counsel Lloyd Cutler. "We have had consultations with some of the Office of Government Ethics people," this source said.

Stephen Potts, the Bush appointee who runs the ethics shop, confirms he wrote no legal opinion either and advised the White House only "in general terms." Mr. Potts nonetheless says he thinks the president and veep are exempt from this gift ban. But his judgment is based on a regulatory exception (5 C.F.R. 2635.201-204) that applies only to "considerations relating to the conduct of their offices, including those of protocol and etiquette." In other words, to Christmas turkeys, or Chinese vases and the like received from official visitors.

I doubt Congress meant this loophole to include $1,000 checks bundled together by trial lawyers. Yet the normally zealous Mr. Potts is suddenly a soft touch: "The rationale is that as long as it's made public, if the president receives gifts that are inappropriate, unlike a career civil servant he could be voted out of office." However consoling, that's still a legal leap. A.B. Culvahouse, White House counsel under Ronald Reagan, is more skeptical: "I'm surprised they could get comfortable with it."

All of this goes beyond law to the power and conduct of the presidency. By so blithely ignoring the law, the Clinton White House has again shown how easily it will cut ethical corners. And by begging for money, it undermines the president's credibility and demeans his office.

Which is why someone else should try to restore presidential dignity. First someone could sue to test the legality of the defense fund. Meanwhile, Bob Dole could take the high ground by introducing a bipartisan bill to pay Mr. Clinton's legal fees out of public funds while he's in office.

In return, a grateful Mr. Clinton could agree to advocate the English Rule that plaintiffs (such as Paula Corbin Jones) who lose lawsuits must pay the legal costs of the winner. Trial lawyer Ronald Olson might object, but Americans would be grateful their president is no longer panhandler-in-chief.

LEXINGTON, Mass. -- Raytheon Co. won a contract to sell Taiwan a version of its Patriot missile, a boost to the defense company valued by analysts at about $600 million.

Raytheon, amid a major restructuring and layoffs, recently lost an important competition to provide missiles to the U.S. Army. But the company has continued to be successful in the overseas marketing of Patriot, which gained attention in the Persian Gulf War for its antimissile role.

Peter L. Aseritis, an analyst at CS First Boston, estimated that it was worth about $600 million for Lexington-based Raytheon over the next three or four years.

The company recently suffered a setback when the Army chose Loral Corp.'s Erint missile instead of the Patriot for the nation's next-generation antimissile defense system. Raytheon will continue to make the launchers.

Under the Taiwanese contract, Raytheon will provide fire units, missiles, and related hardware. Equipment deliveries are scheduled to begin in September 1996.

Germany, the Netherlands, Israel, Japan, Saudi Arabia and Kuwait have also bought Patriot, which has generated $2.4 billion in foreign orders since the Persian Gulf War. Raytheon has about $9.2 billion in annual sales.

In composite New York Stock Exchange Trading, Raytheon's stock closed at $64.75, up 37.5 cents.

New York -- Fifty years from now, Paul Rudnick's comedies will probably be a staple of suburban little-theater companies. Like the drawing-room comedies of yesteryear, his plays, with their mordant wit and sharp social satires, usually make for great good fun. Once in a while there's a stab at a moral message, but it's rarely strident enough to interfere much with the laughs.

A couple of seasons back, "I Hate Hamlet" -- about a soap-opera star whose apartment is haunted by the ghost of John Barrymore -- was a hit on Broadway. It was a hilarious show, albeit helped along by the publicity stunts of actor Nicol Williamson, who occasionally enlivened his performance with an onstage tantrum. Last year, "Jeffrey" -- the equally funny (though morally troubled) tale of a gay man who swears he'll give up sex -- took off-Broadway by storm and is about to be made into a movie. Outside New York, Mr. Rudnick's loony sensibility has reached broader audiences via his screenplay for "Addams Family Values."

And so it is with some disappointment that I must report that Mr. Rudnick's latest effort is a bust. "The Naked Truth" (WPA Theatre) is so hackneyed and so politically correct that it makes me suspect that the playwright has been spending too much time in Hollywood.

The plot of "The Naked Truth" revolves around Nan, a society matron and senator's wife who is on the board of an art museum that is showing the avant-garde work of Alex, a homosexual photographer. Nan thinks Alex's photos of male genitalia are pornographic and tries to get him to withdraw them from the show; Alex cries censorship. He then proceeds to liberate Nan, getting her to practice saying four-letter words and take off her Chanel suit to pose for his camera. Get it? The play's title is "The Naked Truth." In the end, Nan and Alex team up to expose the hypocrisy of her husband, a Republican of course.

Along the way we meet Mr. Rudnick's typical array of outrageous characters, and it is here that the comedy works best, though even then it is all too often strained. There's Alex's assistant, Cassandra -- a black lesbian ex-con who gets violent when she hears rich white women speak bad French. This causes her to attack Nan whenever she drops a phrase such as tete-a-tete or creme de la creme. This is the kind of gag that's kind of amusing the first time around, but doesn't deserve to be repeated.

Then there's a dumpy suburban couple in leather who are into sadomasochism. ("Ten years of wedded bliss and the scars to prove it.") Alex is photographing them when Nan arrives at his studio; as they put away their whips and chains they chatter about their son's Little League game. In the second act, the able actor and actress who play the sadomasochists, Peter Bartlett and Cynthia Darlow, turn up as an antiporn priest and a disabled nun whose handicap is that she can't stop talking about sex. This gag, too, wears thin after the first torrent of obscenities.

Best of all is Nan's daughter, Sissy, a minature version of the unliberated Nan -- big blond hair, Chanel bag and all. Sissy doesn't see anything pornographic about Alex's photos since she thinks they are of trees. Sissy falls for Cassandra, who in Act II is dressed as a security guard: "Look at us. Black and white. Boots and a ballgown. It can work."

Sissy is played to ditsy perfection by J. Smith Cameron, who affects a splendid boarding-school drawl and elitist manner. As the preliberated Nan, Mary Beth Peil looks like Sen. Kay Bailey Hutchison. Clutching her Chanel bag, she manages to give a fair impression of an uptight matron, but she doesn't milk the role for what it's worth; she doesn't hold a candle to Margaret Dumont, the movie actress who played the society grande dame and grand foil to the Marx Brothers.

Everyone else in the cast does a serviceable job. The pace of the show is appropriately frenetic; it was directed by Christopher Ashley, who teamed up with Mr. Rudnick on "Jeffrey" on both stage and screen.

The theater could use more funny playwrights. Mr. Rudnick has proved before that he has a funnybone; too bad he misplaced it this time around.

Believe it or not -- and it's hard to believe it given his most recent shows -- Stephen Sondheim has a funny bone in him somewhere. "Passion," his current Tony-winning Broadway musical, is about a doomed trio of lovers. Before "Passion," presidential murderers frolicked in "Assassins." Neither effort was a barrel of laughs; audiences were less likely to chuckle than to moan and stampede for the door.

A much earlier musical, however, "Merrily We Roll Along," is in fact very amusing in a bittersweet sort of way and with an overlay of Mr. Sondheim's trademark cynicism. It's the backward-in-time story of three friends who grow apart as they grow more and more successful. As the years tick by and the characters become younger, they and the show also become more lighthearted.

"Merrily" has a not-so-merry history. It was a flop on Broadway in 1981, folding after only 16 performances. In the rewritten and expanded version done by Susan Schulman for the York Theatre Company, however, the show emerges as utterly delightful. George Furth, the original writer, beefed up the book, and Mr. Sondheim added three songs. The York Theatre Company has a strong history of successful Sondheim revivals; "Merrily" is its eighth. Sad to say, the production itself leaves much to be desired: The cast is lackluster with generally weak voices, the set is ungainly, and the choreography is plodding. But even with all these deficiencies, the show sparkles. It makes for a merry evening.

When I was in college, I had occasion to order a volume of the "Patrologia Graeca" through interlibrary loan. I knew virtually nothing about this fabled effort of 19th-century French scholarship to publish the works of all the Greek and (in the "Patrologia Latina") Latin church fathers. But I was mightily impressed when, a few weeks later, the tome I had ordered arrived and the writings of Pseudo-Dionysius lay spread out neatly before me in all their formidable obscurity.

The editor of the "Patrologia" was someone named Migne. A pious scholar of the old school, I conjectured: a shy, otherworldly soul, devoted wholly to his manuscripts. How wrong I was.

As R. Howard Bloch shows in "God's Plagiarist" (University of Chicago Press, 162 pages, $24.95), a highly amusing inquiry into the career of the abbot Jacques-Paul Migne, this tireless impresario for the church was the opposite of shy. Otherworldly? Ha! The subtitle of Mr. Bloch's book -- "Being an Account of the Fabulous Industry and Irregular Commerce of the Abbe Migne" -- is more like it.

In some ways, Migne was a character right out of Balzac's "Lost Illusions," that panoramic expose of the febrile world of 19th-century Parisian journalism. Coincidentally, Balzac's novel appeared in 1837, one year before Migne embarked on his own publishing endeavors. Mr. Bloch, who teaches French literature at the University of California at Berkeley, does not really like coincidences; he prefers to draw portentous connections among Migne, Balzac and the imperatives of history. He sometimes overdoes it, just as he occasionally slips into the paralyzing argot of trendy lit-critspeak.

But Migne's extraordinary story can survive a lot. And there undoubtedly was something Balzacian about this scheming, abstemious, work-obsessed cleric who started out as a journalist, buying and selling no fewer than 10 newspapers in the course of a decade.

And then he conceived his magnum opus, the "Bibliotheque Universelle du Clerge," the "Universal Library of the Clergy." With very little capital Migne brought it into being. The hundreds of volumes that make up the "Patrologia" were only a part of Migne's stupendous plan to publish a cheap, uniform edition of church writings. He published some 400 other volumes -- homilies, encyclopedias, histories -- before the first page of the "Patrologia Latina" rolled off the press in 1844.

One contemporary called Migne's venture "the greatest publishing enterprise since the invention of printing." Migne himself was inclined to agree. Indeed, he may well have penned the comment. This "Napoleon of the prospectus," as one friend called him, clearly wrote many of the thousands of testimonials that flowed in about his publishing house and that helped him convince scholars and ambitious clergymen to buy his books.

Mr. Bloch estimates that Migne published a book every 10 days for 30 years. The abbot claimed to have had less than one hour of leisure a year. It was through "sheer force of character," he thought, that he would "render to the Church the greatest service that has ever been rendered."

Accordingly, his firm, the Ateliers Catholiques, was not merely a publishing house. It was "an autonomous universe dedicated to the book." Under its roof were printers, binders, smoothers, smelters, copy editors and accountants, as well as Migne's own apartment, a bookstore, curio shop and warehouse. By 1854, Migne employed nearly 600 people.

How reliable was his work? It varied. Even today, Migne's editions of some authors are the standard scholarly editions. But as Mr. Bloch points out, Migne sometimes simply reprinted other editions. Those masters of literary gossip, the Goncourt brothers, called him "a brewer of Catholic books."

Or bootlegger. Migne may once have described property rights as "the most sacred thing in the world after religion." Yet Mr. Bloch notes that "a good proportion" of the "Patrologia" was simply "pirated." Not paying royalties was magic for the bottom line: When Migne died the Ateliers was worth millions.

If there is a certain amount of hubris and sharp dealing in Migne's story (Mr. Bloch also goes into his activities selling Masses and providing loans), there is also a tragic denouement. On Feb. 12, 1868, fire broke out in the Ateliers. The last volume of the "Patrologia Graeca" had been set but not printed; the "Patrologia Latina" lacked only a few sheets of the index. Almost everything was lost.

There was some suspicion that the fire had been set by a disgruntled employee: Migne paid very low wages and was a severe taskmaster. He finally did manage to publish the missing volumes. But the end was near. He soon lost his sight and died in 1875. Writing to the man he hired to oversee the "Patrologia," Migne admitted that he might need to count on him in his old age or even "while serving in Purgatory" -- if, "all things being equal," the "Patrologia" "does not cause me to go directly to heaven." Perhaps it did.

In reaction to Robert J. Barro's June 3 editorial-page commentary "Send Regulations Up in Smoke":

Unfortunately, Mr. Barro has overlooked the many Americans who suffer from asthma and other chronic breathing disorders and whose health is adversely affected by environmental tobacco smoke (ETS). In Dallas County alone there are an estimated 49,000 adults and 28,000 children who suffer from asthma. One of the major conclusions of the EPA report, which is somehow never mentioned in the press, is that ETS is "causally associated with additional episodes and increased severity of asthma in children who already have the disease." It is interesting to note that no one, not even the tobacco industry, has disputed the fact that exposure to ETS can seriously and immediately affect the respiratory systems of people who have chronic respiratory diseases.

As for me, I have cystic fibrosis, a lethal and degenerative disease that most often deteriorates the lungs of its victims until they die of respiratory failure. I would be considered disabled under the Americans with Disabilities Act. Recently, another woman who has chronic lung disease and I filed a suit in federal district court in Dallas against a public accommodation under Title III of the ADA charging disparate impact discrimination and disparate treatment against a musical entertainment venue whose policy of allowing smoking effectively denies us access to the facility (Emery v. Dream Spirits Inc.). We cannot be exposed to ETS without very serious and perhaps lethal health consequences. Perhaps it would be instructive to Mr. Barro to quote from a 1982 decision from the U.S. Court of Appeals for the District of Columbia: "Congress demonstrated that it perceived discrimination against the handicapped as fundamentally similar to other forms of discrimination -- on the basis of race, sex, national origin, or religious belief. . . ." (Shirey v. Devine).

For years, people who suffer from chronic respiratory diseases have been unwillingly assaulted by ETS in public accommodations and often have stayed at home altogether in order to protect their health. Is it morally justified to preserve the dubious privileges of an ever-dwindling number of individuals who smoke over the right of disabled citizens to breathe smoke-free air inside public accommodations?

MANHASSET, N.Y. -- After a tumultuous fiscal year, Spectrum Information Technologies Inc. reported a widened loss for its fourth quarter.

The wireless-communications company reported a loss of $8.1 million, or 12 cents a share, for the quarter ended March 31, compared with a year-earlier loss of $3.3 million, or five cents a share. Operating expenses rose to $34.1 million from $21.1 million. Revenue increased 40%, to $26.3 million from $18.7 million.

For the fiscal year, which Spectrum described as "difficult," the company reported a loss of $25.5 million, or 36 cents a share, up from a year-earlier loss of $9.9 million, or 16 cents a share. The recent figure included a $6.1 million loss from discontinued operations; it also included a $7 million increase in expenses, relating in part to higher legal costs for patent-infringement cases and to higher employee costs tied in part to the acrimonious departure of its former chairman, John Sculley. Mr. Sculley, a former chairman at Apple Computer Inc., resigned from Spectrum in February.

Spectrum's loss for the year also reflects a $2.7 million charge for staff reductions, and a $4.7 million charge related to a class-action securities lawsuit. Revenue for the year rose 40%, to $91.7 million from $65.3 million.

In Nasdaq Stock Market trading, Spectrum stock closed at $1.625 a share, up 9.375 cents.

Doctors and insurers are conceding that Congress isn't likely to place limits on jury awards in medical-malpractice cases, though such caps had been a centerpiece of their health-care platform.

The concession comes as the major committees debating health reform have become bogged down in such basic concerns as what kinds of benefits to offer and how to pay for them. In the process, malpractice relief has dropped near the bottom of the agenda. And with plaintiffs' lawyers and consumer groups fiercely resisting a cap on damages, there hasn't been sufficient momentum to push the measure through.

"I don't think Congress will do a cap," says Kirk Johnson, general counsel of the American Medical Association. "We've lived and suffered with malpractice liability for so long that I think the feeling is that we could continue to live with it."

The cap sought by physicians and the insurance industry was a $250,000 limit on the damages that juries can award injured patients for pain and suffering. Although the groups also have advocated other forms of malpractice relief, such as shortening the time period in which patients can sue, securing a damage cap has been a primary goal.

For one thing, the issue has symbolic value. Although malpractice costs directly account for only about 1% of total health costs, polls show that much of the public perceives the impact of big jury verdicts as much more significant.

One of the largest jury verdicts last year, for example, was a $72 million award for a New York child, Jonathan Washington, who was born with brain damage after doctors failed to adequately respond to problems with his heartbeat and oxygen levels. The initial award, which the judge later reduced, included $14.8 million for the child's pain and suffering.

In addition, a 1986 study by the Rand Corp. think tank and other research suggest that damage caps benefit doctors by lowering average jury verdicts as much as 23% and curbing insurance premiums. Armed with these arguments, advocates of damage limits have managed to win some important battles. In March, the House Ways and Means Health Subcommittee unexpectedly approved a provision to limit noneconomic damages to no more than $350,000. And last week a group of moderates on the Senate Finance Committee endorsed a $250,000 cap on such damages.

But the opponents of caps appear to be winning the war. The House Judiciary Committee and its chairman, Democratic Rep. Jack Brooks of Texas, a longtime opponent of liability reform, wrested jurisdiction over the malpractice issue from Ways and Means, effectively killing the subcommittee's damage proposal. Rep. Brooks's committee hasn't begun to deliberate, but it isn't expected to back major reforms. The congressman has long been a key ally of the plaintiffs' bar, which adamantly opposes caps partly because they would reduce the jury awards from which lawyers take their cut.

Meanwhile, a bill approved by the Senate Labor and Human Resources Committee has stuck largely with the malpractice reforms proposed in President Clinton's health plan, which includes an array of modest reforms but no cap on damages. The House Education and Labor Committee also has incorporated the President's malpractice plan.

"If you have a cap in the Senate bill and no cap in the House bill," then the final legislation won't include a cap, says Fred Graefe, an insurance-industry lobbyist at the Washington law firm Baker & Hostetler. And the Senate itself is by no means certain to propose a cap in its bill, particularly since the chairman of the Finance Committee, Democratic Sen. Daniel Patrick Moynihan of New York, didn't include such damage limits in the malpractice reforms he proposed this week.

Still, almost all the major bills in both houses include at least some malpractice measures, such as greater use of out-of-court dispute resolution, modest limits on attorneys' fees and periodic rather than lump-sum payments of jury awards. Legislators and congressional staffers expect some combination of these measures to reach President Clinton's desk in any final health-care bill.

Supporters of liability reform say such malpractice provisions, even without caps, would represent a significant victory. "I don't think we should measure victory entirely in terms of a cap," says Republican Rep. Nancy Johnson of Connecticut, a member of the Ways and Means Health Subcommittee who supported a cap.

Mr. Graefe, the insurance lobbyist, compares the situation to the Clinton administration's initial insistence on universal health-care coverage, which may have to be re-evaluated as compromises wend their way through Capitol Hill.

"There are a lot of ways to define universal coverage in order to define a victory, and I think there are many ways to define a victory on medical malpractice," Mr. Graefe says.

An American Bar Association effort to develop new model rules for state regulation of lawyer advertising drew a warning from federal antitrust authorities.

In comments to the ABA Commission on Advertising, the staff of the Federal Trade Commission cautioned against "overly strict restrictions" on the style and content of lawyer ads. The staff added that efforts to encourage more dignified advertising "may prevent the communication of useful, nondeceptive information and thus inhibit competition and consumer choice."

Such views aren't a big surprise but still pose a hurdle for ABA leaders, who have spent the last year trying to find ways to shore up the dreary public image of lawyers. A major thrust has been weighing the possibility of new standards for lawyer ads, which opinion polls have long shown to be a source of public disillusionment with the bar.

The FTC position, along with recent court decisions, "seems to make it more difficult to issue strict regulations," said H. Ritchey Hollenbaugh, a Columbus, Ohio, lawyer and chair of the ABA advertising commission. At the same time, Mr. Hollenbaugh said his panel hopes to develop voluntary programs that will encourage lawyers to "advertise in a way that enhances the image of the profession rather than promote the notion that lawyers are less than dignified."

The commission recently concluded a series of public hearings on the issue and is expected to release preliminary findings in August.

NOTED: People interested in the O.J. Simpson case can now tap into transcripts, attorney profiles, news articles, relevant laws and previous testimony by Mr. Simpson's forensic experts on Lexis/Nexis, an on-line information service that lawyers ordinarily use to look up statutes and case law. The service, provided by Mead Data Central, a division of Mead Corp., Dayton, Ohio, has created something like an electronic tour guide to point out where Simpson-related information exists in the Lexis/Nexis system. Previous navigational systems were created to spotlight information pertaining to the Paula Jones, Tonya Harding and Dan Rostenkowski cases.

Richard B. Schmitt contributed to this article.

MIAMI -- Federal Deposit Insurance Corp. has paid the bankruptcy trustee of Southeast Banking Corp. $152 million to resolve two claims filed against the FDIC.

Southeast Banking, which was the parent company of Miami-based Southeast Bank and Southeast Bank of West Florida, was closed by federal banking regulators in September 1991.

William A. Brandt Jr., the trustee, has alleged in a lawsuit that the FDIC as receiver of the failed banks was indebted to the holding company on a variety of claims, including four separate subordinated capital notes executed at various times between 1984 and 1989.

"From the very beginning of this case back in September 1991, we have been at odds with the FDIC over who owed how much money to whom," said Mark Bloom, one of Mr. Brandt's attorneys. Nine other Southeast claims against the FDIC still remain unresolved, according to Mr. Brandt's attorneys.

FORT WORTH, Texas -- American Airlines said it will expand its Latin American service by flying between Miami and Maracaibo, Venezuela.

The airline, a subsidiary of AMR Corp., said it will also extend service from Rio de Janeiro to Belo Horizonte, Brazil, and from Sao Paulo, Brazil, to Montevideo, Uruguay. The new services will begin Dec. 15.

DETROIT -- General Motors Corp. said it is increasing prices on 1995-model cars and light trucks by an average of 2.5%, or $494 a vehicle, compared with the current prices of 1994 models.

The price increases, while larger than last year's, are smaller than the 4% to 6% boosts that analysts expect for Japanese imports as a result of the strong yen. Thus, GM's strategy appears aimed at both increasing profit and market share.

While GM executives portrayed the increases as moderate, and analysts tended to concur, there's no question that GM is putting through a substantial increase -- much more than the average increase of 1.8% announced for the 1994 models. GM acknowledged that the new 1995 models, including midyear price increases and higher shipping charges, will cost roughly 3.5%, or $700 a vehicle, more than the 1994 models did when they were introduced last October. Some 1995 models are available now, but most will be launched in the fall.

GM also acknowledged that its June vehicle sales were roughly flat with June 1993 sales at about 486,000 units. Final June results aren't scheduled to come out until next week. GM said its deliveries were hurt by tight inventories, reflecting plant closings for changeover to new-model production.

Ford Motor Co. is likely to provide a preliminary indication of its 1995-model prices sometime during July, a spokeswoman said. Chrysler Corp. said it hasn't set a date to announce 1995 prices, and the leading importers haven't discussed their pricing plans yet.

GM said 1995 prices are going up 2.9%, or $539 a unit, on cars, and 2.0%, or $414 a unit, on trucks. The company attributed more than half the increases to costs associated with new safety features, such as airbags, and new pollution controls. GM acknowledged that while part of the rest of the increase offsets other higher costs, it also includes fatter profit margins.

The prices that consumers actually pay are likely to increase more than the average sticker-price increase. That's partly because GM is scaling back on rebates and incentives. For example, GM isn't increasing the $15,470 base price of the Chevrolet Lumina sedan, even though the 1995 version is redesigned and has many new features. But a $500 rebate currently available on 1994 Luminas won't apply on the 1995 model, effectively raising the price to consumers by $500.

On GM's most popular models, prices are going up substantially more than 3.5%. The two-door version of the Chevrolet Cavalier, GM's most popular small car, will sell for $10,060, 13.7% more than the year-earlier $8,970. The 1995 model is redesigned and features a sportier, more-rounded look, a roomier interior and dual airbags. GM said the Cavalier's new price will still enable it to compete head-to-head with Chrysler's similarly priced Neon subcompact. The four-door version of the Cavalier will be priced at $10,265.

GM's price comparisons include some adjustments for changes in standard equipment. If air conditioning becomes standard equipment on a model where previously it had been a $500 option, the $500 price increase is not considered a boost by GM. However, no adjustments are made for changes to the design of a car that are not customer options -- for example, the addition of airbags or a larger base engine.

J. Michael Losh, GM's vice president for North American sales, who was recently named chief financial officer, predicted that Japanese auto makers would raise their prices by about twice as much as GM has, and that their market share will gradually decline in the next few years while GM's grows.

"This is clearly an offensive strategy," said Christopher Cedergren, vice president of AutoPacific Inc., a Santa Ana, Calif., auto-market consulting group. "It will steal those buyers away that are really focused on price and value for the dollar," he said.

"If I were GM, I would have raised prices more," said Ronald A. Glantz, auto analyst for Dean Witter Discover. He argued that because the new models GM will introduce this fall should cost less to build than their predecessors, GM could "improve margins and market share at the same time."

NORWALK, Conn. -- Medical product maker U.S. Surgical Corp. said it completed a $400 million unsecured bank revolving credit line.

The credit facility, to run through Jan. 10, 1997, was set up through a syndicate of 23 banks led by Morgan Guaranty Trust Co.

The company said the new line replaces revolving credit agreements provided by 22 individual banks and scheduled to convert to 2 1/2-year term loans March 31, 1995.

LONDON -- U.K. media company Pearson PLC said it plans to raise its stake in Spanish newspaper Recoletos Cia. Editorial SA to 39% from 27%.

Pearson plans to pay 3.7 billion pesetas ($28.4 million) for the additional 12% stake in the privately owned group. Pearson said it will buy the additional stake from 41 of the company's 130 shareholders, subject to their waiver of certain pre-emption rights on the purchase.

Pearson officials couldn't be reached for comment on whether additional share purchases are expected.

Recoletos reported pretax profits after extraordinary items of 3.9 billion pesetas in 1993. Pearson first acquired an interest in the group in 1988 and lifted its stake to 27% in 1991.

JERUSALEM -- For weeks after parts of the occupied territories were granted self-rule, Israelis and Palestinians tried to guess when Palestine Liberation Organization Chairman Yasser Arafat would visit the Gaza Strip and the West Bank city of Jericho.

But when Mr. Arafat suddenly announced that he would visit the autonomous areas today, many immediately started asking: Why now?

PLO activists had urged Mr. Arafat to delay his arrival until all Palestinians in Israeli jails are freed. His economic advisers told him to wait until more money pledged by Western donors comes in. The public-relations experts said it made more sense to schedule a visit after the World Cup soccer tournament ends in mid-July.

But local Palestinians, who like everyone else only learned a few days ago about Mr. Arafat's plans, say the visit is long overdue. The initial enthusiasm generated by the withdrawal of Israeli troops from Gaza and Jericho last month has worn off as Palestinians return to the routine of daily life.

Mr. Arafat years ago declared a state of Palestine, with himself as president. But his centralized management style has prevented a smooth transition from revolutionary movement to functioning national government. Too many decisions still need Mr. Arafat's personal approval, say local Palestinian leaders, and the chain of command is unclear.

"We have been living in frozen time," says Mohamed Yazigi, chairman of the Gaza Union of Industrialists. "President Arafat knows our problems through the phone and he knows our problems through the fax, but now he needs to see our problems for himself."

Barring any last-minute changes, Mr. Arafat will fly from PLO headquarters in Tunis to Egypt and then be driven 40 miles to the border crossing at Rafah, entering Gaza this afternoon. Some 3,000 Palestinian policemen have been assigned to protect him during what is expected to be a three-day visit. Mr. Arafat's aides say he plans to pray in the main mosque in Gaza, march in parades in Gaza and Jericho, and lead the first meeting of the new Palestinian government. He doesn't intend to visit Jerusalem, but the Israeli right wing has vowed to form a human wall in Jerusalem's Old City to discourage any sudden change of heart.

Leaves have been canceled for the entire Israeli police force in expectation of demonstrations by Israelis opposed to Mr. Arafat's visit. "Most Israelis are paying more attention to the World Cup soccer games than Arafat's visit. They're used to Arafat already," says Ofer Bronchstein, general manager of the International Center for Peace in Tel Aviv.

Yet beneath the general indifference toward Mr. Arafat's visit runs a strong current of anger among some groups. Leaders of the Jewish settlement movement in the West Bank and Gaza, who view the Palestinian leader as a terrorist, have offered a reward for Mr. Arafat's capture for trial on murder charges, and others in Israel have called for his assassination during the visit.

Menachem Klein, a specialist in the PLO at the Begin-Sadat Center for Strategic Studies at Bar-Ilan University, says Mr. Arafat's visit will focus largely on the ceremonial rather than the practical. "This is an opportunity to mobilize people's emotions, generate enthusiasm, and buy some more time for the Palestinian National Authority. He is going to give them symbolic satisfaction because he can't offer the economic kind yet," says Dr. Klein.

Such a strategy carries with it enormous political risk. Mr. Yazigi, the Gaza businessman, echoing the sentiments of many Palestinians in Gaza and Jericho, says symbols are no longer enough. "The National Authority's departments have all been idle, because the officials there say they have no authority to decide anything," he says. "We are living in a mess. We are counting on President Arafat to come and put things in place."

LONDON -- Foreign stocks are going to soar again, global investors predict confidently, but you have time for a summerlong vacation first.

Money managers warn that it could be a couple of months before the sinking dollar stabilizes, global bond markets shake their jitters, and many overseas companies report fatter second-half profits. "The selloff that's ravaged most European stock markets this year is far too overdone; markets have to come back," contends Karl Hancock, a European equity strategist at NatWest Securities Ltd. in London. Nonetheless, he cautions: "There's nothing that can bring stock prices back overnight; we've got to get through the summer."

A.C. Moore, a senior vice president at Argus Investment Management in Santa Barbara, Calif., agrees. "I'm in no hurry to make some longer-term investments."

Meanwhile, most international investors will spend the next few days tallying up their first half losses. Of the 25 countries in the Dow Jones World Stock Index, only three -- Japan, Italy and Finland -- posted gains in the past six months. Seventeen countries lost from 3% to 15%, and five got clobbered. The Hong Kong stock market plummeted 26% in first half. It was followed by Thailand, which was down 23%; Indonesia and Malaysia, each of which was off 22%, and Singapore, which fell 15%.

Second-quarter declines in most European stock markets roughly matched those of the first three months. Some smaller Asian markets rose in the second quarter, but not enough to offset horrendous first-quarter losses.

For many U.S. investors, the brightest part of investing abroad was the sinking dollar. It converted a 15% rise in Japanese shares to a 31% gain, boosted the Italian stock market's 13% increase in lire to 22% in dollars, and pushed tiny Finland up to a 17% advance for U.S. investors from 7% for Finns. The weakening dollar also turned losses in Danish, Swedish, Belgian, Norwegian, Austrian and Swiss shares into small gains, with the Swiss stock market eking out a 0.6% rise from a 9% loss in local currency terms.

Still, "the third quarter will be one of very much licking your wounds," says Mayri Voute, managing director of Capital Management International (France) in Paris.

Nearly everyone began 1994 believing in a stronger dollar, falling interest rates in Europe and continued soaring markets in Southeast Asia. Many regarded Japan -- a country mired in recession with three consecutive years of declining corporate profits -- as the world's deadbeat.

Six months later, the dollar is tumbling to record lows against the yen and falling against most other major currencies; higher European interest rates have buffeted Europe's stock and bond markets; and Asia's highflying smaller stock markets have hit the ground with a thud. What's more, Japan is the best-performing stock market in the Dow Jones index.

"A lot of people rolled over losing positions into the second quarter, which is a polite way of saying they first took a loss, and then took new positions still believing in what they thought would happen in the first quarter," says Ms. Voute. "When it became clear they were wrong, they began unwinding positions." For many money managers and hedge funds, it meant dumping stocks.

That "is why stocks world-wide were sold indiscriminately," says Ms. Voute. "Who cares about fundamentals when people are just looking for cash?"

Some fund managers are playing it safe now. Wolfhard Graetz, chief investment officer at Bank J. Vontobel & Co. in Zurich, has roughly 15% to 20% of balanced portfolios he runs for conservative clients in cash. He also prefers bonds to stocks. "European interest rates have moved much higher than fundamentals justify: Inflation is low, and the economic recovery in continental Europe is just starting."

His stock picks reflect his faith in falling interest rates, namely financial companies. He owns the big Swiss banks, Germany's Deutsche Bank AG, and insurance stocks such as Allianz AG Holding, Group Axa SA and Zurich Insurance Co.

Long term, Mr. Graetz is playing the corporate restructuring and infrastructure themes. "I like Alcatel Alsthom Compagnie Generale d'Electricite, which has lost about 30% this year," he says of the French telecommunications, transportation and power-generation company. He also owns German electronics giant Siemens AG. Resource stocks he favors include Australia's Broken Hill Proprietary Co., Phelps Dodge Corp. and French oil giant Societe Nationale Elf Aquitaine, which, he says, is very cheap relative to its peers.

Of course, European shares could benefit from the anticipated decline in bond yields. But noting the improved prospects for European growth, and central banks' reluctance to cut interest rates quickly, Mr. Moore of Argus Investment says stock markets are experiencing a typical pause during which they shift from being interest-rate-driven to earnings-driven.

After selling his German equity portfolio last fall, he is now buying again. Like Mr. Graetz, he is high on Siemens and Deutsche Bank. "Germany is the powerhouse of Europe," says Mr. Moore. He adds that the large investments German corporations have made in Eastern Europe have afforded them access to educated, well-trained, low-cost labor that makes them more formidable competitors.

Capital Management's Ms. Voute also likes Germany and the Scandinavian markets, which were beat up less than Europe's bigger ones in the first half, because foreigners owned relatively few Finnish, Swedish, Norwegian and Danish shares. Her Scandinavian portfolio includes Finnish paper and engineering company Valmet Corp.; Norway's Industriskipsbank, which specializes in shipping finance; and Sweden's Arjo AB, which makes medical lifting equipment.

She and Mr. Moore are both wary about owning French shares. "I remain unconvinced about the longer-term French will to tame inflation," says Mr. Moore.

Anthony Cragg, an international investment manager at Strong/Corneliuson Capital Management Inc. in Menomonee Falls, Wis., advises that investors in European stocks be very selective. "We are skeptical that some of the strong recovery stories will" materialize quickly.

Despite the beating many investors suffered in Asia's smaller stock markets this year, money mangers are beginning to crawl back into them. "With these markets having come down from their highs -- over 30% in some cases -- valuations are modest; growth will probably average about 7% in the area; and earnings will grow in the high teens, and can be sustained there," contends Henry Frantzen, chief international equity officer at Brown Brothers Harriman & Co. in New York.

He is especially high on Hong Kong, Singapore, Malaysia and Indonesia. He owns stock in Hong Kong property developer and hotel manager New World Development Co. and Singtao Holdings Ltd., a Chinese newspaper. In Indonesia, he owns cable companies Voksel Electric and PT Supreme Cable Manufacturing Corp., which should benefit from the country's plan to electrify rural areas. Malaysian picks include gaming company Berjaya Sports Toto Bhd. and Malayan Banking Bhd. "With economic growth in the region being 7%, it's almost like a big wave," says Mr. Frantzen. "You can get in front of it and ride it." Moreover, he says Asian economies should be major beneficiaries of renewed economic growth in continental Europe and Japan.

Argus's Mr. Moore recommends Mexico, where he conservatively estimates growth will average 3% to 4% a year for the next three to five years. Unlike some investors who have been spooked by political turmoil in Mexico, he sees "a relatively benign political structure" in that country. Stocks he holds include telephone company Telefonos de Mexico SA and broadcaster Grupo Televisa SA.

To many money managers, the Japanese stock market offers an abundance of riches: The country is emerging from recession, companies are restructuring, and the market is shaking off a very long bear phase. Some managers also regard Japanese shares as a good defensive play with limited downside risk. That's especially true if investors want to remain exposed to the Pacific Rim region but still don't trust the area's smaller, volatile stock markets.

Mr. Graetz owns big export-driven companies such as Toshiba Corp., Sony Corp. and Hitachi Ltd. Because they manufacturer around the world, they are somewhat shielded from the full impact of a strong yen. But if the yen begins to fall, they will benefit.

Mr. Cragg of Strong Funds is also high on Tokyo. About 25% of the international fund he manages is invested in Japanese shares, up from 10% last year. His portfolio includes tire maker Bridgestone Corp. -- a play on the global recovery in the automobile market -- and Nomura Securities Co., which should benefit from rising stock-trading volume. He also likes waste-management company Comson Corp.

"Even Japan bashers have to acknowledge we've seen the worst in the property market, the financial system and the stock market itself," says Mr. Cragg. "But there's also the restructuring story. Just a small percentage of sales volume increase will translate into big bottom-line gains."

Bally Entertainment Corp. is seeking federal antitrust clearance to acquire a major stake in gambling rival Circus Circus Enterprises Inc., even as Circus's chairman is coming under pressure to depart, people familiar with the situation say.

Bally has filed an application with the Federal Trade Commission under the Hart-Scott-Rodino Act for permission to acquire up to a 25% stake in Circus, people familiar with the filing say. A top Circus executive said the company has been informed of the Bally filing but hasn't seen an actual copy of the document; such filings aren't always made public.

Last week, Circus Chairman William G. Bennett confirmed a report in The Wall Street Journal that the company had received informal expressions of interest from two companies concerning a business combination with Circus, but said that no formal discussions had been held. In recent weeks, Circus has been the target of Wall Street speculation regarding some sort of management change, proxy fight or friendly acquisition, based on its lagging stock price, history of management upheaval and recent uneven earnings.

Meanwhile, in the wake of Circus's contentious annual meeting last week, the Las Vegas company's board discussed Mr. Bennett's withdrawal from the company that he co-founded with board member William Pennington. Tony Coelho, managing director of Wertheim Schroder & Co. and a Circus board member, said the board discussed a "phaseout" of Mr. Bennett's activities at Circus, and said the board is "proceeding in that process." Mr. Bennett, 69 years old, didn't return telephone calls seeking comment.

It's unclear how much Circus stock Bally Entertainment, formerly Bally Manufacturing Corp., currently owns. In a brief telephone conversation yesterday, Bally Chairman Arthur M. Goldberg declined to comment.

Bally, a major casino operator based in Chicago, is said to be interested in some sort of friendly transaction with Circus. Some Wall Street analysts view Circus as undervalued at its current stock price given its history as a growth company and its formidable position in the low-budget, high-profit end of the casino business.

Mr. Goldberg is no stranger to corporate takeovers. In 1990, the New Jersey businessman won control of Bally after scooping up a 5.4% stake in the then-troubled gambling, manufacturing and healthclub company and ousting most of the old management. Since then, the company has sold its manufacturing operations, reorganized its Las Vegas operations, and is in the process of spinning off its chain of health clubs.

However, Bally would likely need additional financial backing to pursue most possible transactions with Circus. At its current market price, a 10% stake in Circus would cost nearly $190 million, based on Circus's 86 million common shares outstanding and closing price of $21.50, up 25 cents, in composite New York Stock Exchange trading.

Recent Wall Street speculation has focused on parties that may have some interest in combining with Circus, either through an acquisition, merger, sale or proxy fight. Major institutional investors have floated names including Bally, Hollywood Park Inc., Caesars World Inc., the Pritzker family of Chicago and ITT Corp.'s Sheraton chain. The Pritzkers have said they're not interested, and ITT declined to comment, although such a move would be unlikely given Sheraton's plans to build a $750 million hotel-casino in Las Vegas and its focus on upscale destination resorts. Other companies mentioned also declined comment.

Circus's future direction depends largely on whether Mr. Bennett, who holds a 7.8% stake in Circus, agrees to retire or insists on retaining a major operating role at the company. He relinquished the chief executive's title to Circus President Clyde Turner earlier this year and is not listed as an operating officer in the company's annual report. But Mr. Bennett has said in an interview and at the annual meeting that he remains in charge.

Management succession has been one of Wall Street's biggest concerns about Circus; several heirs apparent and senior executives of Circus have been dismissed or resigned within the last three years.

CHICAGO -- United Airlines and parent UAL Corp. took a vital step toward completing a proposed employee buyout by issuing $1.15 billion in bonds and preferred stock, but the offerings raised less than the $1.5 billion Wall Street had expected.

While the amount fell below estimates, it still represents a crucial step in UAL's bid to persuade shareholders to approve the buyout plan at the company's annual meeting July 12. UAL recently renegotiated the terms of the buyout agreement, offering to give shareholders the proceeds from the offering rather than the securities themselves.

"It's a positive move," said Ray Neidl, an analyst with Furman Selz Inc. "Without it, stockholders would have had less incentive to vote for the deal."

With interest rates rising, investors in UAL stock had grown increasingly fearful that the securities they would have gotten would trade for less than they hoped. UAL's stock plummeted this year from its pre-deal high of around $155, although it has rebounded somewhat recently. In New York Stock Exchange composite trading yesterday, UAL's stock closed at $127 a share, down 25 cents.

Yesterday's offering priced $410.4 million of cumulative preferred stock at $25 each, and priced a split-rated debt offering valued at an additional $741.2 million. The proceeds will be used to make payments of $84.81 a share to current UAL shareholders for the 55% of the company that employees are proposing to buy-a price that is on the low end of what analysts were expecting. In addition, holders will receive one-half of a new share of UAL common.

Some analysts questioned United's ability to back up the bonds, especially since summer airline traffic normally brings lower yields. Dean Sparkman, an airline consultant in Roslyn, Va., said, "The deal's a go. But it's taking on the classic smell of a leveraged buyout. And as a guide, LBO's have not historically been successful in the airline business."

Moreover, UAL said yesterday it would use $300 million of cash reserves to compensate for the shortfall off proceeds from the offerings.

However, according to the company's prospectus for the transaction, cash churned out by UAL will increase $550 million a year on average between now and 1999. "Because of the cash savings, they are going to be able to strengthen the balance sheet in pretty short order," said Mr. Neidl. United currently has more than $1 billion in cash and another $1 billion in short-term investments.

United sold $370.2 million of 10-year notes at par to yield 10.67%. United's $371 million offering of 20-year debentures was priced at par to yield 11.21%.

The company launched a $765 million preferred stock offering at a 12% dividend yield last week, but cut the size of the offering yesterday by $355 million at pricing and increased the dividend to 12.25%. The 16.4 million shares were priced at $25 each, according to the lead manager, Merrill Lynch & Co.

WASHINGTON -- The Supreme Court handed proponents of minority-dominated voting districts a pair of defeats in cases from Florida and Georgia.

But there was a silver lining for these liberal activists in yesterday's high court interpretations of the Voting Rights Act. In the Florida case, six justices appeared to take a step back from a surprising decision last year in which the court cast doubt on the constitutionality of drawing district lines to benefit members of one race over another.

Another striking aspect of the decisions was a lengthy dissent in which Justice Clarence Thomas urged a dramatic withdrawal of the federal judiciary from disputes over voting rights. Joined only by Justice Antonin Scalia, he said that in "a disastrous misadventure in judicial policy making," the high court has encouraged the segregation of voters into "racially designated districts to ensure minority electoral success."

Yesterday's rulings concerned Section 2 of the Voting Rights Act, which outlaws rules and practices that cause minorities to have "less opportunity than other members of the electorate to participate in the political process and to elect representatives of their choice." After the 1990 census, lawmakers in many states invoked the section to redraw district lines to give minority voters greater political muscle; as a result, minorites were elected in record numbers to federal and state offices in 1992.

The Florida case raised the question of whether lawmakers have to "maximize" minority voting strength by creating as many minority-dominated districts as possible. The high court said that isn't required.

Republican Cuban-Americans in Florida had gone to court to challenge a 1992 redistricting plan by the Democrat-controlled state Legislature. The Cuban-Americans complained that the state plan for the Dade County area in south Florida failed to create as many Hispanic-dominated districts as theoretically possible for the state House and Senate. Democratic blacks also sued, saying they were shortchanged in the drawing of Senate districts.

Writing for the majority, Justice David Souter said a lower federal court had erred when it ruled that Section 2 essentially requires maximization of minority-dominated districts. Instead, Justice Souter stressed that lower courts should focus on whether there is rough proportionality between minority-dominated districts and minority voting-age population.

The state's plan reflected this type of proportionality, giving Cuban-Americans effective control of nine out of 20 Dade County-area House seats and three out of seven Senate seats, while creating one additional Senate district controlled by black voters. Justice Souter concluded there wasn't evidence of minority-vote "dilution," as the minority groups had alleged.

He urged lower courts to take a flexible approach in assessing whether states have created sufficient minority-dominated districts. In this regard, he added that a state's achieving the goal of proportionality doesn't necessarily mean it has met all the requirements of the Voting Rights Act.

The Souter opinion was notable for what it didn't say. It didn't reiterate the court's strong suggestion in a 5-4 ruling last June that strangely shaped districts drawn to boost minority electoral strength might be unconstitutional. This apparent step back from last year's ruling was all the more remarkable because it was joined by the author of the 1993 decision, Justice Sandra Day O'Connor, and by Chief Justice William Rehnquist, who was allied with her last year.

Also joining the Souter opinion yesterday were Justices Harry Blackmun, John Paul Stevens and Ruth Bader Ginsburg. Justice Anthony Kennedy concurred in the result but not the reasoning. (Johnson vs. De Grandy).

In the Georgia case, a different five-justice majority said minority voters couldn't use Section 2 to attack the size of a government body, even when minorities have no realistic chance of putting a member of their group in office. The decision rejected a challenge by blacks to a rural county's unusual consolidation of all legislative and executive power in a single commissioner.

A federal appeals court in Atlanta had said the single-commissioner system unlawfully diluted the voting rights of blacks, who comprise about one-fifth of Bleckley County's population of 10,400. The appeals court ordered a trial judge to consider imposing a five-member board of commissioners, with one district drawn to elect a black official.

But the high court reversed that order, concluding that the county wasn't under an obligation to change the size of its governing commission. Writing the court's main opinion, Justice Kennedy emphasized there was no "reasonable" way to choose an alternative to the single-commissioner arrangement. The case was returned to the appeals court for further consideration of whether black voters could prove intentional discrimination, which would be a constitutional violation.

Chief Justice Rehnquist and Justice O'Connor joined all or most of the Kennedy opinion. Justices Thomas and Scalia agreed with the outcome despite their dissent.

Justice Blackmun, joined by Justice Stevens, Souter and Ginsburg, would have allowed the statutory claim against the one-commissioner structure. Justice Blackmun said a five-commissioner arrangement would be "an objectively reasonable alternative." (Holder vs. Hall).

We're weary, we've had it. You know it.

Of PR is Shinkle the poet.

Silicon Graphics Inc. said a San Francisco federal district judge terminated a shareholder lawsuit alleging securities fraud by Mips Computer Systems, which was acquired in 1992 by Silicon Graphics, based in Mountain View, Calif.

The judge issued a summary judgment in favor of the defendants on an action filed in March 1992 that focused on when revenue from licensing transactions should be recognized. Evidence presented by plaintiffs represented by the San Diego law firm of Milberg, Weiss, Bershad, Hynes & Lerach was inconclusive, the judge ruled.

The ruling is subject to appeal.

PARIS -- The volume of French banks' bad loans rose 16%, and provisions for asset depreciation swelled 34% in 1993, according to the French Banking Commission's annual report.

The report said that resulted in bad loans being covered by provisions at the rate of 48% in 1993, up from 45% in 1992.

The high provision rate and a dearth of exceptional profits led to a 53% drop in net profits for the French banking system, after a 48% drop in 1992, the report showed. The report said that the ratio of bad debt to equity rose to 34.8% in 1993 from 34.6% in 1992.

The commission, whose job is to monitor and regulate the French banking system, said that the bad real-estate loans that hurt the profits of French banks and insurance companies last year and the year before were "largely covered from the second half of 1992 and in 1993."

The report showed that the volume of loans shrank 1.8% in 1993, after a 3.7% rise in 1992, while deposits grew 4.3%, little changed from the 1992 rise of 4.4%.

The commission, one of the entities charged with surveillance of Credit Lyonnais, defended its role in addressing the state-controlled bank's losses, saying that it had investigated the main operations of the bank and various units from late 1991.

The financial state of the bank "allowed it to face its difficulties on its own till the end of the 1992 account," the commission said. But from then on, as the economic situation deteriorated, the commission deemed "the support of the shareholders became necessary."

Credit Lyonnais was able to limit its losses to seven billion francs ($1.29 billion) in 1993, but only with the help of a state bailout that lifted 40 billion francs of bad real-estate debt off its books. A parliamentary investigation is looking into the debacle. How such mismanagement could have occurred under the eyes of numerous state administrators is still an unanswered question.

HONG KONG -- AT&T Corp. said it has chosen Hong Kong Telecommunications Ltd.'s Hong Kong Telecom CSL as distributor for its business communications products in Hong Kong.

Hong Kong Telecom CSL will handle AT&T's Definity digital PABX systems, which are able to work with any public network in the world, AT&T said.

The system also offers advanced communications features to businesses with as few as 20 or as many as 25,000 telephones, the company said.

Hong Kong Telecom, which offers a variety of telecommunications products and services, already distributes many AT&T products, including Spirit and Partner keyline systems.

SAN ANTONIO, Texas -- Diamond Shamrock Inc. expects to report that second-quarter net income surged to a range of 80 cents to 90 cents a share because of the positive impact rising crude oil prices have on its inventories.

In an interview, Roger Hemminghaus, chairman and chief executive officer, said that Diamond's "underlying earnings," which are more representative of operations because they eliminate inventory swings, will be between 40 cents and 50 cents a share, in line with Wall Street estimates.

In the 1993 second quarter, the company, a regional petroleum refiner and marketer, had net income of $15.8 million, or 54 cents a share, on revenue of $656.9 million. Underlying earnings were around 55 cents a share, Mr. Hemminghaus said.

The rise in crude oil prices by several dollars a barrel this quarter has affected Diamond both positively and negatively. The rise has boosted the value of Diamond's petroleum inventories, which adds to net income. But the price rise squeezed Diamond's refining and marketing margins in late May and early June, Mr. Hemminghaus said. That's because the company couldn't immediately pass along the crude-price rise to its wholesale and retail customers.

But wholesale and retail prices for petroleum products have begun to rise, Mr. Hemminghaus said. He added that he is optimistic margins will widen.

NEW YORK -- Program trading for the week ended June 24 accounted for 9.6%, or an average 24.7 million daily shares, of New York Stock Exchange volume.

Brokerage firms executed an additional 15.8 million daily shares of program trading away from the Big Board, mostly on foreign markets. Program trading is the simultaneous purchase or sale of at least 15 different stocks with a total value of $1 million or more.

Of the program total on the Big Board, 37.2% involved stock-index arbitrage, down from 39.6% the prior week. In this strategy, traders dart between stocks and stock-index options and futures to capture fleeting price differences.

Some 50.9% of program trading was executed by firms for their own accounts, or principal trading, and 46.2% was for their customers. An additional 2.9% was customer facilitation, in which firms use principal positions to facilitate customer trades.

Of the five most-active firms, Morgan Stanley, UBS Securities, Nomura Securities and Susquehanna executed all or most of their program trading for their own accounts, while Kidder Peabody did most of its trading for its customers.

BEIJING -- Dongfeng Motor Co., China's largest producer of vehicles, faces complex restructuring problems and possible delays in issuing overseas shares, a top securities regulator said.

The official said Dongfeng, one of 22 Chinese companies selected to issue shares in Hong Kong and New York, must smooth friction with workers it may assign to affiliate companies during streamlining efforts. Many Chinese companies, particularly those issuing shares abroad, hope to make themselves more attractive to potential investors by eliminating excess workers from core operations.

But the government doesn't allow most relatively healthy companies to fire workers outright. Firms must help those workers find new employment, usually in jobs funded by the parent company.

The securities regulator said he thinks it unlikely that the company can complete the process of dividing its 100,000 core work force into new job assignments this year, and may have to wait until sometime in 1995 before it's able to issue shares. Dongfeng hopes to have a primary listing in Hong Kong and a secondary offer in New York.

"These people are more conservative and maybe less `economical minded' than people on the coast," the regulator said, referring to Dongfeng's location in northern Hubei province. "They are reluctant to move people into less prestigious jobs."

The regulator said the company feared a backlash from workers who are no longer assigned to the core company.

"Frankly, the company hasn't fully realized the steps it needs to take and maybe has some opposing ideas," the official said. The official said Chinese Vice Premier Li Lanqing, in charge of the auto industry, traveled to Dongfeng's headquarters this month to try to speed up the restructuring process.

WASHINGTON -- The Justice Department's antitrust division has moved to the final stages of its investigation of Microsoft Corp., and action could come within the next few weeks.

Government investigators have largely completed the information-gathering part of their probe, having taken depositions from Microsoft Chairman William H. Gates and other company officials over the last month or so and gathered millions of pages of documents from the software giant.

But talks between the two sides are fluid, and neither side has staked out a final position, according to people close to the case.

A spokeswoman for Microsoft said the company continues to provide information to the Justice Department and that both sides "continue to talk about the case."

The Justice Department began its inquiry last August, after the Federal Trade Commission deadlocked on whether to bring a case against Microsoft following an investigation that lasted more than three years. FTC staff examined whether Microsoft engaged in predatory pricing to undercut its competitors and used its licensing agreements to prevent computer makers from using rival operating systems to Microsoft's MS-DOS and Windows. Microsoft, based in Redmond, Wash., has denied violating federal antitrust laws.

The department sent out one request for information to the company last fall and another one earlier this year, shortly after a new attorney was put in charge of the probe. The government apparently broadened its inquiry beyond the areas originally explored by the FTC to look at nondisclosure agreements the company asked outsiders to sign when they received prerelease copies of its software.

Antitrust chief Anne Bingaman has talked a pro-enforcement line since she took office last year, and has taken several actions that mark a clear departure from the last dozen years of government antitrust efforts. But some experts in the field have said that Microsoft will likely be the defining case of her tenure, and the proof of whether or not she is serious about enforcement.

One question that lingers is the extent to which the White House may weigh in on any final decision about Microsoft. In May, Mr. Gates paid a rare visit to Washington and met with, among others, Vice President Al Gore, then-White House Chief of Staff Thomas McLarty and top economic adviser Robert Rubin.

Separately, Richard Rosen, who heads the antitrust division's communications and finance section and has taken a leading role in the Microsoft investigation, has told Ms. Bingaman he's leaving. Mr. Rosen, a former official in the FTC's bureau of competition, is considered one of the division's smartest lawyers. His departure reportedly is unrelated to the Microsoft case.

Very few Wall Street analysts would have the nerve to do what Dean Eberling has done.

He not only made a risky, contrarian market call -- by recommending the battered stocks of most Wall Street securities firms including Merrill Lynch and Morgan Stanley -- but managed to find fault with his former employer, Lehman Brothers, in the process.

Just a month after the former Lehman analyst became the financial-services analyst at Prudential Securities in New York, Mr. Eberling issued his recent series of bullish reports on brokerage-house stocks. That's like predicting that the U.S. will beat mighty Brazil in soccer. Most analysts expect brokerage-house stocks to continue to fall. The companies' shares are 25% to 30% below their 52-week highs and show no signs of turning around.

"We may be nuts, but we remain buyers," Mr. Eberling concludes candidly in his report on Merrill.

To top it off, one of the few brokerage stocks on which the optimistic Mr. Eberling doesn't have a "buy" opinion is Lehman Brothers Holdings -- the parent of Lehman Brothers that was spun off from American Express in May. Lehman, while strongly capitalized, "has less financial flexibility than other publicly traded brokers," warns Mr. Eberling, who presumably would know the firm intimately. He said the firm is also "less diversified than its peers" because of a less-developed derivatives business and a relatively small asset-management operation.

The analyst gives Lehman stock, now 28% off its 52-week high, a ho-hum "hold" rating. Lehman declines to comment on his views. Lehman stock closed yesterday at 15, unchanged.

It is tradition on Wall Street to avoid criticism of former employers, even in research reports. Mr. Eberling, in an interview yesterday, took pains to say that his Lehman opinions aren't personal. In fact, he said, "we're pretty attracted" to Lehman stock at its current level, but there's no rush to recommend it until he sees second-quarter earnings, which traders expect won't be great.

Mr. Eberling, 37 years old, joined Prudential Securities in mid-May along with colleague Jennifer Scutti. They succeeded Lawrence Eckenfelder, 41, long regarded as the No. 1 financial-services analyst on Wall Street, who died suddenly in December while exercising at his home.

As Mr. Eberling sees it, the gloom that has descended on the brokerage industry -- caused mainly by rising interest rates since February and the subsequent decline in stock prices -- may provide a window for selective buying of battered brokerage stocks. For one thing, he says the "redemption patterns" in mutual funds aren't as troubling as others say, which should provide a cushion for the underwriting of new stock and bond issues. So far there has been no mass exodus from mutual funds, although fund inflows of money from investors have slowed sharply and some analysts expect further declines.

Mr. Eberling says he would buy companies that are diversified, or able to profit from overseas trading, underwriting and merger advice as well as the basic business of brokerage. He's unafraid even though first-half underwriting of U.S. securities plunged 18% from a year earlier and brokerage firms' second-quarter profits are believed to have been the worst in three years.

Even if the brokerage business takes a hit, companies such as Merrill are able to generate enough cash flow these days to buy back stock or increase dividends, says Mr. Eberling. Merrill at yesterday's close of 35 is 32% off its high, but Mr. Eberling says he has a price target by mid-1995 of 60. He bases his optimism on the firm's efforts in recent years to control costs, as well as the $1.64 billion in "recurring fees" it gets annually from investors in good markets or bad.

Morgan Stanley, which at 56 7/8 is 37% off its high, has been battered by the bondmarket sell-off. Still, Mr. Eberling expects the underwriting business to be stronger than expected and for Morgan to profit from a continued rebound in corporate mergers. He has a target of 90 for it.

-- PaineWebber Group, which has long been a snubbed stock despite trading at or below book value.

-- Charles Schwab, which Mr. Eberling cautions is "only for risk-tolerant accounts." Indeed, market skeptics including professional short-seller James Chanos are betting heavily that Schwab will take it on the chin if the market continues to fall and small investors panic.

-- Dean Witter Discover. Even if the brokerage business slows, the Discover Card "should pick up" where brokerage profits leave off, says Mr. Eberling. His 12-month target for the stock, now at 37 1/2, is 50.

-- A.G. Edwards and Legg Mason, both highly regarded brokerage houses based outside of New York. The balance sheet of A.G. Edwards is "so clean it sparkles," Mr. Eberling says.

TOKYO -- Japan's Dai-Ichi Kangyo Bank said it will set up a property-bidding subsidiary in July to purchase real estate held against unrecoverable loans.

The move is the first among Japanese banks following the directive issued by the Ministry of Finance last Friday allowing them -- amid the softness in Japan's property market -- to set up such units to help liquidate real-estate collateral and recover funds.

DKB said the wholly owned unit will be set up on capital of 300 million yen ($3 million) and will operate for 10 years. The company also will manage and work to improve the value of the properties it purchases, DKB said.

Avalon Properties Inc., an offering of 3,475,000 common shares, with an overallotment option to buy 521,250 additional shares, via Kidder Peabody & Co., Dean Witter Reynolds Inc., Goldman, Sachs & Co. and Legg Mason Wood Walker Inc.

Comsat Corp., a shelf offering of up to $200 million of debt securities, $100 million in the form of medium-term notes, via CS First Boston Inc., Salomon Brothers Inc. and NationsBanc Capital Markets Inc.

HarCor Energy Inc., an offering of 6.2 million common shares, with an overallotment option for 930,000 additional shares, via Rausher Pierce Refsnes Inc. and Southcoast Capital Corp.

Portugal, a shelf offering of $1 billion of debt securities and warrants to buy debt securities.

WASHINGTON -- Despite opposition from oil vessel owners and operators, the U.S. Coast Guard issued stricter rules requiring them to prove they can pay damages and removal costs in the event of an oil spill.

The new policy also allows people suffering damage from a spill to sue the responsible party's insurance company for damages.

The long-awaited Certificate of Financial Responsibilty rule, which goes into effect today, enacts portions of the Oil Pollution Act of 1990, which Congress passed partly in response to the 1989 Exxon Valdez oil spill in Alaska.

The new rule requires shipowners and operators to demonstrate financial responsibility through self-insurance, insurance guarantees or surety bond guarantees. The rule is designed to implement Congress's intent that a responsible party pay promptly for removal costs and damages resulting from an oil or hazardous-substance spill.

The Coast Guard rejected an industry proposal that would have allowed the use of membership in protection and indemnity (P&I) clubs as a means of self-insurance. P&I clubs are mutual insurance organizations that provide oil-pollution coverage for shipowners. P&I clubs have long said they would no longer insure vessels shipping oil to the U.S. if the Coast Guard issued regulations allowing individuals seeking damages to sue insurers.

"What concerns many in the vessel-operating community is that they will find it extremely difficult to meet the financial responsibility requirements of the Coast Guard's new rules," said Jonathan Benner, counsel to many independently owned tanker operators. "Anybody who is interested in the continued flow of imported oil needs to be concerned."

Rep. W.J. "Billy" Tauzin, chairman of the House Subcommittee on Coast Guard and Navigation, plans to hold a hearing on the new rule July 21. "My concern is that many of these shippers will be caught between a rock and a hard place," the Louisiana Democrat said.

But Arthur McKenzie, director of the Tanker Advisory Center in New York, believes new insurance companies will replace P&I clubs as the main source of insurance for shipowners.

The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions.

PRIME RATE: 7 1/4%. The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks.

FEDERAL FUNDS: 10% high, 4 3/8% low, 6% near closing bid, 7% offered. Reserves traded among commercial banks for overnight use in amounts of $1 million or more. Source: Prebon Yamane (U.S.A.) Inc.

DISCOUNT RATE: 3 1/2%. The charge on loans to depository institutions by the Federal Reserve Banks.

CALL MONEY: 6%. The charge on loans to brokers on stock exchange collateral. Source: Dow Jones Telerate Inc.

COMMERCIAL PAPER placed directly by General Electric Capital Corp.: 4.40% 30 to 44 days; 4.45% 45 to 59 days; 4.50% 60 to 89 days; 4.55% 90 to 119 days; 4.70% 120 to 149 days; 4.82% 150 to 204 days; 5% 205 to 259 days; 5.15% 260 to 270 days.

COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations: 4.50% 30 days; 4.62% 60 days; 4.74% 90 days.

CERTIFICATES OF DEPOSIT: 3.83% one month; 3.94% two months; 4.10% three months; 4.53% six months; 5.02% one year. Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more. The minimum unit is $100,000. Typical rates in the secondary market: 4.43% one month; 4.65% three months; 5% six months.

BANKERS ACCEPTANCES: 4.40% 30 days; 4.50% 60 days; 4.60% 90 days; 4.70% 120 days; 4.80% 150 days; 4.90% 180 days. Offered rates of negotiable, bank-backed business credit instruments typically financing an import order.

LONDON LATE EURODOLLARS: 4 9/16% - 4 7/16% one month; 4 3/4% - 4 5/8% two months; 4 7/8% - 4 3/4% three months; 5% - 4 7/8% four months; 5 1/8% - 5% five months; 5 1/4% - 5 1/8% six months.

LONDON INTERBANK OFFERED RATES (LIBOR): 4 9/16% one month; 4 7/8% three months; 5 1/4% six months; 5 13/16% one year. The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks. Effective rate for contracts entered into two days from date appearing at top of this column.

FOREIGN PRIME RATES: Canada 8%; Germany 5%; Japan 3%; Switzerland 7.50%; Britain 5.25%. These rate indications aren't directly comparable; lending practices vary widely by location.

TREASURY BILLS: Results of the Monday, June 27, 1994, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 4.20% 13 weeks; 4.60% 26 weeks.

FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments. Delivery within 30 days 8.70%, 60 days 8.75%, standard conventional fixed-rate-mortgages; 5.625%, 2% rate capped one-year adjustable-rate-mortgages. Source: Dow Jones Telerate Inc.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30-year mortgage commitments (priced at par) for delivery within 30 days 8.64%, 60 days 8.72%, standard conventional fixed-rate-mortgages; 6.80%, 6/2 rate capped one-year adjustable-rate-mortgages. Source: Dow Jones Telerate Inc.

MERRILL LYNCH READY ASSETS TRUST: 3.62%. Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns.

NEW YORK -- Standard & Poor's Ratings Group, citing Trans World Airlines' unexpectedly soft revenue, lowered its rating on the fiscally pressed carrier's $271 million in senior secured debt to triple-C from triple-C-plus.

S&P revised its ratings outlook on St. Louis-based TWA to "negative" from "developing."

The downgrade, the ratings agency said, is based on TWA's "weaker-than-expected revenue generation," particularly on trans-Atlantic routes. That weakness "raises liquidity risk going into the weak winter season later this year," S&P said. S&P noted that with its limited cash holdings, no undrawn credit facilities and "virtually no unsecured assets," TWA needs to build up its cash reserves during the normally strong summer season. But discounting on its routes to Europe, and to a lesser extent on domestic routes, "will cause revenues to fall well short of previous company expectations," S&P said.

If TWA's management isn't able to put in place planned cost cuts, or to refinance $190 million of asset-backed loans that former owner Carl Icahn extended -- and which come due in January 1995 -- the company "could face a liquidity shortfall during the winter of 1994-95," S&P said.

TWA officials couldn't be reached for comment yesterday.

An American Bar Association effort to develop new model rules for state regulation of lawyer advertising drew a warning from federal antitrust authorities.

In comments to the ABA Commission on Advertising, the staff of the Federal Trade Commission cautioned against "overly strict restrictions" on the style and content of lawyer ads. The staff added that efforts to encourage more dignified advertising "may prevent the communication of useful, nondeceptive information and thus inhibit competition and consumer choice."

Such views aren't a big surprise but still pose a hurdle for ABA leaders, who have spent the last year trying to find ways to shore up the dreary public image of lawyers. A major thrust has been weighing the possibility of new standards for lawyer ads, which opinion polls have long shown to be a source of public disillusionment with the bar.

The FTC position, along with recent court decisions, "seems to make it more difficult to issue strict regulations," said H. Ritchey Hollenbaugh, a Columbus, Ohio, lawyer and chair of the ABA advertising commission. At the same time, Mr. Hollenbaugh said his panel hopes to develop voluntary programs that will encourage lawyers to "advertise in a way that enhances the image of the profession rather than promote the notion that lawyers are less than dignified."

The commission recently concluded a series of public hearings on the issue and is expected to release preliminary findings in August.

SPRINGFIELD, N.J. -- Bed Bath & Beyond Inc., a retailer of domestic merchandise and home furnishings, said June sales increased 40% to $29.7 million from $21.3 million a year earlier. Comparable-store sales rose 14%.

NEW YORK -- Pedestrians in Manhattan have been puzzling over a message on mobile billboards towed around the streets this week: "If you're headed to Chicago, don't forget to set your watch back. About two years."

The obscure snipe is International Business Machines Corp.'s latest salvo in a running battle with software giant Microsoft Corp. over the software that controls the basic functions of millions of personal computers. Microsoft's much-awaited new version of Windows -- known as Chicago -- is running late, a fact that IBM has been gleefully pointing out at the giant PC Expo trade show here this week.

IBM argues that the delay for Chicago offers a big chance for IBM's rival operating system, OS/2. Microsoft now says Chicago won't be delivered until late this year, and many analysts believe the company could fail to meet even that deadline. And so Big Blue is turning up the volume of an underdog campaign it has waged against Windows since the two companies, former allies, divorced and went separate ways about three years ago.

"We're in a fight," says Dan Lautenbach, general manager of IBM's personal software products division.

Of course, Windows has been a smash success, with Microsoft shipping some 50 million copies world-wide. IBM, meanwhile, has struggled to sell about five million copies of OS/2 -- even though it offers technical features that in many ways surpass the abilities of the current version of Windows.

IBM says OS/2 has provided for two years the features that will appear in Chicago. These include true "multi-tasking," the capability for a PC to do two things at once without delaying either, such as printing a document while connecting to an on-line service.

Still, Microsoft believes that the next generation of Windows can unleash a new surge in Windows sales. Dozens of software companies concur, and they are preparing new versions of their own applications programs to run under Chicago.

As part of its rollout, Microsoft is making significant changes in the way the new Windows operates and in how it appears on a PC's screen. Windows users, therefore, may need training to use the new version -- a chance for IBM to push OS/2, the company contends. If employers are going to spend money on training, they might as well consider switching to another operating system, IBM argues.

IBM also plans to release a new version of OS/2 this fall that would require only half the current memory it takes up, reducing the needs to four megabytes. That would let it operate on many more older PCs.

But Microsoft counters that Chicago will work within the four-megabyte constraint, and that it will include the option of using the old Windows "user interface," eliminating or lowering the need for training. And it says Chicago offers more features than OS/2.

Brad Silverberg, Microsoft's vice president of personal operating systems, says IBM's latest sideswipe smacks of desperation. "They're taking a page out of political campaigns, that when you have nothing positive to say, go negative," he says.

Some big computer users aren't concerned about the Chicago delay. Larry Tieman, chief information officer at trucking firm Schneider National Inc., says he is more worried about "Microsoft and every other vendor's tendency to push software out that's full of bugs."

Even if IBM attracts attention with its campaign, it still has only a few software developers writing specifically for OS/2, giving customers little reason to switch. IBM's only real hope is that Chicago runs drastically late, says Gartner Group analyst Jonathan Yarmis. If it doesn't ship, say, until the end of next year, some software developers may start to reconsider OS/2, he says.

WASHINGTON -- Money-market mutual fund assets rose $1.51 billion to $585.53 billion from a revised $584.02 billion in the week ended Wednesday, the Investment Company Institute said.

Assets of 670 retail money-market mutual funds decreased by $533.6 million to $415.34 billion, the trade group said.

Among retail funds, assets of 419 taxable money-market funds increased $306.2 million to $324.29 billion. Assets of 251 retail tax-exempt funds decreased by $839.8 million to $91.05 billion.

Assets of the 287 institutional money-market funds soared $2.04 billion to $170.19 billion. Among institutional funds, the assets of 231 taxable money-market funds grew $1.77 billion to $149.08 billion. Assets of 56 tax-exempt funds rose by $263.7 million to $21.10 billion.

WASHINGTON -- Federal National Mortgage Association pledged to buy $10 billion in mortgage loans in Chicago by the end of the decade.

In setting the ambitious target, Fannie Mae said it will focus its Chicago mortgage-lending program on low-income and moderate-income families, new immigrants, minorities, urban neighborhoods and others with special needs.

The initiative was announced by Fannie Mae Chairman James Johnson, who said the company will open a "partnership office" in Chicago this year to serve the mortgage program. Fannie Mae already has partnership offices in Cleveland and Baltimore, and plans to open similar offices in a total of 25 cities, rural areas and other under-served areas.

Fannie Mae is a congressionally chartered, shareholder-owned company that supports mortgage lending by purchasing loans and packaging them into securities that are sold to investors. The company, the nation's largest source of home-mortgage funds, committed earlier this year to purchase $1 trillion of targeted lending for 10 million homes by the end of the decade.

Mr. Johnson said the new Chicago office will concentrate on reaching out to potential home buyers. "We are determined to make Fannie Mae more accessible than ever before, and in the process, put people who have not been well served by the home mortgage system on the path to homeownership," he said.

OTTAWA -- Canadian steel production totaled 276,012 metric tons for the week ended June 25, down 0.6% from 277,769 tons in the previous week, but up 5.9% from 260,629 tons a year earlier, Statistics Canada, a government agency, said.

A metric ton is equal to 2,204.62 pounds. For the year-to-date, production totaled 6,638,984 tons, down 4.4% from 6,942,186 tons a year earlier.

John Bernbach resigned as vice chairman of Omnicom Group's DDB Needham, effective immediately, less than one month after saying he had no plans to leave the agency. He will continue as an Omnicom director.

Although Omnicom presented the resignation as voluntary, industry officials said it wasn't. Mr. Bernbach was out of the country yesterday and couldn't be reached to comment. A Needham spokesman declined to comment beyond the official statement in which Bruce Crawford, president and chief executive officer of Omnicom, said, "We are saddened Mr. Bernbach has chosen to leave . . . ."

Mr. Bernbach, 50 years old, said in a statement: "There are some specific intriguing business and professional opportunities that have come to me and I felt that now is the moment to pursue them. After 22 years with this company, it is a terribly difficult decision to leave, but I believe it is necessary to do so in order for me to explore these serious options in the greater depth they deserve."

There was widespread industry speculation that Mr. Bernbach, whose father, William, was a founder of Doyle Dane Bernbach, one of the predecessor agencies of DDB Needham, would leave because he no longer had responsibility of the $40 million Seagram account. And earlier this month, Seagram severed its 32-year relationship with Needham, further fueling the belief that Mr. Bernbach's days at the agency were numbered.

But as recently as June 6, Mr. Bernbach said he wouldn't leave Needham, "My father's name is on the door," he said. "I am a member of the Omnicom board. I have no plans of going where the Seagram business goes."

Mr. Bernbach also said he has been approached by other agencies recently about defecting. "Like anyone else who is doing a good job," he said, "you hear from other people." He added that he hasn't heard from the one agency most often rumored to be his next place of employment: Wells Rich Greene BDDP. Mr. Bernbach is a close friend of David Sklaver, president of Wells Rich New York.

Separately, Needham is exploring the possibility of changing its name. Oddly, one possibility mentioned is the Bernbach Group.

Tokyo shares rose Thursday, helped by a report that substantial government funds would pour into Japanese financial markets. Hong Kong stocks rallied on progress on issues for handing China sovereignty over the British colony.

But London blue chips skidded almost 1%, though smaller stocks held their ground. Frankfurt prices lost 1% as buying linked to the end of the quarter collapsed. Paris equities plummeted 2.3% under technical factors.

World-wide, stock prices fell in dollar terms. The Dow Jones World Stock Index was at 114.60, down 0.27, reflecting lowermarkets in Europe and the Americas and higher Asia/Pacific markets.

Fishing stocks were the top gainers in the Dow Jones World Industry Groups, closing at 93.07, up 2.36, or 2.6%, with Kyokuyo of Japan posting a 3.7% gain in its local currency. Health care stocks trailed at 143.87, down 3.10, or 2.1%, with Humana of the U.S. sliding 7.2% in local currency.

In Tokyo, the Nikkei 225-stock index, which slumped 158.23 points Wednesday, rebounded 162.93 to 20643.93, near the intraday high of 20684.14. In trading Friday, the Nikkei fell 285.76 points to close the morning session at 20358.17. Thursday's first-section volume was estimated at 440 million shares, compared with 315.6 million shares a day earlier. Gainers trounced losers, 626-381. The Tokyo Stock Price Index, or Topix, of all first-section issues, which fell 5.62 points Wednesday, rose 6.70 to 1673.32.

The Nikkei initially lost ground on renewed fears about the U.S. dollar's slide to record lows against the Japanese yen in currency dealings. Stocks were pulled down by arbitrage-linked selling, following a drop Wednesday in Nikkei futures prices in Chicago. But the Nikkei rebounded on buying by investment trust funds, domestic institutions and public funds. The market reacted calmly to the formation of a new Japanese government, the fourth in the past 12 months, and the first to be headed by a Socialist since 1948. Afternoon gains were triggered by an unconfirmed Japanese news report that 440 billion yen ($4.5 billion) of the government's pension funds would be allocated to trust banks and insurance companies as soon as Friday for potential investment in the stock and bond markets.

In London, the Financial Times-Stock Exchange 100-share index dropped 27.1 points to 2919.2, up from the day's low of 2910.6 but down sharply from the high of 2961.9. The FT 30-stock index slid 21.3 points to 2276.8. Volume was 597.4 million shares, compared with 764.9 million shares a day earlier.

After opening on a positive note, shares turned down on a report of higher prices paid by British purchasing managers. Amid bond-market gyrations, the stock market, jittery about any sign of inflation that could spur higher interest rates, fell in line with British gilts, or government bonds. Meanwhile, in so-called window dressing activity tied to the end of the quarter, fund managers sold big stocks that have performed poorly and switched into either cash or some smaller issues that have had solid performances. The market's decline accelerated when bond markets and Wall Street fell after a U.S. purchasing managers' index also showed a rise. British banks bore the brunt of the selling on fears that rate competition would cut profit margins.

In Frankfurt, the DAX 30-stock index dropped 20.96 points to 2025.34, near the session low of 2022.5. After the market scored early gains because of strength in German government bonds, doubts set in, as recent increases for stocks have come from buying for window dressing. Dealers dominated trading yesterday. Many investors were staying out of the bourse until after the July 4 holiday in the U.S., fearing that U.S. Treasurys and stocks could fall again before then.

In Paris, after chalking up early gains, prices fell rapidly late in the session to end with steep losses. The dive was linked to the expiration of options contracts an hour before the market closed, when speculators and arbitragers moved in. Also, many portfolio managers and institutions cashed out of positions in connection with window dressing. The exchange didn't react to a French central bank rate cut, which had been expected.

In Amsterdam, shares rose on bargainhunting and short-covering, or buying to cover oversold positions, and were buoyed by a modest recovery for the dollar and some strength in the Dutch bond market. In Milan, stocks fell for the third session, as lower bond prices and a weak Italian lira combined with continued political uncertainty to undermine prices. In Madrid, prices dropped, hurt by a soft bond market and early weakness on Wall Street, though a late buying flurry by institutions brought the market up from its lows. In Stockholm, equities ended little changed to slightly higher after drifting in dealings lightened by cautious sentiment. In Zurich, stocks dropped after late profit-taking amid New York stocks' early softness erased Swiss gains from a slightly better dollar and improved European bond markets.

In Sydney, shares closed solidly higher, though trading was languid, as many investors stayed on the sidelines before the Friday start of the new fiscal year; the gold and banking sectors each gained 1.1%, and retailing issues climbed 1.5%.

In Hong Kong, stocks jumped 1.4% on bullish news about Sino-British talks on issues in transferring control of the territory to China in 1997, but late profit-taking cut the rally short. The market reacted positively to an agreement on future distribution of 39 military sites in Hong Kong. There was negligible investor response to the colonial legislature's passage of an electoral reform bill, which has angered China. Commercial and industrial stocks advanced 1.9%, financial issues gained 1.7% and property shares climbed 1.6%.

In Singapore, shares drifted in light dealings before closing higher, as investors were mostly sidelined amid continued cautious sentiment. In Kuala Lumpur, equities ended narrowly higher in light trading, as support for some blue chips was offset by skittish dealings in the broader market. In Seoul, prices closed flat in choppy trading after late profit-taking snapped a blue-chip rally. In Taipei, stocks ended little changed, as investors feared the Taiwan government would act to tighten liquidity. In Manila, shares gained in busy trading, helped by a technical rebound after two weeks of weakness.

In Mexico City, the market fell, finding its direction from dealings on Wall Street and from weaker Mexican stocks that also are traded in New York.

Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva. To make them directly comparable, each index, calculated in local currencies, is based on the close of 1969 equaling 100. The percentage change is since year-end.

Olympia & York Developments Ltd.'s U.S. subsidiary took a major step forward in its $5 billion debt-reorganization effort by agreeing with creditors to restructure the terms on a $970 million package of loans.

The subsidiary, Olympia & York Cos. (U.S.A.), expects the pact will provide the impetus for the company to work out deals with the rest of its creditors by the end of the year, according to a person close to the company. O&Y (U.S.A.) has been negotiating with creditors for about two years to restructure its debt without resorting to a bankruptcy-court filing. The unit's Toronto-based parent reorganized under Canadian bankruptcy law last year.

O&Y (U.S.A.)'s $970 million debt is secured by three New York office towers. Two of the buildings, considered valuable holdings in midtown Manhattan, will remain in the company's hands, including properties at 1290 Avenue of the Americas and 237 Park Ave., which serves as O&Y (U.S.A.)'s headquarters. A third building at 2 Broadway, which is almost vacant, will be sold. The company is believed to be considering selling the property, located in lower Manhattan, for under $20 million.

"Reaching this understanding is a crucial step in completing the consensual restructuring of O&Y (U.S.A.)," said John Zuccotti, the company's president. "Most importantly, this transaction provides for the continued prominence of these properties in the midtown market by stabilizing their ownerships and should create ample cash resources to keep the properties leased and in first-class condition."

O&Y (U.S.A.) has reached agreements to restructure debt on others of its New York office towers. But this is the first pact that allows the developer to retain ownership of some of its buildings. JMB Realty Corp., a Chicago investment concern, owns a minority interest in the properties.

O&Y (U.S.A.) is current in its payments to holders of the $970 million debt, about a third of which is held by an investment fund run by Leon Black. Mr. Black's fund, Apollo Real Estate Investments, bought the debt last fall at about 55% of its face value. Apollo has since bought other key pieces of O&Y (U.S.A.)'s debt that put the fund in a position to play a leading role in the company's restructuring and perhaps gain control of some prime properties.

An Apollo representative served as co-chairman of the creditors' committee, along with an official of Bank United of Texas FSB. The committee was advised by Victor Capital Group Limited Partnership, a real estate investment concern in New York. Change in Rate Overall, the restructuring doesn't significantly change the terms of the debt, which will carry a new, and higher, interest rate of 9%. Only 7% will be paid, and the rest accrued. The debt will now mature six years after the agreement is formalized. O&Y (U.S.A.) said the parties plan to make a mutually agreed-on filing under Chapter 11 of the U.S. Bankruptcy Code in a technical move to finalize the agreement. Under Chapter 11, a company continues to operate under protection from creditors' lawsuits while it works out a plan to repay its debts.

O&Y (U.S.A.) will be paid a fee to manage the two buildings that are to be kept. Otherwise, cash flow from the buildings will be used for property improvements, the first step of which will be a renovation program at 1290 Avenue of the Americas.

NEW YORK -- Stock prices tumbled as the second quarter came to a close. The Dow Jones Industrial Average posted its first back-to-back quarterly losses since 1984.

Although prices began the day steady -- with many anticipating a session of buying ahead of the quarter's end -- the mood soured as the bond market sank less than an hour after the market opened.

A stronger-than-expected economic report, weakness in the dollar and rumors of liquidations in the mortgage-backed securities market combined to shove the 30-year bond down a full point. Its yield climbed to 7.61%.

The Dow industrials eroded throughout yesterday's session, closing off 42.09 to 3,624.96. It was the average's worst closing level since April 20, and left it with a loss for the quarter of 11 points, or 0.3%.

The average fell 118 points in the first quarter. It is down 129, or 3.4%, for the year to date. That is the worst first-half performance since 1984.

On the New York Stock Exchange, there were 951 issues advancing and 1,275 declining. Volume on the Big Board was 292,733,720 shares, compared with 263,878,550 shares the previous day.

The NYSE Composite Index was 245.16, down 1.56. The Standard & Poor's 500 Stock Stock Index skidded 3.36 to 444.27.

The Nasdaq Stock Market, though, managed to close with a gain after a flurry of late buying. Observers said many Nasdaq stocks attracted quarter-end buying even though Big Board issues didn't. Smaller stocks are often more affected by such factors.

The Nasdaq Composite Index gained 1.95 to 705.96. Statistics for the quarter, however, were grim. The Nasdaq index slumped 5%. The S&P 500 was down 0.3% for the three-month period. The Big Board composite lost 0.8%.

CBS surged 50 points to 313, a 19% gain, as investors reacted to news that the New York broadcaster is near agreement on a merger with QVC. The arrival of CBS in the world of cable television would strengthen the company significantly, analysts said. The huge transaction would combine companies with a total stock market value of roughly $5.5 billion. QVC rallied 5 5/8 to 38 on Nasdaq.

QVC's rival, Home Shopping Network, was pulled higher, rising 1 1/8 to 12.

Santa Fe Pacific gained 1/4 to 20 5/8 after it agreed to merge with Burlington Northern. The transaction would create the largest railroad company in the U.S. Together, Santa Fe, of Schaumberg, Ill., and Burlington, of Fort Worth, Texas, had revenue of more than $7 billion last year. Burlington Northern shares eased 1/8 to 53 3/8.

Shares of Supervalu, the Eden Prairie, Minn., grocery chain, fell 3/4 to 30 1/4 after PaineWebber downgraded the company's stock to "neutral" from "attractive" and cut its estimate of the company's fiscal 1995 earnings to $2.70 a share from $2.86 a share.

In other sectors, IMC Fertilizer Group, of Northbrook, Ill., rose 2 1/8 to 34 5/8. Donaldson, Lufkin & Jenrette upgraded its rating on the stock to "buy" from "very attractive."

Shares of National Westminster slipped 2 1/8 to 40 1/8. The British company agreed to acquire Central Jersey Bancorp's Central Jersey Bank & Trust Co. for $300 million in cash or stock. Separately, many British bank stocks were down on fears of a lending rate war, as Abbey National slashed by nearly half the rate it charges on authorized overdrafts.

Central Jersey Bancorp, a small-capitalization issue, was unchanged at 31 on Nasdaq.

Many health care-related stocks were weak. Humana, of Louisville, Ky., slipped 1 3/8 to 16 1/8 and United Healthcare, of Minnetonka, Minn., dropped 2 3/4 to 45 1/8. In Nasdaq Stock Market trading, MidAtlantic Medical, of Rockville, Md., was down 2 7/8 to 44 1/2, and U.S. Healthcare, of Blue Bell, Pa., fell 2 5/16 to 37.

Bell Atlantic added 5/8 to 56 and Nynex rose 1 to 37 7/8. The two Baby Bells said they will combine their cellular-telephone businesses. The move by Philadelphia's Bell Atlantic and Nynex, of White Plains, N.Y., creates one of the nation's largest cellularphone companies.

Stocks often rally at the close of a fiscal period, as portfolio managers add to their winning positions. But yesterday's nasty conditions helped inspire a negative response as managers prepared to close their books.

"Portfolio managers wanted to lighten up on their losers and show some more cash. That meant selling in both stocks and bonds," said Richard Scarlata, a newsletter editor at Sutton Financial Services in Chicago.

OTTAWA -- The Canadian government said it will auction Wednesday two billion Canadian dollars (US$1.44 billion) of bonds due Dec. 1, 2004.

The proceeds will be used to redeem C$650 million of maturing government bonds and for general government purposes.

Venezuela's government established a new bank regulatory body invested with sweeping powers, effectively taking over those banks that the government doesn't already control.

Information Minister Guillermo Alvarez Bajares called creation of the Emergency Financial Council a "de facto nationalization." It is the most recent development in a financial crisis that has already forced the government to take over banks holding approximately 60% of the assets in the Venezuelan financial system.

The council, which consists of Finance Minister Julio Sosa Rodriguez and other economic officials and appointees of President Rafael Caldera, will exercise "a special regime of control and supervision, to which financial institutions must submit themselves," the government said.

The council will have authority to transfer resources of stronger banks to weaker institutions. If bank managers resist, they face dismissal, seizure of the bank's shares or revocation of its operating authority.

The finance minister backed away from calling the move a nationalization. He added, in an apparent warning to bankers who might resist the council's directives, that if "parameters that have been established aren't completed . . . this might lead later to the nationalization of some of these banks."

He said direct intervention was the only realistic response to a run on several banks that has cost the government the equivalent of an entire year's federal budget in depositor bailouts.

Directors of many of Venezuela's private banks huddled yesterday and promised to issue a statement today.

The steps, announced late Wednesday, are sure to inflame opposition from a private sector already infuriated by the government's actions earlier this week to impose controls on prices and the exchange rate and to suspend some constitutional rights. The leading Venezuelan business federation argues that the flurry of decrees reflects "the absence of an economic program that inspires confidence in national and foreign investors."

"The cost of the measures will be paid precisely by the same people they are supposed to benefit," said Humberto Calderon Berti, former energy and mining minister.

President Caldera meanwhile took steps to ease concerns that the economic controls and constitutional suspensions were pre-emptive strikes against a military coup. "There's no reason to think there will be a revolt, and I am certain that the armed forces have confidence in their commander," he said.

Separately, Gustavo Rosen, who in April was appointed special commissioner in charge of restructuring the banking sector, announced his resignation. While saying that he backed many of this week's decrees expanding government control of the institutions, he complained that he had been restrained from taking as active a role in resolving the crisis as he had hoped.

TAKATA Inc. (Auburn Hills, Mich.) -- C. Reid Rundell was named president and chief operating officer of this automotive supplier. Mr. Rundell, 61 years old, was formerly a senior executive with General Motors Corp.

HOUSTON -- Shareholders of Continental Airlines approved a plan that involves making a one-time grant to employees of one million shares, or about 4% of shares outstanding.

The move is part of an overhaul of the company's compensation program, also approved by stockholders, under which the company will distribute 15% of its pretax earnings on a pro-rata basis, depending on salary. The change won't affect the current quarter as Continental isn't expected to have a profit. Wall Street analysts have estimated the company's loss to be between $2.75 to $3.50 a share.

Continental emerged from Chapter 11 protection in the year-ago quarter, but had a net loss of $24.4 million, or $1.45 a share, for the period April 28 through June 30 in 1993. Its predecessor company had net income of $2.7 million for the period April 1 through April 27, 1993.

Separately, the company said two of its directors would step down, reducing the size of the board to 16, because of a change in Canadian accounting rules. The directors were part of a slate of six appointed by Air Canada, which owns 46% of the company's Class A shares and 34% of its B shares.

WASHINGTON -- The U.S. launched a formal investigation into allegations of copyright violations by China, which could eventually lead to the imposition of hundreds of millions of dollars in trade sanctions.

The U.S. alleges that China doesn't adequately enforce its intellectual-property laws to curb rampant piracy, which costs U.S. companies at least $800 million annually in lost sales of computer software, videotapes, compact disks and other goods.

U.S. Trade Representative Mickey Kantor said that during recent talks in China over the issue, U.S. negotiators could walk down the street and buy bootlegged copies of WordPerfect and MS-DOS. The software came "complete with government-stamped receipts," Mr. Kantor said.

China countered that it already had taken steps to enforce its law. "The Chinese government has accomplished in a short time what it took developed countries dozens of years and even a hundred years to accomplish," said Foreign Ministry spokesman Shen Guofang.

The two sides have plenty of time to argue. Under schedules laid out by U.S. trade law, the U.S. won't begin to threaten sanctions for at least six months. During the past three years, the U.S. has moved to impose sanctions three times -- and all three times the two sides reached a deal at the last moment.

JERSEY CITY, N.J. -- London-based National Westminster Bank PLC agreed to pay $300 million in cash and stock for Central Jersey Bancorp, of Freehold, N.J., its second acquisition in the state this year.

In March, the bank holding company said it planned to pay $500 million to acquire Glen Rock, N.J.-based Citizens First Bancorp., a 50-branch bank with $2.6 billion in net assets to expand NatWest's market share in certain affluent areas of New Jersey.

Central Jersey operates 38 branches, principally in Monmouth County, and had assets of $1.8 billion as of March 31. Under the proposed acquisition, Central Jersey holders would receive either $33.50 in cash, or an equivalent value in NatWest stock represented by American Depositary Receipts. ADRs will constitute about 55% of the total purchase. In trading on the Nasdaq Stock Market, Central Jersey closed unchanged at $31. In New York Stock Exchange composite trading, NatWest closed at $40.125, down $2.125.

If both acquisitions are completed, Jersey City-based National Westminster Bancorp, the holding company of NatWest's U.S. retail operations, would have assets in New Jersey of $11 billion, moving it up from the state's fourth-largest to second-largest bank behind First Fidelity Bancorp of Lawrenceville. The two acquisitions would give NatWest Bancorp total assets of nearly $30 billion and 348 branches, 221 of which will be in New Jersey. NatWest Bancorp now has assets of $25.4 billion.

A recently certified Airbus A330 model airline powered by Pratt & Whitney engines crashed on takeoff during a test flight in Toulouse, France, killing all seven people aboard.

Airbus Industrie, which assembles the twin-engine, 335-passenger planes in Toulouse, said the crash occurred just after an afternoon takeoff on a flight aimed at testing a new autopilot standard.

The European consortium said that for unknown reasons, "the aircraft suffered a sudden loss of lateral control." It said that the pilot regained control, but "the altitude of the aircraft was too low to avoid impact with the ground."

Airbus said four of its personnel, including its chief test pilot, were killed, along with three airline pilots.

The plane, with new PW-4168 versions of the engines made by the United Technologies Corp. unit, was scheduled to be delivered to Thai Airways International next month, according to a Pratt & Whitney spokesman in Hartford, Conn. The A330 version with Pratt & Whitney engines was certified for service on June 2, the spokesman said.

RANDOM ACCESS Inc. (Denver) -- Richard A. Crawford, president and chief operating officer, was named chief executive of this company, which sells microcomputer hardware and software to companies and institutions. Mr. Crawford, 37 years old, succeeds company founder Bruce A. Milliken, 38, who remains chairman. Mr. Crawford will retain the title of president. The company has no plans to name a new chief operating officer.

NEWARK, N.J. -- New Jersey regulators cleared the decks for long-distance carriers and other phone companies to offer toll-call services within the state, a $725 million market dominated by Bell Atlantic Corp.

After California, New Jersey is the largest market for intrastate toll calls, phone calls made outside the local calling area but within a state. The ruling by New Jersey Board of Regulatory Commissioners, which takes effect today, will allow business and residential customers to choose other carriers to carry their toll calls.

The state's action will also lower phone bills for many New Jersey phone owners, regulators say.

BRUSSELS -- The European Commission predicted it would finish its proposals for a definitive system for collecting value-added tax, or VAT, by the end of October -- two months ahead of schedule.

The commission's taxation chief, Christiane Scrivener, said the blueprint would, as expected, call for VAT to be paid in the country where goods are made, instead of where they are finally consumed. "This means that a Brussels firm would go through the same formalities when selling to another business in Antwerp, Lille or Cologne," Mrs. Scrivener told a news conference earlier this week.

The comments came at the end of a two-day conference in Brussels where commission officials sought the views of roughly 300 representatives from EU businesses and national tax administrations who have been grappling with a labyrinthine transitional VAT system that EU governments introduced when the union's single market opened on Jan. 1, 1993.

Under the the current system, VAT is paid in the country of consumption. Many EU businesses -- especially those in Germany -- strongly support a rapid transition to a final VAT system similar to what Mrs. Scrivener described. They believe it will be simpler than the transitional system, which has sparked grumbling among company bookkeepers who, in effect, now do the paperwork that customs agents once did.

When EU governments agreed on the transitional system in 1992, they pledged to put a definitive VAT system in place by Jan. 1, 1997. They also set two interim deadlines: First, the commission must produce a package of proposals by the end of this year. It now appears set to beat that deadline. Second, the governments themselves must reach a conclusion on the commission blueprint by the end of 1995.

A main goal of this week's talks, as a senior commission official explained beforehand, was to find out what businesses hope the final system will achieve and how they will judge it. In response, EU employers' group Unice issued a position paper that warned against any temptation to move to a "hybrid" VAT system that "falls short of permitting businesses to operate across the single market with one VAT registration."

The warning echoed concerns among many individual businesses that a hastily conceived system might stir up more trouble than it's worth. "Businesses would be reluctant to accept the disruption inevitably involved in a change of system," the paper said, "unless there were clearly identified cost savings available in the short-term."

Like all EU tax measures, the commission's proposals will require the unanimous approval from all member states before they can be implemented. Although EU governments have given themselves until the end of 1995, many observers fear their discussions could quickly bog downjust as the talks that led to the transitional system did. If the discussions drag into 1996, it would be extremely difficult to get the final system up and running on Jan.

One sticking point is likely to emerge over proposals to set up a clearing house or bilateral clearing systems to ensure that revenue is equitably returned to the member state where the goods are consumed. The issue is sensitive because national finance ministries rely heavily on VAT.

"The great difficulty in this whole business is the compensation problem," Mrs. Scrivener said. "Member states want their money back, and there is a problem of trust."

The Wall Street Journal will not be published Monday, in observance of Independence Day.

WASHINGTON -- A provision in Senate Finance Committee Chairman Daniel Moynihan's health-care bill would provide payroll-tax relief for Goldman, Sachs & Co. and some other Wall Street securities firms.

Goldman Sachs has been leading the push since last year for relief from a provision in President Clinton's deficit-reduction program that repealed the $135,000-a-year cap on taxpayer's earnings subject to a 2.9% payroll tax for Medicare hospital insurance.

The securities and commodities industry argues it was hit particularly hard by that change because of the nature of their business. Executives from 34 New York City partnerships last week wrote to Sen. Moynihan to underscore their case. The New York senator released his health-care legislation, with the tax-relief for his constituents, earlier this week.

The provision would apply not just to partnerships in the securities industry, but to all partnerships and sole proprietorships that sell goods and draw income from their inventory. Congressional analysts say home builders, wholesalers and retailers would benefit, for example. Still, the most dramatic tax relief would be felt by securities partnerships, of which Goldman, Sachs is the largest remaining in New York.

At issue is the imposition of payroll taxes on nonwage, nonsalary income. Securities dealers and some independent tax analysts argue that firms shouldn't be liable for payroll taxes on nonwage income, such as investment income and return on company capital, especially since securities firms are required by regulation to maintain large capital inventories to guard against trading losses.

The types of income subject to payroll taxes weren't an issue when earnings subject to the Medicare levy were capped at $135,000 a year. But last year's repeal greatly added to many firms' tax bills.

For an employee with $5 million in income, for example, the Medicare tax liability increased this year to $145,000 from $3,915. But firms such as Goldman, Sachs, where multimillionaire partners aren't uncommon, insisted that they shouldn't be liable for the whole amount since so much of their income is tied to capital investments.

The repeal of the Medicare tax cap "had an extraordinarily disproportionate impact on partnerships in the financial services industry," the executives wrote to Sen. Moynihan.

Sen. Moynihan's relief provision is a complicated one that has a number of Senate staffers, lobbyists and analysts confused. It would establish a two-part calculation that would allow firms with inventory income to reduce their Medicare tax liability by a still-unspecified percentage. Senate tax analysts could provide no specific examples of the impact, or of the potential cost to the Treasury. Peter Rose, a vice president for Goldman, Sachs here, declined public comment.

New York Rep. Charles Rangel is sponsoring a similar provision in the House, but the Democrat didn't seek to add it to the health bill completed yesterday in the House Ways and Means Committee.

Another provision in the Moynihan health-care bill, which draws on one in Mr. Clinton's original version, would increase the payroll-tax liability for some service-related businesses, such as those formed by doctors, lawyers, accountants and architects. The proposal is aimed particularly at companies known as subchapter S corporations, which are generally -- but not always -- small.

The proposal is intended in part to arrest apparent underreporting of payroll taxes by some of these firms. Their professionals often take little of their income as wages, and more as investment income, to reduce their Social Security and Medicare tax liability, according to various tax analysts. Both the Clinton and Moynihan provisions would expand the definition of wage income, as opposed to dividends and investment income, for shareholders in service-related S corporations.

Besides hoping to reduce tax avoidance, the Clinton administration wanted to ensure that owners of such firms don't qualify for the sort of health-care subsidies it has proposed for small businesses with low-wage employees. The subsidies are intended to allay the cost of complying with the president's proposed mandate for employer-provided health insurance. But law and accounting firms weren't the kind of low-wage small businesses that the administration had in mind.

DETROIT -- The 10 U.S. auto makers said they plan to build 225,253 cars and trucks this week, virtually flat with the 225,261 vehicles built a year earlier.

Vending machines are drawing record numbers of entrepreneurs -- and record numbers of scams.

Once penny-ante schemes that preyed on the uneducated now prey on a growing number of early retirees and laid-off workers seeking new careers. A Federal Trade Commission lawyer says one operation alone involved at least 8,000 investors.

Law-enforcement officials and consumer advocates say the number of complaints of such problems has risen sharply just in the past nine months. In 1993, the Council of Better Business Bureaus in Arlington, Va., received 1,130 complaints about vending-machine operators involving scams against would-be entrepreneurs, up 26% from the previous year. Complaints rose sharply in the first half of this year, the bureau says, although a final tally won't be released until the end of the year.

"There's definitely been a big increase in people getting interested in going into vending as a business and people getting scammed," says Holly Cherico, a spokeswoman for the bureau. "There are still quite a lot of people out of work, and there are those with a severance package they want to invest. They're the ones pursuing vending opportunities."

Although the Federal Trade Commission is cracking down on the most egregious offenders, the enormousness of the industry makes that a tough task. Tens of thousands of independent vending-machine operators work through about 8,000 companies that provide machines and support.

Would-be entrepreneurs typically buy several vending machines, costing between $65 to $10,000 apiece, and an inventory of merchandise. In return, they receive a promise of help in finding profitable locations and other assistance. Law-enforcement officials say a bogus company usually has prospects talk with "shills," who give glowing -- and usually false -- testimony about their own success.

Once an investor has paid his or her money, the operator disappears. The machines may never come. If they do, no golden locations are provided.

Last fall, Ralph Baer, a 46-year-old physical therapist in Lehi, Utah, took out a second mortgage on his home to invest $27,000 in five video games from a Phoenix, Ariz., company called Coin Management Inc.

Mr. Baer says he pursued the vending business because his physical-therapy practice had slowed down. Mr. Baer contacted references provided by Coin Management, who spoke highly of the company. He also contacted the Vendors Association of North America, a trade group based in Reno, Nev., and says the group told him Coin Management had no problems.

But Mr. Baer's machines never came, he says, and he hasn't been able to retrieve any of the money he gave to Coin Management. "Right now I'm just bummed out, and I feel pretty stupid," he says.

The Vendors Association declines to comment on Mr. Baer's charges, other than to say that Coin Management is one of its members. "This is a trade association for our members and I don't have time to sit here and chat," says Lisa Waters, a spokeswoman for the Vendors Association. "We don't do interviews."

In March, the Federal Trade Commission filed civil fraud charges in federal court in West Palm Beach, Fla., against Pizza King Inc. of Boca Raton, Fla. The agency alleges that the company and 29 of its affiliates, including Coin Management, have been running a deceptive vending-machine business for the past six years.

An FTC attorney says the scam involves "hundreds" of victims and "tens of millions" of dollars. The victims were promised exclusive territories, logistical support, timely delivery of the machines and gross revenue of $300 to $350 a week per machine, the charges add. None of these promises were kept, the FTC says.

Joel Hirschhorn, a Miami attorney representing the company, says the FTC's case is without merit and describes the agency's actions as "precipitous."

Some of the alleged frauds have been enormous. In January, the FTC filed civil fraud charges in federal court in Eugene, Ore., against Vendall Marketing Corp. The agency says Vendall, a vending concern based in Medford, Ore., misled investors about earnings, locations, delivery times and machine maintenance.

An attorney with the FTC estimates that Vendall defrauded at least 8,000 people out of about $56 million. Timothy Parks, an attorney in Eugene, Ore., who represents Vendall, says his client denies all of the agency's charges.

To separate the honest from the dishonest vending-maching operators, an aspiring entrepreneur should tread very carefully if the claims being made sound too good to be true, says Sheldon Silver, a spokesman for the National Automatic Merchandising Association in Chicago.

For example, he says, profit margins on most vending machines are only a few cents on the dollar; anything higher should give an entrepreneur pause. Also, he says, most legitimate operators don't offer to help find good locations. Other danger signals include "good deals" on machines, offers to buy back inventories and an unwillingness to provide extensive support before most of the money changes hands.

Mr. Silver also recommends hard work. "The people pursuing get-rich schemes by doing vending on the side without getting personally involved in the business are going to get ripped off," he says. "Successful vending operators need to make it a full-time job."

U.S. vending machine industry at a glance:

A California couple tied the knot yesterday at a pit stop on the information highway.

Chris Thorne and Cassandra Lehman were standing together at Symantec Corp.'s exhibit booth at New York's PC Expo. Judge Spurgeon "Sparky" Avakian administered the vows from Santa Clara, Calif.

Linking the couple to their destiny were copper phone lines that can carry video, courtesy of Pacific Bell, and two video-conferencing machines (video cameras with monitors), one on each coast. Forty friends and relatives watched the event from California; 27 saw it in New York.

Ms. Lehman, 29 years old, an assistant professor of computer arts at San Jose State University, wore her grandmother's white, tea-length lace wedding dress with a veil. She said some of her friends found the high-tech wedding hard to swallow." There were a few people whose chins dropped, and they didn't know what to say," she said.

By contrast, the couple's parents were "just fine with idea," Mr. Thorne said. "I think they expected it."

"Technology is a part of our lives," Ms. Lehman added.

Mr. Thorne, 34, has, for the past several years been working the tech-show circuit and now is president of his own production company, Riverview Systems Group of San Jose, Calif. Mr. Thorne says he expects events such as his teleconferenced wedding to become more common. Technology is finding its way into everyone's life, he says, whether people want it to or not.

"The way it's going, technology is going to be more interactive," he says. "It's going to work with you."

Despite the distance from New York, some of the Santa Clara viewers found the nuptial as moving as if it had taken place in front of them. They cried.

But more than that, the wedding has "a novel factor to it," Mr. Thorne said. "I think it's fun. It seemed like the natural thing to do."

Natural, perhaps, and apparently legal. Marrying parties need not appear before a judge, said Mr. Avakian. "The magistrate need only be able to identify the couple by sight and sound."

In contrast to their high-tech union, the couple will spend a more traditional honeymoon in Greece. After they help break down the Expo booths, that is.

Nonprofit Blue Cross and Blue Shield plans are moving rapidly to spin off their managed health-care operations into public companies to take advantage of the high stock prices such companies fetch.

The trend is expected to gain pace following last week's decision by the plans' national association to allow the parent Blues themselves to become for-profit organizations. The decision represents a sea change in attitude for the association, whose cardinal principal has long been its members' nonprofit status.

The decision recognizes an unstoppable development: the Blues' keen desire to tap into investors' willingness to pay big bucks for promising managed-care companies, including health-maintenance organizations. Like all insurers, the Blues need capital to expand and strengthen their managed-care networks to compete more effectively with public HMO companies such as Humana Inc. of Louisville, Ky.

The 69 Blues organizations nationwide, with $71.2 billion in 1993 revenue, historically have specialized in fee-for-service insurance. But 40% of the 66.1 million people covered are now in managed-care plans.

Two Blue Cross and Blue Shield subsidiaries already trade on stock exchanges: United Wisconsin Services Inc., a subsidiary of Wisconsin's Blues organization, went public in 1991 and trades on the Nasdaq Stock Market; and Wellpoint Health Networks Inc., a unit of a California's Blue, trades on the New York Stock Exchange. RightChoice Managed Care Inc., connected with a Missouri Blues-group, is planning to sell shares. And a handful of other Blues are considering such moves.

"To be a player" in managed health care, "you have to make investments," and HMO companies "have attractiveness" to investors, says Stefen Brueckner, president of Community Mutual Insurance Co., a Blues group in Cincinnati with 2.5 million customers.

HMO companies' shares trade at 14 to 40 times projected 1994 earnings, while conventional insurers generally trade at less than 10 times earnings.

Mr. Brueckner says Blues groups like his that are owned mutually see disadvantages to taking the parent public, mainly because demutualization is costly and cumbersome. Nonetheless, packaging the company's conventional fee-for-service insurance with its managed-care operations as a public company has appeal. He cited the recently announced merger plan of Travelers Inc. and Metropolitan Life Insurance Co. The two giants, heavily weighted with fee-for-service insurance, will create a giant new company with 13 million insured lives. It's expected to go public a year or so after its creation, taking advantage of expectations that the fee-for-service customers will convert to managed care.

"More and more of the Blues' plans are looking very seriously at the alternatives available for raising capital," Richard Schapiro, a Salomon Brothers Inc. managing director, says.

WASHINGTON -- Asia is developing a strong aeronautics industry with the help of Western technology, but these growing skills aren't likely to take business away from U.S. aircraft builders until well into the future, the U.S. General Accounting Office reported.

The congressional watchdog body based its judgment on a yearlong study of the aircraft-manufacturing capabilities of Japan, Taiwan, Indonesia and China. The GAO found Japan fully capable of producing its own jet aircraft, but still unprepared to launch a major program without the cooperation of Western companies. Taiwan likewise has plans to build passenger jets, but its timetable has slipped as a result of its failure to forge links with either McDonnell Douglas Corp. or British Aerospace PLC.

The aspiring Asian producers are deterred mainly by the steep costs of developing new commercial aircraft, the GAO said. For the next several years they are likely to be content with being parts suppliers or joint aircraft developers with their chosen Western partners. But beyond this period, U.S. aerospace companies could find themselves at a competitive disadvantage if they continue to bleed from defense cutbacks while their Asian counterparts grow stronger from government subsidies.

The GAO report suggests that if such a situation arises, the U.S. may have to invoke the antisubsidy provisions of the General Agreement on Tariffs and Trade against some of these Asian countries. In the last GATT negotiating round, the U.S. sought stricter rules on government aid for civil-aircraft programs, but its concern then was European spending rather than that of Japan or Taiwan.

The GAO study, requested by the House Committee on Science, Space and Technology, isn't considered to be unduly alarming. But it could lead to closer congressional monitoring of U.S. transfers of aerospace technology to Asian countries perceived to be future competitors.

The GAO found ample evidence that such transfers were the jump-starters for many of these Asian ventures. "Once acquired, these technologies can be honed and improved upon," the report said. "Consequently, what starts as a subcontract to produce latches on cargo doors, for instance, develops over time to fuselage, wing and avionics manufacturing."

Taiwan went through this learning curve with the help of U.S. vendors. In exchange for Taiwan's purchase of their aircraft and engines, the U.S. companies had to agree to train Taiwanese engineers, pass on valuable process technology and buy back aircraft parts from Taiwanese suppliers, the report said.

The GAO team judged Taiwan's Aeronautical Industry Development Center to be "one of the most complete and sophisticated aircraft production shops in Asia." Although it currently produces only fighter planes, the facility could be readily converted to passenger-plane manufacturing.

The GAO also was impressed by the technical abilities of Indonesia's state-owned aeronautics firm, Industri Pesawat Terbang Nusantara, or IPTN. The company plans to produce a 64-seat turboprop aircraft in 1995, and to move into the development of a 100-seater thereafter. Indonesian officials told the GAO investigators that this progress wouldn't be possible without IPTN's partnerships with Western companies. In 1990, the Indonesian government invested $1 billion in its showcase aircraft maker.

The report cited the role of Japan's Ministry of International Trade and Industry as an example of how Asian governments spare no effort in growing their aerospace industries. MITI not only organizes consortia of airplane parts suppliers, but also makes financial arrangements to reduce the participants' risks. The ministry also is underwriting $350 million of the development costs of Japanese firms supplying parts for Boeing Co.'s new 777 jetliner, the GAO said. MITI, moreover, has requested allocations of $750 million to be spent on the construction of a new jet engine.

The GAO found China to be the least prepared for international competition among the four countries. The state-owned Aviation Industries of China is burdened by "overcapacity and comparatively lower technology," the report said. However, Aviation Industries has a three-year plan to become financially self-supporting with some technical assistance from Boeing, McDonnell Douglas, Aerospatiale of France and General Electric Co. of the U.S. Moreover, Aviation Industries could benefit from the plans of some entrepreneurs to pool Chinese, Hong Kong, Singaporean and Taiwanese capital to produce a new passenger aircraft for the China market.

The following were among yesterday's offerings and pricings in U.S. and non-U.S. capital markets, with terms and syndicate manager, as compiled by Dow Jones Capital Markets Report:

Saga Petroleum AS -- $200 million of debt priced in two parts through lead underwriter Goldman, Sachs & Co., according to MCM CorporateWatch. The first part, $100 million of notes due July 15, 2004, was priced as 8.4s at 99.743 to yield 8.438%, a spread of 110 basis points above Treasurys. The second part, $100 million of debentures due July 15, 2014, was priced as 9.125s at 99.932 to yield 9.132%, a spread of 145 basis points above Treasurys. Both tranches are noncallable and are rated Baa-3 by Moody's Investors Service Inc. and triple-B-plus by Standard & Poor's Ratings Group.

United Airlines -- $741.2 million of debentures priced in two parts through lead manager Merrill Lynch & Co, according to a syndicate official at Merrill Lynch. The first tranche, $370.2 million due May 1, 2004, was priced at par to yield 10.67%. The noncallable issue was priced at a spread of 335 basis points above Treasurys. The second tranche, $371 million due May 1, 2014, was priced at par to yield 11.21%. The noncallable issue was priced at a spread of 355 basis points above Treasurys. Both tranches are rated Baa-3 by Moody's and double-B by S&P. United Airlines is a unit of UAL Corp.

Banpais SA -- initial offering of seven million American depositary shares priced at $10 each through underwriters led by Bear, Stearns & Co. Each ADS represents six ordinary shares.

MediSense Inc. -- initial offering of 4.5 million common shares priced at $12 each through underwriters led by Alex. Brown & Sons Inc.

Rawlings Sporting Goods Co. -- initial offering of 7.6 million common shares priced at $12 each through underwriters led by Dillon, Read & Co.

UAL Corp. -- $410.4 million of cumulative preferred stock priced with a 12.25% dividend yield. The 16.4 million shares were priced at $25 each, according to lead manager Merrill Lynch & Co. The issue, noncallable for 10 years, is rated ba-3 by Moody's and single-B-plus by S&P.

United Wisconsin Services Inc. -- 2.5 million common shares priced at $28 each through underwriters led by Merrill Lynch & Co.

Federal Home Loan Mortgage Corp. -- $300 million of real-estate mortgage-investment conduit securities offered by Lehman Brothers Inc. The offering, Series G035, is backed by Government National Mortgage Association 30-year, 8% mortgage securities. The collateral has a weighted average coupon rate of 8.5% and weighted average maturity of 349 months.

Federal National Mortgage Association -- $350 million of Remic securities offered by Kidder, Peabody & Co. The offering, Series 1994-92, is backed by the agency's 30-year, 7.5% mortgage securities. The collateral has a weighted average coupon rate of 8.1% and weighted average maturity of 357 months.

Ayala Land Inc. (Philippines) -- $100 million of global, convertible notes with indicated coupon of 4% to 4.5% due January 2000 at issue price par via Morgan Stanley & Co. International. The notes are convertible into the company's Class B shares on the Philippine Stock Exchange at indicated conversion price of 4% to 8% above closing prices of these shares on day of pricing. Fees 2.5.

Bayerische Veriensbank (Germany) -- five billion yen of step-up notes due Nov. 9, 2001, at issue price 100.25, via Sanwa International and Bayersiche Vereinsbank. Coupon of 4.2% until Nov. 9, 1998, and then 5.5%, with a short first coupon. Callable November 1998 at par. Fees 0.25.

General Electric Capital Corp. (U.S. parent) -- $150 million of 6.5% Eurobonds due Aug. 5, 1997, at issue price 100.9415 via Barclays de Zoete Wedd Securities Ltd. Reoffered at 99.754 to yield 6.593% annually, a spread of 20 basis points over the three-year U.S. Treasury note. Fees 1.375.

Gracechurch Mortgage Finance No. 3 PLC (special-purpose vehicle) -- #300 million of global, asset-backed, floating-rate notes due September 2029 at issue price par via Barclays de Zoete Wedd Securities Ltd and Lehman Brothers International. Reoffered at 99.9. Coupon 20 basis points above threemonth London Interbank Offered Rate with short first coupon of 20 basis points over two-month Libor. Coupon steps up to 50 basis points over three-month Libor after 2001. Callable at par after June 2001 on any interest payment date if current balance of mortgages is less than 10% of purchasing price. Fees 0.3.

Federal Express Corp., benefiting from an improved performance overseas, reported that fiscal fourth-quarter earnings jumped 45%, far exceeding analysts' expectations.

For the quarter ended May 31, the express-delivery company reported net income of $80.7 million, or $1.43 a share, compared with net of $55.8 million, or $1.01 a share, a year earlier. Revenue rose to $2.26 billion from $2.03 billion.

Industry analysts had been expecting fiscal fourth-quarter earnings of about $1.29 a share.

The bulk of the gains came from the international division. After five years of losses, the overseas business had an operating profit of $20.4 million on revenue of $621.2 million, compared with an operating loss of $25.4 million on revenue of $539.2 million a year earlier. Federal Express, based in Memphis, Tenn., said volume growth and improved efficiencies powered the improvement.

Analysts said they were especially pleased with the strong performance overseas. "That's been the area where they've surprised us all year long," said Douglas Rockel of Merrill Lynch.

Less encouraging, however, were results on the domestic front. Stiff competition and a shift to lower-priced two-day deliveries have squeezed prices throughout the industry. Federal Express's domestic operating profit rose 7% in the quarter to $173.3 million, while revenue rose 10%.

For the year, Federal Express had record net income of $204.4 million, or $3.65 a share, compared with earnings of $53.9 million, or 98 cents a share, a year earlier. The year-earlier figure included an accounting adjustment of $55.9 million, or $1.03 a share. Revenue in fiscal 1994 rose 8.7% to $8.48 billion from $7.8 billion.

TOKYO -- Tiffany & Co. plans to open one or two independent stores in Japan annually in coming years, and hopes to launch a flagship store in downtown Tokyo fairly soon, its top executive said.

The New York-based jewelry concern sees Japan as its biggest foreign market, and will continue to expand there steadily, William R. Chaney, chairman, said in an interview. There are now 29 Tiffany boutiques in Mitsukoshi department stores throughout Japan, and eight run by Tiffany's Japan subsidiary outside of Mitsukoshi, he said.

"I'd love the opening of a flagship store to be in a year," he said, adding that the company is looking for "the perfect location." Recent declines in Japanese land prices could help the company.

Tiffany will also continue its push into other Asian regions. "We'd like to open at least one or two additional Asian stores outside of Japan" annually, Mr. Chaney said. The company will open a store in Australia later this year, and is considering sites in Indonesia, Malaysia and Thailand, he said.

In July 1993, Tiffany took over the marketing and merchandising of its products in Japan from Mitsukoshi, which had bought Tiffany products wholesale. The move, said Mr. Chaney, was in response to sluggish sales and swollen inventories in the wake of Japan's recession. Tiffany now sells its own merchandise on a retail, rather than wholesale, basis in the Japanese stores.

Many analysts viewed that switch as reflective of a clash of management and sales styles between the two companies. But Mr. Chaney stressed the importance of the Tiffany-Mitsukoshi relationship. "If we did it all again at the same point in history, we'd do it in the same way," he said. The partnership, he added, "resulted in a great success that outpaced us" in terms of Mitsukoshi's capacity.

He added that although Tiffany's sales in Japan have been "flattish" in past years, there have been some "encouraging" upticks recently that lead him to believe the recession may be bottoming out. "I anticipate in Japan up to 15% growth {in Tiffany sales} annually in the longer term," he said. Japan makes up about 25% of Tiffany's total sales.

NEW YORK -- Help-wanted advertising posted strong gains in May, breaking away from the stagnant growth in the previous two months, according to the Conference Board.

The board's help-wanted index, an indicator of hiring plans, rose to 123 on a seasonally adjusted basis, from 117 in both April and March and 100 a year earlier.

"There is still life in the labor market," said Conference Board economist Ken Goldstein. "The real strength of the recovering labor market is in the interior regions of the country. With one exception, the weakness that has developed in recent months has been in the coastal regions. He said this pattern is likely to persist over the next 18 months.

The Pacific and New England regions have been two of the three regions with the slowest improvement over the past three months. For the period, help-wanted advertising increased in all regions of the country except for the West South Central, where it fell 3.7%, the board said.

The East South Central region showed the strongest increase for the three months, rising 20%, while the East North Central region showed an increase of 13.7%. The West North Central and Middle Atlantic regions rose 11.4% and 9.2%, respectively. The Pacific posted a meager 0.5% increase, and New England rose 4%.

The Conference Board, a nonprofit business research group, surveys help-wanted advertising volume in 51 major newspapers every month. The measure is considered a barometer of change in the supply of jobs because advertising volume is sensitive to labor-market conditions.

PARIS -- German media group Bertelsmann AG and French pay-TV operator Canal Plus intend to set up a European pay-TV joint venture by the end of July, Bertelsmann financial director Siegfried Luther said.

In an interview with French financial daily La Tribune Desfosses, Mr. Luther said the joint venture would pool the new pay-TV activities of the two companies. "That means when Canal Plus establishes itself in Poland or in Turkey, we will equally be present," he said.

Mr. Luther also debunked speculation that Bertelsmann and Canal Plus would take cross-shareholdings in each other, saying that such an arrangement has never been under consideration and would be too costly.

Mr. Luther also said Bertelsmann is equally interested in expanding its operations in the film industry, where small, independent studios in the U.S. have caught the group's attention.

ROCHESTER, N.Y. -- Transmation Inc. said William J. Berk resigned as president and chief executive because of health reasons.

The company named Robert G. Klimasewski as interim president and chief executive. Mr. Klimasewski, 51 years old, has been on Transmation's board since 1985. He is founder and co-owner of Burleigh Instruments Inc., a Fishers, N.Y.-based laser instrumentation manufacturer.

Mr. Berk, 69, will remain as chairman of the board and as an adviser to Transmation, a manufacturer of instrumentation used in monitoring industrial processes.

For the fiscal year ended March 31, Transmation reported a loss of $586,200, or 25 cents a share, on a one-time gain of $170,000, or seven cents a share, for an accounting change. Sales for the year were $34 million.

In August 1993, Transmation hired investment banker Advest Inc. to "explore financial opportunities . . . which could include the sale of all or a part of the company." Transmation said it is continuing the process.

MOSCOW -- The cramped main computer room of Russia's state agency for measuring the economy, Goskomstat, is filled with the clatter of machines generating some of the world's gloomiest, and most misleading, statistics.

Mammoth Soviet computers are crammed behind new International Business Machines Corp. mainframes brought in to track an economy in transition. By Goskomstat's account, Russia's gross domestic product has plunged 17% in the past year, and 50% since market reforms began in late 1991. Industrial production in the first five months of 1994 was down 29% from the same stretch in 1993.

But outside the flaking walls of this state data center, there's a much livelier Russia. GDP may be as much as 40% higher than the official numbers, estimate some economists, including the new president of Goskomstat himself, Yuri Yurkov. Trade, says Mr. Yurkov, may be a third larger than his agency reports. In the real, but largely undocumented new Russian economy, Russia's 148 million people on average earn more and live better than their own government says.

One reason for the discrepancy is that Goskomstat, mired in Soviet ways, still focuses on the withering old centrally planned economy. Meanwhile, a new market economy is starting to thrive, but mostly off the books. High taxes and tangled, often wastefully restrictive laws create a climate in which it doesn't pay to be legal, especially for small-scale private traders and service people who are the driving force of market reform.

So, for Goskomstat's number crunchers, much of Russia's new market economy doesn't exist. Under Mr. Yurkov, the agency has begun trying to fill in the gaps. But so far, laments the tall, blue-eyed Mr. Yurkov, "there are more problems than achievements."

The rigors of switching from communist to capitalist measures of the economy have so far produced a hybrid system salted with major biases. Most state numbers are too bad to be true. Unemployment figures are probably too good. Lumped together, these biases probably mean Russia is "better off" than reported, says the chief economist of the World Bank's Moscow office, Charles Blitzer.

But just how much better off? Economists find themselves sorting through a statistical junk heap. A recent working paper of the International Monetary Fund notes that "as Russia's transition unfolds, the traditional national-accounts concepts and reporting mechanisms become increasingly inadequate." The World Bank's statistical adviser for Europe and Central Asia, Misha Belkindas, says, "The old statistical system is breaking down, and the new one has yet to be built."

Real value in Russia has long been a fugitive beast. Soviet prices were fixed, with little relation to supply and demand. Instead, goods were allocated by requiring that people waste time in line or cultivate Communist Party connections. The Soviet ruble-dollar exchange rate was fake, therefore no guide. Enterprises overstated production to comply with the state plan, and the state for propaganda reasons reported that all was well when it wasn't.

Since the Soviet Union collapsed and Russia turned to market reforms, wildly fluctuating inflation and exchange rates have obscured actual prices. At current ruble-dollar rates, the ruble's buying power has soared since last year. One Western economist estimates that in dollar terms, Russia's GDP has leapt to $61.4 billion for the first quarter of this year, implying a GDP for 1994 of $246 billion, compared with $174 billion in 1993. By this estimate, Russian GDP, measured in dollars, has jumped 41% in the past year, roughly the same period for which Goskomstat reported a 17% drop.

One point on which market economists largely agree is that Goskomstat's reports of falling industrial production are no cause for alarm, but a sign of economic health. Industrial production was prized under the Soviet system, but no one cared whether consumers would actually buy the stuff. Russia's people were a captive market. So the government poured the nation's resources into producing things for which there was little demand.

That means it could translate into a net gain for Russia that wasteful industrial production is in decline. The World Bank's Mr. Blitzer says the Russian economy has lingering state-spawned sectors today "where the raw materials are worth more than the output."

Goskomstat's Mr. Yurkov adds that his agency's reports of a 29% industrial drop is "just a sign of a more market-oriented economy." He says, "We are losing volumes that aren't necessary today, such as military production, and farm equipment of poor quality."

Trade is another area where state statistics turn soggy. Many Russian traders either bribe or evade state customs collectors. In 1993, the IMF found, Russia reported $27 billion in imports, but its trading partners reported exports to Russia totaled $33 billion. Officials assume the missing $6 billion of goods reached Russia but wasn't reported to the government.

Some exports also seem to go uncounted. For 1993, Russia reported selling $3 billion less to its trading partners than they said they received.

Also missed by customs are the many thousands of Russians who travel to countries such as China or Poland just to stuff their suitcases or cars with goods and bring them back, undeclared to anybody.

Both the World Bank and Goskomstat believe unemployment is higher than the current 4% estimate. Many Russians never register as unemployed because it's a big bother and not much help. And many Russians are listed as employed even when they work for state enterprises that haven't paid them in months, or that pay too little to live on. Balancing that, many Russians work in the shadow private sector and don't report their income to avoid Russia's high taxes.

"We are not naive, and what our companies tell us, we do not consider to be final," says Mr. Yurkov of Goskomstat. But Goskomstat's position as the official supplier of Russian economic indicators means its more alarming numbers turn up regularly in the news. Warns an old Russia hand, Aspen Institute President Frederick Starr, "We are drawing serious conclusions and basing policy on seriously misunderstood data."

WASHINGTON -- The economy is continuing to grow steadily, the latest government data suggest.

Disposable personal income grew an inflation-adjusted 1% in May from a month earlier, the Commerce Department said. But consumers didn't spend nearly as much as they earned, suggesting that the buying binge of recent months has waned a bit. Personal consumption rose 0.2% in May from April, when it declined 0.6%.

The department also said new orders for manufactured goods advanced 0.6% in May to $276.81 billion. The month-to-month increase followed a 0.2% gain in April and was driven mainly by new orders for transportation equipment.

Analysts said the figures suggest the economy is growing nicely and isn't about to overheat. "This economy is in a self-sustaining recovery phase," said Brian Wesbury, chief economist for Griffin, Kubik, Stephens & Thompson Inc. in Chicago.

Besides a 2.1% rise in transportation orders, the only other major categories to post gains were bookings for primary metals, fabricated metals and instruments. Orders for industrial machinery and nondurable goods were flat. Electronics and stone, clay and glass orders fell.

"The increase in orders points to some moderation in the growth of new manufacturing activity ahead," said Carl Palash of MCM MoneyWatch, a financial advisory firm in New York.

The report showed that unfilled orders increased in May for the second straight month. That could mean that factories are having trouble keeping up with demand -- forcing them to hire more workers. So far, the bulk of the increased activity in the manufacturing sector has been met with longer hours for existing workers.

The increase in disposable income in May, along with the much smaller rise in spending, meant that Americans were able to save more money. The savings rate jumped to 4.7% in May from 3.9% in April. Analysts have suggested that the economy is likely to lose some momentum toward the end of the year as consumers slow down their spending habits. That, of course, is good news for the savings rate, which, except in May, has been battered over the past several months as Americans spent more than they earned.

An American Business Conference survey released yesterday found that members feel the economy will continue to grow but not at the fast pace of the end of last year. "To borrow a line from Cole Porter, growth was too hot not to cool down," said Barry Rogstad, the group's president. As a result, many members remain hesitant about adding new full-time employees to their payrolls.

Separately, the Labor Department said last week's new claims for initial unemployment insurance were unchanged at 353,000. The four-week moving average of claims, which is a better indicator of labor-market conditions, fell by 1,250 claimants to 353,500. Marilyn Schaja, money-market economist for Donaldson, Lufkin & Jenrette, said the figures suggest a moderate improvement in the job market.

All figures have been adjusted for normal seasonal variations.

Here is the Commerce Department's latest report on personal income. The figures are at seasonally adjusted annual rates in trillions of dollars.

Here are the Commerce Department's latest figures for manufacturers in billions of dollars, seasonally adjusted.

MAYNARD, Mass. -- Digital Equipment Corp. said it intends to phase out its computer metal housing manufacturing operation in Westfield, Mass.

The computer company said it would lay off the plant's 340 employees over the next nine months and subcontract the work in the future. It said it expects the process will be completed by March 1995.

Digital said the decision to close the plant was part of its restructuring plan to focus more on its most competitive, core businesses. Digital has previously said it plans to shed at least 20,000 jobs, or a fifth of its payroll, during the next two years.

NEW YORK -- Companies in Switzerland and elsewhere are rushing to buy U.S. corporations before year's end, when a change in international accounting rules will end the advantage that some foreign buyers currently enjoy over U.S. rivals.

Starting next year, new international accounting rules will force these foreign companies to deduct from profits the value of goodwill, as is required of U.S. companies here. A company's goodwill is any advantage, such as a well-regarded trademark or brand name, that should enable the company to earn higher profits than competitors. In an acquisition, the value of goodwill is calculated as the excess paid for a company above its book value, which often is a substantial sum.

Currently, many foreign companies can deduct goodwill from equity or net worth -- a far less onerous penalty than deducting goodwill from profits. As a result, some European companies can afford to pay more than their American competitors to acquire U.S. companies.

The new rules have been set by the International Accounting Standards Committee, a world-wide group of national accounting bodies. The standards it sets are mandatory only for countries that accept them, including Switzerland and Italy, although numerous individual companies world-wide accept the rules voluntarily.

The new rule, which is slightly tougher than U.S. rules, calls for deducting goodwill over five to 20 years. U.S. rules currently allow companies to take as long as 40 years to deduct goodwill, although the Securities and Exchange Commission recently issued a proposal for public comment that would adopt the IAS rules on goodwill for companies that plan to list their securities in the U.S.

The SEC won't say if or when it plans to adopt this proposal, but the proposal is an added incentive for foreign companies to speed up acquisitions in the U.S.

"The threat of leveling the goodwill playing field next year is spurring more acquisitions of U.S. companies by Swiss and other European acquirers," says Robert Willens, an accounting analyst for Lehman Brothers Inc. Mr. Willens notes that the ability of foreign companies to charge goodwill against equity creates "what is often an insurmountable advantage" for those companies against their U.S. counterparts.

For example, the takeover battle for Gerber Products Co. included bids by a number of U.S. companies, including Quaker Oats Co., which entered the fray with a bid of around $35 a share. But Swiss drug giant Sandoz Ltd. won the battle by quickly raising the ante to $53 a share, or $3.7 billion, partly because it could benefit from the favorable accounting treatment involving goodwill, investment bankers say.

Just last week, shares of Quaker Oats reached a six-year high on the New York Stock Exchange on rumors the diversified food company may be taken over by Swiss food giant Nestle SA, although Nestle later denied it was interested in buying the company.

In May, another Swiss drug company, Roche Holding Ltd., agreed to acquire Syntex Corp., a pharmaceutical company based in Palo Alto, Calif., for $5.3 billion.

In Basel, Switzerland, Sandoz Chief Financial Officer Raymond Breu, said strategic considerations rather than accounting-rule changes prompted the company's decision to acquire Gerber. Roche, also based in Basel, declines to comment on whether the accounting-rule change influenced its bid for Syntex.

But a person familiar with the Roche and the Sandoz negotiations says the imminent rule change was a factor that helped influence both companies' decisions.

Eric Gleacher, an investment banker with Gleacher Morgan Grenfell, New York, says publicly traded companies often buy a company "based on what the purchase will do to reported earnings." He notes that the goodwill issue usually arises with foreign purchasers because they most often pay cash rather than swapping stock. That is because U.S. investors try to avoid getting foreign-company stock, particularly if it isn't listed on U.S. exchanges, he adds.

The goodwill advantage was particularly apparent in the U.S. in the late 1980s. British buyers then rushed to spend $60 billion on 750 U.S. acquisitions to beat an impending British accounting rule that would have forced them to deduct goodwill from profits as U.S. companies must do.

So far, however, British accounting-rule makers haven't imposed the rule, which they still are debating. The British invasion has slowed as the economy in that country has soured.

NEW YORK -- Nine months after a brush with financial calamity, Irish aircraft leasing giant GPA Group PLC is in the U.S. markets peddling $950 million in bonds backed by aircraft leases.

GE Capital Corp., which helped bail the company out last year, is expected to buy around $150 million of the riskier part of the offering, people familiar with the agreement say. The move signals GE's commitment to the company and would make it easier for GPA to place the securities, analysts say.

Last fall GPA avoided bankruptcy by raising about $130 million from its shareholders, deferring principal payments on its bank loans, and canceling billions in aircraft orders. In addition, GE Capital, a unit of General Electric Co., Fairfield, Conn., agreed to purchase $1.35 billion in aircraft and set up a management arm to effectively manage GPA's assets with the help of top GPA executives. GE Capital also received an option to purchase at least 65% of GPA's equity.

While GE Capital said last fall that it would assist GPA in selling aircraft-backed bonds, "the level of support demonstrates it's more likely that GE will exercise its option" to buy the equity stake, says Max Holmes, high-yield bond strategist at Salomon Brothers.

Spokesmen for GPA and GE Capital declined to comment on the bond offering, which was recently filed with the Securities and Exchange Commission.

The $950 million in bonds are collateralized by aircraft lease payments made by airliners such as Aeromexico. The bonds sold to the public are expected to be rated investment-grade by major rating agencies, in part because the collateral's value exceeds the value of the securities. The lower credit bonds will be sold to GE Capital and GPA itself.

The proceeds from the transaction, the second public sale of aircraft lease bonds by GPA, will be used to pay off bank lenders and other creditors. GPA is still shut out of the equity markets and cannot obtain bank credit.

But GE's multifarious relationship with GPA -- it is also servicer of the new securities, for example -- raises the potential for conflicts of interest, the SEC filing shows. GE Capital is the world's largest manager of aircraft in the world through GE Capital Aviation Services, or GECAS. The unit helps GE Capital and other aircraft owners release planes that come off lease.

The problem is that the pool of GPA securities will be competing with GE Capital for clients. For instance, if a lease in the portfolio of securities matures, the GE Capital unit is the marketing agent to find another airline to rent the plane. But GE Capital has its own fleet of aircraft -- meaning it too is looking for clients to lease its aircraft.

The filing said GECAS has specific rules to avoid favoritism, and that it will perform its function "in good faith" and "will not discriminate" between aircraft.

"Whose do they market first?" asks Salomon's Mr. Holmes. "You have to trust that they're going to be fair."

WASHINGTON -- Giant Bethlehem Steel Corp. says it needs extra trade protection so it can finance health care for 70,000 retired workers.

But this paternalism doesn't impress little MacNeill Engineering Co. It considers Bethlehem just another big steelmaker that attacks foreign rivals because it can't compete on quality.

Meanwhile, the European Union worries that Congress might pass laws that would hurt its exports of many products, not just steel.

The common thread in all this is an effort in Washington to translate into specific legislation the terms of the global trade treaty signed last April. How faithfully it is done will set the tone of U.S. trade practice. Just now, Washington is leaning toward more protectionism, not less.

If U.S. laws turn out that way, other nations could once again follow the American example, bringing a rash of laws and litigation and disrupting trade flows on a major scale. A key issue is how Congress will write antidumping rules, one of the more mind-numbing aspects of trade law.

Dumping refers to the practice of selling imported goods at "unfair" prices, often below the cost of production, in an effort to win market share from the domestic industry. The U.S. outlawed this back in 1916, and now 42 nations have comparable laws, with more expected soon. The normal remedy is to slap punitive duties on imports, raising prices sharply.

But as in most disputes that support platoons of high-priced lawyers and lobbyists, nothing is simple. Both the laws and procedures for applying them involve arbitrary judgments, and much of their original rationale was lost long ago. Thus antidumping laws "have become the primary means of imposing import relief" for companies that don't want foreign competition, says economist Jeffrey Schott of the Institute for International Economics.

Justified or not, they certainly do raise prices. An IIE study found that 100 antidumping orders in 1991 applied to $3 billion worth of U.S. imports and increased their cost by more than 45%.

Steel is central to today's dumping dispute. Leading one side are the main U.S. integrated steel producers, which claim they face unfair foreign competition thanks to state subsidies or cut-rate pricing. Joining them are labor unions, ballbearing makers and semiconductor companies such as Intel Corp. They want trade laws tightened.

Opposed are big exporters such as International Business Machines Corp. and Cargill Corp., who increasingly suffer from antidumping measures in other countries. Also involved are hundreds of small steel users, which may not buy enough to interest big U.S. mills, which often can't or won't make exactly what the small companies need. These groups contend that Congress and the administration are making protectionist bits of the trade treaty even worse.

One of these is MacNeill, whose products include cleats for sports shoes. Two years ago it tried 62,000 pounds of Bethlehem carbon steel, which cracked and flaked when bent into the peculiar shapes needed for golf spikes. Tests with other U.S. metal also failed, says Ralph Fox, manufacturing director, so his company buys German and Japanese steel.

But such companies don't expect much sympathy from the Clinton administration, despite its free-trade rhetoric. They say officials, under political pressure, already have reworded key treaty phrases to make filing and winning dumping cases even easier. The steel industry and others want Congress to make this implementing legislation even tougher.

"The crucial issue is the preservation of fair-trade remedies in the face of persistent and endemic dumping," says a Bethlehem lobbyist. Otherwise, he says, his company might not earn enough to pay its bills, including for retirees' health care.

The Europeans, who like the treaty's existing restrictions, suddenly are afraid Congress may go too far; the EU has asked the White House to fight back. It's afraid tougher U.S. laws would inspire other nations to pass similar codes and bring new trade disputes all over the world.

The fight resumes in mid-July when Congress returns from vacation, and counsel for both sides resume lobbying. The outcome is uncertain except for one thing: The trade lawyers will do just fine.

CINCINNATI -- Omnicare Inc. said it acquired Lo-Med Prescription Services Inc. in a stock-swap valued at about $12 million.

Omnicare will exchange 370,932 shares of its common stock for closely held LoMed and treat it as a pooling of interests. The acquisition is expected to be non-dilutive to Omnicare's 1994 earnings, the provider of pharmacy services to long-term care institutions said.

Lo-Med, Wadsworth, Ohio, provides pharmacy, clinical and consulting services to 72 nursing facilities in northeastern Ohio and has annual revenue of about $13 million. For 1993, Omnicare posted sales of $159.6 million.

AUTOALLIANCE Inc. (Flat Rock, Mich.) -- James L. Solberg was named president, chief executive officer and chief operating officer of the assembly plant that is owned jointly by Mazda Motor Corp. and Ford Motor Co. Mr. Solberg, 48 years old, is the first Ford official to run the factory since it opened in 1987. Mr. Solberg previously was AutoAlliance's executive vice president of planning and administration. He joined Ford in 1967 as a quality-control analyst. Mr. Solberg succeeds Mamoru Takebayashi, who will return to Japan as senior managing director of Mazda Motor.

COLUMBUS, Ohio -- Consolidated Stores Corp. said total sales for the four weeks ended June 25 rose 15.5% to $84 million from $72.7 million a year earlier.

Sales for the five months ended June 25 totaled $402 million, up 14.6% from $351 million in the 1993 period.

The retailer and wholesaler of close-out merchandise said sales for the latest five-month period included $3.8 million of sales associated with the May 18 acquisition of Toy Liquidators, a chain of 82 close-out toy stores located in outlet malls.

Sales at stores open for at least two years decreased 1.3% in the latest five-month period, Consolidated Stores said.

NEW YORK -- Rising interest rates and a falling dollar torpedoed Wall Street's powerful stock- and bond-underwriting machines.

The total volume of new stock and bonds sold domestically in the first six months of the year plummeted to $437.8 billion, an 18% drop from $533.6 billion a year earlier. Second-quarter issuance hit the lowest level since the third quarter of 1991, according to Securities Data Co. It was the first time since the fourth quarter of 1990 that domestic sales of stocks and bonds dropped on a year-to-year basis.

The rout in underwriting was led by a steep drop in sales of fixed-income securities. Domestic debt underwritings in the first half tumbled 17% to $390.8 billion, with second-quarter sales hitting the lowest level since the fourth quarter of 1991. Volume fell in nearly every other underwriting category during the second quarter, including initial public stock offerings and common-stock sales.

"The environment stinks," says Grant Kvalheim, managing director of the capital markets desk at Merrill Lynch & Co. "It's slow and even slower than the overall statistics might lead you to believe."

The recent plunge in securities underwritings sinks Wall Street's chances for another blockbuster year. After wallowing in profits for the past three years, securities firms -- which buy new stock and bond issues from corporations and resell them to investors at a markup -- earned $3.4 billion in disclosed underwriting fees in the first half, a 22% drop from the year-earlier period. On a quarterly basis, underwriting fees fell to their lowest level since the third quarter of 1991.

The drop in revenue is spurring some of the biggest securities firms, such as Merrill Lynch, to scale back their hiring plans this year. "This will go down as the quarter from hell for most firms," says Joseph Grano, PaineWebber Group's brokerage chief and the head of the National Association of Securities Dealers.

In recent years, Wall Street has relied increasingly on bond underwriting and trading for a big chunk of profits. But the recent drop in underwritings has led to declines in overall trading volume at the same time that turmoil in the market for mortgage-backed securities has produced losses for several large Wall Street firms, including Kidder Peabody and Bear Stearns.

Thanks to its pre-eminence in stock and bond underwriting, Merrill Lynch, the nation's largest brokerage firm, continued to dominate the underwriting landscape, becoming the top-ranked underwriter of U.S. stocks and bonds for the 26th consecutive quarter. Merrill underwrote nearly $73 billion in domestic stock and bonds, claiming 16.7% of market share and becoming the top fee producer in the first half, with $650.8 million in disclosed fees.

Wall Street investment bankers like Mr. Kvalheim of Merrill Lynch fret that while there is still business for the taking, much of it is of the low-fee variety.

For instance, underwritings of agency debt issues, about half of which are bid for competitively and thus generate lower fees than investment-grade corporate bond deals, rose slightly in the second quarter. Similarly, sales of floating-rate notes, another low-margin business, jumped 44% in the second quarter and constituted 22% of total domestic debt underwriting.

"The decline in volume is understating the decline in revenue to Wall Street," says James A. Forese, head of the debt syndicate desk at Salomon Brothers Inc. He notes that "the business that is down sharply is the higher-margin fee-producing deals."

With activity on the bond-underwriting side so thin, Mr. Forese says many Wall Street firms are willing to "buy" market share by purchasing bonds from companies at prices at which they are unable to resell the securities. If Wall Street firms can't unload the bonds and interest rates rise, syndicate desks wind up carrying the securities at a loss.

"Bond syndicate desks are significantly less profitable than they were last year," says Mr. Forese. And he doesn't think conditions will improve soon. "I think the third quarter is going to be just as bad as the second quarter."

On the stock side, the picture wasn't much brighter. Total first-half volume of common-stock offerings, excluding closed-end funds, tumbled 15% to $33.1 billion. Hit hard were initial public offerings, or stock sales by companies going public for the first time. According to Securities Data, IPOs, excluding closed-end funds and stock-warrant units, swooned to $16.5 billion in the first half, an 8.3% decline from a year earlier.

The biggest IPO, by far, was TeleDanmark ($1.2 billion), the Danish telecommunications company being privatized by the government. Real-estate investment trusts were among the hottest sectors of the IPO market, and three of the top 10 initial public offerings in the second quarter were of REITs.

Merrill, which is among the largest underwriters of REITs, retained its crown as the No. 1 stock underwriter, helping to raise $6.7 billion for a 20.2% market share in the first half. Goldman was second, enabling companies to raise almost $5 billion through common-stock sales for 15% of the market.

With interest rates still rising and stock prices going nowhere, underwriters say it is becoming harder to sell stocks from companies without visible earnings.

"It's tough out there," says James G. Gantsoudes, head of global equities for CS First Boston Inc., a unit of CS Holding, "The marginal IPOs are not going to get done. . . .UUntil the market can get a fix on what the economy is doing -- and, from the last few days, it appears that's still uncertain -- it's going to be increasingly difficult to get deals done."

Indeed, the sloppy stock market is forcing many companies to postpone or even withdraw equity offerings.

According to Merrill Lynch, about $1.8 billion of initial public offerings were either delayed or pulled in May, up from about $510 million in January. Both figures exclude closed-end funds and include only IPOs expected to yield more than $10 million each in proceeds.

"You are clearly in an environment where institutional investors participating in IPOs are very cautious, very selective and very price-sensitive," says Thomas W. Davis, Merrill's head of stock-capital markets.

Certainly one sign of the depressed IPO market was the lower prices investors were demanding from companies seeking to sell stock for the first time.

Sixty-nine of the 149 IPOs in the second quarter were priced below the initial range expected by underwriters, while only eight were priced above the range. The remainder were priced within the range.

In the year-ago quarter, 28 out of 134 IPOs were priced below their price range.

Tony Ehinger, managing director and head of equity syndicate at CS First Boston, says the equity calendar has been running at about the same level it has for the past two years, with $15.5 billion of deals in the pipeline now.

But he says many of the underwritings on the calendar won't see the light of day. "There is this issue of what the backlog is and what of the backlog can get done," he says. "Of the $15.5 billion, about $5 billion of the deals don't have any specific timing associated with them."

Mr. Ehinger says he expects turmoil in the new-issue market to continue in the third quarter as volatile markets and skittish investors make it more difficult for underwriters to sell stock. One of the reasons he is pessimistic about business is that cash flows into stock mutual funds, which were running at around $2 billion a week in May and June, have dropped off sharply amid the weakness in the dollar.

"If the trend continues, the market will not support the kind of volumes the Street generally hopes to get issued in the second half of the year, and the discount required to price IPOs will have to increase as well," says Mr. Ehinger.

Meanwhile, other Wall Street executives say that financial markets can rally just as quickly as they swoon and that if they do in the third quarter, business should be back.

"There's plenty of underwriting to do," says Richard Fisher, chairman of Morgan Stanley Group Inc. "It's just a question of what's doable. Right now, investors are still sitting and waiting and not of the mind of making significant commitments."

WASHINGTON -- President Clinton plans to nominate Susan B. Perry, a bus-industry lobbyist, to fill a vacancy on the five-member National Transportation Safety Board, the White House said.

Ms. Perry, 56 years old, is senior vice president of government relations with the American Bus Association, and directs the Washington organization's safety activities.

The NTSB, an independent agency, investigates accidents and makes safety-related recommendations to other agencies.

After protracted negotiations and at least one broken deal, Donald Trump has agreed to yield majority ownership of his long-stalled Manhattan riverfront development project to a group of Hong Kong investors in exchange for financing.

Chase Manhattan Corp., lead lender on a 75-acre tract of abandoned railyards on the Upper West Side, has agreed to sell its approximately $250 million loan, which is in default, to a group led by Hong Kong's New World Development Corp. for about $90 million.

The transaction is one of the most visible signs of the increasing flow of Asian capital into the recovering U.S. commercial real estate market. "There clearly is a high level of interest, and money coming in, from that part of the world," said Stan Ross of Kenneth Leventhal & Co., a Los Angeles-based real-estate firm that advised New World on the deal.

Jack Shaffer, who as managing director of New York-based Sonnenblick-Goldman Co. has had extensive contact with Asian investors, said such investors consider New York a relatively safe alternative to high-risk, high-reward real estate deals in Hong Kong and China.

The group investing in the Trump project, which also includes Shui On Group, Edward Wong Group, and Far East Consortium Ltd., intends to pay roughly $6 million in taxes Mr. Trump owes, and to provide capital to begin construction. Its ownership stake will fluctuate between about 60% and 70%, according to two people familiar with the transaction. The transaction eliminates a roughly $35 million personal guarantee Mr. Trump gave to the banks.

Mr. Trump said he will continue to manage the development, which is to include some 5,700 apartments in 16 high-rise buildings, plus 1.8 million square feet of commercial space. He said he expects to break ground on the first few buildings within eight months. Plans call for a mix of luxury condominiums and federally subsidized rental housing for low-income and middle-income tenants. Mr. Trump's mid-1980s plan to build a 14.5-million-square-foot mixed-use development was shot down by community groups and a collapsing market.

New World, a publicly traded development company, already has substantial U.S. real-estate holdings, including Stouffer Hotels & Resorts. Shui On owns hotels in Canada.

WASHINGTON -- Under pressure from Congress, the Federal Communications Commission is expected to require payments for licenses awarded under its controversial program to reward technological pioneers.

FCC staff members have been discussing various options, and the commission could make the decision next week. Individuals familiar with the process said the commissioners are likely to require payments from the pioneers, but haven't decided the amount of payments.

Yesterday, Rep. John Dingell, chairman of the House Energy and Commerce Committee, stepped up pressure on the agency, introducing a bill that would require payments for the licenses. The legislation, however, would allow a 10% discount off the amount paid by the successful bidder for the "most comparable license" to the ones given to the pioneers.

The Michigan Democrat also pledged to hold hearings on the matter later this month.

Together, the actions are a significant setback for the four companies originally designated to receive free licenses to offer the next generation of cellular telephone and advanced data services.

Last year, the commission chose Cox Enterprises Inc., Atlanta, to receive a license covering a region that stretches from Las Vegas to San Diego; Omnipoint Corp., Colorado Springs, Colo., for the New York-New Jersey market; and American Personal Communications, a partnership 70%-owned by Washington Post Co., for the Washington-Baltimore region. Mobile Telecommunications Technologies Corp. of Jackson, Miss., won a nationwide license to provide advanced paging services. The agency hasn't yet handed out the four licenses.

Although it is impossible to pinpoint the value of the licenses before the agency holds its auctions, they have been expected to fetch a total of upward of $500 million. The agency must settle the pioneer preference issue before it begins auctions for advanced paging services this summer and for the next generation of cellular telephone service late in the year.

For tiny Omnipoint, however, the payment would equal 90% of the successful bid for the comparable license set aside by the FCC for small businesses. In establishing rules for auctioning personal-communications licenses, the FCC on Wednesday reserved an "entrepreneurs block" of licenses for companies with annual revenues below $125 million.

WOODBURY, N.Y. -- A partnership comprised of subsidiaries of Cablevision Systems Corp. and E.M. Warburg, Pincus & Co. Inc., an investment banking firm, completed the $90 million purchase of three Boston area cable-television systems.

The partnership, A-R Cable Partners, bought the systems from Nashoba Communications, a Massachusetts group of three limited partnerships. The systems serve 14 communities in suburban Boston, with about 34,800 subscribers. The systems are near other Massachusetts systems owned or managed by Cablevision.

WOODBURY, N.Y. -- Comverse Technology Inc. said its board authorized the repurchase of up to one million common shares from time to time in the open market.

The manufacturer of special-purpose computer and telecommunications systems said the stock would be held as treasury shares and be reserved for distribution under its stock option plans.

Comverse has about 19.8 million shares outstanding. In Nasdaq Stock Market trading yesterday, Comverse closed at $8.813 up 43.75 cents.

WHO'S NEWS: William B. Perkins, 40 years old, joining Lord, Dentsu & Partners in New York as managing partner.

Tony DeGregorio, 47, named executive vice president and executive creative director at TBWA Advertising.

EQUITABLE: Omnicom Group's BBDO said it resigned the Equitable Life Assurance Society's Equitable account after eight years. Billings were estimated at less than $6 million. The account is being reassigned to Omnicom's Merkley Newman Harty.

HOUSTON -- Apache Corp. said it paid a closely held company and its related partnerships $13.9 million to acquire additional interests in 49 Gulf of Mexico fields.

The energy company said Ridgewood Energy Co. of Ridgewood, Ky., sold the interests in the properties, which encompass 63 offshore blocks and have average net daily production of 14.4 million cubic feet of gas and 570 barrels of oil.

Apache, which already held working interests in the properties, said it is the operator in 43 of the 49 fields.

A combination of the weak dollar and renewed inflation fears conspired to send bond prices sharply lower. The Dow Jones Industrial Average also tumbled.

The Dow Jones industrials sank 42.09 points to 3624.96, its lowest level since April 20. The Dow ended the first half with a loss of 3.4%, its worst performance in the first six months since 1984. Standard & Poor's 500-stock index lost 3.36 to 444.27, but the Nasdaq Composite Index rose 1.95 to 705.96.

Both stock and bond prices rose in early trading, but a worrisome Chicago Purchasing Managers index for June derailed the advance in bonds and carried stocks lower, too. Bond traders feared that a rise in the index's prices-paid component heralded an increase in inflation.

Eric K. Cheung, manager of the fixedincome division of Wilmington Trust, said he expects the Federal Reserve to boost interest rates in July. He used to think no increase was coming until the fall but the weakness of the dollar and the surprisingly strong revision of first-quarter gross domestic product caused a change in his outlook.

"The bond market is pricing in another quarter-point increase in the federal-funds rate," Mr. Cheung said. "The worst is not over in the near term."

Adding to the bond market's troubles was another slump in the dollar to a new post-World War II low against the yen. The dollar edged up from its low but ended below its level on Wednesday. The U.S. currency rose moderately against the mark.

Stock prices tumbled despite expectations that quarter-end portfolio adjustments would bolster the market. The weight of higher interest rates and the weak dollar proved too much, especially in the afternoon as the losses accelerated.

World-wide, stock prices fell in dollar terms. The Dow Jones World Stock Index lost 0.27 to 114.60.

Stock prices were mixed. Volume totaled 292,733,720 shares on the New York Stock Exchange, where 1,275 issues fell and 951 rose.

Bond prices fell. The Treasury's benchmark 30-year issue lost a full point, or $10 for each $1,000 face amount, to yield 7.61%.

The dollar was mixed. In late New York trading the currency was quoted at 1.5877 marks and 98.50 yen, compared with 1.5855 marks and 98.75 yen Wednesday.

HOUSTON -- Camden Property Trust, a real estate investment trust, acquired five apartment complexes in Texas and Arizona in transactions totaling about $49.1 million, including the cost of planned renovations.

The sites have a total of 1,387 units. The sites are: Calibre Crossing, 183 units, in Austin, Texas; Quail Ridge, 167 units, in Austin; Wolfe Run, 216 units, in San Antonio; Eastridge, 456 units, in Tucson, Ariz.; and Oracle Villa, 365 units, in Tucson.

FIRST HAWAIIAN Inc. (Honolulu) -- John K. Tsui was named president and chief operating officer of this holding company's main banking unit, First Hawaiian Bank, succeeding John A. Hoag. Mr. Tsui, 56 years old, was formerly vice chairman at Bank of Hawaii, a unit of Bancorp Hawaii. Mr. Hoag, 61, is taking early retirement to pursue religious activities as of April 1, 1995. Until then, he will continue to serve as vice chairman of First Hawaiian Bank and president of the holding company.

ROCHESTER COMMUNITY SAVINGS BANK (Rochester, N.Y.) -- Matthew Augustine, 49 years old, was named a new director of this savings bank. He is president and chief executive officer of privately held Eltrex Industries, a manufacturer and servicer of office-related products. Mr. Augustine fills the unexpired term of James Duffus, 66, who retired from the company's board. The board size remains unchanged at 11 members.

JACKSON, Wyo. -- Touring through Grand Teton National Park, some travelers see a vision of beauty: an outhouse with a wheelchair sign designating a handicapped-accessible facility.

But the image deceives. In front of the bathroom door is a cement step -- a virtual barricade for John Stefancik, a retired steelworker from Cleveland who has muscular dystrophy. Leaning stiffly against the shoulder of his wife, Judy, Mr. Stefancik painfully mounts the step.

"I can't watch this," says Nancy Penniman, whose husband, Craig, also has muscular dystrophy, a degenerative muscle condition. "When will they ever learn?"

Not soon enough for disabled travelers. An unexpected flight of stairs or hotel room's shag carpet can bring a trip to a halt. Exposed pipe beneath a water basin can burn hotel guests in wheelchairs. Narrow bathroom doorways, low commodes and out-of-reach thermostats can all be occasions for crises.

Although such legislative efforts as the Air Carrier Access Act of 1986 and the Americans with Disabilities Act of 1990 have lowered travel barriers for the 48 million Americans classified as handicapped, the travel industry's service to disabled customers, by many accounts, has been slow. Robin Gregory, the landscape architect at the Grand Teton National Park, says the year-old outhouse that is supposedly accessible to handicapped visitors will get a ramp by August -- too late, of course, for Mr. Stefancik.

Mr. Stefancik and Mr. Penniman and their wives have signed up for a nine-day trip with a Jackson tour operator that serves handicapped travelers. Also on the tour are Graham Jeynes, who has muscular dystrophy, and his wife, Anne, and Steve Zumbo, who has cerebral palsy, a disorder of the central nervous system. With plane fare, the trip costs about $3,000 per person.

The tour underscores that the problems confronting disabled travelers are more complex than travel-industry negligence or insensitivity. Rather, the diverse physical needs of handicapped people simply prevent suppliers from tailoring a product that adequately serves all these customers.

"They want to provide for the `disabled,' but there is no such animal," says Mrs. Jeynes, from Worcester, England, whose husband has used a wheelchair since the early 1970s. "There are many disabled people, with different needs."

At the Trapper Inn in Jackson, the couple's handicap room has a bed that is too high for the 62-year-old Mr. Jeynes to transfer onto with a sliding board. His wife depresses the mattress instead. And rather than a completely flat bathroom floor that allows Mr. Jeynes to roll right into the shower, the stall is set off by a water barrier several inches high. Thus, Mr. Jeynes can only shower after his wife yanks his chair backward over the divide.

Disabled travelers, Mr. Jeynes says, must accept uncertainty and rely upon the kindness of friends and strangers. "You travel hopefully, or you don't travel at all," he says.

In addition to physical barriers, fear and self-doubt also represent major obstacles. What lures many people to travel -- its unpredictability -- is anathema to those who depend on familiar surroundings and routines.

"My first thought was, `I can't do this. It's too big, it's too hard,'" says Mr. Zumbo, a Chicago Ridge, Ill., librarian. But he put aside his concerns to fulfill a 20-year ambition. As a college student in Illinois, he saw an exhibition of Ansel Adams's photographs, including a stunning image of the Grand Teton mountain range and the Snake River. Reaching the Tetons himself, he says, "is a dream I've always had."

Mr. Zumbo is one of an estimated 1.5 million Americans who use wheelchairs. Federal regulations permit one wheelchair to be kept inside an airline's cabin closet, but most carriers, seeking to preserve space, require disabled travelers to store their chairs in cargo. "It's like unscrewing your legs, handing them over and hoping you get them back," Mr. Zumbo says.

And when Mr. Zumbo, who is 38 years old, lands at the Jackson airport, a bad surprise awaits him: steps. The jet stops 20 yards from the terminal, and passengers must leave the plane by climbing down a bank of 12 metal stairs. Mr. Zumbo grabs his safari hat as gate agents hoist him onto a narrow chair, carry him through the cabin and haul him down the stairs. On the airport pavement, he gets back his own chair. "I feel normal again," he says as he wheels toward the terminal.

For three days in Jackson, the group tours the Tetons, rafts down the Snake River and sees a rodeo, then heads for Yellowstone National Park. Prodding the group along is Clint Grosse, founder of Access Tours, one of the few operators that specifically serve disabled travelers. "You have to do and see things," Mr. Grosse tells his troupe after a long day. "You can sleep when you're dead."

The strain of the trip is as great on the three wives as on their disabled husbands. Mrs. Penniman, from Philadelphia, wears a back brace when she helps move her 220-pound husband in and out of his wheelchair. Mrs. Stefancik literally provides a shoulder for her husband to lean on. Both couples decided not to have children after the husbands' disabilities were diagnosed.

"This is probably the only good thing I'll ever do in my life -- help another person," Mrs. Stefancik says. "Maybe I'll get points in heaven."

Mr. Penniman, 44, says he will only be able to travel for two or three more years because of his deteriorating condition. Mrs. Jeynes, citing age and cost, calls this trip a "last fling." Each day tests the group's stamina, but it is those moments -- the flight of an osprey, a patch of wildflowers, a lone moose drinking from a mountain stream -- that make the effort worthwhile.

On the summit of Rendezvous Mountain, a soft rain falls as Mr. Zumbo lifts himself from his chair, peers across the valley and feels on top of the world. "At last, I'm really here," he says.

TOKYO -- Toyota Motor Corp. may have scored a big hit with its newest model, the RAV4 urban recreational vehicle.

In its first month on the market, 17,200 vehicles were sold, substantially more than the expected sales of 2,000 units, a Toyota spokesman said.

Toyota also is exporting 2,500 vehicles a month to Europe, in both left- and right-hand-drive designs, the spokesman said.

The RAV4 -- the name stands for for recreational active vehicle with four-wheel drive -- is competitively priced at 1.5 million yen ($15,200) to 1.8 million yen. In essence, it has joined a new class of urban "off-road" vehicles created by Suzuki Motor Corp. with its Escudo model, which sells for about $16,500. Suzuki sold 29,600 Escudos last year. The "off-road" vehicles, which are smaller than Chrysler Corp.'s Jeep Cherokee, are better suited for tight parking spaces in big cities such as Tokyo.

More than half of Toyota's RAV4 buyers are in their 20s, and about 30% are women, Toyota said. In the United Kingdom, Toyota is particularly targeting women buyers with its RAV4.

To meet the higher demand, Toyota has boosted production of the model to 10,000 units a month at its Toyota City plant. The plant is running two shifts and operating overtime, including two Saturday shifts a month.

Toyota also has been able to trim the price of the RAV4 by incorporating a chassis built into the body.

The auto maker is also in discussions with its U.S. arm about exporting the vehicle to the U.S. Among the issues that must first be resolved, however, is price, particularly since air bags are mandatory in the U.S. Only 5% of Japanese customers have ordered air bags, which cost roughly 80,000 yen.

Toyota will bring out another new car in Japan on Friday, its domestic Vista/Camry model. The family sedan will differ substantially from the Camry made and sold in the U.S., the spokesman said.

HOUSTON -- Newfield Exploration Co. said it established a two-year, $50 million revolving credit facility with Chase Manhattan Bank, replacing the company's $20 million facility with Chase.

Newfield, a Gulf of Mexico oil and gas company, said borrowings may be used for general corporate and working-capital purposes, including the acquisition and development of oil and gas properties.

DuPont Co. disclosed plans for a streamlining of its big European nylon operations, under which it will eliminate about 1,200 jobs and forge a joint venture with Rhone-Poulenc SA of France.

The U.S. chemical concern said the job cuts will be centered in the United Kingdom, where an aging plant will be closed in early 1997, as well as in Germany and the Netherlands.

All costs associated with the moves will be covered by a broad restructuring charge that it took in 1993, DuPont said. In late New York Stock Exchange trading yesterday, DuPont shares were quoted at $58.25, down 87.5 cents.

DuPont is the world's biggest maker of nylon, a fiber it invented in the 1930s. But the Wilmington, Del., company's presence in the European nylon market had been minor until it acquired Imperial Chemical Industries PLC's nylon business in mid1993. In that complex transaction, DuPont gave its acrylic business to ICI, paid $150 million outright, and agreed to pay up to an additional $202.5 million over time.

Through earlier cuts, DuPont's nylon work force in Europe has already been trimmed by about 1,200 people since the ICI transaction closed. When the additional 1,200 jobs are eliminated in the next three years, the division will have about 4,000 employees.

The European nylon business generated 1993 revenue of "close to a billion" dollars, DuPont said. The profitability of the business wasn't disclosed.

One of DuPont's biggest rivals in the European nylon market is Rhone-Poulenc, a major drug and chemical concern. But DuPont and Rhone-Poulenc said yesterday that they plan to merge their European production of adipic acid, one of two basic intermediate materials used in the manufacture of nylon fiber. That equally owned joint venture will invest a total of 600 million French francs ($110.6 million) to expand the capacity of a Rhone-Poulenc plant in Chalampe, France, the companies said.

When the two-year expansion is complete, DuPont plans to close its adipic acid facility in Teesside, England. DuPont said the British facility, which has about 700 employees, is operating at a substantial cost disadvantage.

The two companies said they will continue to independently market and sell adipic acid to their respective customers.

Elliot Fishman thought he knew who was making the repeated hang-up calls to his Philadelphia home. Instead of calling the police, however, he called his local phone company and bought its call-return service.

The next time he got a hang-up, he quickly punched *69, which automatically returned the last call made to his telephone. He confirmed the caller's identity and asked her to desist.

Marketers envisioned call return, a service offered by all major local telephone companies, as a convenience that would eliminate the frustration of getting to a ringing phone too late. But people are also using it to combat harassment, says Nynex Corp. spokesman Paul Davidson.

Annoying phone calls to customers are one of the biggest continuing problems for local phone companies. At Southwestern Bell Corp., between 10% to 15% of its daily calls to the customer-service department are from customers dealing with every kind of phone harassment, from hang-ups to death threats.

Phone companies have responded with innovations such as Call Trace (*57), which, for about $10 a use, will record a caller's phone number in a computer and forward it to the police department. Caller ID uses special equipment to display the name and number of a caller before you pick up the phone. But "call return is a more informal way to combat harassment," Mr. Davidson says.

Call return requires no special equipment. At an average cost of $3 to $5 per month, it is one of the most popular features offered by local phone companies.

Some phone companies also allow nonsubscribers to use the service on a per-use basis. Nynex, for example, began offering it at 75 cents a use after realizing there were people who wanted to use the service occasionally but didn't want to pay a monthly fee.

Even now, however, phone companies are reluctant to promote *69 as a security measure. If there's a serious motive behind the calls, "it's a risky strategy" to combat harassment with call return, says Eric Rabe, a Bell Atlantic Corp. spokesman.

One-on-one situations where people call back prank callers might make callers more irate and lead to assault or other violence, says New York City police officer Howard Farmer. "Personally, I would press that button, find out who it is and tell them to stop calling me," he says. But "as a police officer, I can't advise anyone to" take matters into his or her own hands.

Call return can dial back numbers only within a local calling area, and it doesn't work on cellular phones at all. It also won't work on pay phones not equipped to receive incoming calls or on lines that block call return.

Still, many believe the service, which has been around since the late 1980s but recently became more widely available, may eliminate prank calls or hang-ups by taking away callers' anonymity. "As people become more aware of call return and how it works, they stop making prank calls because they realize there's a chance of people getting back to them," says Tom Grajeda, a product manager at Pacific Bell Corp.

But a wrong number dialed by mistake in Houston may end up in court. The incident began in 1992 when a woman dialed a wrong number and hung up. Using call return, the woman she had inadvertently called dialed back and repeatedly called her, claiming she was being harassed and threatened. She ultimately filed a harassment suit; the court date has not yet been set.

Some states have passed laws requiring companies to allow customers to block call return or caller ID because of privacy concerns. "Using the blocking mechanism will eliminate someone else knowing where you're calling from," U S West Corp. spokesman Ron Dulle says. A consumer may call a business for information and not want a salesperson to call back.

In Colorado, U S West offers two ways to block calls. Customers can have a permanent block installed, which will prevent their name and phone number from being forwarded. The other option allows customers to block call return by dialing *67 before placing a call.

Most recently, the Public Service Commission in New York said it will require phone companies, starting Jan. 1, 1995, to modify call return so that it can be used to return calls only once and to allow customers to block call return for free.

CANAL FULTON, Ohio -- Valley Systems Inc. completed the sale of two million shares of its common stock to Atlanta's Rollins Investment Fund, its majority shareholder, for $4 million.

Proceeds will be used to reduce short-term loans from Rollins Investment Fund to Valley Systems.

Valley Systems also refinanced its long- and short-term debt agreements, under which Rollins Investment Fund has provided Valley Systems with a $7 million term loan.

Valley Systems provides on-site industrial cleaning.

WASHINGTON -- A week before an international economic summit, the U.S. signaled that it wants lower interest rates in Japan and Germany, and would give Japan only a temporary respite from trade pressure.

Treasury Secretary Lloyd Bentsen, in an interview with three newspapers, said that "obviously, lower interest rates would be a help" in Germany. Concerning Japan, he added: "We've urged a reduction in the discount rate. . ..and we've also urged a substantial cut in the income tax to increase demand."

Mr. Bentsen's comments foreshadow the conversations he will have with his counterparts at the summit in Naples, Italy, and mark a turnaround from his recent reluctance to discuss interest rates. Lower interest rates abroad would tend to boost the sagging dollar and ease the pressure on the Federal Reserve to raise U.S. interest rates.

On the trade front, the U.S. postponed taking action on allegations that Japanese government-purchasing practices unfairly harm U.S. companies. But the U.S. announced a delay of only one month, until July 31. If the U.S. later decides to begin proceedings on that date, they would be concluded simultaneously with a separate Sept. 30 deadline for a tough trade provision known as Super 301. Under Super 301 the U.S. designates "priority" countries for trade investigations that could lead to broad trade sanctions.

A decision on Japan was called for under a provision of U.S. trade law governing foreign purchasing practices. The U.S. delayed a decision once before because of political instability in Japan. U.S. Trade Representative Mickey Kantor attributed yesterday's delay again to Japanese political turmoil, and to continuing bilateral negotiations over government procurement and other Japanese trade practices.

"I am a realist," Mr. Kantor said, "I understand what the situation is and the possibility of whether or not we're going to reach a conclusion that is satisfactory to the United States."

Privately, U.S. negotiators said they don't see any hope of reaching trade deals with Japan under the so-called framework talks by next week's summit of the Group of Seven industrialized nations. Mr. Kantor plans to meet in Naples with Japan's new foreign minister and minister of international trade and industry. But those talks are expected to be get-acquainted sessions and to deal more broadly with U.S.-Japan trade problems. Neither the U.S. nor Japan plans to bring a large negotiating team that could put together detailed agreements.

White House economic adviser Robert Rubin said, however, that Mr. Kantor was pursuing with his counterparts abroad a plan to use the summit to launch new multilateral trade and investment talks. "You can use the G-7 as a catalyst for further trade liberalization beyond" the world trade pact now being considered by Congress.

The Group of Seven, or G-7, includes the U.S., Canada, Japan, Britain, France, Germany and Italy.

But it remains unclear how broad and detailed this new trade agenda would be -- and how other nations would join it. Among the areas that the U.S. would like to include in the agenda are financial services, telecommunications, investment policy and competition policy.

Indeed, some administration officials fear that aggressively pushing a new trade agenda could diminish congressional prospects for the current pact, which was negotiated under the auspices of the General Agreement on Tariffs and Trade. Lawmakers would be leery of approving the GATT, if they believe the administration were ready to embark on yet another round of multilateral talks.

Treasury Secretary Bentsen, an influential advocate for the North American Free Trade Agreement, said he is working to rally American businesses to support the GATT accord. "American business must understand this isn't any slam dunk," he said.

"We waited too long on Nafta and the opposition had a chance to build," Mr. Bentsen said. "The intensity of the opposition that developed in Nafta made it difficult to overcome. I haven't yet seen that intensity in GATT except by a very narrow segment, but we have to move on this."

That means first coming up with about $12 billion of spending cuts and revenue increases to replace the tariff revenues lost under proposed GATT legislation.

CATALINA MARKETING Corp. (St. Petersburg, Fla.) -- Karl Maggard, 51 years old, was named to the new position of executive vice president, marketing and new business development, at the provider of electronic marketing services to supermarkets and food makers. Mr. Maggard's previous post was senior vice president of sales at Tropicana Products Inc.

MIDLAND, Texas -- Parker & Parsley Petroleum Co. said it completed a public offering of 2.36 million shares of common stock at $25.25 a share and now has 30.3 million common shares outstanding.

The oil and natural-gas company said it would use the proceeds, which totaled about $58 million, toward the previously announced $122 million purchase of assets of a unit of Pacific Gas & Electric Co. The offering was underwritten by Goldman, Sachs & Co.

WHEELING, W.Va. -- Fed One Bank said it completed the previously announced acquisition of the Bellaire, Ohio, branch office of Buckeye Savings Bank, based in Bellaire. Terms weren't disclosed.

The branch, with deposits totaling $62 million, will become the ninth branch office of the savings bank.

HUNTSVILLE, Ala. -- Wolverine Tube Inc. said it has agreed to acquire Small Tube Products Co. of Altoona, Pa., for $51 million in cash and 400,000 shares of Wolverine common stock.

Small Tube, a supplier of copper and copper alloy tube, had revenue of $67.3 million last year. Wolverine is a manufacturer and distributor of copper and copper alloy tube.

I admit that I dislike cigarette smoke. I also do not understand why apparently reasonable people, including a few famous economists, voluntarily expose themselves to the hazards and general unpleasantness of smoking. But I recognize these tastes as my own and would never propose to use the government to get smokers to "do the right thing."

Many people, including some government officials, are more eager for the government to intervene to reduce cigarette consumption. Flush, apparently, with our brilliant successes in the control of illicit drugs -- such as marijuana, cocaine and heroin -- the head of the Food and Drug Administration would like to classify cigarettes as drugs. This classification is the first step on the slippery slope to prohibition.

The experience with drug enforcement shows that prohibition of recreational drugs drives up prices, stimulates illegal activity, has only a moderate negative effect on consumption, and imposes unacceptable costs in terms of high crime, expansion of prison populations and deterioration of relations with the foreign countries that supply the outlawed products. A better idea would be to leave intact the present regulatory structure for cigarettes -- which includes substantial but not outrageous tax rates and restrictions on sales to minors -- and apply this apparatus to the currently illegal drugs.

Although smoking has been demonstrated to harm smokers, the regulation of this activity still runs into the traditional libertarian objection that well-informed persons ought to be allowed to assume these risks if they wish. (The familiarity of this point does not make it less compelling.) Thus, advocates of increased regulation have found it important to argue that smoking also injures "innocent parties," notably through secondhand smoke. The Environmental Protection Agency (EPA), relying mainly on evidence from nonsmoking spouses of smokers, reported last year that secondhand smoke was a serious health hazard.

Even if these hazards exist -- and the medical evidence on this point is seriously in doubt -- the case for government regulation would remain incomplete. In a restaurant, for example, the owner can determine whether to make the premises nonsmoking or to have nonsmoking sections. This decision will be guided -- if the owner is a greedy maximizer of profit -- by a weighing of the benefits from a smoke-free environment to nonsmokers (expressed in terms of their willingness to pay and to patronize the restaurant) against the costs to smokers (expressed again in terms of their demand for the restaurant's services). The restaurant will be smoke-free if the gains to nonsmokers -- including the value of reduced medical risks -- exceed the costs to smokers. One would also expect some restaurants to cater to smokers and some to nonsmokers.

The same argument holds for airplanes, employers, commercial buildings and so on. It also applies to the interactions among spouses; even if a smoker damages the health of his or her nonsmoking spouse, the pair does not need the assistance of the government to decide whether smoking should occur in the household (or, indeed, whether they should be married).

The interactions between smoking parents and nonsmoking children are more complex. Parents typically care about their children and take account of the effects of their actions on the children's welfare. A smoker has therefore determined that the benefits of lighting up are greater than the costs imposed on the children. (The main cost is probably not from secondhand smoke, but rather the increase in the probability that the child will subsequently become a smoker.) Unlike a spouse, however, the child is not a voluntary, well-informed participant in a contract and would be unable to express an aversion to the parent's smoking in terms of some kind of future promise to pay.

The government has, accordingly, often prevented parents from making unrestricted decisions on matters that affect their children's welfare, as in laws on compulsory schooling and work hours. Since most parents are better equipped and motivated than the government to consider their children's well-being, it is unclear that this type of regulation has net social benefits. But, in any case, an extension of this reasoning could be used to rationalize restrictions on parental smoking in the home. I suppose that these restrictions could be administered by an EPA police force.

Despite the recent assertions by the EPA, the statistical evidence for health risks from secondhand smoke is extremely weak, even by the standards of an empirical economist. The evidence comes primarily from epidemiologic studies, most of which rely on the experience of nonsmoking spouses of smokers. The research studies available through 1989 were carefully evaluated in an international symposium at McGill University and published in 1990 as "Environmental Tobacco Smoke." With respect to lung cancer, the conclusion (page 111) was "The weak and inconsistent associations seen in the epidemiologic studies of ETS {environmental tobacco smoke} and lung cancer, the fact that bias and confounding cannot be ruled out, and questions about the reliability of the reported results, all indicate that these data do not support a judgment of a causal relationship between exposure to ETS and lung cancer."

The difficulties in establishing a link between ETS and lung cancer are illustrated by a November 1992 study in the American Journal of Public Health that includes a relatively large sample of 618 nonsmoking or ex-smoking white Missouri women who were diagnosed with lung cancer between 1986 and 1991. The authors find that the spouse of someone who smokes at low or moderate levels has a 30% lower probability of lung cancer than the spouse of a nonsmoker, whereas the spouse of someone who smokes at a high level has a 30% higher probability. The authors choose to emphasize the last result, but the findings as a whole make no sense in terms of a causal relation.

Remarkably, the conclusion was that "comprehensive actions to limit smoking in public places and work sites are well-advised." Such judgments, like those of the EPA, must come from prior beliefs, rather than from the scientific results.

The difficulties with the 1992 Missouri study typify the problems in this field: a greater tendency to publish results that show significant and harmful effects of ETS, a tendency for nonsmokers to misreport their status (combined with the likelihood that spouses of smokers will be smokers), and a failure to take account of socio-economic characteristics that may skew the results.

Large effects from secondhand smoke on health outcomes are improbable, in any case, because the exposure levels are too low. According to "Environmental Tobacco Smoke" (page 229), active smokers receive 100 to 1,000 times the nicotine of persons exposed to ETS. Unlike cyanide, nicotine in small doses is not lethal; even in active smokers, the adverse effects take many years to materialize. Thus, it is implausible that doses of 1/100th or 1/1,000th of those experienced by active smokers would have any noticeable health impact, such as that claimed by the EPA.

A connection between parental smoking and children's health has more foundation -- for example, "Environmental Tobacco Smoke" (page 227) cites adverse consequences on children's "respiratory health." Interestingly, however, the effect is detectable only in young children; the link between health outcomes and parental smoking seems to disappear once children are older than age two. A possible explanation is that smoking by the mother during pregnancy, rather than secondhand smoke, is the main culprit.

Another approach to regulating cigarettes would focus on the well-documented harmful effects of smoking on smokers. The case for government intervention could then come from paternalism; the government knows better than ignorant individuals about what makes them better off.

A superficially more compelling argument is that a person's health is everybody's business because society pays for at least a portion of most people's health care. (One of the problems with socialized medicine is that this linkage becomes stronger.) This point has been used to justify mandatory use of seat belts in cars and of helmets on motorcycles. The argument is dubious in those areas, but it is particularly suspect for smokers, who tend to have relatively brief terminal illnesses -- at least from lung cancer -- and often die before they collect much in retirement benefits from Social Security. From this perspective, the usual economic analysis would argue for a subsidy to smoking.

The final recourse is to admit that the scientific evidence on the health hazards of secondhand smoke is flimsy, but to point out -- correctly -- that this evidence also does not conclusively rule out a small effect. Why not then err on the side of safety and restrict people's exposure to secondhand smoke?

One problem with this logic is that it applies to a virtually unlimited array of activities, starting with global warming and depletion of the ozone layer. We would be in serious trouble if we spent liberally and took restrictive actions in every area in which a semi-respectable theory of health risk has been advanced but has not been shown scientifically to be significant. In no time at all, imaginative environmentalists would exhaust the entire gross national product on activities with low or negative social rates of return.

Mr. Barro, a contributing editor of the Journal, is a professor of economics at Harvard University and a fellow of the Hoover Institution at Stanford University.

STYLES ON VIDEO Inc. (Canoga Park, Calif.) -- Thomas D. Leaper was appointed to the newly created posts of chief operating officer and chief financial officer for this developer of hairstyle imaging systems. Mr. Leaper, 39 years old, was formerly a partner in the accounting and auditing department of Kellogg & Andelson Accounting Corp.

WASHINGTON -- The Supreme Court said judges and legislators may restrict anti-abortion protests by ordering demonstrators to keep a certain distance from abortion clinics.

The 6-3 ruling was hailed as a victory by abortion-rights advocates, who said it would help them protect clinics that militant protesters have tried to shut down. Anti-abortion groups decried the high court's action, asserting that it would infringe their First Amendment rights to gather and speak freely.

Anti-abortion forces could take some solace, however, in a separate Supreme Court decision yesterday that made it tougher for lower courts to use large contempt fines as a way of punishing protesters or others who disobey judicial orders. The unanimous ruling revoked $52 million in penalties imposed on the United Mine Workers union. While an important win for unions, the ruling could benefit others, including anti-abortion groups, who are alleged to have violated court orders.

The high court issued a total of six decisions yesterday, completing its 1993-1994 term and recessing until the fall. The court decided only 84 cases with signed opinions, the lowest total for a term in more than three decades.

In the abortion-clinic protest case, the majority stressed that while demonstrators may be kept some distance from clinics, there are constitutional limits on how far. Writing for the majority, Chief Justice William Rehnquist took a highly particularized approach in deciding which aspects of a lower-court order protecting a Melbourne, Fla., clinic and its employees should be upheld and which struck down.

The decision has national implications because abortion-rights advocates have obtained similar protection against protesters from judges and local governments in many states. While most anti-abortion activists are peaceful, the more militant wing of the movement has used aggressive blockades, threats, vandalism, and in some instances, personal violence to try to put clinics out of business. Yesterday's ruling dealt with judicial orders known as injunctions, but its reasoning extended to cover statutes such as a recently enacted federal law that makes it a crime to forcefully block the entrance of an abortion clinic.

To protect the Melbourne clinic, a Florida judge last year imposed specific restrictions on Operation Rescue members and other anti-abortion demonstrators. The judge acted after he found that the protesters had violated an earlier, more general injunction by continuing to obstruct the clinic's entrance and harass patients and clinic staff members.

The Supreme Court yesterday upheld part of the judge's order that forbade protesters from entering a 36-foot-wide buffer zone around the clinic's entrance and driveway. The high court also upheld the judge's prohibition on loud noises being made during hours when abortions and other surgical procedures are performed at the clinic.

The justices struck down as too broad, however, parts of the judicial order that also applied to the 36-foot buffer area to adjoining private property and that barred protesters from approaching clinic patients or employees in a 300-foot zone around the clinic. The high court also invalidated the portion of the injunction that created 300-foot, no-protest areas around clinic staff residences. Chief Justice Rehnquist indicated that more narrowly drawn protections of private homes would be permissible.

The core of the Rehnquist opinion was its conclusion that anti-abortion protesters may be singled out in this fashion, so long as a judge or a city council is responding to their conduct, as opposed to their views. The chief justice said that while there is a danger of infringing protesters' First Amendment rights, such restrictions are permissible if they "burden no more speech than necessary to serve a significant government interest."

Among those interests are public safety and protection of "a woman's freedom to seek lawful medical or counseling services in connection with her pregnancy," the chief justice wrote. He cited as authority Roe vs. Wade, the 1973 high court decision that first recognized a constitutional right to abortion. Chief Justice Rehnquist dissented from Roe and has led unsuccessful efforts to have it overturned, but in yesterday's ruling he acknowledged that it remains the law.

Joining the majority opinion were Justices Harry Blackmun, Sandra Day O'Connor, David Souter and Ruth Bader Ginsburg. Justice John Paul Stevens wrote a separate opinion saying he would allow broader restrictions on anti-abortion protests.

Justice Antonin Scalia, joined by Justices Anthony Kennedy and Clarence Thomas, dissented. Justice Scalia mocked the majority opinion for its "appearance of moderation and Solomonic wisdom." He accused the majority of tolerating an infringement of First Amendment principles only because the underlying dispute concerned abortion.

The Supreme Court said it threw out the contempt fines against the mine workers union because they really were criminal in nature, but were improperly imposed in civil proceedings. As a result, the high court said, the UMW didn't receive procedural protections provided in criminal trials, especially the right to a jury.

The Clinton administration had warned in a "friend-of-the-court" brief that such a ruling by the high court would hinder federal agencies, as well as companies battling unions. The National Labor Relations Board, for example, sometimes seeks civil contempt fines to add punch to its enforcement actions against both unions and employers.

The fines were imposed by a state trial judge in connection with a protracted coal miners' strike in 1989 in Virginia. The judge ruled that UMW members had violated his orders barring certain protest activities, including acts of violence.

The union and the coal companies announced a full settlement in January 1990, and agreed to drop all outstanding judgments, including the contempt fines. The trial judge agreed to set aside $12 million in fines payable to the companies, but left in place $52 million owed to the state treasury. The union appealed, but Virginia's top court upheld the remaining fines.

In his opinion for the Supreme Court yesterday, Justice Blackmun stressed that the fines were designed to punish out-of-court behavior that the judge hadn't personally observed. Justice Blackmun also noted that $52 million was a "serious" amount of money. Without defining the term "serious," he said that under these circumstances, targets of contempt citations deserve the full protection of criminal proceedings, including the requirement that wrongdoing be proven "beyond a reasonable doubt."

In contrast, Justice Blackmun said that judges could use summary civil proceedings to impose "petty" fines for in-court disobedience.

DEARBORN, Mich. -- As part of its sweeping corporate restructuring, Ford Motor Co. said it is removing a layer of management from its overseas operations.

And in another move related to the restructuring, Ford launched an early retirement program intended to shed as many as 300 managers in the U.S. by year end.

Ford said it will combine top management of its Asia-Pacific and Latin American operations under the new banner of International Automotive Operations. Instead of reporting to regional organizations, operations in individual markets such as Japan, New Zealand, Taiwan and China will report directly to Wayne T. Booker, the executive vice president in charge of international auto operations, at world headquarters here.

While Ford said the reorganization would eliminate a layer of management, a spokesman couldn't say how many jobs might be affected. But he said most of the managers would be redeployed to other positions.

The merger of Ford's Asia-Pacific and Latin American management is considered largely transitional, as those markets will merge with the rest of the company later. Just now, Ford Chairman Alex J. Trotman is focusing on combining Ford's North American and European operations. In addition to flattening the auto maker's structure, the merger is expected to result in lower product development costs.

Ford said it will begin offering early retirement packages next month to a select group of middle-to-upper managers. "This is about taking out structure," a Ford spokesman said. "We want to be flatter, quicker and nimbler, and this is all part of that."

In a statement, Ford said the overseas reorganization is intended to "give top priority to greater participation in emerging automotive markets in Asia and other regions." Ford said the reorganization includes creation of a new-markets development office "charged with pursuing a growth strategy."

LUND, Sweden -- Starting with a plot of farmland here and a prototype machine made from bicycle chains, the Rausing family of Sweden set off in the 1950s on a quixotic crusade to build a packaging empire. They put everything they had into the venture, and lost money for 22 consecutive years.

Today their company, Tetra Pak, is the cornerstone of a $7.8 billion giant operating in 130 countries. It is responsible annually for 69.4 billion of those squishy, brick-shaped drink cartons made from paper laminated with plastic and aluminum. The Rausing family is worth nearly $8 billion, according to a study in London's Sunday Times, more than the Queen of England.

Tetra Pak succeeded in creating a huge market for an unknown product by reversing two pieces of conventional wisdom: It managed by the top line instead of the bottom line, and it entered new markets like Russia and Japan long before potential returns justified an investment. Along the way, it took risks a public company and all but the bravest entrepreneur couldn't tolerate.

"In my 32 years I have never seen a company so exquisitely operated this side of Coca-Cola," says Jesse Meyers, editor of Beverage Digest newsletter in Connecticut. Tetra Pak, he adds, has "revolutionized the beverage industry globally."

But now that Tetra Pak has built its empire, there are questions about whether the company can keep it intact with the same strategies. Ruben Rausing has died and his sons have retired. The company is facing tough new rivals and has had to fight charges of unfair competition. Growth has slowed, and the strain has begun to show. Tetra Pak said on June 22 that its chief executive, Uno Kjellberg, will resign over "differing views concerning Tetra Pak's future business strategies." The company declines to elaborate.

Tetra Pak faces a proliferation of new competitors determined to grab its market. The drink-box design isn't patented and is vulnerable to knockoffs. "I think they will be less dominant," predicts Erik Akre, president of Oslo-based Elopak AS, which claims to be the No. 2 to Tetra Pak. "They're coming to a point where they have to turn to something entirely different or growth will stop."

The company has also had to curb its aggressive marketing. In 1991, after years of investigation, the European Union fined Tetra Pak 75 million ECU ($91 million), a record at the time, for undermining competitors with widespread predatory pricing and restrictive contracts. An EU investigation found the company used restrictive contract clauses to guarantee the use of Tetra Pak material and forced loyalty by insisting on unnecessarily long equipment leases, often three years or more.

Tetra Pak has appealed the case, which is now before the European Court of Justice. Elopak, which initiated the complaint, says the violations have stopped. "We are trying to do whatever we can to defend the market," says Goran Grosskopf, chairman of Tetra Laval Group, Tetra Pak's parent. "This might be irritating to competitors because they feel they can't get into our customers, but the customers feel the strength in our service organization."

The senior Mr. Rausing, with a master's degree from Columbia University, formed Tetra Pak in 1951 to make a cheap, basic milk carton. The company started as a unit of Mr. Rausing's first company, Akerlund & Rausing. But in 1960 the Rausings sold their share in Akerlund for $11 million. "They risked everything they had," Mr. Kjellberg says.

After its slow start, Tetra Pak has been profitable each of the past 20 years. Its sales grew at a 10% rate a year through the 1980s, easing to between 6% and 8% now. The product, best known to Western consumers as the juice carton usually found in Junior's lunch box with a straw attached, holds everything from milk and water to wine and maple syrup. Tetra Pak now has half of the market for noncarbonated drink packages in Europe and almost 40% in Japan. Even in the U.S., where the package has run afoul of environmentalists, Tetra Pak has nearly a third of the market.

Though the closely held company won't disclose earnings, it says its margins are about average; one estimate puts profit at about 15% of revenue. The company remains held by Hans and Gad Rausing, who decline to be interviewed. Mr. Grosskopf says the brothers, now tax exiles in Britain, won't sell.

Tetra Laval employs 33,000 people after the 1991 acquisition of equipment maker Alfa-Laval. But the Swedish/Swiss company still gets half of its $7.8 billion of revenue from a single product, the Tetra Brik aseptic container. The cartons, named after an early version in the shape of a tetrahedron, keep out contaminants because they are sealed overflowing with liquid, so no air enters.

When Lars G. Andersson, a Tetra Pak veteran who opened the company's China operations, decided the time was right to build a Chinese factory in 1984, he telephoned headquarters in Sweden. He was transferred to Hans Rausing, who was out moose hunting, and after a short talk, got his approval. "We could take the biggest of decisions over a lunch break," he says.

More controversial are Tetra Pak's customer links, which sometimes appear to be strangleholds. Tetra Pak makes a captive market for itself by leasing its 6,545 machines (at little profit) to customers who must buy Tetra Pak's packaging material (at a much higher profit). The machines don't work with any other material.

In exchange for the allegiance, Tetra Pak offers customers a wide range of marketing and technical support. For one of its big customers, Hong Kong's Vita Soy International Holdings, Tetra Pak even takes the drink maker's new products back to a laboratory in Sweden to test them. "We work hand in hand together to develop the market," says Eric Yu, Vita Soy's operations director.

Tetra Pak also has traditionally plunged into foreign markets with little hope of quick profits -- a strategy it vows to continue. It has teams of technicians and salespeople who are sent on the road for months at a time with instructions not to return until they have a signed contract. Tetra Pak ventured into Russia in 1959 and China a decade ago. It launched its Japanese operations in 1956. Like other Western companies, Tetra Pak struggled. But its early arrival has gradually given it a dominant position. Japan now buys 6.6 billion packages a year-more than any single market but the U.S.

The plan doesn't always work. Tetra Pak has been in India for 30 years now and invested $50 million, but it continues to lose money on its share of a factory and claims only 0.3% of the market. It has spent $200 million in Russia to date without profit.

But in most places, Tetra Pak faces no such hurdles. It recently took a 30% market share in Mexico and 40% in Turkey. In Thailand, sales in the past four years have jumped from 50 million cartons to 1 billion. Its most recent market: Vietnam. The company says it may take another 10 years to be successful.

COMMUNITY FIRST BANKSHARES Inc. (Fargo, N.D.) -- John T. Neises, president of Charles River Ventures Inc., a Boston venture capital company, resigned as a director of this multi-bank holding concern. Mr. Neises, 64 years old, had been a director since 1987.

WASHINGTON -- The Federal Reserve Bank of Boston has narrowed the list of candidates for its presidency to three, with the bank's first vice president, Cathy Minehan, remaining the favorite.

The others are Nicholas Perna, chief economist for Shawmut National Corp. of Hartford, Conn., and Edward Fox, dean of the Tuck School of Business at Dartmouth College.

As is the custom at the Fed, the three names have been sent to the Federal Reserve Board for review. The presidents of the regional Fed banks are picked by their local private-sector boards of directors, subject to approval of the Fed governors in Washington.

Although Fed banks traditionally conduct national searches for presidents, they often end up picking Fed insiders. Ms. Minehan, an expert in payment systems, has been at the Fed since 1968, serving as senior vice president of the New York Fed until she joined the Boston Fed in 1991. If chosen, she would be the only woman among the 12 Fed bank presidents.

Mr. Perna spent 13 years as an economist for General Electric Co. before joining Connecticut National Bank, now part of Shawmut, in 1987. Mr. Fox, who is stepping down as the Tuck dean, was previously president of the Student Loan Marketing Association.

HONG KONG (AP) -- Britain and China reached agreement on the future of British military bases to be vacated in 1997 when China regains sovereignty over the British colony.

The pact was reached only a few hours after the colonial legislature approved Gov. Chris Patten's democratic reform bill. Beijing has waged a two-year campaign to stop Gov. Patten's reform drive, and Beijing swiftly denounced the vote, reiterating China's pledge to undo any reforms not approved by the Chinese government.

But the military-base agreement indicates something of a thaw in relations. Under the agreement, the subject of seven years of negotiations, Britain will hand over 14 military sites to the Chinese armed forces. China agreed to release 25 other military barracks to the Hong Kong government for commercial development, and Britain will pay for the redevelopment of four military bases, including one on an offshore island for the Chinese navy.

China has said it will station troops in the colony after 1997 but hasn't disclosed the size of its garrison. A pro-China magazine said last year that China plans to station a division in the territory. A Chinese division is usually 10,000 men.

SPARKS, Md. -- McCormick & Co. announced two European acquisitions: Unilever NV's Swiss food unit, Lipton-Sais AG, which markets the Butty line of herbs and spices, and Minipack Systems Ltd. of the United Kingdom, a packaging company for health and beauty aids. McCormick, a spice maker, didn't disclose terms of either acquisition.

Yesterday, SmithKline Beecham PLC won U.S. regulatory clearance for its new shingles drug, Famvir, several months earlier than expected.

Wellcome PLC of Britain countered by unveiling a long-awaited marketing pact with Upjohn Co. -- more than doubling the number of sales representives promoting its flagship drug Zovirax in the U.S.

The stakes are huge. Antiviral medicines represent a fast-growing $1.2 billion-a-year market, monopolized by Wellcome for decades. Zovirax, one of the world's biggest-selling medicines, accounted for nearly 40% of Wellcome's sales in the year ended Aug. 31. While Zovirax commonly is prescribed to treat genital herpes, the doses needed to treat shingles are far larger, and thus represent a big revenue generator. Also, analysts say shingles medication in the U.S. is a growth market, as the ailment currently is undertreated.

The Anglo-American company's Famvir is the first new oral drug in the antiherpes category to be introduced in more than a decade. And it's a major threat to Wellcome: Since Famvir's introduction in Britain late last year, the drug has captured more than 15% of that shingles-treatment market.

Wellcome shares tumbled 29 pence, or 4.3%, to 588 pence ($9.09) in volatile London trading yesterday; SmithKline's benchmark Class A stock fell three pence to 405 pence. In composite New York Stock Exchange trading of the companies' American depositary receipts, Wellcome sank 37.5 cents, or 4%, to $9, and SmithKline fell 25 cents to $31.25.

Shingles, a painful ailment caused by the same virus as chicken pox, affects an estimated 600,000 Americans each year. Following a bout of chicken pox, the virus lies dormant for years before reactivating to cause shingles. Elderly people, bone- marrow transplant patients and AIDS patients are most prone to developing shingles.

Wellcome and Upjohn together boast nearly 2,000 sales representatives targeting U.S. general practitioners -- almost matching the marketing clout SmithKline can muster behind Famvir.

Meanwhile, Wellcome is defending its antiviral lead by grooming a new herpes drug, called Valtrex, as a successor to Zovirax, which loses U.S. patent protection in 1997. Valtrex lags behind SmithKline's Famvir by about six months in the regulatory labyrinth and is expected to reach the U.S. market next year.

Wellcome also is hoping to gain approval of an over-the-counter form of Zovirax to treat herpes. Late next month a Food and Drug Administration advisory committee will decide whether to recommend approval of nonprescription Zovirax. It would be the first nonprescription version of a medicine used to treat a sexually transmitted disease.

TOKYO -- Japan's housing starts in May were up 14% from the year-earlier month, the Construction Ministry reported.

The overall growth in housing starts during May follows a 12% increase reported for April. However, the total number of units were less in May than the 135,810 in April. Each sector posted declines from April.

A Construction Ministry official said the lower interest rates are behind the rises in private housing, which increased 31% from the year-earlier period, and multiunit condominiums starts, which increased 43%.

The official said the decline in rental housing is simply a continuation of an old trend, noting there are no significant factors contributing to the 9.6% year-on-year drop for May. April's figure totaled 45,718 units, down 13% from the same period the previous year.

OTTAWA -- Canadian farmers have cut their spring wheat acreage to a 19-year low, seeding instead crops with prospects for a higher return, including soybeans, flaxseed and rapeseed.

Spring wheat, which is seeded in the spring and harvested in the fall, is Canada's main wheat crop. Farmers have seeded 20,615,300 acres of spring wheat this year, a 26% decline from 27,781,800 acres last year, Statistics Canada, a government agency, reported.

Durum wheat acreage, however, has been increased 60% to 5,800,000 from 3,615,000 last year. Strong domestic sales as well as exports to the U.S., Algeria, Italy and Belgium are expected to maintain demand for high-quality durum wheat, which is used to produce pasta products.

Canadian durum accounts for more than 20% of U.S. consumption, and the U.S. government, responding to complaints from farmers, is threatening to impose curbs on imports of the Canadian grain.

Soybean acreage has increased 14% to a record 2,051,400 from 1,800,500. The increase has resulted from a shift to soybeans from corn by many farmers in Ontario, where the two crops are mainly produced. Statistics Canada said the cutback in corn acreage was prompted by the prospect of a big increase this year in U.S. corn production.

Barley acreage was estimated at 10,700,000, a 5% decline from 11,265,900. Barley is Canada's main feed grain.

LONDON -- TSB Group PLC said its TSB Bank is cutting 150 regional and area senior managers.

The bank said it is consolidating three regions into one national structure and reducing the number of bank areas to 10 from 22.

Directors responsible for the areas being eliminated will lose their jobs by the end of September.

TSB Group's main activities are retail banking, insurance, merchant banking and investment services.

WASHINGTON -- A recent decision by the Interior Department could lead to the creation of new housing for the homeless in New York City. But there's one problem: New York's leading politicians -- including Mayor Rudolph Giuliani, Sens. Daniel Patrick Moynihan and Alfonse D'Amato, and Gov. Mario Cuomo -- are against it.

The disagreement, an illustration of the not-in-my-backyard principle in politics, concerns Fort Wadsworth, a soon-to-close Navy base that is located at the base of the Verrazano-Narrows Bridge on Staten Island. For nearly a year, National Park Service officials were planning to take over the site after the Navy left.

But earlier this month, Interior Secretary Bruce Babbitt concluded that only two-thirds of the property was of sufficient interest to history or nature buffs to warrant takeover by the Park Service. That left the remaining third -- including a newly built dormitory that can house 400 people -- vulnerable to takeover by homeless groups, under a U.S. law mandating that unwanted federal property should be offered to house the homeless.

That law, the Stewart McKinney Homeless Assistance Act, cleared Congress in 1987 with the support of Sens. Moynihan and D'Amato. "I don't know what Congress was thinking," says Staten Island Rep. Susan Molinari, who terms the unwanted-property provision "nutty" and is leading the charge against Interior. Ms. Molinari's predecessor and father, Rep. Guy Molinari, voted against the McKinney bill; now Staten Island borough president, he may join her in a lawsuit against Interior over the matter.

Ms. Molinari makes no bones that her "main concern" is to block homeless housing on the former base, which abuts some of the priciest real estate on Staten Island. "We have various homeless agencies on Staten Island that allow us to take care of more than Staten Island's proportionate share," she says.

Mr. Cuomo, whose son Andrew runs federal homeless programs at the Department of Housing and Urban Development, signed a letter to Mr. Babbitt protesting Interior's decision against acquiring the entire Fort Wadsworth site. But spokesman David Egner said the governor's intent was "not to prevent homeless housing from being created," but rather to make Interior stick to its earlier plans to sublease the now-unwanted property to the Defense Logistics Agency, the Army Reserve and the Coast Guard. "We were looking at this as a way of creating jobs for New Yorkers," Mr. Egner said, a sentiment echoed by spokespersons in the offices of Mr. Giuliani and Mr. Moynihan, who also signed the letter. They argue that a 1972 law creating federal parkland in New York harbor requires the Navy property to revert to Interior.

But Interior officials contend that the law doesn't compel them to acquire the more newly developed parts of the property, including the dormitory, which didn't exist in 1972. "We're just not in the real-estate business," Park Service Director Roger Kennedy told a few dozen Staten Islanders at a meeting earlier this week on Capitol Hill. "We're not landlords."

Mr. Babbitt made his decision against acquiring all of Fort Wadsworth somewhat abruptly earlier this month, after being briefed by Interior officials on its cost. Had the Park Service taken over the entire site, Interior officials say, maintenance would have cost $10 million a year, making Fort Wadsworth the fifth most expensive park in the federal park system-more expensive, for example, than the Statue of Liberty or Virginia's Shenandoah National Park-at a time when the Park Service has come under fire for lacking sufficient funds to properly maintain existing parks. Eliminating the unwanted third will cut Fort Wadsworth's annual maintenance cost in half, they say.

But opponents are holding firm. "It's not a good location for homeless housing," says Maurice Shaw, senior vice president of Brooklyn Union gas company, whose president, Robert Cattel, is chairman of a New York City commission on redeveloping the area. "It's prime property. And I think the residents of that community would go berserk."

"That is a factor that too often plays into this," says Fred Karnas, executive director of the National Coalition for the Homeless. "When we have access to housing and we don't look at it as a resource for the whole community, then we're making a big mistake."

GTE Corp., continuing a streamlining effort, said it will sell its Spacenet satellite-communications operations to a rival, a unit of General Electric Co.'s GE Capital Corp.

Terms weren't disclosed. GTE Spacenet, McLean, Va., provides telecommunications services to government and businesses mainly by transmitting video and voice data through its seven satellites over the U.S. GTE has been focusing recently on building its local communications business into a multimedia voice, data and video highway.

GTE said it doesn't expect to have a material gain or loss from the sale. In fact, revenue has declined steadily at the unit. The GTE spokesman said the sale allows the company to "recover its sizable investment" in the satellites and other assets.

GE American Communications Inc., the GE Capital unit, is expected to offer jobs to about one-third of Spacenet's 600 employees. Like GTE Spacenet, the Princeton, N.J., GE Americom also offers satellite-communications services. But the acquisition will make it a bigger player in a growing and competitive business. Rivals include the giant Communications Satellite Corp. and Intelsat, the international telecommunications satellite organization owned by the U.S. and other nations.

The purchase also will establish Americom in "fast-growing" VSAT technology, said John F. Connelly, chairman and chief executive of GE Americom. In VSAT, or very small aperture terminal, satellite "earth stations" are used to link business locations.

The transaction, announced after close of markets, is subject to Federal Communications Commission and Justice Department approvals.

Separately, Citizens Utilities Co., Stamford, Conn., said it completed the acquisition of 270,000 telephone access lines in New York as part of an agreement to buy 500,000 lines from GTE.

In December, Citizens, a provider of telecommunications, natural gas, electricity and other services, acquired telephone properties with 190,000 access lines in Idaho, Tennessee, West Virginia and Utah as part of a $1.1 billion agreement. With the acquisition of the New York operations, Citizens said the transaction is 90% complete.

RIO DE JANEIRO -- Brazil's inflation rose 45.2% in June, up 2.63 percentage points from May, a private economics institute reported.

June inflation jumped sharply from the 42.58% rate measured in May, according to the private Getulio Vargas Foundation in Rio.

Prices have soared 732% since January, and a head-spinning 4,853% during the past 12 months, the institute reported.

State securities regulators are cracking down on alleged investor scams on popular on-line computer services.

Officials in Missouri, New Jersey, Oklahoma and Texas announced actions and investigations against suspected swindles that have been promoted through electronic open forums known as "investor bulletin boards." Meanwhile, the North American Securities Administrators Association, the organization for state securities regulators, held a news conference in Washington, D.C., on the growing problem of dubious investment schemes being pushed over electronic networks.

Some four million Americans subscribe to three commercial on-line services: CompuServe, a unit of H&R Block Inc.; Prodigy, a joint venture of International Business Machines Corp. and Sears Roebuck & Co., and America Online Inc. Investor bulletin boards, where subscribers swap tips on subjects ranging from common stocks to rare coins, are among the most popular parts of the services.

Securities officials said they are working with the three services to set up their own bulletin boards to warn users of problems and to answer questions about investments. Missouri has already set up a free bulletin board for investors, said state securities commissioner John Perkins.

Meanwhile, at least seven state securities agencies now have more than 24 investigations under way into investment-related on-line schemes, said Craig Goettsch, superintendent of the Iowa Bureau of Securities.

In one action, Missouri securities officials filed a cease-and-desist order against Bryan Kessler, a broker, and Investors Associates Inc., a Hackensack, N. J., brokerage firm, charging that Mr. Kessler wasn't licensed to do business in Missouri.

Mr. Perkins, the Missouri securities commissioner, said that Mr. Kessler had made a number of "dubious claims" on the Prodigy bulletin board concerning Europa Cruises Corp., an operator of cruise lines whose stock is thinly traded. In one false assertion, Mr. Kessler claimed that New York real-estate magnate Donald Trump was a major behind-the-scenes player in the company, Mr. Perkins said. Mr. Kessler signed his posting "a good trader," the commissioner added.

Mr. Kessler couldn't be reached for comment. A spokesman at Investors Associates said the firm wasn't aware of any "inappropriate transactions" in the state of Missouri.

Meanwhile, Texas securities regulators said they are investigating the case of an Austin retiree who sent a total of $10,000 to an out-of-state man who said he was a skilled money manager and would invest the money in a commodities futures pool. It turned out that the man was neither a licensed stockbroker nor an investment adviser, and he merely pocketed the money, said John Peralta, assistant director of enforcement for Texas.

Mr. Peralta said the Austin retiree got involved in the scam by commenting on the Prodigy bulletin board that he believed the stock market was due for a 100-point correction, and what did others think? The alleged con artist responded by electronic mail that he had a way to make money in a market decline.

Mr. Peralta said that dozens of other on-line investors may have been conned by the same scam artist, and the investigation continues. This could be only the "hint of a far greater problem," Mr. Peralta said.

In Oklahoma, the Department of Securities is continuing a stock-manipulation case in which a ring of 20 individuals were believed to have earned illicit profits through a variety of means including the hyping of stocks on commercial on-line services. Oklahoma filed a civil lawsuit against the individuals, including convicted savings-and-loan swindler Charles J. Bazarian.

Mr. Bazarian pled guilty to federal criminal stock manipulation charges earlier this year in the same case after fleeing authorities and hiding out in Puerto Rico, Oklahoma officials said. He is currently in a federal prison hospital awaiting the outcome of a July 9 sentencing.

OTTAWA -- Canadian bankruptcies totaled 5,671 in May, a 5.9% increase from 5,356 a year earlier, the federal Consumer and Corporate Affairs Department said.

IMPERIAL HOLLY Corp. (Sugarland, Texas) -- Moody's Investors Service Inc. downgraded $100 million in senior notes of this sugar producer to Ba-2 from Ba-1, citing the company's weak operating performance. In May, Imperial Holly posted its third consecutive annual net loss. The latest loss, for the year ended March 31, totaled $8 million, or 78 cents a share, on sales of $655.5 million. Moody's attributed the company's problems to depressed sugar prices and bad weather, particularly in the Midwest and California. Imperial Holly declined to comment on the rating agency's action.

SALT LAKE CITY -- Gull Laboratories Inc. said Fresenius AG, a pharmaceutical company based in Bad Homburg, Germany, completed the previously announced acquisition of a 53% stake in Gull, a medical products company, from Myron Wentz, Gull's chairman.

HONOLULU -- Hawaiian Airlines, a unit of HAL Inc., said it flew 222.3 million revenue passenger miles in May, up 3.7% from 214.3 million a year earlier.

The carrier said load factor, or the percentage of available seats filled, slipped to 72.6% from 73.6%.

TOKYO -- Japan's new Socialist prime minister appointed pro-business moderates to most of his cabinet's top posts, a move that may ensure policy stability.

One day after stunning the nation by gaining the premiership Wednesday, Tomiichi Murayama gave 13 of his 21 cabinet posts to his old enemies in the Liberal Democratic Party, including the trade, foreign affairs and defense portfolios.

But Mr. Murayama surprised many people by giving the more important job of finance minister to Masayoshi Takemura, the liberal leader of the Sakigake party, the smallest member of Japan's new threeparty alliance.

Mr. Takemura has been a staunch opponent of the ministry's drive to raise Japan's 3% consumption tax as a means of funding an income-tax cut. His appointment raises concerns about delays in tax reform and other key economic policies.

Japan's financial markets took Mr. Murayama's appointment in stride. The Nikkei 225-stock index rose 162.93 to 20643.93 in moderate trading Thursday.

But Japanese trade officials said the new government is unlikely to strike any trade deal with the U.S. before the summit of the Group of Seven industrial nations in Naples, Italy, next Friday. The two sides are still far apart on the so-called objective-criteria issue, which the U.S. wants to use to measure how imports fare in Japan, officials said. It will also take time to brief Mr. Murayama on trade issues.

Many observers don't think the new government will last, citing the policy gulf between the new coalition of left-leaning Socialists and the Liberal Democratic Party, which ruled Japan for 38 years with conservative, pro-business policies.

But these former enemies have powerful incentives to work together. The new government is unified in its opposition to the vision of Ichiro Ozawa, the controversial strategist behind the short-lived, recently deposed reformist government.

Mr. Ozawa and his colleagues, including Japan's past two premiers, promised to shake up the nation's politics and economy. But this week's grand alliance of the reformists' enemies is a sign that Japan's new government may attempt a counter-reformation aimed at maintaining power and resisting change.

"From a Machiavellian point of view, Mr. Murayama is a brilliant leader," said Jesper Koll, an economist at S.G. Warburg Securities. "He's been at the center of power politics since last summer. And the Liberal Democratic Party was willing to offer him the key post to pursue their own goal of getting power."

Many of the new appointees are seasoned administrators. Japan's new minister of international trade and industry is Ryutaro Hashimoto, a former finance minister who held six ministerial posts for the Liberal Democrats before the reformists ended his party's rule last year.

The new vice premier and foreign minister is Yohei Kono, a Liberal Democratic leader who was chief cabinet minister under Prime Minister Kiichi Miyazawa.

Critics have accused both sides of papering over policy differences in a cynical power grab. Many Liberal Democrats, for instance, have favored a greater military role for Japan, which the Socialists staunchly oppose. Mr. Kono, the new foreign minister, represents pacifist elements within the LDP.

Perhaps the most striking symbol of the Liberal Democrats' comeback was the appointment as Science Agency chief of Makiko Tanaka, daughter of the late Kakuei Tanaka. Mr. Tanaka, a gruff and colorful LDP power broker and former prime minister, dominated an entire generation of Japanese politicians.

In a raspy, forceful voice reminiscent of her father's, Ms. Tanaka said her appointment came as a surprise. "It was like being asked to be sent up in the space shuttle," she told reporters.

David P. Hamilton contributed to this article.

GUANGZHOU, China -- To hear James Chen tell it, H.J. Heinz Co.'s primary mission in China is to help Chinese babies grow bigger.

Mr. Chen, who heads Heinz's baby-cereal plant here, contends that traditional Chinese breakfast food -- such as congee, a sort of rice porridge -- "does not have enough nutrition and nourishment" to allow Chinese babies to bulk up as fast as their Western counterparts. His solution? Heinz cereal, of course.

Before fattening up a new generation of super babies, however, Heinz found it had to overcome some problems of its own. Company officials say a recovery program begun last year is already starting to pay off.

The Pittsburgh-based company beat its Western rivals into China when it began producing cereal in 1986 through its Guangzhou joint venture, Heinz-UFE Ltd., owned 80% by Heinz and 20% by two local partners. Heinz-UFE racked up strong profits in its early years, current and former executives say. Then local competition stiffened, costs mounted, and the launch of a fortified milk-powder drink called Total proved an expensive flop. In 1993, the venture dipped into the red.

Meanwhile, expatriate managers arrived and departed with worrisome frequency. And local counterfeiters exploited the name Heinz has made for itself through television ads and billboards featuring plump babies.

Faced with rapidly deteriorating results, the venture chopped costs last year, partly by sending several expensive expatriate managers packing and replacing them with locals. It installed a new executive team under Mr. Chen, who was poached from a Sino-Spanish joint venture that makes chewing gum in China.

Heinz-UFE doesn't disclose its results. But Walter Schmid, H.J. Heinz's director for the Asian-Pacific region, says the venture has moved back into the black.

Mr. Chen, Heinz-UFE's ebullient president, sounds even more bullish. The Taiwan-born U.S. citizen predicts that sales will race ahead in the next few years, but he declines to specify their current level. Another executive close to the company, however, says sales are running at more than $20 million annually.

The outlook has grown rosier, Mr. Chen says, because Heinz-UFE has strengthened its sales network, marketing and management.

"We want to grow very fast," Mr. Chen says, raising his voice to compete with a pile driver thudding outside his window. "We want to be a major player in the food industry of China."

Within the next few years, he says, Heinz-UFE is likely to double the capacity of its plant in Guangzhou and build another in Tianjin, where it has already acquired land. Citing an estimate that 22 million babies are born each year in China, Mr. Chen argues that the market can easily digest more cereal. Thus, he says, Heinz-UFE needn't worry much about the growing number of rival baby-food makers in China, including Nestle SA, of Switzerland, and Wei-Chuan Foods Corp., of Taiwan.

But Heinz also must contend with dozens of factories churning out counterfeit versions of its cereals, Mr. Chen says.

When the company discovers such pirates, it sometimes takes legal action; but that is expensive and not particularly satisfying. Among other things, Heinz-UFE must pay travel and dining expenses for the police officials it leads to the scene of the alleged crime. Sometimes counterfeiters receive tipoffs before raids and destroy the evidence, Mr. Chen says. Even when they are caught, he laments, the fines are too small to act as a deterrent.

Aside from snatching potential customers, counterfeiters tarnish Heinz's image by selling inferior cereal under its brand name. But what really troubles Mr. Chen, he says, is that the fake Heinz cereal gives Chinese babies diarrhea.

The phenomenon of fame before significant accomplishment is hardly unique in American sports, but seldom has it been better exemplified than by Michelle McGann. By some measures, she is one of the stars of the Ladies Professional Golf Association tour, courted by product-endorsement seekers, followed by large galleries and lionized by the minions of the news media. The only trouble is, she has yet to win a tour tournament in almost six years of trying.

"It doesn't bother me, particularly because I've always done the best I can, and if the attention I get bothers the other players, they haven't said anything to me about it," says the Junoesque 24-year-old.

But she adds: "Naturally, I'd like to get that first victory, if only because I'm tired of being asked why I haven't got it."

That question could be made moot this weekend at the Youngstown-Warren Classic in Warren, Ohio, where the LPGA is visiting, or at next week's Jamie Farr Toledo Classic. The truth is that McGann is a considerable golfer, a long hitter who has come close to hoisting many a victor's cup. Meantime, though, she's getting along quite well. That's because, to steal a line from the strippers in the musical "Gypsy," she's got a gimmick.

McGann's gimmick -- or, rather, gimmicks -- are hats, big, broad-rimmed straw ones. She wears 'em just about every place she goes. They're the main reason she's rarely confused with McAllister, McGeorge, McGuire, McHaffie, McNamara or any other of her fellow club-swinging tourists. "For better or worse, I'm the gal in the hat," she says with a giggle. "I think it's mostly for the better."

The hat thing got started innocently, at the 1991 U.S. Women's Open at Colonial Country Club in Fort Worth, Texas. It was so hot there that some of the contestants had maintenance-crew members hose them down on the practice green after their rounds. McGann, who'd theretofore gone hatless, put on a straw model for shade, and was photographed wearing it. Sonni, a hat manufacturer, saw the picture, and got in touch. Now, she wears hats for profit as well as protection.

It helps that McGann is tall (5-foot-11), tanned and has a ready, toothy smile. It also helps that she's something of a fashion plate, favoring red lipsticks, jeweled belts and dangly gold earrings. It helps even more that she belts her drives with the best of them, averaging in the fancy neighborhood of about 250 yards a poke off the tee. The likes of Bob Tway, a former PGA champ, have been recorded oohing or aahing after watching McGann whack one.

What helps most, though, is that her promise as a golfer has remained bright even as her pursuit of a professional victory has been fruitless. That is attested by her abundant top-10 tournament finishes, and more than $800,000 in official prize money, since the start of 1991 (she's made $130,977 so far this year, good for 19th on the tour's money list). "Some players win one early but take a long time getting to where they can finish high consistently. It seems I've reversed that process," she notes.

McGann, of course, was a winner as a kid, or she wouldn't be out playing with the big girls now. Born in West Palm Beach, Fla., she took up golf at age eight at the urging of her father, Bucky, a scratch player and former University of Notre Dame basketball captain. She was tickling par as an early teen and became a three-time junior champion in her highly competitive state. In 1987, she won the national junior girls' crown.

Even so, her childhood wasn't all a sun-kissed idyll. When she was playing softball at age 13, someone threw a ball her way and hit her in the eye. She needed three operations to repair the damage. At about the same time, she learned she had diabetes, and has been on insulin since. She says she feels fine mostly, but allows that "sometimes I wake up headachy, with my sugar low, and know it's not going to be a great day."

She had quite a few not-so-great days on the links early on: At 18 she spurned college offers for Fairways U., which is to say the LPGA tour, and her first two years' earnings totaled only about $46,000, which barely covered caddies' fees. Fortunately, her caddy was -- and is -- her dad, who sold his lawn-maintenance business to travel with her. Mom Bernadette stays home with younger (but not littler, he's 6-foot-4 at age 15) brother J.C.

McGann's first top-10 finishes, five of them, came in 1991, and she posted 10 more the next year. Her sixth place in the 1992 U.S. Open opened a lot of eyes. So did her fourth in the 1993 LPGA Championship and her fifth in this year's Nabisco Dinah Shore. Those three are among the LPGA's four designated major tournaments.

"My length off the tee is a big help to me in the big tourneys. I just wish more of the events we play were set up that way," McGann says. As it is, she continues, "a lot of weeks I have to play more irons off the tees than woods, and that's frustrating for someone who enjoys really letting it out. The other day I had to use a six iron to drive on a par-four hole, for heaven's sake."

Greater success, she thinks, will come with an improved short game, to which end she has labored with the help of Dave Stockton, the notable senior pro and former U.S. Ryder Cup captain. McGann and Dave Stockton Jr. golfed together as youngsters. She also has enlisted the sports psychologist Deborah Graham in her cause. Graham's advice, sensibly enough, is that McGann should hit each shot the best she can without undue worry about where it might end up.

"One of these weeks, the breaks will go my way and I'll win one, but it's not like my life depends on it," the golfer says. "I make a great living traveling and playing the game I love, and get to work with some great kids through the American Diabetes Association. Helping diabetic kids makes me feel like a winner even after I've had a bad round."

We can tip our hats to her on that one.

Italian food and chemicals giant Ferruzzi Finanziaria SpA told shareholders at the annual meeting that operating profits in the first five months of 1994 were up 47% from a year earlier.

Gross operating margins were 6.8% in the first five months of 1994, compared with 5% a year earlier, Ferruzzi said.

Ferruzzi also said that it expects to cut its debt to 11.34 trillion lire ($7.22 billion) by the end of 1994, compared with 21.95 trillion lire in 1993. The debt reduction will come from restructuring of debts, capital increases and sales of assets.

Ferruzzi said that gross operating profits for the first two months of 1994 were 447 billion lire, up 26% from a year earlier.

NEW YORK -- Deals are back.

There weren't many of them, but deal stocks were some of the big winners in the second quarter. Gerber Products Inc. raced ahead after Sandoz AG made a $53-a-share bid; Margaretten Financial Corp. benefited from a $25-a-share bid from Chemical Banking Corp.; Syntex Corp. advanced on a $24-a-share bid from Roche Holding Ltd.; and Kemper Corp. has received a boost from a $67-a-share bid from Conseco Inc.

Now, spurred by merger talks between CBS Inc. and QVC Inc. and the planned merger between rail concerns Burlington Northern Inc. and Santa Fe Pacific Corp. announced yesterday, investors and analysts are hoping that deals will multiply in the third quarter, bringing with them some tidy price appreciation in target stocks.

"It's interesting that takeovers have become respectable again," says Neil Hokanson, president of Hokanson Financial Management in Encinitas, Calif. "People are seeing that it may be cheaper to buy a company rather than start from scratch. And there's a good deal of hot money in the market, which could drive more takeovers."

Deals are one of the few hopes that Wall Street has these days for pumping some life into an otherwise moribund stock market. Although economic growth remains solid, with such indicators as consumer confidence and working hours indicating little likelihood of a downturn anytime soon, the stock market has been waffling in a narrow trading range for months now.

"The basic structure of the economy is strong," says Mickey D. Levy, chief economist for NationsBank Corp. "But that doesn't always translate to the stock market."

Stock prices continue to track a skittish bond market, and the ailing dollar has contributed to the anxiety that has held prices in check. Many professional investors are using the few pallid rallies that occur to unload some of their holdings.

"I'm still very cautious, and I've been a seller into the rallies," says Larry Rice, chief market strategist with Josephthal Lyon & Ross. "There's really been such a deterioration in broad stocks, that its hard to be confident. The rallies have been anemic, the selloffs have been broad."

Since early June, the Dow Jones Industrial Average has fallen from above 3810 to the low-3600 range, continuing the corrective phase that began at the end of the first quarter and sent the Dow industrials to 3593.35 early in the second quarter. The industrial average, which fell more than 42 points yesterday, finished down for the second-consecutive quarter for the first time since 1994.

Most analysts believe the stock market won't begin moving higher until the bond market rallies, pushing down long rates and flattening the yield curve. In order for that to happen, strategists believe, inflationary fears must subside and the dollar must stabilize.

The more optimistic analysts contend that things will begin to look better this quarter. Don Hays, director of investment strategy at Wheat First Butcher Singer in Richmond, Va., insists bonds are due to recover. "As the third quarter progresses, we believe that people will begin to see that inflation is indeed moderating," he says. "And that should prompt a very good rally in the bond market. That should give a nice boost to the stock market."

But others are less than confident of such a scenario. Many believe the dollar's fall isn't yet over. Moreover, they suggest that inflation will become more pronounced in the quarter, adding to the bond market's woes.

That's why deal stocks are so alluring. Investors lucky or smart enough to be holding a target stock when a bid is made can do very well very quickly. But a well-publicized deal also tends to boost the share prices of related companies.

"Takeovers will become a big theme in the second half of the year," says Mr. Hokanson. "Especially since we don't expect a big move in the market as a whole. The economic news will be too good to destroy the market, but sentiment certainly doesn't want to take the market higher. In that sense, it's going to become a speculator's market." He's shopping for potential deal targets among food, drug and technology stocks.

While the dollar's weakness has worried many stock investors, others note that the falling currency may well stir up some more bids for U.S. companies from overseas buyers.

But there are traps for investors looking to get in on the latest deal. Remember Quaker Oats Co.? The food company gained more than 10% on speculation that Nestle SA might bid for it. But Nestle denied any bid was imminent and the stock abruptly returned to its pre-rumor level. "People waiting for Nestle to buy anything this year are likely to be disappointed," says David Shulman, chief equity strategist at Salomon Brothers.

For those wishing to steer clear of the volatile takeover game, strategists suggest that the energy group's resurgence is likely to continue. Late in the second quarter, energy related stocks began to bound higher along with rising oil prices. With international economies picking up steam, especially in Europe, analysts believe demand for oil-related services will continue to grow.

"This group has been out of favor for such a long time, and now it's starting to come back, supported by higher oil prices," says Mr. Rice, the Josephthal Lyon & Ross strategist. "Not only are prices going up, but consumption is also on the rise both here and overseas."

Mr. Rice has added Schlumberger Ltd., Amerada Hess Corp., Burlington Resources Inc. and Halliburton Co. to his recommended list.

Other analysts suggest the technology sector, battered toward the end of the second quarter, will continue to recover, especially the software sector which performed relatively well through the technology selloff. Edward Cimilluca, director of research at J. & W. Seligman, believes technology issues are largely undervalued. "We are actively prospecting the technology sector, especially semiconductor issues. This group has just been way oversold," he says. "Demand for personal computers continues very strong. The market seems to be looking for a breakdown in the technology sector that we just don't see."

Mr. Cimilluca recommends software concerns Novell Inc. and Oracle Corp., semiconductor concern Applied Materials Inc. and several networking stocks, such as Cisco Systems Inc., Newbridge Networks Corp. and Cabletron Systems Inc.

Acme Metals Inc., Riverdale, Ill., said its board approved construction of a $370 million steel mill, contingent on obtaining project financing.

Acme said it filed documents with the Securities and Exchange Commission to issue $175 million in senior secured notes and $100 million in senior secured discount notes. It said the transaction is expected to be completed before early August.

In March, Acme raised about $117 million by issuing 5.6 million special warrants, exchangeable on a one-on-one basis for common stock, at a value of $21 a share.

The proposed continuous thin slab caster/hot strip mill will replace an existing ingot-based steel finishing shop at Acme's Riverdale mill, boosting the company's steel-shipment capacity to 970,000 tons from 720,000 tons.