February 4, 1993

HE is every mother's dream for her daughter: an ex-midshipman, handsome as can be, with a principled intelligence and a diffident way. But there is a hitch: he's gay. And therein lies the story of Joseph Steffan, his battle with himself and his battle with the Navy. These are hectic days for the 28-year-old Mr. Steffan. As the fight over homosexuals and the military rages on, he is in demand. Everyone, it seems, wants to hear how he was kicked out of Annapolis for being gay just a week before graduation in 1987. One minute, it's the networks; the next, the news weeklies, all asking about his lawsuit to be reinstated in the Navy. (It was dismissed in late 1991 in Federal District Court in Washington and is being appealed.) All the while, he tours the country, speaking at colleges about gay men and lesbians in the military and promoting his book, "Honor Bound" (Villard), now in its second printing.

The Economy Changes in medical spending are clouding the future for pharmaceuticals companies. After more than a decade of sharply rising prices for prescription drugs -- and profits to match -- the dimming prospects are battering drug stocks. [ Page A1. ] The Connecticut legislature voted to cut income taxes for most middle-class families and raise taxes for upper-income earners, setting up a battle with Governor Weicker. [ B7. ]

Clinton Administration officials said today that they would not press the Bosnian Muslims to accept the peace plan put forward by Cyrus R. Vance and Lord Owen and that they were working on their own approach, which President Clinton himself would unveil "relatively soon." The Administration will not object if all the parties are ready to agree to the Vance-Owen plan on their own, the officials said. But they said they did not expect the Bosnian Muslims to do that and would not press them to accept what they themselves viewed as a flawed initiative.

A ruling by a Federal judge in Manhattan yesterday threatens to destroy New York State's delicate system of subsidizing hospital care for some patients. The judge said the state was violating Federal law by adding an extra charge to hospital bills paid by some insurers and health maintenance organizations. That arrangement has benefited hospitals and nonprofit insurers like the Blue Cross-Blue Shield plans.

Stocks rose broadly and strongly yesterday, with the Dow's laggard giants leading the way on a burst of economic optimism. The Dow Jones industrial average gained 45.12 points, or 1.36 percent, to 3,373.79, for the largest gain since late summer. Investors put an exclamation point on their enthusiasm by trading 345.4 million shares, the seventh-highest volume in Big Board history.