July 5, 1994

THE spray of colors on a butterfly's wing, a vivid pattern painted with the iridescent dust of thousands of tiny scales, ranks among nature's more entrancing mysteries. Though some like to keep wonders inviolate, others find a greater pleasure in understanding the elegant genetic machinery by which such beauty and diversity are generated. For the latter, an article in the current issue of Science goes a long way toward explaining the miracle of how a butterfly's wing is made. A team of biologists at the University of Wisconsin in Madison has traced out how a handful of genes become activated in the embryonic wing disks that are secretly budding while the butterfly is still a lumbering caterpillar. The genes produce substances that mark the position of each cell in the future wing with almost the precision of defining squares on a piece of graph paper. Once the coordinates are fixed, another crew of genes sketches out the dance of eyespots, chevrons, bands and dashes that make up butterfly wing patterns.

Mutual Funds Quarterly Review Losses prevailed among mutual funds in the second quarter, as stocks, bonds and the dollar all tumbled. The bright spot remains Japan, and at home, financial services stocks. [ Page D7. ] Small investors kept pouring money into mutual funds in the first half of the year, despite wild swings in domestic stock prices and some poor performances abroad. Their tenacity surprised some money managers, who had predicted that individuals would sell shares in a declining market, magnifying the downward spiral for all. [ D7. ] The S.E.C. requires funds to disclose very little about bailouts of mutual funds. A series of bailouts this year, of money market funds and a Paine Webber bond fund, raise questions about what investors should be told. [ D7. ] John B. Neff, the man behind Vanguard's giant Windsor fund, has been vindicated this year after a slump. [ D7. ] The Economy Federal Reserve policy makers, who begin an eagerly awaited meeting today, will probably decide after long and spirited debate that the economy is slowing enough that they need not immediately raise short-term interest rates again. [ D1. ] Like many farmers, David Rothermel praises the Government's efforts to become more helpful. But he sees the myriad Government programs and regulations as a drain on the time he needs to spend on the 2,900 acres he has planted. [ D1. ] The Treasury has adopted new tax rules under which corporations gain much greater flexibility in allocating prices among parent companies and their foreign subsidiaries. [ D3. ] International As the dollar has plunged almost daily to new lows against the yen, it is easy to conjure up images of traders in speculative frenzies. But trepidation has triumphed over adventurism. [ D1. ] After pouring billions of dollars into China in recent years, Taiwan's investors are slowing their activity there. [ D1. ] The chairman of Alcatel-Alsthom of France was arrested for questioning over possible misuse of company funds. [ D1. ] The fall of the Schneider real estate empire claimed its first casualties in Germany's banking industry. [ D2. ] Russia will begin selling its remaining enterprises for cash, not vouchers, in a new step toward a market economy. [ A3. ] Markets The dollar set a record closing low against the Japanese yen in Tokyo before ending slightly higher in London. [ D4. ] Companies Once the bondholders of R. H. Macy were regarded as the bankrupt retailer's weakest creditors. But now, as Federated Department Stores tries to woo Macy into a merger, the bondholders are newly empowered. News Analysis. [ D1. ] Throughout metropolitan New York, new ventures and new companies in telecommunications are popping up. [ A1. ] Today's Columns A limited partnership asks its investors to make some tough choices right away. Kurt Eichenwald: Market Place. [ D4. ] Is it possible to conjugate CBS and QVC? And other questions to ponder. Stuart Elliott: Advertising. [ D6. ]

Once, the bondholders of R. H. Macy & Company were regarded as the retailer's weakest creditors. But now, as Federated Department Stores Inc. tries to woo Macy into a merger, the bondholders are newly empowered -- and feeling their oats. Indeed, satisfying their demands has become the key to combining the two retailers in a plan that would simultaneously get Macy out of bankruptcy protection and create the country's largest department store company.

A look at how the health care proposals put forth by President Clinton and four Congressional committees stack up. Page D13.

France inserted itself more directly into Rwanda's civil war today, establishing a major base here six miles from the advancing Tutsi-led rebel army and manning it with Foreign Legionnaires and paratroopers supported by heavy artillery. The purpose is to prevent the rebels' westward advance into the safe zone declared by the French intervention force.