Following are excerpts of Secretary of State George P. Shultz's testimony to the Iran-contra committees yesterday. He was questioned first by committee counsel Mark A. Belnick. Shultz began with a short statement.

. . . I have, on numerous occasions . . . been asked about what advice I gave the president on this, that or the other subject. And I have always taken a position, in 10 1/2 years as a member of the Cabinet, that those conversations are privileged and I would not discuss them. This is an exception, and I have made this material available at the president's instruction. But I mention it because, if I'm testifying before you on some other subject sometime and you try to use this as a precedent, I won't buy it. I'm just putting you on notice right now.

Q: . . . And sir, as I understand, as secretary of state, you are responsible, second only to the president, for the conduct of foreign relations of the United States. Is that correct?

A: That's correct.

Q: . . . When were you first informed that the president of the United States had signed a covert action finding authorizing the sale of U.S. arms to Iran?

A: On Nov. 10, 1986, at a meeting in the Oval Office with the president's principal advisers during a briefing by Adm. {John M.} Poindexter on what had transpired over the past year or so.

Q: Mr. Secretary, when were you informed that there was more than one such covert action finding signed by the president?

A: When I was testifying before the Senate Select Committee on Intelligence, I believe it was Sen. {William S.} Cohen {R-Maine} during the question period, asked me about a Jan. 6 finding. And I said to him, "Senator, I think you must be thinking of the Jan. 17 finding." . . . And you said, "No, Jan. 6." I said, "Well, that's the first time I've heard of the Jan. 6 findings." So that's when I heard about it.

Q: And when you were first informed, Mr. Secretary, that the president had signed also a third finding on Dec. 5, 1985?

A: When it emerged in the course of these hearings.

Q: Mr. Secretary, when were you first informed that this nation had sold weapons directly to Iran?

A: Well, it depends upon what you consider being informed. But, when this all started to break in very early November 1986 there were press reports of arms sales that seemed authoritative. And so that was my information, literally, on an arms sale from the U.S. to Iran.

Q: . . . Prior to those reports in the press, had any member of the United States government informed you that the United States had sold weapons directly from the United States to Iran?

A: No . . . .

Belnick later asked about an exchange of cables between Shultz and former national security adviser Robert C. McFarlane in mid-July 1985, regarding proposed Israeli-Iranian contacts and a possible delivery of TOW missiles from Israel.

Q: You cabled back . . . saying that if anything, Mr. McFarlane ought to express a positive but passive reply; that we ought not to get actively involved, and that Mr. McFarlane ought to inform the Israeli emissary . . . that you and Mr. McFarlane would be in contact every step of the way on that matter. Is that a fair summary . . . ?

A: Well, I think what took place was an emissary to Mr. McFarlane that came from the prime minister. And the burden of it was they thought there was a way in which the relationship with Iran might change, and that at the same time we might get our hostages out, but that it might very well involve some sales of arms . . . to Iran . . . . It seemed to me, well . . . he's probably going to explore this anyway, so . . . I wanted to be sure I had some kind of control over it or association with it. So I said, "Well, all right. Let us give a passive reply without commitments. Let's find out more; what exactly is it that they have in mind?" That was the idea . . . and also that I expected to be kept fully informed at each step.

Q: About a month later, on Aug. 6, 1985, you attended a meeting with the president . . . at which Mr. McFarlane reported on three contacts which had by then taken place between the Israelis and the Iranians. And he reported also that the Iranians wanted a dialogue with the United States, arms from the United States and then TOWs from Israel in exchange for what he reported would be four hostages. He also talked about the deal being totally deniable. Mr. Secretary, can you give us your recollection of that meeting and, specifically, what you said in response to Mr. McFarlane's report . . . that if our government blessed this deal, it would be . . . totally deniable?

A: I think your summary of that meeting is taken from my own . . . notes that I wrote after the meeting . . . . The substance of what you read out was discussed, and I said that I thought this was a very bad idea, that I was opposed to it, that we're falling into the arms-for-hostages business and we shouldn't do it.

Q: Did the president express any views?

A: He didn't . . . . He listened. It seemed to be relatively new information to him.

Q: No decision was reached?

A: No decision was made.

Q: But you did challenge Mr. McFarlane's assertion that any such deal . . . could be kept secret or be totally deniable?

A: Yes. I didn't think it could be kept a secret . . . .

Q: . . . Subsequent to the Aug. 6, '85, meeting, did Mr. McFarlane inform you that he had heard from the president approving the proposed deal and approving the Israelis going forward and shipping TOWs to Iran?

A: No, I have no recollection of being so informed.

Q: Were you informed of the Israeli TOW shipments in . . . September of 1985?

A: No, I wasn't . . . .

Q: And you were not informed that Rev. {Benjamin} Weir's release was in any way connected to a shipment of arms to Iran from Israel?

A: No, I tended to take the statements of Rev. Weir about his release and the use of it by the hostage-takers to carry a message as, more or less, at face value.

Q: . . . In November 1985, you were with the president at the summit in Geneva, correct?

A: Correct.

Q: And you had a conversation with Mr. McFarlane about . . . the Iran initiative. Can you recall that conversation, sir?

A: Yes . . . . This phone call came in, kind of out of the blue, about a hostage release and arms sales to Iran.

Q: And did Mr. McFarlane tell you that it was then proposed that Israel would send an air shipment through a European city of some 100 Hawks to Iran?

A: Yes . . . . He described the structure of a deal in which a plane would go from . . . Portugal, as I remember, and it would be contingent on release of the hostages -- a rather complex arrangement.

Q: But the burden of it was that if the hostages came out, the weapons would go to Iran. If they didn't, the weapons wouldn't.

A: Exactly. It was a straight-out arms-for-hostages deal.

Q: What did you tell Mr. McFarlane?

A: I told him I hoped the hostages would get out, but I was against it, and I was upset that he was telling me about it as it was just about to start, so there was no way I could do anything about it. But . . . it was happening, and I hoped the hostages would get out.

Q: After you objected, though, you learned within the next several days that no hostages had been released and your information was that the deal had therefore collapsed.

A: Exactly.

Q: Your notes indicate in the chronology that you told your executive assistant on Nov. 23, 1985, "It's over."

A: That was what I understood.

Q: . . . On Dec. 5, 1985, you received your first call from Adm. Poindexter about the Iran initiative. We covered that earlier this morning, and I won't go through it again except to note from your chronology that, in speaking to . . . Adm. Poindexter on Dec. 5, you pointed out to him your objection to the fact . . . that the State Department had been cut out of the cable traffic relating to the hostages, correct?

A: Correct.

Q: . . . So was there any other . . . instance in your experience since 1982 as secretary of state when . . . the State Department was deliberately cut out of intelligence and cable traffic regarding a foreign policy initiative or program?

A: Not that I know of.

Q: On Dec. 7 {1985} there was a meeting at the White House . . . at which senior officials were present -- you, {Defense} Secretary {Caspar W.} Weinberger, {chief of staff} Donald Regan and Adm. Poindexter, and of course, the president . . . . You spoke at that meeting and, as I undertand from your notes and prior testimony, expressed forceful opposition to the proposed policy?

A: That's correct, and just as forceful was Secretary Weinberger.

Q: . . . Who spoke in favor of the policy at that meeting?

A: Well, I felt that Don Regan shared the view of Secretary Weinberger and I. And Mr. {John} McMahon, who was representing the CIA, seemed to be, as I recall, rather passive. He didn't seem to push one way or another, but I may not be remembering that just right. Mr. McFarlane and Adm. Poindexter seemed to be more pro doing this. The president, I felt, was somewhat on the fence, but rather annoyed at me and Secretary Weinberger because I felt that he . . . was very concerned about the hostages as well as very much interested in the Iran initiative . . . .

Q: . . . And was the president fully engaged in this conversation?

A: Oh yes . . . . This idea that the president just sits around not paying attention, I don't know where anybody got that idea. He's a very strong and decisive person . . . . He listened. And you could feel his sense of frustration. He said at one time . . . "Well, the American people will never forgive me if I fail to get these hostages out over this legal question" -- or something like that . . . . And then he said, "But visiting hours are Thursday" -- or some such statement. And so there was that kind of banter. I know people have looked at those notes and wondered if the president was advocating violating the law. And there was no such tone to that at all. It was the kind of statement that I'm sure we all make sometimes when we're frustrated.

Q: . . . Let's move then to the meeting on Nov. 10, 1986, at the White House which you attended with the president, the vice president {George Bush}, Adm. Poindexter, Don Regan, Mr. {Alton G.} Keel {Jr.}, who was Adm. Poindexter's deputy, {CIA} Director {William J.} Casey, Secretary Weinberger and the attorney general {Edwin Meese III}. And at Tab 39 . . . is a set of Mr. Keel's notes of that meeting, which we've previously made available to you, and, if I'm correct, you think is a fair summary of what transpired at the meeting.

A: Yes, and it's reasonably consistent with the notes that I gave to my executive assistant.

Q: And if I may, for the sake of time, summarize what we understand from you in those notes, Adm. Poindexter gave a briefing concerning the operation with the president present . . . and informed all of you at that time that a total of 1,000 TOWs and 248 Hawk spare parts were sold to Iran and also told you that this whole operation, as you said before, had started when an Israeli arms warehouse was located in Europe. That comports with your recollection?

A: Yes. Shortly thereafter, at another briefing, he said there were 2,000 TOWs. So I was very uneasy about these briefings.

Q: And at this first briefing on Nov. 10 . . . you criticized the entire operation, saying that it sounded like arms for hostages no matter what face was put on it. Is that correct?

A: That's correct.

Q: But the president said that he disagreed with that view at that time.

A: The president's view . . . was that this was basically about an initiative toward Iran and that, as an aspect of it, we would get our hostages back and that a small sale of arms to Iran as a token of good intentions might or might not be part of that package, but he had no objection if it were . . . . I think it's perfectly possible to see it exactly that way. The only trouble is, as you look at particular things that happened, when you get down into the dirt of the operational details, it always comes out arms for hostages. And at least as I saw it right from the beginning, that was what was going to happen, and that's why I objected to it so much.

Q: . . . During that period from Nov. 10 on in various conversations with the president and his advisers . . . you continued to argue that the record would not support an assertion other than that this was arms for hostages -- or at least the record would not support an assertion that it was not arms for hostages.

A: That's correct, but the president felt that he didn't authorize an effort {that} was simply and purely an effort to trade arms for hostages. And so we went back and forth on that quite a bit.

Q: And did you begin developing the view, particularly as of Nov. 10, that the president's advisers were misleading him in not giving him the facts concerning what had actually transpired in the Iran initiative?

A: I developed a very clear opinion that the president was not being given accurate information, and I was very alarmed about it. And it became the preoccupying thing that I was working on through this period. And I felt that it was tremendously important for the president to get accurate information so he could see and make a judgment. His judgment is excellent when he's given the right information, and I felt as this went on that the people who were giving him the information . . . had a conflict of interest with the president. And they were trying to use his undoubted skills as a communicator to have him give a speech and give a press conference and say these things, and in doing so he would bail them out . . . . I don't want to try to attribute motives to other people too much, although I realize I have, but that's the way it shaped up to me. So I was in a battle to try to get what I saw as the facts to the president and see that he understood them.

Now this was a very traumatic period for me because everybody was saying I'm disloyal to the president. I'm not speaking up for the policy. And I'm battling away here, and I could see people were calling for me to resign if I can't be loyal to the president, even including some of my friends and people who had held high office and should know that maybe there's more involved than they're seeing. And I frankly felt that I was the one who was loyal to the president because I was the one who was trying to get him the facts so he could make a decision . . . . As he absorbed this, he did. He made the decision that we must get all these facts out, but it was a battle royal.

Q: . . . In that battle royal . . . who was on the other side?

A: Well, I can't say for sure. I feel that Adm. Poindexter was certainly on the other side of it. I felt that Director Casey was on the other side of it. And I don't know who all else, but they were principals.

Q: . . . In {a} proposed press guidance {that Shultz, then en route to Guatemala, received from Poindexter after the Nov. 10 meeting} the statement was made that, "As has been the case in a number of similar meetings with the president" -- referring to the meeting earlier that day -- "with his senior advisers on this matter, there was unanimous support for the president's decisions." You found that statement misleading, correct?

A: That statement wasn't misleading; that statement was inaccurate.

Q: . . . And your response . . . was to tell Adm. Poindexter, as you said, it was inaccurate. Take it out. That you supported the president and that could be stated, but it could not be stated that there was unanimity on the decisions regarding the Iran initiative. Is that a fair summary?

A: That's correct. I think I said in the meeting itself -- somebody said, "Well, we should all go out and say we support the president's decision as we have in the past," or something like that, and I said "no" in the meeting. I said, "I support the president. You can say that anytime you want because I surely do support the president, but I didn't support that decision, so don't." It was part of the concern I had, going back to the press guidance that I got when I was in Vienna . . . that there was a tendency to put out statements that are misleading and are false, and that's the way you get yourself in a jam, so don't do it. Get the facts out and get 'em out accurately. So that's what was in my mind here when I objected to this seemingly innocent press guidance.

Q: And did Adm. Poindexter tell you that your objection was most unfortunate?

A: . . . He said this had been cleared by everybody who was at the meeting, and they were coming to me. And I said, "I won't clear it, and it has to be changed." And he said, "Well, that's very unfortunate," but they did change it. I wasn't altogether comfortable with the way it was changed, but anyway it was changed.

Q: On Nov. 12 . . . you asked and urged the president's chief of staff, then Don Regan, to assist you in persuading the president to turn Iran policy over to the State Department and end . . . sales of arms to Iran. On Nov. 13, the president made his speech concerning the Iran initiative, and on Nov. 14, you met with the president after the speech. Do you recall the substance of that meeting between you and the president on Nov. 14, the day after he spoke to the nation?

A: . . . I imagine it was more of the same . . . . There was a constant back and forth between me and the president. And I sought him out to change this around. And going back to something you read out from: an earlier cable about the compartments that were being created. I didn't want to become one of Adm. Poindexter's compartments. I wanted to get this out where I could see it for myself and get it managed right. So that's what I was driving for, and to get the statement made, flat out, "no more arms sales."

Q: . . . On Nov. 15, which was a Saturday, you gave a draft paper to Don Regan to give to the president, again calling for an end of arms sales. And Regan informed you that he understood the position, but the White House was not then in a position to adopt it. Correct?

A: Correct. Earlier, as we had been discussing this, I had been asked by the White House to respond favorably to an invitation to appear on "Face the Nation," and I was very reluctant to appear because . . . I didn't see quite what I was going to say about the arms sales question. And at the same time, I wanted to support the president . . . . Don Regan said, "Well, please go on. We need to have administration spokesmen," and so on. So I said, "Okay," but I kept battling about this . . . .

So there I was, appearing on television . . . . I thought the interview was, as many people have said, it was a tough interview. I regarded the interviewers doing actually an excellent job, but because that's their job: to smoke out the story. And I said on the interview, "Yes, I -- in my opinion, there should be no more arms sales to Iran under the current conditions." And then she {CBS correspondent Lesley Stahl} said, "Well, do you speak for the administration?" And I had to say, "No, I don't." It was a sad day for me. Very sad. But it was the truth. However, the next day the White House put out the word that I did speak for the administration and there would be no more arms sales to Iran. But this was the kind of thing that was going on . . . .

Q: The press conference was {Nov. 19}. What was your reaction to what you heard?

A: Well, I called him after the press conference. I always do.

Q: Called the president?

A: And I knew that he had been urged to have this press conference, and I told him that I thought it was a personally very courageous thing to do and take on these subjects but that I felt that there were many statements made that were wrong or misleading. So I thought it was a very unfortunate press conference from that standpoint. And I said, "If you would like, I would welcome a chance to come around and go through it with you, and I'll go through these points and tell you what I think is wrong with them and why."

Q: And what did the president say?

A: He said, "Well, I'll welcome seeing you." . . . The next day . . . I met with him in the family quarters. It's a little more good setting for that kind of discussion than in the office, and I asked Don Regan to be with me. I went through the things that I thought were wrong in the press conference with him.

Q: And that was?

A: And it was a long, tough discussion, not the kind of discussion I ever thought I'd have with the president of the United States . . . . It was very open, strong discussion, but he had in his mind that what he authorized and what he expected to have carried out was an effort to get an opening of a different kind to Iran, and the arms and the hostages were ancillary to that. That was not his objective . . . . He wasn't just saying that. That was his idea. And I kept trying to say, "Well, I recognize that, Mr. President, and that's a good objective, but that isn't the way it worked, at least insofar as I can see."

. . . He was being given information that suggested that Iran was no longer practicing terrorism. . . . That was wrong. . . . There were things that he had been given as information from the people who were briefing him and providing him with the information in the press conference preparatory session . . . that were not, in my view, correct, and I didn't think that the people doing that were serving the president . . . .

Q: On Nov. 21, the president authorized the attorney general to go forward with an inquiry into the facts relating to the Iran initiative. You were interviewed . . . by the attorney general on Saturday, Nov. 22.

A: I was very pleased to hear that the president had decided there should be an investigation, and I remember after my session with him that I described I came back and I had felt -- and I think I told my executive assistant -- I didn't make a dent on him. But then when I saw this investigation, I thought, well, maybe he had some second thoughts. Maybe I made more of an impact than I thought.