MERRILL LYNCH
FEDERAL
SECURITIES TRUST
FUND LOGO
Semi-Annual Report
February 28, 1999
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Trust unless
accompanied or preceded by the Trust's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Federal Securities Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH FEDERAL SECURITIES TRUST
DEAR SHAREHOLDER
The US economy ended 1998 on an impressive note as gross domestic
product (GDP) growth surged 6.1% in the fourth quarter of 1998 and
4.3% for all of 1998, the strongest rate of growth in 14 years.
Consumer spending remains strong as low interest rates coupled with
strong equity market gains continue to fuel demand. Nonetheless,
global economic growth remains sluggish and turmoil persists, as
Brazil devalued its currency during the February quarter.
US economic growth rose sharply in the fourth quarter of 1998 as
numerous fundamental factors resulted in strong consumer demand.
Strong equity market returns further contributed to household
wealth, allowing consumers to spend a greater proportion of their
personal incomes. In addition, the US unemployment rate, at 4.3%,
remains near a 30-year low. Consequently, as consumers feel more
comfortable with job security and employment prospects, confidence
increases and consumers tend to spend more. More important, falling
interest rates have contributed to a booming housing sector, which
has fueled purchases of appliances and other household furnishings.
As a result, durable goods purchases rose sharply and added 1.6% to
GDP growth during the fourth quarter of 1998. In addition, lower
interest rates allowed homeowners to refinance their mortgages,
further enabling consumers to pay down debt or make new purchases.
While fourth quarter growth was strong, it appears that much of the
same economic euphoria is continuing into the first quarter of 1999.
The US housing market continues to exhibit remarkable growth.
Through January 1999, existing home sales were reported at a 5.1
million-unit rate, an all-time record, while new home sales were
reported at a 1.8 million-unit rate, a 12-year high. Consequently,
consumer confidence is back in record territory after dipping
slightly in the fourth quarter. The manufacturing sector is
beginning to show renewed vigor after a sluggish period. The
National Association of Purchasing Managers Index was 52.4 in
February, the first reading over 50 in nine months. (A reading above
50 implies that the manufacturing sector expanded during the month.)
A lack of corporate pricing power along with declines in oil and
import prices continues to keep inflationary pressures subdued.
Through February, both the consumer and producer price indexes were
up just 1.6% and 0.5%, respectively. However, with the strength of
the US economy, interest rates rose sharply as investors believed
there might be the possibility of a monetary policy tightening by
the Federal Reserve Board.
In his February Humphrey-Hawkins testimony, Federal Reserve Board
Chairman Alan Greenspan indicated that the Federal Reserve Board
"needs to evaluate whether the full extent of the easings undertaken
last fall remain appropriate." Although Chairman Greenspan's
statement raised speculation as to whether the Federal Reserve Board
will increase interest rates, we believe it will adopt a neutral
bias and refrain from raising interest rates in the near term for
several reasons. First, while credit market conditions (which
prompted the initial easings) have improved, they are still nowhere
near the pre-crisis environment of August. Second, the global
economic environment remains sluggish and could ultimately affect US
growth. Finally, inflation essentially remains non-existent in the
current environment. We believe this will allow the Federal Reserve
Board additional time to assess the balance of risks to the US
economy. However, should the US labor market begin to tighten
further or inflation unexpectedly pick up, we expect the Federal
Reserve Board to promptly tighten monetary policy.
Merrill Lynch Federal Securities Trust
February 28, 1999
Portfolio Strategy
Merrill Lynch Federal Securities Trust's most recent fiscal quarter
was marked by a tumultuous movement in interest rates. After
interest rates remained virtually unchanged from November 30, 1998
to the end of January 1999, the relative calm came to an abrupt end.
During the February quarter, interest rates moved substantially
higher. The yields on two-year, five-year and ten-year Treasury
notes rose over the course of the quarter by 61 basis points, 73
basis points and 57 basis points (0.61%, 0.73% and 0.57%),
respectively. This correlated into total returns for those
securities of -0.13%, -1.91% and -2.92%, respectively, for the
quarter ended February 28, 1999. In addition, the 30-year Treasury
bond had a total return for the quarter of -6.56%. In short,
February was a difficult time for fixed-income securities, and the
worst month for Treasury securities since 1980.
However, the Trust had modestly positive returns for the February
quarter. This reflected our strategy of focusing on mortgage-backed
securities (MBS) issued by the Government National Mortgage
Association (GNMA), the Federal Home Loan Mortgage Corporation
(FHLMC) and the Federal National Mortgage Association (FNMA). Most
MBS had positive returns for the February quarter. However, certain
low-coupon MBS, in which we had a small position, had negative
returns.
We believe that MBS continue to offer value. For example, yields on
five-year and ten-year Treasury notes ended the February quarter at
5.22% and 5.28%, respectively. By comparison, a GNMA 6.5% coupon MBS
ended February with a price of $99.375 per $100 of face value. This
represents almost 125 basis points more in coupon plus a discount
price. A 6% FNMA had a price of less than $97, more than a 3-point
discount. The coupon and pricing of MBS appear attractive at this
time, in our view.
The Trust is currently fully invested, with only 1% of net assets
invested in short-term securities. All of our term investments are
in MBS, and we are still avoiding prepayment risk. Almost 60% of the
Trust's portfolio is invested in issues with coupons of 7% or below.
In addition, almost 25% of the Trust's assets is invested in FNMA or
FHLMC multi-family MBS which have prepayment penalties to compensate
us for unwanted prepayments. Finally, we have some higher-coupon
MBS. However, these are older mortgages whose homeowners have not
responded to past refinancing opportunities. Therefore, prepayment
activity is relatively slow.
In Conclusion
We thank you for your continued investment in Merrill Lynch Federal
Securities Trust, and we look forward to discussing our outlook and
strategy with you in our upcoming quarterly report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Gregory Mark Maunz)
Gregory Mark Maunz
Senior Vice President and Portfolio Manager
April 7, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chair-
man since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Federal Securities
Trust's Board of Trustees. We are pleased to announce that Terry K.
Glenn has been elected President and Trustee of the Fund. Mr. Glenn
has held the position of Executive Vice President of MLAM since
1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Trustees in
wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Trustees.
Merrill Lynch Federal Securities Trust
February 28, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Trust through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors, as
detailed in the Fund's prospectus. If you were a Class A shareholder
prior to October 21, 1994, your Class A Shares were redesignated to
Class D Shares on October 21, 1994. However, in the case of certain
eligible investors, the shares were simultaneously exchanged for
Class A Shares.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/ Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 2/28/99
<S> <C> <C> <C> <C>
ML Federal Securities Trust Class A Shares +5.37% +0.37% + 40.76% 5.38%
ML Federal Securities Trust Class B Shares +4.46 +0.08 + 46.75 4.83
ML Federal Securities Trust Class C Shares +4.41 +0.07 + 35.72 4.78
ML Federal Securities Trust Class D Shares +5.00 +0.21 +114.33 5.14
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Trust's ten-year/inception periods are: Class A & Class C Shares,
from 10/21/94 to 2/28/99; Class B Shares, from 12/23/91 to 2/28/99;
and Class D Shares, for the ten years ended 2/28/99.
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/98 +6.58% +2.32%
Inception (10/21/94)
through 12/31/98 +8.50 +7.45
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/98 +5.76% +1.76%
Five Years Ended 12/31/98 +5.49 +5.49
Inception (12/23/91)
through 12/31/98 +5.65 +5.65
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/98 +5.71% +4.71%
Inception (10/21/94)
through 12/31/98 +7.62 +7.62
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/98 +6.31% +2.06%
Five Years Ended 12/31/98 +6.04 +5.18
Ten Years Ended 12/31/98 +8.05 +7.61
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
Joe Grills, Trustee
Walter Mintz, Trustee
Robert S. Salomon Jr., Trustee
Melvin R. Seiden, Trustee
Stephen B. Swensrud, Trustee
Arthur Zeikel, Trustee
Gregory Mark Maunz, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Jeffrey B. Hewson, Vice President
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Gerald M. Richard, Treasurer of Merrill Lynch Federal Securities
Trust has recently retired. His colleagues at Merrill Lynch Asset
Management, L.P. join the Trust's Board of Trustees in wishing
Mr. Richard well in his retirement.
Merrill Lynch Federal Securities Trust
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Interest Original Value
Issue Amount Rate Maturity Date(s) (Note 1a)
US Government Agency Mortgage-Backed Obligations*--98.97%
<S> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage #W10002 $ 98,696,800 6.775(2)% 11/01/2003 $ 100,639,893
Corporation Mortgage-Backed Securities--
Multi-Family+++
Federal Home Loan Mortgage Corporation 563 10.00 7/01/2019 611
Participation Certificates 9,000,373 10.50 9/01/2000--9/01/2020 9,934,233
2,224,271 11.00 8/01/2010--9/01/2020 2,481,542
2,209,773 11.50 12/01/2011--6/01/2020 2,507,690
962,743 12.00 7/01/1999--6/01/2020 1,099,374
1,814,964 12.50 10/01/1999--7/01/2019 2,096,328
2,611,430 13.00 8/01/1999--2/01/2016 3,038,316
Federal Home Loan Mortgage Corporation 291,837 6.00 4/01/2009 290,325
Participation Certificates--Gold Program 200,079 6.50 9/01/2013 201,453
49,143,752 6.50 2/01/2028--10/01/2028 48,836,604
145,533,090 7.00 1/01/2008--3/01/2013 148,530,928
17,572,573 7.00 9/01/2028 17,797,677
18,729,138 7.50 5/01/2009--8/01/2017 19,316,158
17,643,556 8.00 1/01/2007--10/01/2027 18,174,325
5,211,816 8.50 1/01/2025--7/01/2025 5,486,466
3,055,182 10.50 10/01/2020--12/01/2020 3,354,009
Federal Home Loan Mortgage Trust 177 39,234,383 7.00 7/01/2026 40,195,335
Corporation REMICs** Trust 134 1,178,195 9.00(1) 4/15/2022 260,676
Trust 1220 5,889,613 10.00 2/15/2022 5,904,276
Federal National Mortgage Association 184,516,686 6.00 11/01/2023--12/01/2028(11) 178,808,279
365,809,131 6.50 12/01/2008--9/01/2028 365,751,023
712 7.50 1/01/2025 731
747,116 8.00 9/01/2024--9/01/2027 777,233
8,616,301 8.50 5/01/2010--5/01/2018 9,042,391
16,713,321 8.50(3) 7/15/2023 17,340,071
11,713,279 9.50 3/01/2020 12,533,208
5,697 10.50 9/01/2000 5,828
20,378,463 11.00 2/01/2011--11/01/2020 22,618,807
34,411 11.50 6/01/2015 38,508
1,160,721 13.00 8/01/2010--6/01/2015 1,353,808
Federal National Mortgage Association #0160465 33,526,504 6.16(8) 8/01/2013 33,861,769
Mortgage-Backed Securities-- #0380332 9,561,761 6.195(7) 6/01/2005 9,570,725
Multi-Family+++ #0375610 13,837,145 6.465(7) 6/01/2004 13,819,849
#0380021 6,304,392 6.49(9) 1/01/2008 6,296,512
#0073240 4,887,322 6.50(7) 11/01/2002 4,898,013
#0073809 10,462,154 6.515(10) 12/01/2001 10,521,003
#0073894 979,039 6.525(7) 12/01/2003 992,155
#0073885 881,987 6.545(9) 1/01/2007 901,495
#0073873 760,382 6.625(9) 2/01/2007 780,664
#0073221 1,451,499 6.715(7) 10/01/2005 1,491,694
#0375015 19,231,938 6.79(7) 4/01/2004 19,682,687
#0073915 1,509,485 6.87(9) 1/01/2007 1,567,710
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Interest Original Value
Issue Amount Rate Maturity Date(s) (Note 1a)
US Government Agency Mortgage-Backed Obligations* (concluded)
<S> <C> <C> <C> <C> <C>
Federal National Mortgage Association #0073910 $ 11,720,739 6.875(9) % 1/01/2007 $ 12,187,474
Mortgage-Backed Securities-- #0375043 3,542,635 6.895(9) 4/01/2007 3,626,773
Multi-Family+++ (concluded) #0375007 11,982,103 6.94(9) 3/01/2007 12,512,246
#0375012 3,247,974 6.95(9) 4/01/2007 3,393,569
#0073944 13,741,172 6.96(9) 1/01/2007 14,354,690
#0073952 2,766,391 6.96(9) 1/01/2007 2,887,870
#0073946 5,366,808 6.97(9) 2/01/2007 5,607,825
#0073969 7,944,134 7.05(9) 2/01/2007 8,332,846
#0073962 4,650,206 7.085(9) 2/01/2007 4,893,261
#0073967 4,520,880 7.105(9) 2/01/2007 4,583,042
#0073992 2,568,585 7.115(9) 2/01/2007 2,707,295
#0375069 1,073,012 7.122(9) 4/01/2007 1,100,173
#0073943 1,447,499 7.18(4) 2/01/2019 1,469,211
#0073608 4,802,400 7.49(9) 8/01/2006 5,147,684
#0375052 4,695,402 7.50(9) 3/01/2027 4,757,029
#0109076 2,157,317 7.59(9) 8/01/2006 2,320,990
#0160024 5,108,414 7.625(9) 11/01/2003 5,280,823
#0160095 7,138,774 7.66(9) 3/01/2004 7,506,995
Federal National Mortgage Association 98-M1-IO2 98,479,028 0.68635(1) 2/25/2013 4,600,812
Mortgage-Backed Securities-- 94-M1-IO 74,675,658 0.87(1) 10/25/2003 2,426,959
REMICs**--Multi-Family+++ 98-M3-B 10,960,597 6.45 8/17/2013 11,070,203
97-M8-A2 19,135,000 7.16 1/25/2022 19,774,827
96-M3-A2 40,500,000 7.41 3/25/2021 40,905,000
94-M3-B 9,361,587 7.71 4/25/2006 9,379,140
94-M4-A 10,162,049 9.08875 8/25/2026 10,174,752
Federal National Mortgage Association 94-56-TB 5,239,230 6.50(1) 7/25/2022 1,505,640
REMICs** Trust 273 5,020,913 7.00(1) 7/01/2026 1,182,792
93-121-SD 758,216 10.00++ 2/25/2023 757,589
93-123-S 10,274,195 10.27812++ 7/25/2000 10,412,177
Government National Mortgage Association 49,195,270 6.50 10/15/2023--11/15/2028 48,903,578
204,727,155 7.00 4/15/2022--7/15/2028 207,605,854
91,254,294 7.50 1/15/2007--6/15/2028 93,861,818
69,589,777 8.00 1/15/2024--8/15/2026 72,550,448
29,165,270 10.00 12/15/2015--12/15/2021 31,678,787
103,347 10.50 10/15/2014--4/15/2021 112,773
282 11.00 1/15/2016 316
6,299 11.50 8/15/2013 7,094
Total US Government Agency Mortgage-Backed Obligations (Cost--$1,812,895,223) 1,812,380,737
<CAPTION>
Face
Amount Issue
Repurchase Agreements***--2.50%
<C> <S> <C>
$45,800,000 Morgan Stanley and Co., purchased on 2/26/1999 to yield 4.73% to 3/01/1999 45,800,000
Total Repurchase Agreements (Cost--$45,800,000) 45,800,000
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Nominal Value Strike Notification Value
Covered by Options Issue Price Date (Note 1a)
Options Purchased--0.00%
<S> <C> <S> <C> <C> <C>
Call Options 43,813,840 Government National Mortgage Association,
Purchased 30-Year, 6.625% Adjustable Rate Mortgage(5)(6) 100 9/20/2011(5) $ 8,763
Total Options Purchased (Cost--$0) 8,763
Total Investments (Cost--$1,858,695,223)---101.47% 1,858,189,500
Options Written--0.00%
Put Options 43,813,840 Government National Mortgage Association,
Written 30-Year, 6.625% Adjustable Rate Mortgage(5)(6) 100 9/20/2011(5) (70,102)
Total Options Written (Premiums Received--$0) (70,102)
Total Investments, Net of Options Written (Cost--$1,858,695,223)--101.47% 1,858,119,398
Liabilities in Excess of Other Assets--(1.47%) (26,986,996)
--------------
Net Assets--100.00% $1,831,132,402
==============
<FN>
(1)Represents the interest only portion of a mortgage-backed
obligation.
(2)Represents balloon mortgages that are non-amortizing and have 7-
year maturities.
(3)Federal Housing Administration/Veterans' Administration Mortgages
packaged by the Federal National Mortgage Association.
(4)Represents balloon mortgages that amortize on a 22-year schedule
and have 22-year maturities.
(5)Represents European style options which can be exercised only on
the notification date. These options, when combined, represent a
standby purchase commitment whereby the Trust is obligated to
purchase the outstanding principal amount of specific GNMA, 30-year,
6.625% Adjustable Rate Mortgage pools as of September 20, 2011. For
this commitment, the Trust receives a net 0.12% per annum based on
the nominal value covered by the options.
(6)Adjustable Rate Security. The interest rate resets annually at
the 1-year Constant Maturing Treasury rate plus 1.5%, subject to a
1% annual adjustment cap and an 11% life cap.
(7)Represents balloon mortgages that amortize on a 30-year schedule
and have 7-year maturities.
(8)Represents balloon mortgages that amortize on a 15-year schedule
and have 15-year maturities.
(9)Represents balloon mortgages that amortize on a 25-year or 30-
year schedule and have 10-year maturities.
(10)Represents balloon mortgages that amortize on a 30-year schedule
and have 5-year maturities.
(11)Represents or includes a "to-be-announced" (TBA) transaction.
The Trust has committed to purchasing securities for which all
specific information is not available at this time.
++Adjustable Rate Security. The interest rate resets periodically
and inversely. The interest rate shown is the rate in effect as of
February 28, 1999.
+++Underlying multi-family loans have prepayment protection by means
of lockout periods and/or yield maintenance premiums.
*Mortgage-Backed Obligations are subject to principal paydowns as a
result of prepayments or refinancings of the underlying mortgage
instruments. As a result, the average life may be substantially less
than the original maturity.
**Real Estate Mortgage Investment Conduits (REMICs).
***Repurchase Agreements are fully collateralized by US Government
Agency Obligations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,858,695,223)
(Note 1a) $ 1,858,180,737
Options purchased, at value (cost--$0)(Notes 1a & 1c) 8,763
Receivables:
Interest $ 10,009,784
Beneficial interest sold 2,251,205
Principal paydowns 577,733
Loaned securities 141,877 12,980,599
---------------
Prepaid registration fees and other assets (Note 1f) 108,366
---------------
Total assets 1,871,278,465
---------------
Liabilities: Options written, at value (premiums received--$0)
(Notes 1a & 1c) 70,102
Payables:
Securities purchased 29,132,500
Beneficial interest redeemed 6,676,016
Dividends to shareholders (Note 1g) 1,749,187
Investment adviser (Note 2) 660,672
Distributor (Note 2) 594,588 38,812,963
---------------
Accrued expenses and other liabilities 1,262,998
---------------
Total liabilities 40,146,063
---------------
Net Assets: Net assets $ 1,831,132,402
===============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 2,569,586
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 7,017,705
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 564,339
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 8,736,015
Paid-in capital in excess of par 2,008,638,565
Accumulated realized capital losses on investments--net
(Note 5) (195,817,983)
Unrealized depreciation on investments--net (575,825)
---------------
Net assets $ 1,831,132,402
===============
Net Asset Value: Class A--Based on net assets of $249,179,429 and 25,695,856
shares of beneficial interest outstanding $ 9.70
===============
Class B--Based on net assets of $680,341,207 and 70,177,046
shares of beneficial interest outstanding $ 9.69
===============
Class C--Based on net assets of $54,705,593 and 5,643,391
shares of beneficial interest outstanding $ 9.69
===============
Class D--Based on net assets of $846,906,173 and 87,360,148
shares of beneficial interest outstanding $ 9.69
===============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended February 28, 1999
<S> <S> <C> <C>
Investment Interest and discount earned $ 59,408,453
Income Other 167,772
(Note 1e): ---------------
Total income 59,576,225
---------------
Expenses: Investment advisory fees (Note 2) $ 4,340,664
Account maintenance and distribution fees--Class B (Note 2) 2,562,621
Account maintenance fees--Class D (Note 2) 1,071,845
Transfer agent fees--Class D (Note 2) 652,456
Transfer agent fees--Class B (Note 2) 579,343
Transfer agent fees--Class A (Note 2) 209,520
Account maintenance and distribution fees--Class C (Note 2) 204,121
Custodian fees 166,838
Accounting services (Note 2) 130,795
Printing and shareholder reports 72,066
Professional fees 58,497
Registration fees (Note 1f) 52,503
Transfer agent fees--Class C (Note 2) 42,771
Trustees' fees and expenses 36,311
Pricing fees 12,564
Loan interest expense 7,084
Other 19,018
---------------
Total expenses 10,219,017
---------------
Investment income--net 49,357,208
---------------
Realized & Realized gain on investments--net 2,101,508
Unrealized Gain Change in unrealized appreciation/depreciation on
(Loss) on investments--net (21,343,679)
Investments--Net ---------------
(Notes 1c, Net Increase in Net Assets Resulting from Operations $ 30,115,037
1e & 3): ===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Feb. 28, 1999 Aug. 31, 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 49,357,208 $ 106,153,243
Realized gain on investments--net 2,101,508 20,630,277
Change in unrealized appreciation/depreciation on
investments--net (21,343,679) 10,231,032
--------------- ---------------
Net increase in net assets resulting from operations 30,115,037 137,014,552
--------------- ---------------
Dividends to Investment income--net:
Shareholders Class A (7,856,886) (17,554,956)
(Note 1g): Class B (16,863,285) (33,639,686)
Class C (1,247,197) (1,555,581)
Class D (23,389,840) (53,403,020)
--------------- ---------------
Net decrease in net assets resulting from dividends to
shareholders (49,357,208) (106,153,243)
--------------- ---------------
Beneficial Net increase (decrease) in net assets derived from
Interest beneficial interest transactions 35,937,941 (123,547,460)
Transactions --------------- ---------------
(Note 4):
Net Assets: Total increase (decrease) in net assets 16,695,770 (92,686,151)
Beginning of period 1,814,436,632 1,907,122,783
--------------- ---------------
End of period $ 1,831,132,402 $ 1,814,436,632
=============== ===============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Months Ended Oct. 21, 1994++
February 28, For the Year Ended August 31, to August 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996++++ 1995++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.80 $ 9.64 $ 9.40 $ 9.61 $ 9.16
Operating --------- --------- --------- --------- ----------
Performance: Investment income--net .28 .60 .64 .64 .58
Realized and unrealized gain (loss) on
investments--net (.10) .16 .24 (.21) .45
--------- --------- --------- --------- ----------
Total from investment operations .18 .76 .88 .43 1.03
--------- --------- --------- --------- ----------
Less dividends from investment
income--net (.28) (.60) (.64) (.64) (.58)
--------- --------- --------- --------- ----------
Net asset value, end of period $ 9.70 $ 9.80 $ 9.64 $ 9.40 $ 9.61
========= ========= ========= ========= ==========
Total Investment Based on net asset value per share 1.82%+++ 8.10% 9.66% 4.55% 11.56%+++
Return:** ========= ========= ========= ========= ==========
Ratios to Average Expenses .68%* .68% .65% .62% .64%*
Net Assets: ========= ========= ========= ========= ==========
Investment income--net 5.70%* 6.18% 6.73% 6.64% 7.21%*
========= ========= ========= ========= ==========
Supplemental Net assets, end of period (in thousands) $ 249,179 $ 277,568 $ 278,103 $ 231,651 $ 223,237
Data: ========= ========= ========= ========= ==========
Portfolio turnover 39.20% 301.88% 349.05% 204.14% 260.34%
========= ========= ========= ========= ==========
<CAPTION>
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
February 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996++++ 1995++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.79 $ 9.63 $ 9.40 $ 9.61 $ 9.41
Operating --------- --------- --------- --------- ----------
Performance: Investment income--net .24 .53 .57 .57 .60
Realized and unrealized gain (loss) on
investments--net (.10) .16 .23 (.21) .20
--------- --------- --------- --------- ----------
Total from investment operations .14 .69 .80 .36 .80
--------- --------- --------- --------- ----------
Less dividends from investment
income--net (.24) (.53) (.57) (.57) (.60)
--------- --------- --------- --------- ----------
Net asset value, end of period $ 9.69 $ 9.79 $ 9.63 $ 9.40 $ 9.61
========= ========= ========= ========= ==========
Total Investment Based on net asset value per share 1.43%+++ 7.28% 8.71% 3.72% 8.91%
Return:** ========= ========= ========= ========= ==========
Ratios to Average Expenses 1.44%* 1.45% 1.42% 1.39% 1.41%
Net Assets: ========= ========= ========= ========= ==========
Investment income--net 4.94%* 5.42% 5.98% 5.87% 6.39%
========= ========= ========= ========= ==========
Supplemental Net assets, end of period (in thousands) $ 680,341 $ 627,818 $ 672,541 $ 924,885 $1,262,985
Data: ========= ========= ========= ========= ==========
Portfolio turnover 39.20% 301.88% 349.05% 204.14% 260.34%
========= ========= ========= ========= ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Months Ended Oct. 21, 1994++
February 28, For the Year Ended August 31, to August 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996++++ 1995++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.79 $ 9.63 $ 9.40 $ 9.61 $ 9.16
Operating --------- --------- --------- --------- ----------
Performance: Investment income--net .24 .52 .56 .56 .51
Realized and unrealized gain (loss) on
investments--net (.10) .16 .23 (.21) .45
--------- --------- --------- --------- ----------
Total from investment operations .14 .68 .79 .35 .96
--------- --------- --------- --------- ----------
Less dividends from investment
income--net (.24) (.52) (.56) (.56) (.51)
--------- --------- --------- --------- ----------
Net asset value, end of period $ 9.69 $ 9.79 $ 9.63 $ 9.40 $ 9.61
========= ========= ========= ========= ==========
Total Investment Based on net asset value per share 1.41%+++ 7.23% 8.66% 3.67% 10.80%+++
Return:** ========= ========= ========= ========= ==========
Ratios to Average Expenses 1.49%* 1.51% 1.47% 1.43% 1.47%*
Net Assets: ========= ========= ========= ========= ==========
Investment income--net 4.89%* 5.35% 5.91% 5.82% 6.28%*
========= ========= ========= ========= ==========
Supplemental Net assets, end of period (in thousands) $ 54,706 $ 43,038 $ 28,723 $ 22,672 $ 15,621
Data: ========= ========= ========= ========= ==========
Portfolio turnover 39.20% 301.88% 349.05% 204.14% 260.34%
========= ========= ========= ========= ==========
<CAPTION>
Class D
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
February 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996++++ 1995++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.79 $ 9.63 $ 9.40 $ 9.61 $ 9.41
Operating --------- --------- --------- --------- ----------
Performance: Investment income--net .26 .58 .62 .62 .64
Realized and unrealized gain (loss) on
investments--net (.10) .16 .23 (.21) .20
--------- --------- --------- --------- ----------
Total from investment operations .16 .74 .85 .41 .84
--------- --------- --------- --------- ----------
Less dividends from investment
income--net (.26) (.58) (.62) (.62) (.64)
--------- --------- --------- --------- ----------
Net asset value, end of period $ 9.69 $ 9.79 $ 9.63 $ 9.40 $ 9.61
========= ========= ========= ========= ==========
Total Investment Based on net asset value per share 1.69%+++ 7.84% 9.27% 4.28% 9.48%
Return:** ========= ========= ========= ========= ==========
Ratios to Average Expenses .93%* .93% .90% .87% .89%
Net Assets: ========= ========= ========= ========= ==========
Investment income--net 5.46%* 5.94% 6.49% 6.39% 6.91%
========= ========= ========= ========= ==========
Supplemental Net assets, end of period (in thousands) $ 846,906 $ 866,013 $ 927,756 $ 942,388 $ 976,161
Data: ========= ========= ========= ========= ==========
Portfolio turnover 39.20% 301.88% 349.05% 204.14% 260.34%
========= ========= ========= ========= ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Federal Securities Trust
February 28, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Federal Securities Trust (the "Trust") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Trust's financial statements are
prepared in accordance with generally accepted accounting principles
which may require the use of management accruals and estimates.
These unaudited financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of
the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Trust offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Trust.
(a) Valuation of investments--Securities traded in the over-the-
counter market are valued at the last available bid price in the
over-the-counter market or on the basis of yield equivalents as
obtained from one or more dealers that make markets in the
securities. The Trust employs Merrill Lynch Securities Pricing
Service ("MLSPS"), an affiliate of Fund Asset Management, L.P.
("FAM"), to provide mortgage-backed securities prices for the Trust.
Options written or purchased are valued at the last sale price in
the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased).
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of
such exchanges. Securities with a remaining maturity of sixty days
or less are valued on an amortized cost basis, which approximates
market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good
faith by or under the direction of the Trustees of the Trust.
(b) Repurchase agreements--The Trust invests in US Government
securities pursuant to repurchase agreements. Under such agreements,
the counterparty agrees to repurchase the security at a mutually
agreed upon time and price. The Trust takes possession of the
underlying securities, marks to market such securities and, if
necessary, receives additional securities daily to ensure that the
contract is fully collateralized.
(c) Derivative financial instruments--The Trust may engage in
various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the debt and
currency markets. Losses may arise due to changes in the value of
the contract or if the counterparty does not perform under the
contract.
* Futures contracts--The Trust may purchase or sell financial
futures contracts. Upon entering into a contract, the Trust deposits
and maintains as collateral such initial margins as required by the
exchange on which the transaction is effected. Pursuant to the
contract, the Trust agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Trust as unrealized gains or losses. When
the contract is closed, the Trust records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time is was closed.
* Options--The Trust is authorized to write and purchase call and
put options. When the Trust writes an option, an amount equal to the
premium received by the Trust is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Trust enters into a closing transaction), the Trust
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premiums paid or received).
Written and purchased options are non-income producing investments.
Merrill Lynch Federal Securities Trust
February 28, 1999
(d) Income taxes--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Interest income (including amortization of discount)
and extended delivery fees are recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
(h) Dollar rolls--The Trust sells mortgage-backed securities for
delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity)
securities on a specific future date. As of February 28, 1999, no
dollar rolls were in effect.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with
FAM. The general partner of FAM is Princeton Services, Inc. ("PSI"),
an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), which is the limited partner. The Trust has also
entered into a Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor ("MLFD" or the "Distributor"), a
division of Princeton Funds Distributor, Inc. ("PFD"), which is a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Trust's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Trust. For such
services, the Trust pays a monthly fee based upon the average daily
value of the Trust's net assets at the following rates:
Portion of Average Daily Value of Net Assets: Rate
Not exceeding $500 million 0.500%
In excess of $500 million but not
exceeding $1 billion 0.475
In excess of $1 billion but not
exceeding $1.5 billion 0.450
In excess of $1.5 billion but not
exceeding $2 billion 0.425
In excess of $2 billion but not
exceeding $2.5 billion 0.400
In excess of $2.5 billion but not
exceeding $3.5 billion 0.375
In excess of $3.5 billion but not
exceeding $5 billion 0.350
In excess of $5 billion but not
exceeding $6.5 billion 0.325
Exceeding $6.5 billion 0.300
Pursuant to the Distribution Plans adopted by the Trust in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
the Trust pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at
annual rates based upon the average daily net assets of the shares
as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25 0.55
Class D 0.25 --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Trust. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended February 28, 1999, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Trust's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $ 610 $ 5,354
Class D 4,304 43,464
Merrill Lynch Federal Securities Trust
February 28, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
For the six months ended February 28, 1999, MLPF&S received
contingent deferred sales charges of $99,487 and $3,023 relating to
transactions in Class B and Class C Shares, respectively.
During the six months ended February 28, 1999, the Trust paid MLSPS
$10,831 for security price quotations to compute the net asset value
of the Trust.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Trust's transfer agent.
Accounting services are provided to the Trust by FAM at cost.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, PFD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1999 were $773,192,499 and
$722,591,341, respectively.
Net realized gains for the six months ended February 28, 1999 and
net unrealized gains (losses) as of February 28, 1999 were as
follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $ 2,101,508 $ (514,486)
Options purchased -- 8,763
Options written -- (70,102)
------------ ------------
Total $ 2,101,508 $ (575,825)
============ ============
As of February 28, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $575,825, of which $16,528,224
related to appreciated securities and $17,104,049 related to
depreciated securities. The aggregate cost of investments, including
options, at February 28, 1999 for Federal income tax purposes was
$1,858,695,223.
Transactions in call options written for the six months ended
February 28, 1999 were as follows:
Nominal Value
Covered by Premiums
Call Options Written Options Received
Outstanding call options
written, beginning of
period 5,000,000 $ 43,750
Options exercised (5,000,000) (43,750)
------------- -----------
Outstanding call options
written, end of period -- $ --
------------- -----------
Transactions in put options written for the six months ended
February 28, 1999 were as follows:
Nominal Value
Covered by Premiums
Put Options Written Options Received
Outstanding put options
written, beginning of
period 62,307,095 $ --
Options expired (18,493,255) --
------------- -----------
Outstanding put options
written, end of period 43,813,840 $ --
------------- -----------
4. Shares of Beneficial Interest:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $35,937,941 and $(123,547,460) for the six
months ended February 28, 1999 and for the year ended August 31,
1998, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 7,470,250 $ 73,196,000
Shares issued to share-
holders in reinvestment
of dividends . 98,549 964,462
------------- ------------
Total issued 7,568,799 74,160,462
Shares redeemed (10,206,926) (99,910,120)
------------- ------------
Net decrease (2,638,127) $(25,749,658)
============= ============
Merrill Lynch Federal Securities Trust
February 28, 1999
Class A Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 13,202,465 $128,750,132
Shares issued to share-
holders in reinvestment
of dividends 254,895 2,485,246
------------- ------------
Total issued 13,457,360 131,235,378
Shares redeemed (13,982,880) (136,346,353)
------------- ------------
Net decrease (525,520) $ (5,110,975)
============= ============
Class B Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 20,012,750 $196,273,125
Shares issued to share-
holders in reinvestment
of dividends 1,019,210 9,972,128
------------- ------------
Total issued 21,031,960 206,245,253
Automatic conversion of
shares (1,241,810) (12,145,754)
Shares redeemed (13,718,689) (134,252,368)
------------- ------------
Net increase 6,071,461 $ 59,847,131
============= ============
Class B Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 19,836,450 $193,489,767
Shares issued to share-
holders in reinvestment of
dividends 1,975,074 19,252,425
------------- ------------
Total issued 21,811,524 212,742,192
Automatic conversion of
shares (3,018,862) (29,418,409)
Shares redeemed (24,498,009) (238,728,047)
------------- ------------
Net decrease (5,705,347) $(55,404,264)
============= ============
Class C Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 3,124,832 $ 30,625,188
Shares issued to share-
holders in reinvestment of
dividends 90,860 888,782
------------- ------------
Total issued 3,215,692 31,513,970
Shares redeemed (1,967,202) (19,250,894)
------------- ------------
Net increase 1,248,490 $ 12,263,076
============= ============
Class C Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 3,350,763 $ 32,718,073
Shares issued to share-
holders in reinvestment of
dividends 104,882 1,022,406
------------- ------------
Total issued 3,455,645 33,740,479
Shares redeemed (2,042,370) (19,919,667)
------------- ------------
Net increase 1,413,275 $ 13,820,812
============= ============
Class D Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 6,399,197 $ 62,736,291
Automatic conversion of
shares 1,241,810 12,145,754
Shares issued to share-
holders in reinvestment of
dividends 1,144,117 11,194,965
------------- ------------
Total issued 8,785,124 86,077,010
Shares redeemed (9,855,034) (96,499,618)
------------- ------------
Net decrease (1,069,910) $(10,422,608)
============= ============
Class D Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 12,691,687 $123,584,021
Automatic conversion of
shares 3,019,197 29,418,409
Shares issued to share-
holders in reinvestment of
dividends 2,664,814 25,974,732
------------- ------------
Total issued 18,375,698 178,977,162
Shares redeemed (26,253,382) (255,830,195)
------------- ------------
Net decrease (7,877,684) $(76,853,033)
============= ============
5. Capital Loss Carryforward:
At August 31, 1998, the Trust had a net capital loss carryforward of
approximately $194,878,000, of which 178,146,000 expires in 2003 and
$16,732,000 expires in 2004. This amount will be available to offset
like amounts of any future taxable gains. Expired capital loss
carryforward in the amount of $30,072,560 has been reclassified to
paid-in capital in excess of par.
