May 25, 1985

The smallest of the six living Frustaci septuplets, a boy called Baby F, died early today after his lungs failed. With the boy's death at 12:34 A.M., three boys and two girls survive from the largest multiple birth in American history. The baby born last, a girl known as Baby G, was stillborn. Their mother, Patti Frustaci, a 30-year-old teacher who had taken a fertility drug, remained at St. Joseph Hospital, where the babies were delivered by Caesarean section. Tes Pane, the nursing supervisor overseeing her care, described Mrs. Frustaci as exhausted and emotionally distraught. The babies are in the adjacent Children's Hospital of Orange County.

Sri Lanka's President said today that he intended to establish martial-law courts to deal with what he called ''a breakdown of law and order.'' The President, J. R. Jayewardene, under pressure from the ethnic Sinhalese majority to take more decisive action against militant Tamil separatists, also said he was about to embark on a political experiment in which he plans to make every Member of Parliament directly responsible for the security of his or her electorate. With that responsibility, the President said in an interview, will come the right to arm local communities. 'Give Us Arms' ''They are complaining, all of them,'' the President, 78 years old, said of the legislators. ''My people are saying: 'The terrorist comes and shoots us and goes off. We have no arms. We have no nothing. So give us arms.' ''

President Reagan said today that the Democratic budget for 1986, by permitting no increase in the military budget, would place the nation's defense at risk. . The budget the Democratic-controlled House of Representatives approved by a wide margin Thursday is loaded with unacceptable ''phantom'' savings and fails adequately to address the ''fundamental problem of unbridled domestic spending,'' Mr. Reagan asserted. In a speech before the National Association of Manufacturers, the President also offered the opening salvo in a major Administration drive to gain Congressional approval of a plan to simplify the Federal income tax. 'Simpler, Fairer, Streamlined' Although he did not disclose details of the proposal, which he will unveil in a nationally televised address Tuesday evening, Mr. Reagan said the time had come for replacing a system whose complexity makes it ''ripe for abuse.'' ''We propose to replace a tax system that is almost universally regarded as needlessly complicated and unfair with a simpler, fairer, more streamlined model,'' Mr. Reagan said.

A New York City physician, on the run for two years since his indictment for treating suspects in the Brink's robbery and killings in Rockland County, has been arrested, the Federal Bureau of Investigation announced yesterday. The doctor, Alan Berkman, who is 39 years old, was apprehended Thursday night by F.B.I. agents in Bucks County, Pa., near Philadelphia. Dr. Berkman was arrested after his car was forced to the side of a road, John L. Hogan, special agent in charge of the F.B.I. bureau in Philadelphia, said. Mr. Hogan said the doctor had a loaded revolver in his lap and wore a woman's brown, curly wig. Arrested with Dr. Berkman was Elizabeth Duke, 44, of Austin, Tex. Mr. Hogan said Dr. Berkman and Miss Duke were members of the May 19 Communist Movement, which he described as a Marxist organization dedicated to overthrowing the United States Government.

At 38, Douglas Kreeger walks around the city, a merchant without a store, trying to turn off the instincts that made him successful for 13 years. ''It's like deprogramming my head after all that time,'' he said. ''I see an advertisement, or some merchandise, and I start thinking how I would promote it,'' Mr. Kreeger said. ''Or I see some real estate, and I tell myself what a great location it is.'' In March 1984, he sold Kreeger & Sons, the camping and backpacking chain he founded, to the Dutch-owned Amcena Corporation. The chain, whose merchandise and clothing had a relaxed and authentic outdoor feel that even competitors admired, had developed a devoted following.