SEMI-ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC OMITTED]
Mercury
QA Mid Cap
Fund
OF MERCURY
QA EQUITY SERIES, INC.
<PAGE>
PORTFOLIO INFORMATION
INVESTMENTS AS OF JUNE 30, 2000
================================================================================
Percent of
Ten Largest Holdings Net Assets
-------------------------------------------------
Forest Laboratories, Inc. 2.3%
-------------------------------------------------
MedImmune, Inc. 2.2
-------------------------------------------------
Sepracor Inc. 2.1
-------------------------------------------------
Dynegy, Inc. (Class A) 2.0
-------------------------------------------------
Vitesse Semiconductor Corporation 1.8
-------------------------------------------------
Univision Communications Inc. (Class A) 1.8
-------------------------------------------------
Sanmina Corporation 1.7
-------------------------------------------------
Rational Software Corporation 1.6
-------------------------------------------------
ReliaStar Financial Corp. 1.6
-------------------------------------------------
Intuit Inc. 1.4
-------------------------------------------------
Percent of
Ten Largest Industries Net Assets
-------------------------------------------------
Electronics Components 8.8%
-------------------------------------------------
Medical 7.5
-------------------------------------------------
Pharmaceuticals 6.2
-------------------------------------------------
Computer Software 5.6
-------------------------------------------------
Insurance 5.4
-------------------------------------------------
Technology 5.1
-------------------------------------------------
Banking 5.0
-------------------------------------------------
Retail 4.8
-------------------------------------------------
Oil Services 4.6
-------------------------------------------------
Financial Services 4.3
-------------------------------------------------
June 30, 2000 (2) Mercury QA Mid Cap Fund
<PAGE>
DEAR SHAREHOLDER
We are pleased to provide you with the first semi-annual report for Mercury QA
Mid Cap Fund. The Fund seeks to provide long-term growth of capital by investing
primarily in equity securities of mid-capitalization companies in the United
States that Fund management believes are undervalued or have good prospects for
earnings growth. Since inception (June 2, 2000) through June 30, 2000, the
Fund's Class I, Class A, Class B and Class C Shares had total returns of -2.00%,
-2.00%, -2.00% and -2.00%, respectively, slightly better than the return of the
unmanaged S&P MidCap 400 Index of -4.00% over this period. (Investment results
shown do not reflect sales charges and would be lower if sales charges were
included. Complete performance information can be found on pages 5 and 6 of this
report to shareholders.)
Market Environment
The US economy appears to be slowing down. As a result, significant increases in
inflation and interest rates may not happen, which usually is good news for
financial assets. On the other hand, slower economic growth probably means
slower profit growth, a prospect that may weigh on the markets over the summer.
Despite the decline of technology share prices during April and May, large cap
growth stocks have a positive year-to-date return through June. Furthermore,
continuing a trend that we have seen for much of the 1990s, growth stocks
outpaced value stocks for the first half of the year. Large cap growth stocks
returned +2.6% over the first half of the year, as measured by the unmanaged S&P
500/Barra Growth Index, while large cap value stocks fell -4.1%, as measured by
the unmanaged S&P 500/Barra Value Index.
Reversing a pattern we also saw for the better part of the past decade, small
cap stocks have outperformed large cap stocks so far in 2000. Small cap stocks
and mid cap stocks continue to look very attractive to us compared to large cap
stocks on almost every valuation measure, including price/earnings (22.0 versus
29.8), price/book (2.4 versus 5.0) and price/free cash flow (18.3 versus 32.3).
Investment Outlook
In the coming months, we believe investors will focus less on economic issues
such as the strength of the economy and interest rate increases, and more on the
implications of the looming presidential election. Federal budget policy, social
security funding options and trade policy are likely to shape investor interest
in the outcome of the election. Overall, we believe that the earnings outlook
and valuation levels are attractive in the current environment.
June 30, 2000 (3) Mercury QA Mid Cap Fund
<PAGE>
Our favorite industry currently is energy, including oil drilling companies and
oil and gas companies. High demand coupled with limited supply is an attractive
dynamic for these companies.
In Conclusion
We thank you for your investment in Mercury QA Mid Cap Fund, and we look forward
to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn /s/ Philip Green
Terry K. Glenn Philip Green
President and Director Senior Vice President and
Portfolio Manager
August 7, 2000
June 30, 2000 (4) Mercury QA Mid Cap Fund
<PAGE>
FUND PERFORMANCE DATA
ABOUT FUND PERFORMANCE
The Fund offers four classes of shares, each with its own sales charge and
expense structure, allowing you to invest in the way that best suits your needs.
CLASS I SHARES incur a maximum initial sales charge of 5.25% and bear no ongoing
distribution and account maintenance fees. Class I Shares are available only to
eligible investors.
CLASS A SHARES incur a maximum initial sales charge of 5.25% and an account
maintenance fee of 0.25% (but no distribution fee).
CLASS B SHARES are subject to a maximum contingent deferred sales charge of 4%
if redeemed during the first two years, decreasing to 3% for each of the next
two years and decreasing 1% each year thereafter to 0% after the sixth year. In
addition, Class B Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. These shares automatically convert to Class A
Shares after approximately 8 years.
CLASS C SHARES are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares may be subject to a 1%
contingent deferred sales charge if redeemed within one year after purchase.
None of the past results shown should be considered a representation of future
performance. Figures shown in the "Recent Performance Results" and "Aggregate
Total Return" tables assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend 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. The Fund's
Investment Adviser voluntarily waived a portion of its management fee. Without
such waiver, the Fund's performance would have been lower.
June 30, 2000 (5) Mercury QA Mid Cap Fund
<PAGE>
FUND PERFORMANCE DATA (CONCLUDED)
AGGREGATE TOTAL RETURN
================================================================================
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
--------------------------------------------------------------------------------
Inception (6/2/00)
through 6/30/00 -2.00% -7.14%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
--------------------------------------------------------------------------------
Inception (6/2/00)
through 6/30/00 -2.00% -5.92%
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
6 years.
** Assuming payment of applicable contin gent deferred sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
--------------------------------------------------------------------------------
Inception (6/2/00)
through 6/30/00 -2.00% -7.14%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without With
Class C Shares* CDSC CDSC**
--------------------------------------------------------------------------------
Inception (6/2/00)
through 6/30/00 -2.00% -2.98%
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
RECENT PERFORMANCE RESULTS*
================================================================================
Since Inception
As of June 30, 2000 Total Return
--------------------------------------------------------------------------------
Class I -2.00%
--------------------------------------------------------------------------------
Class A -2.00
--------------------------------------------------------------------------------
Class B -2.00
--------------------------------------------------------------------------------
Class C -2.00
--------------------------------------------------------------------------------
* 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 the Fund's net asset values for the period shown, and
assume reinvestment of all dividends and capital gains at net asset value
on the ex-dividend date. The Fund commenced operations on 6/2/00.
June 30, 2000 (6) Mercury QA Mid Cap Fund
<PAGE>
SCHEDULE OF INVESTMENTS
In US Dollars
-------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------
UNITED STATES
================================================================================
Aerospace 500 +Lear Corporation $ 10,000 0.2%
500 +The Titan Corporation 22,375 0.6
-------------------
32,375 0.8
--------------------------------------------------------------------------------
Apparel 600 +Jones Apparel Group, Inc. 14,100 0.4
--------------------------------------------------------------------------------
Automotive 500 DPL Inc. 10,969 0.3
--------------------------------------------------------------------------------
Banking 600 First Tennessee National
Corporation 9,937 0.3
700 GreenPoint Financial Corp. 13,125 0.3
600 Keystone Financial, Inc. 12,750 0.3
500 Marshall & Ilsley Corporation 20,750 0.5
1,000 National Commerce Bancorporation 16,062 0.4
1,500 North Fork Bancorporation 22,688 0.6
5,600 Sovereign Bancorp, Inc. 39,375 1.0
800 TCF Financial Corporation 20,550 0.5
500 Westamerica Bancorporation 13,063 0.3
700 Zions Bancorporation 32,123 0.8
-------------------
200,423 5.0
--------------------------------------------------------------------------------
Batteries/Battery 900 +Energizer Holdings, Inc. 16,425 0.4
Systems
--------------------------------------------------------------------------------
Biotechnology 300 +Gilead Sciences, Inc. 21,337 0.5
--------------------------------------------------------------------------------
Broadcasting/Media 600 +Hispanic Broadcasting
Corporation 19,875 0.5
700 +Univision Communications Inc.
(Class A) 72,450 1.8
700 +Westwood One, Inc. 23,888 0.6
-------------------
116,213 2.9
--------------------------------------------------------------------------------
Cement 300 Southdown, Inc. 17,325 0.4
--------------------------------------------------------------------------------
Computer Services 2,600 +Informix Corporation 19,337 0.5
1,400 +MarchFirst, Inc. 25,550 0.6
1,300 +Network Associates, Inc. 26,487 0.7
1,400 +Policy Management Systems
Corporation 21,525 0.5
500 Symbol Technologies, Inc. 27,000 0.7
400 Telephone and Data Systems, Inc. 40,100 1.0
-------------------
159,999 4.0
--------------------------------------------------------------------------------
Computer Software 2,800 +E* TRADE Group, Inc. 46,200 1.2
1,400 +Intuit Inc. 57,925 1.4
1,100 +Legato Systems, Inc. 16,637 0.4
400 +Macromedia, Inc. 38,675 1.0
800 +Sungard Data Systems Inc. 24,800 0.6
900 +Sykes Enterprises, Incorporated 11,588 0.3
500 +Symantec Corporation 26,969 0.7
-------------------
222,794 5.6
--------------------------------------------------------------------------------
June 30, 2000 (7) Mercury QA Mid Cap Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
In US Dollars
------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------
UNITED STATES (continued)
================================================================================
Computers 400 +NVIDIA Corporation $ 25,425 0.6%
--------------------------------------------------------------------------------
Data Processing 500 +Keane, Inc. 10,812 0.3
--------------------------------------------------------------------------------
Diversified Companies 2,600 The FINOVA Group Inc. 33,800 0.8
--------------------------------------------------------------------------------
Electronic Components 900 +Jabil Circuit, Inc. 44,662 1.1
200 +Microchip Technology 11,653 0.3
500 +QLogic Corporation 33,031 0.8
600 +SCI Systems, Inc. 23,513 0.6
800 +Sanmina Corporation 68,400 1.7
600 +Sawtek Inc. 34,538 0.9
200 +TranSwitch Corporation 15,438 0.4
900 +Vishay Intertechnology, Inc. 34,144 0.9
1,000 +Vitesse Semiconductor
Corporation 73,563 1.8
100 +Waters Corporation 12,481 0.3
------------------
351,423 8.8
--------------------------------------------------------------------------------
Energy 700 Devon Energy Corporation 39,331 1.0
500 LG&E Energy Corp. 11,937 0.3
1,600 MCN Energy Group Inc. 34,200 0.9
900 Noble Affiliates, Inc. 33,525 0.8
1,400 Valero Energy Corporation 44,450 1.1
------------------
163,443 4.1
--------------------------------------------------------------------------------
Entertainment 200 International Speedway Corp.
(Class A) 8,275 0.2
1,500 +Park Place Entertainment
Corporation 18,281 0.5
500 +Premier Parks Inc. 11,375 0.3
------------------
37,931 1.0
--------------------------------------------------------------------------------
Financial Services 600 A.G. Edwards, Inc. 23,400 0.6
700 Dime Bancorp, Inc. 11,025 0.3
1,600 First Security Corporation 21,700 0.5
1,600 Hibernia Corporation (Class A) 17,400 0.4
400 Legg Mason, Inc. 20,000 0.5
1,500 Waddell & Reed Financial, Inc.
(Class A) 49,219 1.2
1,400 Webster Financial Corporation 31,063 0.8
------------------
173,807 4.3
--------------------------------------------------------------------------------
Food Merchandising 300 Hannaford Bros. Co. 21,562 0.5
--------------------------------------------------------------------------------
Healthcare--Cost 500 +Oxford Health Plans, Inc. 11,906 0.3
Containment
--------------------------------------------------------------------------------
Health Services 200 +Express Scripts, Inc.
(Class A) 12,337 0.3
--------------------------------------------------------------------------------
Healthcare 300 +Trigon Healthcare, Inc. 15,469 0.4
1,000 +VISX, Incorporated 28,063 0.7
------------------
43,532 1.1
--------------------------------------------------------------------------------
June 30, 2000 (8) Mercury QA Mid Cap Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
In US Dollars
-------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------
UNITED STATES (continued)
================================================================================
Hotels & Casinos 800 +Mandalay Resort Group $ 16,000 0.4%
--------------------------------------------------------------------------------
Human Resources 600 +Robert Half International Inc. 17,100 0.4
--------------------------------------------------------------------------------
Information Systems 500 Reynolds & Reynolds Company
(Class A) 9,125 0.2
1,000 +Tech Data Corporation 43,563 1.1
------------------
52,688 1.3
--------------------------------------------------------------------------------
Insurance 300 +First Health Group Corp. 9,844 0.2
1,200 Horace Mann Educators
Corporation 18,000 0.4
500 Mark IV 10,437 0.3
2,300 Ohio Casualty Corporation 24,438 0.6
800 Old Republic International
Corporation 13,200 0.3
300 The PMI Group, Inc. 14,250 0.4
1,300 Protective Life Corporation 34,613 0.9
1,200 ReliaStar Financial Corp. 62,925 1.6
700 +Sybron International Corporation 13,869 0.3
500 Unitrin, Inc. 14,688 0.4
------------------
216,264 5.4
--------------------------------------------------------------------------------
Leisure 700 +International Game Technology 18,550 0.5
--------------------------------------------------------------------------------
Machinery 1,100 +Grant Prideco, Inc. 27,500 0.7
--------------------------------------------------------------------------------
Manufacturing 300 The Dexter Corporation 14,400 0.4
300 Precision Castparts Corp. 13,575 0.3
------------------
27,975 0.7
--------------------------------------------------------------------------------
Media/Publishing 500 +Electronic Arts Inc. 36,469 0.9
400 Harte-Hanks, Inc. 10,000 0.2
600 The Reader's Digest Association,
Inc. (Class A) 23,850 0.6
48 The Washington Post Company 22,944 0.6
------------------
93,263 2.3
--------------------------------------------------------------------------------
Medical 1,300 +Edwards Lifesciences Corporation 24,050 0.6
1,200 ICN Pharmaceuticals, Inc. 33,375 0.8
200 +Incyte Pharmaceuticals, Inc. 16,437 0.4
300 +Lincare Holdings Inc. 7,387 0.2
1,200 +MedImmune, Inc. 88,800 2.2
200 +MiniMed Inc. 23,600 0.6
800 Mylan Laboratories, Inc. 14,600 0.4
300 +PacifiCare Health Systems, Inc. 18,056 0.5
1,200 Stryker Corporation 52,500 1.3
600 +Synopsys, Inc. 20,738 0.5
------------------
299,543 7.5
--------------------------------------------------------------------------------
Medical Supplies 300 DENTSPLY International Inc. 9,244 0.2
--------------------------------------------------------------------------------
Multimedia 300 Media General, Inc. (Class A) 14,569 0.4
--------------------------------------------------------------------------------
June 30, 2000 (9) Mercury QA Mid Cap Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
In US Dollars
-------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------
UNITED STATES (continued)
================================================================================
Natural Gas Distribution 300 National Fuel Gas Company $ 14,625 0.4%
--------------------------------------------------------------------------------
Office--Related 700 Herman Miller, Inc. 18,112 0.5
--------------------------------------------------------------------------------
Oil & Gas Producers 1,200 +Nabors Industries, Inc. 49,875 1.3
2,200 +Ocean Energy Inc. 31,213 0.8
500 Questar Corporation 9,688 0.2
------------------
90,776 2.3
--------------------------------------------------------------------------------
Oil Field & Equipment 500 +Smith International, Inc. 36,406 0.9
600 +Varco International, Inc. 13,950 0.3
700 +Weatherford International,
Inc. 27,869 0.7
------------------
78,225 1.9
--------------------------------------------------------------------------------
Oil Services 900 ENSCO International
Incorporated 32,231 0.8
1,600 +Global Marine Inc. 45,100 1.1
800 +Hanover Compressor Company 30,400 0.8
1,200 +Noble Drilling Corporation 49,425 1.2
800 Tidewater Inc. 28,800 0.7
------------------
185,956 4.6
--------------------------------------------------------------------------------
Petroleum 800 Helmerich & Payne, Inc. 29,900 0.7
300 Murphy Oil Corporation 17,831 0.4
3,000 +Santa Fe Snyder Corporatio 34,125 0.9
600 Ultramar Diamond Shamrock
Corporation 14,888 0.4
------------------
96,744 2.4
--------------------------------------------------------------------------------
Pharmaceuticals 900 +Forest Laboratories, Inc. 90,900 2.3
1,000 +IVAX Corporation 41,500 1.0
300 +Millennium Pharmaceuticals
Inc. 33,562 0.8
700 +Sepracor Inc. 84,438 2.1
------------------
250,400 6.2
--------------------------------------------------------------------------------
Reinsurance 900 Everest Re Group, Ltd. 29,587 0.7
--------------------------------------------------------------------------------
Restaurants 500 +Outback Steakhouse, Inc. 14,625 0.4
1,200 +Starbucks Corporation 45,825 1.1
------------------
60,450 1.5
--------------------------------------------------------------------------------
Retail 750 +Dollar Tree Stores, Inc. 29,672 0.8
900 Family Dollar Stores, Inc. 17,606 0.4
700 Fastenal Company 35,437 0.9
800 +Payless ShoeSource, Inc. 41,000 1.0
700 Ross Stores, Inc. 11,944 0.3
900 +Saks Incorporated 9,450 0.2
500 Tiffany & Co. 33,750 0.9
400 +Williams-Sonoma, Inc. 12,975 0.3
------------------
191,834 4.8
--------------------------------------------------------------------------------
June 30, 2000 (10) Mercury QA Mid Cap Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
In US Dollars
-------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------
UNITED STATES (concluded)
===============================================================================
Technology 600 +Integrated Device Technology,
Inc. $ 35,925 0.9%
900 +Mentor Graphics Corporation 17,887 0.4
800 +Novellus Systems, Inc. 45,250 1.1
700 +Rational Software Corporation 65,056 1.6
1,000 +Sybase, Inc. 23,000 0.6
200 +TriQuint Semiconductor, Inc. 19,138 0.5
--------------------
206,256 5.1
--------------------------------------------------------------------------------
Telecommunications 400 Harris Corporation 13,100 0.3
200 +L-3 Communications Holdings,
Inc. 11,412 0.3
400 +Polycom, Inc. 37,638 0.9
--------------------
62,150 1.5
--------------------------------------------------------------------------------
Tobacco 500 R.J. Reynolds Tobacco
Holdings, Inc. 13,969 0.4
--------------------------------------------------------------------------------
Utilities--Electric 1,000 KeySpan Corporation 30,750 0.8
600 The Montana Power Company 21,187 0.5
600 Northeast Utilities 13,050 0.3
500 Potomac Electric Power
Company 12,500 0.3
--------------------
77,487 1.9
--------------------------------------------------------------------------------
Utilities--Electric, 500 DQE, Inc. 19,750 0.5
Gas, & Water
--------------------------------------------------------------------------------
Utilities--Gas 1,200 Dynegy Inc. (Class A) 81,975 2.0
Pipeline
700 Kinder Morgan, Inc. 24,194 0.6
--------------------
106,169 2.6
--------------------------------------------------------------------------------
Wireless 400 +Powerwave Technologies, Inc. 17,600 0.4
Communication
--------------------------------------------------------------------------------
Total Investments
(Cost--$4,094,121) 4,010,724 99.9
Other Assets Less
Liabilities 5,016 0.1
--------------------
Net Assets $ 4,015,740 100.0%
====================
--------------------------------------------------------------------------------
+ Non-income producing security.
See Notes to Financial Statements.
June 30, 2000 (11) Mercury QA Mid Cap Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$4,094,121) $ 4,010,724
Cash 12,748
Receivables:
Capital shares sold $ 246,367
Investment adviser 7,643
Dividends 1,447 255,457
--------------------------
Total assets 4,278,929
-----------
------------------------------------------------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed 250,000
Distributor 371 250,371
----------
Accrued expenses 12,818
-----------
Total liabilities 263,189
-----------
------------------------------------------------------------------------------------------
Net Assets:
Net assets $ 4,015,740
===========
------------------------------------------------------------------------------------------
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized $ 32
Class A Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized 1
Class B Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized 3
Class C Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized 4
Paid-in capital in excess of par 4,097,754
Accumulated investment loss--net (3,179)
Undistributed realized capital gains on investments and
foreign currency transactions--net 4,522
Unrealized depreciation on investments and foreign currency
transactions--net (83,397)
-----------
Net assets $ 4,015,740
===========
------------------------------------------------------------------------------------------
Net Asset Value:
Class I--Based on net assets of $3,183,430 and 324,820
shares outstanding $ 9.80
===========
Class A--Based on net assets of $82,445 and 8,412
shares outstanding $ 9.80
===========
Class B--Based on net assets of $333,231 and 34,018
shares outstanding $ 9.80
===========
Class C--Based on net assets of $416,634 and 42,531
shares outstanding $ 9.80
===========
------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
June 30, 2000 (12) Mercury QA Mid Cap Fund
<PAGE>
STATEMENT OF OPERATIONS
For the Period June 2, 2000+ to June 30, 2000
--------------------------------------------------------------------------------
Investment Income:
Dividends $ 1,859
Interest and discount earned 507
--------
Total income 2,366
--------
--------------------------------------------------------------------------------
Expenses:
Registration fees $ 7,926
Investment advisory fees 1,725
Organization expenses 1,419
Professional fees 1,374
Accounting services 1,250
Administration fees 1,098
Printing and shareholder reports 481
Custodian fees 192
Account maintenance and distribution fees--Class C 182
Account maintenance and distribution fees--Class B 173
Pricing fees 69
Directors' fees and expenses 58
Transfer agent fees--Class I 42
Account maintenance fees--Class A 16
Transfer agent fees--Class C 3
Transfer agent fees--Class B 2
Transfer agent fees--Class A 1
--------
Total expenses before reimbursement 16,011
Reimbursement of expenses (10,466)
--------
Total expenses after reimbursement 5,545
--------
Investment loss--net (3,179)
--------
--------------------------------------------------------------------------------
Realized & Unrealized Gain (Loss) on
Investments--Net:
Realized gain from investments--net 4,522
Unrealized depreciation on investments--net (83,397)
--------
Net Decrease in Net Assets Resulting from Operations $(82,054)
========
--------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
June 30, 2000 (13) Mercury QA Mid Cap Fund
<PAGE>
STATEMENT OF CHANGES
IN NET ASSETS
For the Period June 2, 2000+ to June 30, 2000
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
--------------------------------------------------------------------------------
Operations:
Investment loss--net $ (3,179)
Realized gain on investments--net 4,522
Unrealized depreciation on investments--net (83,397)
-----------
Net decrease in net assets resulting from operations (82,054)
-----------
--------------------------------------------------------------------------------
Capital Share Transactions:
Net increase in net assets derived from capital share transactions 3,997,794
-----------
--------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 3,915,740
Beginning of period 100,000
-----------
End of period $ 4,015,740
===========
--------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
June 30, 2000 (14) Mercury QA Mid Cap Fund
<PAGE>
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
For the Period June 2, 2000+ to June 30, 2000
--------------------------------------------------------
Increase (Decrease) in Net Asset Value: Class I Class A Class B Class C
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------------------------------------------------------
Investment loss--net (.01) (.01) (.01) (.01)
Realized and unrealized loss on
investments--net (.19) (.19) (.19) (.19)
--------------------------------------------------------
Total from investment operations (.20) (.20) (.20) (.20)
--------------------------------------------------------
Net asset value, end of period $ 9.80 $ 9.80 $ 9.80 $ 9.80
========================================================
----------------------------------------------------------------------------------------------------
Total Investment Return:**
Based on net asset value per share (2.00%)++ (2.00%)++ (2.00%)++ (2.00%)++
========================================================
----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses, net of reimbursement 1.65%* 1.90%* 2.65%* 2.65%*
========================================================
Expenses 4.99%* 5.24%* 5.99%* 5.99%*
========================================================
Investment loss--net (.91%)* (1.08%)* (1.73%)* (1.80%)*
========================================================
----------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 3,183 $ 83 $ 333 $ 417
========================================================
Portfolio turnover 4.26% 4.26% 4.26% 4.26%
========================================================
----------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
June 30, 2000 (15) Mercury QA Mid Cap Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Significant Accounting Policies:
Mercury QA Mid Cap Fund (the "Fund") is part of the Mercury QA Equity
Series, Inc. (the "Corporation"). The Fund is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The Fund's financial statements are prepared in
accordance with accounting principles generally accepted in the United
States of America, 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. Prior to commencement of operations on June 2,
2000, the Fund had no operations other than those relating to
organizational matters and the issuance of 10,000 capital shares of the
Fund on February 25, 2000 to Mercury Advisors ("Mercury"), a division of
Fund Asset Management, L.P. ("FAM"), for $100,000. The Fund offers four
classes of shares. Class I and Class A Shares are sold with a front-end
sales charge. Class B and Class C Shares 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 A, Class B and Class C 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
Fund.
(a) Valuation of securities--Portfolio securities that are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available
bid price. Securities traded in the over-the-counter market are valued at
the last available bid price prior to the time of valuation. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board
of Directors as the primary market. Securities that are traded both in the
over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market. 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). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts
and related options, are stated at market value. Securities and assets for
which market value quotations are not available are valued at their fair
value as determined in good faith by or under the direction of the
Corporation's Board of Directors.
June 30, 2000 (16) Mercury QA Mid Cap Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(b) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are
the result of settling (realized) or valuing (unrealized) assets or
liabilities expressed in foreign currencies into US dollars. Realized and
unrealized gains or losses from investments include the effects of foreign
exchange rates on investments.
(c) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of risk
to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.
o Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the premium
received by the Fund 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 Fund enters into a
closing transaction), the Fund 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 premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the
date the Fund enters into such contracts.
o Foreign currency options and futures--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US dollar
denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
June 30, 2000 (17) Mercury QA Mid Cap Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
o Financial futures contracts--The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund 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 Fund as unrealized gains or
losses. When the contract is closed, the Fund 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 it was closed.
(d) Income taxes--It is the Fund'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.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends, and capital gains at various rates.
(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. Dividends from
foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is 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 and distributions paid by the
Fund are recorded on the ex-dividend dates.
(2) Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Mercury.
The general partner of Mercury is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
June 30, 2000 (18) Mercury QA Mid Cap Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
As compensation for its services to the Fund, Mercury receives monthly
compensation at the annual rate of .55% of the average daily net assets of
the Fund. For the period June 2, 2000 to June 30, 2000, Mercury earned
fees of $1,725, all of which was voluntarily waived. Mercury also
reimbursed the Fund for additional expenses of $8,741.
The Fund has also entered into an Administration Agreement with Mercury.
The Fund pays a monthly fee at an annual rate of .35% of the Fund's
average daily net assets for the performance of administrative services
(other than investment advice and related portfolio activities) necessary
for the operation of the Fund.
Pursuant to the Distribution Plans adopted by the Fund in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund 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 A .25% --
--------------------------------------------------------------------------
Class B .25% .75%
--------------------------------------------------------------------------
Class C .25% .75%
--------------------------------------------------------------------------
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 Fund. The
ongoing account maintenance fee compensates the Distributor and MLPF&S for
providing account maintenance services to Class A, Class B and Class C
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 period June 2, 2000 to June 30, 2000, FAMD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A Shares as follows:
FAMD MLPF&S
--------------------------------------------------------------------------
Class A $ -- $1,401
--------------------------------------------------------------------------
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML &
Co., acts as the Company's transfer agent.
June 30, 2000 (19) Mercury QA Mid Cap Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Corporation are officers and/or
directors of Mercury, FAM, PSI, FDS, FAMD, and/or ML & Co.
(3) Investments:
Purchases and sales of investments, excluding short-term securities, for
the period June 2, 2000 to June 30, 2000 were $4,261,093 and $171,494,
respectively.
Net realized gains for the period June 2, 2000 to June 30, 2000, and net
unrealized losses as of June 30, 2000 were as follows:
Realized Unrealized
Gains Losses
--------------------------------------------------------------------------
Long-term investments $ 4,522 $ (83,397)
----------------------------------
Total $ 4,522 $ (83,397)
==================================
--------------------------------------------------------------------------
As of June 30, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $83,397, of which $193,142 related to appreciated
securities and $276,539 related to depreciated securities. The aggregate
cost of investments at June 30, 2000 for Federal income tax purposes was
$4,094,121.
(4) Capital Transactions:
A net increase in net assets derived from capital share transactions was
$3,997,794 for the period June 2, 2000 to June 30, 2000.
Transactions in capital shares for each class were as follows:
Class I Shares for the Period June 2, 2000+
to June 30, 2000 Shares Dollar Amount
--------------------------------------------------------------------------
Shares sold 359,157 $ 3,591,391
Shares redeemed (36,837) (363,000)
----------------------------------
Net increase 322,320 $ 3,228,391
==================================
--------------------------------------------------------------------------
+ Prior to June 2, 2000 (commencement of operations), the Fund issued 2,500
shares to Mercury for $25,000.
June 30, 2000 (20) Mercury QA Mid Cap Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class A Shares for the Period June 2, 2000+
to June 30, 2000 Shares Dollar Amount
--------------------------------------------------------------------------
Shares sold 5,912 $ 58,845
----------------------------------
Net increase 5,912 $ 58,845
==================================
--------------------------------------------------------------------------
+ Prior to June 2, 2000 (commencement of operations), the Fund issued 2,500
shares to Mercury for $25,000.
Class B Shares for the Period June 2, 2000+
to June 30, 2000 Shares Dollar Amount
--------------------------------------------------------------------------
Shares sold 31,518 $ 312,764
----------------------------------
Net increase 31,518 $ 312,764
==================================
--------------------------------------------------------------------------
+ Prior to June 2, 2000 (commencement of operations), the Fund issued 2,500
shares to Mercury for $25,000.
Class C Shares for the Period June 2, 2000+
to June 30, 2000 Shares Dollar Amount
--------------------------------------------------------------------------
Shares sold 40,861 $ 406,040
Shares redeemed (830) (8,246)
----------------------------------
Net increase 40,031 $ 397,794
==================================
--------------------------------------------------------------------------
+ Prior to June 2, 2000 (commencement of operations), the Fund issued 2,500
shares to Mercury for $25,000.
June 30, 2000 (21) Mercury QA Mid Cap Fund
<PAGE>
OFFICERS AND DIRECTORS
Terry K. Glenn, Director and President
M. Colyer Crum, Director
Laurie Simon Hodrick, Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
Fred G. Weiss, Director
Arthur Zeikel, Director
Robert C. Doll, Jr., Senior Vice President
Philip Green, Senior Vice President
Sidney Hoots, Senior Vice President
Dean D'Onofrio, Senior Vice President
Frank Salerno, Senior Vice President
Donald C. Burke, Vice President and
Treasurer
Allan J. Oster, Secretary
Custodian
The Chase Manhattan Bank
4 Chase MetroTech, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(888) 763-2260
June 30, 2000 (22) Mercury QA Mid Cap Fund
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund'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.
Mercury QA Mid Cap Fund of
Mercury QA Equity Series, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLE LOGO] Printed on post-consumer recycled paper MERCQAMC--6/00
