SEMI-ANNUAL REPORT
JUNE 30, 2000
Mercury
QA International
Fund
OF MERCURY
QA EQUITY SERIES, INC.
MERCURY QA INTERNATIONAL FUND
WORLDWIDE INVESTMENTS AS OF JUNE 30, 2000
Percent of
Ten Largest Holdings Net Assets
Nokia Oyj 2.9%
Vodafone AirTouch PLC 2.6
BP Amoco PLC 2.5
Nippon Telegraph & Telephone
Corporation (NTT) 2.0
Deutsche Telekom AG
(Registered Shares) 1.9
Telefonaktiebolaget LM
Ericsson AB 'B' 1.8
Novartis AG (Registered Shares) 1.8
Toyota Motor Corporation 1.7
Nestle SA (Registered Shares) 1.6
France Telecom SA 1.4
Percent of
Ten Largest Industries Net Assets
Telecommunications 15.2%
Banking 12.0
Insurance 8.4
Electronics 6.2
Telecommunications & Equipment 6.0
Pharmaceuticals 5.2
Chemicals 3.7
Transportation 3.2
Automobiles 3.2
Utilities--Electric 3.2
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
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 Center, 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
Mercury QA International Fund
DEAR SHAREHOLDER
We are pleased to provide you with the first semi-annual report for
Mercury QA International Fund. The Fund seeks to provide long-term
growth of capital by investing primarily in equity securities of
large-capitalization companies outside of 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 -1.10%, -1.20%, -1.20% and -1.20%, respectively,
slightly less than the return of the unmanaged Morgan Stanley
Capitalization Europe, Australasia and Far East Index of +3.19% from
May 31, 2000 through June 30, 2000. (Fund results shown do not
reflect sales charges and would be lower if sales charges were
included. For complete performance information, see pages 5 and 6 of
this report to shareholders.)
European equity markets posted mixed returns in June and for the
first half of the year. Stock markets in Europe generally follow the
lead of US markets; thus, the meager returns posted in Europe this
year should come as no surprise given what has happened in the
United States.
The big story in Europe this year is the unexpected decline of its
new currency, the euro. The euro has caused concern among policy
makers at the European Central Bank because of the inflationary
effects of a weak currency. After holding off for months, the
European Central Bank raised interest rates in June in an attempt to
strengthen the euro and hold budding inflationary pressures in
check. After a strong rally in early June, stock markets fell after
the interest rate rise since investors were anticipating slower
economic growth and weaker corporate profits. France and Italy have
been among the best-performing European stock markets so far this
year, with Germany and Spain the worst.
The Japanese stock market rallied strongly in June and is down only
slightly year to date. While the economy remains fragile, there
appear to be investment opportunities as a result of restructuring
and strong profit growth. However, we are cautious as deflation,
political constipation, the unwinding of cross-shareholdings and
inflexible social models all seem to blight Japan's outlook.
Our favorite countries currently are Italy, Germany, and
Switzerland. The Swiss stock market is heavily weighted toward banks
and drug companies. Fundamentally, we like drug companies because of
seemingly attractive demographics, specifically baby boomers that
could provide drug companies with a huge customer base for the
future.
June 30, 2000
Mercury QA International Fund
In Conclusion
We thank you for your investment in Mercury QA International Fund,
and we look forward to serving your investment needs in the months
and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Philip Green)
Philip Green
Senior Vice President and
Portfolio Manager
August 8, 2000
June 30, 2000
Mercury QA International Fund
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.
RECENT PERFORMANCE RESULTS*
Since Inception
As of June 30, 2000 Total Return
Class I -1.10%
Class A -1.20
Class B -1.20
Class C -1.20
*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
Mercury QA International Fund
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 -1.10% -6.29%
*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 -1.20% -5.15%
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 6 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
Inception (6/2/00)
through 6/30/00 -1.20% -6.39%
*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 -1.20% -2.19%
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
June 30, 2000
Mercury QA International Fund
<TABLE>
SCHEDULE OF INVESTMENTS
MERCURY QA INTERNATIONAL FUND
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Australia
Banking 1,523 Commonwealth Bank of Australia $ 25,320 0.5%
1,684 National Australia Bank Limited 28,211 0.5
------------ ------
53,531 1.0
Broadcasting & 2,330 The News Corporation Limited 32,175 0.6
Publishing
Telecommuni- 5,375 Telstra Corporation Limited 21,880 0.4
cations
Total Common Stocks in Australia 107,586 2.0
Belgium
Insurance 998 Fortis (B) 29,160 0.5
Utilities--Electric 97 Electrabel SA 24,074 0.5
Total Common Stocks in Belgium 53,234 1.0
Denmark
Banking 187 Den Danske Bank Group 22,587 0.4
Transport Services 1 A/S Dampskibsselskabet Svendborg 'B' 14,841 0.3
Total Common Stocks in Denmark 37,428 0.7
Finland
Telecommunications 682 Sonera Oyj 31,217 0.6
Telecommuni- 3,042 Nokia Oyj 155,863 2.9
cations
& Equipment
Total Common Stocks in Finland 187,080 3.5
France
Chemicals 372 Aventis SA 27,262 0.5
Cosmetics & 31 ++L'Oreal SA 26,953 0.5
Toiletries
Diversified 297 Vivendi 26,321 0.5
Electronics 509 STMicroelectronics NV 32,203 0.6
Insurance 191 Axa 30,210 0.6
Oil/Integrated-- 390 Total Fina SA 'B' 60,041 1.1
International
Supermarkets 345 Carrefour SA 23,679 0.5
Telecommunications 542 France Telecom SA 76,064 1.4
Telecommunications 595 Alcatel 39,184 0.8
& Equipment
Total Common Stocks in France 341,917 6.5
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Germany
Airlines 908 Deutsche Lufthansa AG (Registered
Shares) $ 21,325 0.4%
Automobiles 922 DaimlerChrysler AG (Registered
Shares) 48,284 0.9
Banking 536 Deutsche Bank AG (Registered
Shares) 44,290 0.8
550 Dresdner Bank AG 22,724 0.4
388 HypoVereinsbank 25,165 0.5
------------ ------
92,179 1.7
Chemicals 875 BASF AG 35,312 0.7
1,105 Bayer AG 43,302 0.8
------------ ------
78,614 1.5
Computer 234 SAP AG (Systeme, Anwendungen,
Software Produkte in der Datenverarbeitung) 34,634 0.7
Cosmetics & 257 Beiersdorf AG 21,680 0.4
Toiletries
Diversified 810 RWE AG 27,565 0.5
Electronics 416 Siemens AG 63,007 1.2
Insurance 197 Allianz AG (Registered Shares) 71,062 1.3
134 Muenchener Rueckversicherungs-
Gesellschaft AG (Registered Shares) 42,261 0.8
------------ ------
113,323 2.1
Medical 548 Schering AG 30,153 0.6
Multi-Industry 646 Preussag AG 20,962 0.4
1,137 Veba AG 55,993 1.1
------------ ------
76,955 1.5
Telecommuni- 1,735 Deutsche Telekom AG (Registered
cations Shares) 99,458 1.9
Total Common Stocks in Germany 707,177 13.4
Hong Kong
Multi-Industry 4,000 Hutchison Whampoa Limited 50,287 1.0
Real Estate 2,000 Cheung Kong (Holdings) Ltd. 22,000 0.4
3,000 Sun Hung Kai Properties Ltd. 21,551 0.4
------------ ------
43,551 0.8
Telecommuni- 9,200 Hong Kong Telecom Limited 20,299 0.4
cations
Total Common Stocks in Hong Kong 114,137 2.2
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Italy
Auto & Truck 1,137 Fiat SpA $ 29,624 0.6%
Banking 2,677 San Paolo-IMI SpA 47,705 0.9
6,385 Unicredito Italiano SpA 30,665 0.6
------------ ------
78,370 1.5
Electronics 9,471 Enel SpA 42,126 0.8
Financial 3,302 Mediobanca SpA 34,185 0.6
Services
Insurance 1,809 Assicurazioni Generali 62,254 1.2
2,355 Riunione Adriatica di Sicurta SpA 25,961 0.5
------------ ------
88,215 1.7
Oil & Gas 9,046 ENI SpA 52,463 1.0
Producers
Telecommuni- 5,597 Telecom Italia Mobile (TIM) SpA 57,409 1.1
cations 3,454 Telecom Italia SpA 47,678 0.9
------------ ------
105,087 2.0
Telecommuni- 15,941 Sirti SpA 26,665 0.5
cations
& Equipment
Tires & Rubber 14,024 Pirelli SpA 37,037 0.7
Total Common Stocks in Italy 493,772 9.4
Japan
Automobiles 1,000 Honda Motor Co., Ltd. 34,119 0.6
2,000 Toyota Motor Corporation 91,300 1.7
------------ ------
125,419 2.3
Banking 3,000 The Bank of Tokyo-Mitsubishi, Ltd. 36,322 0.7
2,000 The Sumitomo Bank, Ltd. 24,574 0.5
------------ ------
60,896 1.2
Chemicals 1,000 Shin-Etsu Chemical Co., Ltd. 50,848 1.0
Computers 1,000 NEC Corporation 31,473 0.6
Cosmetics & 1,000 Kao Corporation 30,622 0.6
Toiletries
Distribution 200 Softbank Corp. 27,220 0.5
Electrical 1,000 Denso Corporation 24,385 0.5
Equipment 2,000 Matsushita Electric Industrial
Company, Ltd. 51,982 1.0
100 Rohm Company Ltd. 29,299 0.6
1,000 Sumitomo Electric Industries 17,183 0.3
------------ ------
122,849 2.4
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Japan (concluded)
Electronics 200 Fanuc Ltd. $ 20,396 0.4%
1,000 Fujitsu Limited 34,686 0.7
3,000 Hitachi Ltd. 43,382 0.8
600 Sony Corporation 56,141 1.1
3,000 Toshiba Corporation 33,940 0.6
------------ ------
188,545 3.6
Financial 1,000 The Nomura Securities Co., Ltd. 24,526 0.5
Services
Gas Transmission 9,000 Tokyo Gas Co. 25,349 0.5
Insurance 2,000 The Tokio Marine & Fire Insurance Co.
Ltd. 23,137 0.4
Machinery & 5,000 Mitsubishi Heavy Industries, Ltd. 22,211 0.4
Equipment
Pharmaceuticals 1,000 Takeda Chemical Industries, Ltd. 65,781 1.2
Photography 1,000 Canon, Inc. 49,903 0.9
1,000 Fuji Photo Film 41,019 0.8
------------ ------
90,922 1.7
Printing & 2,000 Dai Nippon Printing Co., Ltd. 35,329 0.7
Publishing
Steel 12,000 Nippon Steel Corporation 25,292 0.5
Telecommunications 8 Nippon Telegraph & Telephone
Corporation (NTT) 106,611 2.0
Tires & Rubber 1,000 Bridgestone Corp. 21,218 0.4
Transportation 4 Central Japan Railway Company 22,683 0.4
5 East Japan Railway Company 29,110 0.5
13,000 Keihin Electric Express Railway
Co., Ltd. 49,024 0.9
9,000 Kinki Nippon Railway Co., Ltd. 36,577 0.7
13,000 Tobu Railway Co., Ltd. 37,229 0.7
------------ ------
174,623 3.2
Utilities 2,100 Kansai Electric Power Company, Inc. 37,671 0.7
--Electric 3,100 Tohoku Electric Power Co., Inc. 41,898 0.8
1,500 Tokyo Electric Power 36,648 0.7
------------ ------
116,217 2.2
Total Common Stocks in Japan 1,369,088 25.9
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Netherlands
Electrical 570 Koninklijke (Royal) Philips
Equipment Electronics NV $ 26,992 0.5%
Total Common Stocks in the
Netherlands 26,992 0.5
New Zealand
Telecommuni- 10,280 Telecom Corporation of New Zealand
cations Limited 36,057 0.7
Total Common Stocks in New Zealand 36,057 0.7
Norway
Chemicals 852 Norsk Hydro ASA 35,883 0.7
Total Common Stocks in Norway 35,883 0.7
Portugal
Telecommuni- 1,990 Portugal Telecom SA (Registered
cations Shares) 22,434 0.4
Total Common Stocks in Portugal 22,434 0.4
Singapore
Airlines 2,000 Singapore Airlines Limited 19,780 0.4
Total Common Stocks in Singapore 19,780 0.4
Spain
Banking 2,657 Banco Bilbao Vizcaya, SA 39,861 0.8
3,652 Banco Santander Central
Hispano, SA 38,684 0.7
------------ ------
78,545 1.5
Petroleum-- 1,405 Repsol-YPF, SA 28,081 0.5
Domestic
Telecommuni- 2,388 ++Telefonica SA 51,506 1.0
cations
Utilities--Electric1,420 Endesa SA 27,619 0.5
Total Common Stocks in Spain 185,751 3.5
Sweden
Telecommuni- 4,798 Telefonaktiebolaget LM
cations Ericsson AB 'B' 95,457 1.8
& Equipment
Total Common Stocks in Sweden 95,457 1.8
Switzerland
Banking 206 Credit Suisse Group (Registered
Shares) 41,109 0.8
335 UBS AG (Registered Shares) 49,237 0.9
------------ ------
90,346 1.7
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Switzerland (concluded)
Drugs 60 Novartis AG (Registered Shares) $ 95,345 1.8%
Foods/Food 42 Nestle SA (Registered Shares) 84,331 1.6
Processing
Holding Company 279 ABB Ltd. 33,500 0.6
Insurance 25 Schweizerische Rueckversicherungs-
Gesellschaft (Registered Shares) 51,119 1.0
102 Zurich Allied AG 50,558 1.0
------------ ------
101,677 2.0
Manufacturing 83 Holderbank Financiere Glarus AG
(Registered Shares) 27,206 0.5
Metals & Mining 40 ++Alusuisse Lonza Group AG (Registered
Shares) 26,148 0.5
Pharmaceuticals 2 Roche Holding AG (Bearer) 21,223 0.4
7 Roche Holding AG (Genuss) 68,360 1.3
------------ ------
89,583 1.7
Telecommunications 58 Swisscom AG (Registered Shares) 20,153 0.4
Total Common Stocks in Switzerland 568,289 10.8
United Kingdom
Banking 1,116 Barclays PLC 27,759 0.5
5,475 HSBC Holdings PLC 62,620 1.2
3,992 Lloyds TSB Group PLC 37,711 0.7
1,838 Royal Bank of Scotland Group PLC 30,775 0.6
------------ ------
158,865 3.0
Beverages 3,285 Diageo PLC 29,491 0.6
Broadcasting-- 1,199 ++British Sky Broadcasting Group PLC
Media ("BSkyB") 23,452 0.4
Drugs 1,164 AstraZeneca Group PLC 54,363 1.0
Insurance 1,933 CGU PLC 32,190 0.6
1,724 Prudential Corporation PLC 25,264 0.5
------------ ------
57,454 1.1
Oil--Related 13,574 BP Amoco PLC 130,285 2.5
Pharmaceuticals 2,366 Glaxo Wellcome PLC 69,023 1.3
3,844 SmithKline Beecham PLC 50,338 1.0
------------ ------
119,361 2.3
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
United Kingdom
(concluded)
Telecommuni 4,008 British Telecommunications PLC $ 51,818 1.0%
cations 1,777 Marconi PLC 23,136 0.4
33,919 Vodafone AirTouch PLC 137,104 2.6
------------ ------
212,058 4.0
Total Common Stocks in the
United Kingdom 785,329 14.9
Total Investments in Common
Stocks (Cost--$5,256,113) 5,187,391 98.3
Face
Amount Short-Term Securities
United States
US US$105,000 Federal Home Loan Mortgage
Government Corporation, 6.57% due 7/03/2000 104,962 2.0
Agency
Obligations*
Total Investments in Short-Term
Securities (Cost--$104,962) 104,962 2.0
Total Investments
(Cost--$5,361,075) 5,292,353 100.3
Liabilities in Excess of
Other Assets (16,277) (0.3)
------------ ------
Net Assets $ 5,276,076 100.0%
============ ======
*Certain US Government Agency Obligations are traded on a discount
basis; the interest rate shown reflects the discount rate paid at
the time of purchase by the Fund.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
June 30, 2000
Mercury QA International Fund
STATEMENT OF ASSETS AND
LIABILITIES
<TABLE>
As of June 30, 2000
MERCURY QA INTERNATIONAL FUND
<S> <C> <C>
Assets:
Investments, at value (identified cost--$5,361,075) $ 5,292,353
Receivables:
Investment adviser $ 6,963
Capital shares sold 4,935
Dividends 2,197 14,095
------------
Prepaid registration fees and other assets 57,081
------------
Total assets 5,363,529
------------
Liabilities:
Payables:
Capital shares redeemed 13,000
Custodian bank 5,406
Securities purchased 466
Distributor 277 19,149
------------
Accrued expenses and other liabilities 68,304
------------
Total liabilities 87,453
------------
Net Assets:
Net assets $ 5,276,076
------------
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized $ 49
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 1
Paid-in capital in excess of par 5,327,590
Undistributed investment income--net 812
Undistributed realized capital gains on investments and
foreign currency transactions--net 16,284
Unrealized depreciation on investments and foreign currency
transactions--net (68,664)
------------
Net assets $ 5,276,076
============
Net Asset Value:
Class I--Based on net assets of $4,825,543 and
487,999 shares outstanding $ 9.89
============
Class A--Based on net assets of $55,361 and
5,602 shares outstanding $ 9.88
============
Class B--Based on net assets of $279,718 and
28,320 shares outstanding $ 9.88
============
Class C--Based on net assets of $115,454 and
11,690 shares outstanding $ 9.88
============
See Notes to Financial Statements.
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period June 2, 2000++ to June 30, 2000
MERCURY QA INTERNATIONAL FUND
<S> <C> <C>
Investment Income:
Dividends (net of $638 foreign withholding tax) $ 4,227
Interest and discount earned 2,021
------------
Total income 6,248
------------
Expenses:
Registration fees $ 7,925
Investment advisory fees 1,916
Professional fees 1,374
Accounting services 1,250
Administrative fees 1,032
Offering costs 814
Printing and shareholder reports 412
Custodian fees 192
Account maintenance and distribution fees--Class B 191
Account maintenance and distribution fees--Class C 78
Pricing fees 69
Transfer agent fees--Class I 45
Directors' fees and expenses 33
Account maintenance fees--Class A 9
Transfer agent fees--Class B 4
Transfer agent fees--Class C 2
Transfer agent fees--Class A 1
------------
Total expenses before reimbursement 15,347
Reimbursement of expenses (9,911)
------------
Total expenses after reimbursement 5,436
------------
Investment income--net 812
------------
Realized & Unrealized Gain (Loss) on Investments
& Foreign Currency Transactions--Net:
Realized gain from:
Investments--net 14,063
Foreign currency transactions--net 2,221 16,284
------------
Unrealized appreciation/depreciation on:
Investments--net (68,722)
Foreign currency transactions--net 58 (68,664)
------------ ------------
Net Decrease in Net Assets Resulting from Operations $ (51,568)
============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
STATEMENT OF CHANGES
IN NET ASSETS
<CAPTION>
MERCURY QA INTERNATIONAL FUND
For the Period
June 2, 2000++
to June 30,
Increase (Decrease)in Net Assets: 2000
<S> <C>
Operations:
Investment income--net $ 812
Realized gain on investments and foreign currency transactions--net 16,284
Unrealized depreciation on investments and foreign currency
transactions--net (68,664)
------------
Net decrease in net assets resulting from operations (51,568)
------------
Capital Share Transactions:
Net increase in net assets derived from capital share transactions 5,227,644
------------
Net Assets:
Total increase in net assets 5,176,076
Beginning of period 100,000
------------
End of period* $ 5,276,076
============
*Undistributed investment income--net $ 812
============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
June 30, 2000
Mercury QA International Fund
<TABLE>
FINANCIAL HIGHLIGHTS
MERCURY QA INTERNATIONAL FUND
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
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 income (loss)--net --++++ --++++ --++++ --++++
Realized and unrealized loss on
investments and foreign currency
transactions--net (.11) (.12) (.12) (.12)
-------- -------- -------- --------
Total from investment operations (.11) (.12) (.12) (.12)
-------- -------- -------- --------
Net asset value, end of period $ 9.89 $ 9.88 $ 9.88 $ 9.88
======== ======== ======== ========
Total Investment Return:**
Based on net asset value per share (1.10%)+++ (1.20%)+++ (1.20%)+++ (1.20%)+++
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement 1.75%* 2.00%* 2.75%* 2.75%*
======== ======== ======== ========
Expenses 5.11%* 5.36%* 6.11%* 6.11%*
======== ======== ======== ========
Investment income (loss)--net .34%* .35%* (.34%)* (.32%)*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 4,826 $ 55 $ 280 $ 115
======== ======== ======== ========
Portfolio turnover 8.75% 8.75% 8.75% 8.75%
======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
June 30, 2000
Mercury QA International Fund
NOTES TO FINANCIAL STATEMENTS
MERCURY QA INTERNATIONAL FUND
1 Significant Accounting Policies:
Mercury QA International Fund (the "Fund") is part of 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 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 (except that Class
B Shares have certain voting rights with respect to Class A
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
Mercury QA International Fund
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.
* 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.
* 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.
* 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
Mercury QA International Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
* 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.
(h) Custodian bank--The Fund recorded an amount payable to the
custodian bank, reflecting an overnight overdraft that resulted from
management estimates of available cash.
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
Mercury QA International Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
As compensation for its services to the Fund, Mercury receives
monthly compensation at the annual rate of .65% of the average daily
net assets of the Fund. For the period June 2, 2000 to June 30,
2000, Mercury earned fees of $1,916, all of which were voluntarily
waived. Mercury also reimbursed the Fund for additional expenses of
$7,995.
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
Maintenance Fee Distribution 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 $62 $1,430
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., acts as the Fund's transfer agent.
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.
June 30, 2000
Mercury QA International Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3 Investments:
Purchases and sales of investments, excluding short-term securities,
for the period June 2, 2000 to June 30, 2000 were $5,468,960 and
$226,910, respectively.
Net realized gains for the period June 2, 2000 to June 30, 2000 and
net unrealized gains (losses) as of June 30, 2000 were as follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $ 14,063 $ (68,722)
Foreign currency transactions 2,221 58
----------- ------------
Total $ 16,284 $ (68,664)
=========== ============
As of June 30, 2000, net unrealized depreciation for Federal income
tax purposes aggregated $68,722, of which $125,154 related to
appreciated securities and $193,876 related to depreciated
securities. The aggregate cost of investments at June 30, 2000 for
Federal income tax purposes was $5,361,075.
4Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $5,227,644 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 507,676 $ 5,068,356
Shares redeemed (22,177) (220,500)
----------- -------------
Net increase 485,499 $ 4,847,856
=========== =============
++Prior to June 2, 2000 (commencement of operations), the Fund
issued 2,500 shares to Mercury for $25,000.
Class A Shares for the Period
June 2, 2000++ to June 30, 2000 Shares Dollar Amount
Shares sold 3,291 $ 32,742
Shares redeemed (189) (1,888)
----------- -------------
Net increase 3,102 $ 30,854
=========== =============
++Prior to June 2, 2000 (commencement of operations), the Fund
issued 2,500 shares to Mercury for $25,000.
June 30, 2000
Mercury QA International Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class B Shares for the Period
June 2, 2000++ to June 30, 2000 Shares Dollar Amount
Shares sold 25,820 $ 257,196
----------- -------------
Net increase 25,820 $ 257,196
=========== =============
++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 9,190 $ 91,738
----------- -------------
Net increase 9,190 $ 91,738
=========== =============
++Prior to June 2, 2000 (commencement of operations), the Fund
issued 2,500 shares to Mercury for $25,000.
June 30, 2000
Mercury QA International Fund
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 International Fund of
Mercury QA Equity Series, Inc.
Box 9011
Princeton, NJ
08543-9011
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