SEMI-ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC OMITTED]
Mercury
QA Large
Cap Core
Fund
OF MERCURY
QA EQUITY SERIES, INC.
<PAGE>
PORTFOLIO INFORMATION
GEOGRAPHIC ASSET MIX
A pie chart illustrating the following percentages
(As a Percentage of Net Assets as of June 30, 2000)
United States--97.0%
Canada--2.0%
Netherlands--0.6%
Bermuda--0.3%
WORLDWIDE INVESTMENTS AS OF JUNE 30, 2000
--------------------------------------------------------------------------------
Percent of
Ten Largest Holdings Net Assets
----------------------------------------
Intel Corporation 4.2%
----------------------------------------
Cisco Systems, Inc. 4.0
----------------------------------------
General Electric Company 4.0
----------------------------------------
Microsoft Corporation 3.6
----------------------------------------
Wal-Mart Stores, Inc. 2.5
----------------------------------------
Pfizer Inc. 2.4
----------------------------------------
Exxon Mobil Corporation 2.3
----------------------------------------
Citigroup Inc. 2.2
----------------------------------------
Oracle Corporation 2.1
----------------------------------------
Merck & Co., Inc. 2.0
----------------------------------------
Percent of
Ten Largest Industries Net Assets
----------------------------------------
Pharmaceuticals 8.8%
----------------------------------------
Telecommunications 8.0
----------------------------------------
Electronics 7.8
----------------------------------------
Communications Equipment 7.0
----------------------------------------
Banking 6.0
----------------------------------------
Financial Services 5.7
----------------------------------------
Retail 5.6
----------------------------------------
Computer Services/Software 5.3
----------------------------------------
Electrical Equipment 4.5
----------------------------------------
Insurance 4.5
----------------------------------------
June 30, 2000 (2) Mercury QA Large Cap Core Fund
<PAGE>
DEAR SHAREHOLDER
We are pleased to provide you with the first semi-annual report for Mercury QA
Large Cap Core Fund. The Fund seeks to provide long-term growth of capital by
investing primarily in equity securities of large-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 -1.50%, -1.50%, -1.50% and -1.50%, respectively, lower than the return of the
unmanaged S&P500 Composite Stock Price Index of +3.13% over the same 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 would arguably be 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 with 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 earnings growth and
valuation levels remain reasonably attractive.
June 30, 2000 (3) Mercury QA Large Cap Core Fund
<PAGE>
Our favorite industries currently are drugs and semiconductors, as both could
enjoy enormous demand for their products for many years to come. Demographics,
specifically the aging of the baby boomers, increasingly have provided drug
companies with a huge customer base in which to sell their goods. With the
prospect that every durable good could contain a few semiconductors, the
potential demand looks strong.
In Conclusion
We thank you for your interest in Mercury QA Large Cap Core 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 Large Cap Core 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 eight 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 Large Cap Core 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 -1.50% -6.67%
* 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 -1.50% -5.44%
* 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 -1.50% -6.67%
* 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 -1.50% -2.49%
* 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 -1.50%
--------------------------------------------------------------------------------
Class A -1.50
--------------------------------------------------------------------------------
Class B -1.50
--------------------------------------------------------------------------------
Class C -1.50
--------------------------------------------------------------------------------
* 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 Large Cap Core Fund
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
In US Dollars
---------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BERMUDA
============================================================================================
Telecommunications & 3,700 + Global Crossing Ltd. $ 97,356 0.3%
Equipment
--------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda
(Cost--$107,531) 97,356 0.3
--------------------------------------------------------------------------------------------
CANADA
============================================================================================
Communications 9,000 Nortel Networks Corporation 614,250 2.0
Equipment
--------------------------------------------------------------------------------------------
Total Common Stocks in Canada
(Cost--$540,836) 614,250 2.0
NETHERLANDS
============================================================================================
Household Products 700 Unilever NV (NY Registered Shares) 30,100 0.1
--------------------------------------------------------------------------------------------
Oil--International 2,500 Royal Dutch Petroleum Company
(NY Registered Shares) 153,906 0.5
--------------------------------------------------------------------------------------------
Total Common Stocks in the Netherlands
(Cost--$190,465) 184,006 0.6
--------------------------------------------------------------------------------------------
UNITED STATES
============================================================================================
Aluminum 2,000 Alcoa Inc. 58,000 0.2
--------------------------------------------------------------------------------------------
Application 1,000 + Citrix Systems, Inc. 18,937 0.1
Development 300 + Sapient Corporation 32,081 0.1
Software 700 + Siebel Systems, Inc. 114,494 0.3
---------------------
165,512 0.5
--------------------------------------------------------------------------------------------
Automotive 2,100 General Motors Corporation 121,931 0.4
--------------------------------------------------------------------------------------------
Banking 4,000 Bank of America Corporation 172,000 0.6
2,700 The Bank of New York Company, Inc. 125,550 0.4
3,800 Bank One Corporation 100,937 0.3
2,850 The Chase Manhattan Corporation 131,278 0.4
11,100 Citigroup Inc. 668,775 2.2
1,300 Fifth Third Bancorp 82,225 0.3
3,300 FleetBoston Financial Corporation 112,200 0.4
2,400 Mellon Financial Corporation 87,450 0.3
1,100 Northern Trust Corporation 71,569 0.2
700 State Street Corporation 74,244 0.2
1,400 Washington Mutual, Inc. 40,425 0.1
5,000 Wells Fargo Company 193,750 0.6
---------------------
1,860,403 6.0
</TABLE>
June 30, 2000 (7) Mercury QA Large Cap Core Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES (continued)
============================================================================================
Beverages 1,100 Anheuser-Busch Companies, Inc. $ 82,156 0.3%
6,700 The Coca-Cola Company 384,831 1.2
---------------------
466,987 1.5
--------------------------------------------------------------------------------------------
Capital Equipment 1,510 + Agilent Technologies, Inc. 111,362 0.4
1,600 Hewlett-Packard Company 199,800 0.6
---------------------
311,162 1.0
--------------------------------------------------------------------------------------------
Chemicals 1,400 E.I. du Pont de Nemours and Company 61,250 0.2
4,800 Pharmacia Corporation 248,100 0.8
---------------------
309,350 1.0
--------------------------------------------------------------------------------------------
Communications 2,700 + QUALCOMM Incorporated 162,000 0.5
10,500 SBC Communications Inc. 454,125 1.5
---------------------
616,125 2.0
--------------------------------------------------------------------------------------------
Communications 1,800 + ADC Telecommunications, Inc. 150,975 0.5
Equipment 19,600 + Cisco Systems, Inc. 1,245,825 4.0
2,100 + Tellabs, Inc. 143,719 0.5
---------------------
1,540,519 5.0
--------------------------------------------------------------------------------------------
Computer 2,300 Computer Associates International,
Services/Software Inc. 117,731 0.4
2,100 Electronic Data Systems Corporation 86,625 0.3
4,800 International Business Machines
Corporation 525,900 1.7
7,600 + Oracle Corporation 638,875 2.1
2,900 Paychex, Inc. 121,800 0.4
1,200 + VERITAS Software Corporation 135,619 0.4
---------------------
1,626,550 5.3
--------------------------------------------------------------------------------------------
Computers 3,300 + Adaptec, Inc. 75,075 0.2
& Peripherals 3,700 + Cabletron Systems, Inc. 93,425 0.3
1,200 + Comverse Technology, Inc. 111,600 0.4
4,200 + Dell Computer Corporation 207,112 0.7
4,800 + EMC Corporation 369,300 1.2
1,800 + Network Appliance, Inc. 144,900 0.4
3,000 + Sun Microsystems, Inc. 272,813 0.9
---------------------
1,274,225 4.1
--------------------------------------------------------------------------------------------
Conglomerates 800 Honeywell International Inc. 26,950 0.1
2,900 Ralston-Ralston Purina Group 57,819 0.2
---------------------
84,769 0.3
--------------------------------------------------------------------------------------------
Consumer--Goods 2,800 The Gillette Company 97,825 0.3
--------------------------------------------------------------------------------------------
Distribution 3,800 + Costco Wholesale Corporation 125,400 0.4
--------------------------------------------------------------------------------------------
</TABLE>
June 30, 2000 (8) Mercury QA Large Cap Core Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES (continued)
============================================================================================
Diversified 2,000 + Conexant Systems, Inc. $ 97,250 0.3%
Companies 1,200 Corning Incorporated 323,850 1.0
2,000 Nabisco Group Holdings Corp. 51,875 0.2
---------------------
472,975 1.5
--------------------------------------------------------------------------------------------
Electrical Equipment 23,400 General Electric Company 1,240,200 4.0
2,400 Linear Technology Corporation 153,450 0.5
---------------------
1,393,650 4.5
--------------------------------------------------------------------------------------------
Electronic 2,400 + 3Com Corporation 138,300 0.5
Components 2,000 + LSI Logic Corporation 108,250 0.4
2,000 + Maxim Integrated Products, Inc. 135,875 0.4
800 + Seagate Technology, Inc. 44,000 0.1
---------------------
426,425 1.4
--------------------------------------------------------------------------------------------
Electronics 1,400 + Altera Corporation 142,712 0.5
1,800 + Analog Devices, Inc. 136,800 0.4
9,700 Intel Corporation 1,296,769 4.2
2,300 + Micron Technology, Inc. 202,544 0.7
1,600 Scientific-Atlanta, Inc. 119,200 0.4
5,300 Texas Instruments Incorporated 364,044 1.2
1,700 + Xilinx, Inc. 140,356 0.4
---------------------
2,402,425 7.8
--------------------------------------------------------------------------------------------
Energy Related 4,100 The Williams Companies, Inc. 170,919 0.6
--------------------------------------------------------------------------------------------
Entertainment 1,800 The Walt Disney Company 69,862 0.2
--------------------------------------------------------------------------------------------
Financial Services 5,700 American Express Company 297,112 0.9
1,700 Associates First Capital Corporation
(Class A) 37,931 0.1
7,300 The Charles Schwab Corporation 245,463 0.8
9,000 Conseco, Inc. 87,750 0.3
800 Dow Jones & Company, Inc. 58,600 0.2
4,100 Federal Home Loan Mortgage Association 166,050 0.5
4,700 Federal National Mortgage Association 245,281 0.8
1,000 First Data Corporation 49,625 0.2
1,100 Household International, Inc. 45,719 0.1
1,800 Lehman Brothers Holdings, Inc. 170,212 0.5
1,900 MBNA Corporation 51,538 0.2
4,000 Morgan Stanley Dean Witter & Co. 333,000 1.1
---------------------
1,788,281 5.7
--------------------------------------------------------------------------------------------
</TABLE>
June 30, 2000 (9) Mercury QA Large Cap Core Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES (continued)
============================================================================================
Food 1,600 Bestfoods $ 110,800 0.4%
1,700 H.J. Heinz Company 74,375 0.2
1,300 The Quaker Oats Company 97,663 0.3
5,200 Sara Lee Corporation 100,425 0.3
---------------------
383,263 1.2
--------------------------------------------------------------------------------------------
Health Care 700 UnitedHealth Group Incorporated 60,025 0.2
--------------------------------------------------------------------------------------------
Household Products 1,500 The Procter & Gamble Company 85,875 0.3
--------------------------------------------------------------------------------------------
Information Processing 1,500 Automatic Data Processing, Inc. 80,344 0.3
--------------------------------------------------------------------------------------------
Insurance 6,000 The Allstate Corporation 133,500 0.4
2,900 American General Corporation 176,900 0.6
4,300 American International Group, Inc. 505,250 1.6
2,700 The Chubb Corporation 166,050 0.5
700 Marsh & McLennan Companies, Inc. 73,106 0.2
800 The Progressive Corporation 59,200 0.2
1,200 Providian Financial Corporation 108,000 0.4
3,800 UnumProvident Corporation 76,238 0.3
---------------------
1,298,244 4.2
--------------------------------------------------------------------------------------------
Internet 6,000 + America Online, Inc. 316,500 1.0
1,500 + Yahoo! Inc. 185,813 0.6
---------------------
502,313 1.6
--------------------------------------------------------------------------------------------
Manufacturing 3,000 Tyco International Ltd. 142,125 0.5
--------------------------------------------------------------------------------------------
Media-- 1,700 + MediaOne Group, Inc. 112,733 0.4
Communications
--------------------------------------------------------------------------------------------
Medical Supplies 2,000 Medtronic, Inc. 99,625 0.3
--------------------------------------------------------------------------------------------
Medical Technology 1,600 Johnson & Johnson 163,000 0.5
900 Shared Medical Systems Corporation 65,644 0.2
---------------------
228,644 0.7
--------------------------------------------------------------------------------------------
Multimedia 3,600 Time Warner Inc. 273,600 0.9
1,900 + Viacom, Inc. (Class B) 129,556 0.4
---------------------
403,156 1.3
--------------------------------------------------------------------------------------------
Natural Gas 2,800 El Paso Energy Corporation 142,625 0.4
3,200 Enron Corp. 206,400 0.7
---------------------
349,025 1.1
--------------------------------------------------------------------------------------------
Oil--International 9,100 Exxon Mobil Corporation 714,350 2.3
--------------------------------------------------------------------------------------------
Oil--Related 800 Apache Corporation 47,050 0.2
--------------------------------------------------------------------------------------------
</TABLE>
June 30, 2000 (10) Mercury QA Large Cap Core Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES (continued)
============================================================================================
Oil Services 1,500 Phillips Petroleum Company $ 76,031 0.2%
1,900 Schlumberger Limited 141,788 0.5
900 Transocean Sedco Forex Inc. 48,094 0.2
---------------------
265,913 0.9
--------------------------------------------------------------------------------------------
Paper & 2,195 International Paper Company 65,438 0.2
Forest Products
--------------------------------------------------------------------------------------------
Petroleum 900 Anadarko Petroleum Corporation 44,381 0.1
2,500 The Coastal Corporation 152,187 0.5
---------------------
196,568 0.6
--------------------------------------------------------------------------------------------
Pharmaceuticals 2,000 + ALZA Corporation 118,250 0.4
1,000 American Home Products Corporation 58,750 0.2
3,200 + Amgen Inc. 224,800 0.7
2,600 Bristol-Myers Squibb Company 151,450 0.5
1,100 Cardinal Health, Inc. 81,400 0.3
4,200 Eli Lilly and Company 419,475 1.4
8,200 Merck & Co., Inc. 628,325 2.0
15,550 Pfizer Inc. 746,400 2.4
5,700 Schering-Plough Corporation 287,850 0.9
---------------------
2,716,700 8.8
--------------------------------------------------------------------------------------------
Photography 1,000 Eastman Kodak Company 59,500 0.2
--------------------------------------------------------------------------------------------
Publishing 700 Gannett Co., Inc. 41,869 0.1
--------------------------------------------------------------------------------------------
Restaurants 3,400 McDonald's Corporation 111,988 0.4
--------------------------------------------------------------------------------------------
Retail 1,000 + Bed Bath & Beyond Inc. 36,250 0.1
1,000 + Best Buy Co., Inc. 63,250 0.2
2,600 The Gap, Inc. 81,250 0.3
6,300 The Home Depot, Inc. 314,606 1.0
1,200 + Kohl's Corporation 66,750 0.2
2,800 + Rite Aid Corporation 18,375 0.1
1,900 + Safeway Inc. 85,738 0.3
2,200 + Staples, Inc. 33,825 0.1
3,200 Target Corporation 185,600 0.6
13,500 Wal-Mart Stores, Inc. 777,938 2.5
2,400 Walgreen Co. 77,250 0.2
---------------------
1,740,832 5.6
--------------------------------------------------------------------------------------------
Semiconductor 1,800 + KLA-Tencor Corporation 105,412 0.4
Production Equipment 1,300 + Teradyne, Inc. 95,550 0.3
---------------------
200,962 0.7
--------------------------------------------------------------------------------------------
</TABLE>
June 30, 2000 (11) Mercury QA Large Cap Core Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
In US Dollars
----------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES (concluded)
============================================================================================
Semiconductors 3,000 + Applied Materials, Inc. $ 271,875 0.9%
8,000 Motorola, Inc. 232,500 0.7
1,700 + National Semiconductor Corporation 96,475 0.3
----------------------
600,850 1.9
--------------------------------------------------------------------------------------------
Software 600 Adobe Systems Incorporated 77,925 0.2
1,200 + Advanced Micro Devices, Inc. 92,700 0.3
1,400 + BMC Software, Inc. 51,078 0.2
14,000 + Microsoft Corporation 1,120,000 3.6
----------------------
1,341,703 4.3
--------------------------------------------------------------------------------------------
Telecommunications 10,500 AT&T Corp. 332,062 1.1
2,100 + Andrew Corporation 70,481 0.2
5,500 + Bell Atlantic Corporation 279,469 0.9
5,800 BellSouth Corporation 247,225 0.8
1,500 CenturyTel, Inc. 43,125 0.1
2,100 GTE Corporation 130,725 0.4
10,200 Lucent Technologies Inc. 604,350 2.0
3,800 Sprint Corp. (FON Group) 193,800 0.6
1,600 + Sprint Corp. (PCS Group) 95,200 0.3
1,000 U S WEST, Inc. 85,750 0.3
8,900 + WorldCom, Inc. 408,288 1.3
----------------------
2,490,475 8.0
--------------------------------------------------------------------------------------------
Tobacco 6,300 Philip Morris Companies Inc. 167,344 0.5
--------------------------------------------------------------------------------------------
Travel & Lodging 2,000 Carnival Corporation 39,000 0.1
--------------------------------------------------------------------------------------------
Wireless 2,200 + Nextel Communications, Inc. (Class A) 134,613 0.4
Communication--
Domestic
Paging & Cellular
--------------------------------------------------------------------------------------------
Total Common Stocks in the
United States (Cost--$30,426,217) 30,063,822 97.0
--------------------------------------------------------------------------------------------
Total Investments
(Cost--$31,265,049) 30,959,434 99.9
Other Assets Less Liabilities 26,821 0.1
----------------------
Net Assets $30,986,255 100.0%
======================
--------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
See Notes to Financial Statements.
June 30, 2000 (12) Mercury QA Large Cap Core Fund
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
As of June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$31,265,049) $30,959,434
Cash 37,171
Receivables:
Dividends $ 15,129
Capital shares sold 9,474 24,603
--------------------------
Total assets 31,021,208
-----------
---------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment adviser 8,265
Administrator 7,994
Capital shares redeemed 1,012
Distributor 514 17,785
-----------
Accrued expenses 17,168
-----------
Total liabilities 34,953
-----------
---------------------------------------------------------------------------------------------
Net Assets:
Net assets $30,986,255
===========
---------------------------------------------------------------------------------------------
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized $ 307
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 5
Class C Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized 2
Paid-in capital in excess of par 31,342,932
Accumulated investment loss--net (15,811)
Accumulated realized capital losses on investments--net (35,566)
Unrealized depreciation on investments--net (305,615)
-----------
Net assets $30,986,255
===========
---------------------------------------------------------------------------------------------
Net Asset Value:
Class I--Based on net assets of $30,205,883 and 3,066,092 shares
outstanding $ 9.85
===========
Class A--Based on net assets of $74,640 and 7,578 shares
outstanding $ 9.85
===========
Class B--Based on net assets of $484,194 and 49,181 shares
outstanding $ 9.85
===========
Class C--Based on net assets of $221,538 and 22,500 shares
outstanding $ 9.85
===========
---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
June 30, 2000 (13) Mercury QA Large Cap Core Fund
<PAGE>
STATEMENT OF OPERATIONS
For the Period June 2, 2000+ to June 30, 2000
--------------------------------------------------------------------------------
Investment Income:
Dividends (net of $24 foreign withholding tax) $ 17,189
Interest and discount earned 941
---------
Total income 18,130
---------
--------------------------------------------------------------------------------
Expenses:
Investment advisory fees $ 9,136
Administration fees 7,994
Registration fees 7,924
Organization expenses 4,141
Accounting services 2,211
Professional fees 1,374
Printing and shareholder reports 687
Account maintenance and distribution fees--Class B 357
Custodian fees 346
Pricing fees 206
Directors' fees and expenses 169
Account maintenance and distribution fees--Class C 145
Transfer agent fees--Class I 107
Account maintenance fees--Class A 12
Transfer agent fees--Class B 2
Transfer agent fees--Class C 1
---------
Total expenses before reimbursement 34,812
Reimbursement of expenses (871)
---------
Total expenses after reimbursement 33,941
---------
Investment loss--net (15,811)
---------
--------------------------------------------------------------------------------
Realized & Unrealized Loss on Investments--Net:
Realized loss from investments--net (35,566)
Unrealized depreciation on investments--net (305,615)
---------
Net Decrease in Net Assets Resulting from Operations $(356,992)
=========
--------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
June 30, 2000 (14) Mercury QA Large Cap Core Fund
<PAGE>
STATEMENT OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
June 2, 2000+ to
Increase (Decrease) in Net Assets: June 30, 2000
-----------------------------------------------------------------------------------
<S> <C>
Operations:
Investment loss--net $ (15,811)
Realized loss on investments--net (35,566)
Unrealized depreciation on investments--net (305,615)
-----------
Net decrease in net assets resulting from operations (356,992)
-----------
-----------------------------------------------------------------------------------
Capital Share Transactions:
Net increase in net assets derived from capital share transactions 31,243,247
-----------
-----------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 30,886,255
Beginning of period 100,000
-----------
End of period $30,986,255
===========
-----------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
June 30, 2000 (15) Mercury QA Large Cap Core 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)
Realized and unrealized loss on
investments--net (.15) (.14) (.14) (.14)
-------------------------------------------------
Total from investment operations (.15) (.15) (.15) (.15)
-------------------------------------------------
Net asset value, end of period $ 9.85 $ 9.85 $ 9.85 $ 9.85
=================================================
--------------------------------------------------------------------------------------------
Total Investment Return:**
Based on net asset value per share (1.50%)+++ (1.50%)+++ (1.50%)+++ (1.50%)+++
=================================================
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses, net of reimbursement 1.46%* 1.71%* 2.46%* 2.46%*
=================================================
Expenses 1.50%* 1.75%* 2.50%* 2.50%*
=================================================
Investment loss--net (.67%)* (.80%)* (1.52%)* (1.50%)*
=================================================
--------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $30,206 $ 75 $ 484 $ 221
=================================================
Portfolio turnover 2.55% 2.55% 2.55% 2.55%
=================================================
--------------------------------------------------------------------------------------------
</TABLE>
* 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.
June 30, 2000 (16) Mercury QA Large Cap Core Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Significant Accounting Policies:
Mercury QA Large Cap Core 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 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 (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 for long positions. 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 (17) Mercury QA Large Cap Core 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 (18) Mercury QA Large Cap Core 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.
As compensation for its services to the Fund, Mercury receives monthly
compensation at the annual rate of .40% of the average daily net assets of
the Fund. For the period June 2, 2000 to June 30, 2000, Mercury earned
fees of $9,136, of which $871 was voluntarily waived.
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
June 30, 2000 (19) Mercury QA Large Cap Core Fund
<PAGE>
NOTES TO FINANCIAL STATMENTS
(CONTINUED)
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 $ 49 $2,411
--------------------------------------------------------------------------
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.
(3) Investments:
Purchases and sales of investments, excluding short-term securities, for
the period June 2, 2000 to June 30, 2000 were $31,727,624 and $427,009,
respectively.
June 30, 2000 (20) Mercury QA Large Cap Core Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Net realized losses for the period June 2, 2000 to June 30, 2000, and net
unrealized losses as of June 30, 2000 were as follows:
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------
Long-term investments $ (35,566) $(305,615)
--------------------------------
Total $ (35,566) $(305,615)
================================
--------------------------------------------------------------------------
As of June 30, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $305,615, of which $1,310,678 related to appreciated
securities and $1,616,293 related to depreciated securities. The aggregate
cost of investments at June 30, 2000 for Federal income tax purposes was
$31,265,049.
(4) Capital Share Transactions:
The net increase in net assets derived from capital share transactions was
$31,243,247 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 3,078,690 $ 30,677,963
Shares redeemed (15,098) (150,000)
-------------------------------------
Net increase 3,063,592 $ 30,527,963
=====================================
--------------------------------------------------------------------------
+ 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 5,078 $ 50,468
-------------------------------------
Net increase 5,078 $ 50,468
=====================================
--------------------------------------------------------------------------
+ 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 46,681 $ 465,672
-------------------------------------
Net increase 46,681 $ 465,672
=====================================
--------------------------------------------------------------------------
+ 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 20,103 $ 200,156
Shares redeemed (103) (1,012)
-------------------------------------
Net increase 20,000 $ 199,144
=====================================
--------------------------------------------------------------------------
+ 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 Large Cap Core 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 Large Cap Core 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 Large Cap Core Fund of
Mercury QA Equity Series, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLE LOGO] Printed on post-consumer recycled paper MERCQA CORE--6/00
