SEMI-ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC OMITTED]
Mercury
QA Large
Cap Value
Fund OF MERCURY
QA EQUITY SERIES, INC.
<PAGE>
PORTFOLIO INFORMATION
GEOGRAPHIC ASSET MIX
--------------------------------------------------------------------------------
As a Percentage of Net Assets as of June 30, 2000
[PIE CHART OMITTED]
United States--96.3%
Netherlands--2.4%
Bermuda--0.9%
WORLDWIDE INVESTMENTS AS OF JUNE 30, 2000
--------------------------------------------------------------------------------
Percent of
Ten Largest Holdings Net Assets
--------------------------------------------------------------------------------
Exxon Mobil Corporation 5.1%
--------------------------------------------------------------------------------
Citigroup Inc. 4.4
--------------------------------------------------------------------------------
WorldCom, Inc. 3.4
--------------------------------------------------------------------------------
AT&T Corp. 2.8
--------------------------------------------------------------------------------
Royal Dutch Petroleum Company
(NY Registered Shares) 2.4
--------------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 2.4
--------------------------------------------------------------------------------
American International Group, Inc. 2.2
--------------------------------------------------------------------------------
American Express Company 2.1
--------------------------------------------------------------------------------
Bank of America Corporation 2.1
--------------------------------------------------------------------------------
Motorola, Inc. 2.1
--------------------------------------------------------------------------------
Percent of
Ten Largest Holdings Net Assets
--------------------------------------------------------------------------------
Financial Services 14.2
--------------------------------------------------------------------------------
Telecommunications 13.3
--------------------------------------------------------------------------------
Banking 10.2
--------------------------------------------------------------------------------
Oil--International 7.5
--------------------------------------------------------------------------------
Insurance 4.8
--------------------------------------------------------------------------------
Retail 4.8
--------------------------------------------------------------------------------
Oil--Integrated 3.7
--------------------------------------------------------------------------------
Semiconductors 2.7
--------------------------------------------------------------------------------
Electronic Components 2.3
--------------------------------------------------------------------------------
Natural Gas 2.3
--------------------------------------------------------------------------------
June 30, 2000 (2) Mercury QA Large Cap Value Fund
<PAGE>
DEAR SHAREHOLDER
We are pleased to provide you with the first semi-annual report for Mercury QA
Large Cap Value Fund. The Fund seeks primarily to provide long-term growth of
capital and secondarily to provide dividend income by investing primarily in
equity securities of large-capitalization companies in the United States that
Fund management believes are undervalued. 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 -6.50%, -6.50%, -6.60% and -6.60%, respectively, underperforming the
return of the unmanaged S&P 500/Barra Value Index of +3.13% over this period.
(Investment results 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 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 the earnings outlook and
valuation levels are attractive in the current environment.
June 30, 2000 (3) Mercury QA Large Cap Value Fund
<PAGE>
Our favorite industries currently are energy and semiconductors. High demand
coupled with limited supply is an attractive dynamic for oil drilling companies
and oil and gas companies. With the prospect that virtually 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 Value 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 8, 2000
June 30, 2000 (4) Mercury QA Large Cap Value 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 Large Cap Value Fund
<PAGE>
FUND PERFORMANCE DATA (CONCLUDED)
AGGREGATE TOTAL RETURN
--------------------------------------------------------------------------------
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
--------------------------------------------------------------------------------
Inception (6/02/00)
through 6/30/00 -6.50% -11.41%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
--------------------------------------------------------------------------------
Inception (6/02/00)
through 6/30/00 -6.60% -10.34%
--------------------------------------------------------------------------------
* 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 (6/02/00)
through 6/30/00 -6.50% -11.41%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without With
Class C Shares* CDSC CDSC**
--------------------------------------------------------------------------------
Inception (6/02/00)
through 6/30/00 -6.60% -7.53%
--------------------------------------------------------------------------------
* 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 -6.50%
--------------------------------------------------------------------------------
Class A -6.50
--------------------------------------------------------------------------------
Class B -6.60
--------------------------------------------------------------------------------
Class C -6.60
--------------------------------------------------------------------------------
* 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 6/02/00.
June 30, 2000 (6) Mercury QA Large Cap Value Fund
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
In US Dollars
--------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
------------------------------------------------------------------------------------------------
BERMUDA
================================================================================================
<S> <C> <C> <C> <C>
Telecommunications 1,600 + Global Crossing Ltd. $ 42,100 0.9%
& Equipment
------------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda
(Cost--$46,500) 42,100 0.9
------------------------------------------------------------------------------------------------
NETHERLANDS
================================================================================================
Oil--International 1,900 Royal Dutch Petroleum Company
(NY Registered Shares) 116,969 2.4
------------------------------------------------------------------------------------------------
Total Common Stocks in the
Netherlands (Cost--$118,076) 116,969 2.4
------------------------------------------------------------------------------------------------
UNITED STATES
================================================================================================
Aerospace & Defense 400 The Boeing Company 16,725 0.4
200 United Technologies Corporation 11,775 0.2
-------------------
28,500 0.6
------------------------------------------------------------------------------------------------
Airlines 300 + AMR Corporation 7,931 0.2
------------------------------------------------------------------------------------------------
Aluminum 1,000 Alcoa Inc. 29,000 0.6
------------------------------------------------------------------------------------------------
Auto & Truck 800 Delphi Automotive Systems Corporation 11,650 0.2
------------------------------------------------------------------------------------------------
Banking 2,300 Bank of America Corporation 98,900 2.1
800 The Bank of New York Company, Inc. 37,200 0.8
1,200 Bank One Corporation 31,875 0.6
1,800 The Chase Manhattan Corporation 82,912 1.7
300 Comerica Incorporated 13,462 0.3
400 Fifth Third Bancorp 25,300 0.5
900 First Union Corporation 22,331 0.5
700 Mellon Financial Corporation 25,506 0.5
300 Northern Trust Corporation 19,519 0.4
100 PNC Bank Corp. 4,688 0.1
200 State Street Corporation 21,213 0.4
100 SunTrust Banks, Inc. 4,569 0.1
900 U.S. Bancorp 17,325 0.4
600 Washington Mutual, Inc. 17,325 0.4
1,700 Wells Fargo Company 65,875 1.4
-------------------
488,000 10.2
------------------------------------------------------------------------------------------------
Building Materials 300 Masco Corporation 5,419 0.1
------------------------------------------------------------------------------------------------
Capital Equipment 228 + Agilent Technologies, Inc. 16,815 0.3
600 Hewlett-Packard Company 74,925 1.6
-------------------
91,740 1.9
------------------------------------------------------------------------------------------------
Capital Goods 100 Minnesota Mining and Manufacturing
Company (3M) 8,250 0.2
</TABLE>
June 30, 2000 (7) Mercury QA Large Cap Value Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
--------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
------------------------------------------------------------------------------------------------
UNITED STATES (continued)
================================================================================================
<S> <C> <C> <C> <C>
Chemicals 600 E.I. du Pont de Nemours
and Company $ 26,250 0.6%
100 + FMC Corporation 5,800 0.1
1,100 Pharmacia Corporation 56,856 1.2
-------------------
88,906 1.9
------------------------------------------------------------------------------------------------
Coal 600 Eastern Enterprises 37,800 0.8
------------------------------------------------------------------------------------------------
Communications 100 Scientific-Atlanta, Inc. 7,450 0.2
------------------------------------------------------------------------------------------------
Computer Services 100 Electronic Data Systems Corporation 4,125 0.1
------------------------------------------------------------------------------------------------
Computers & 1,000 + Adaptec, Inc. 22,750 0.5
Peripherals 2,000 + Cabletron Systems, Inc. 50,500 1.0
400 Compaq Computer Corporation 10,225 0.2
-------------------
83,475 1.7
------------------------------------------------------------------------------------------------
Conglomerates 400 Honeywell International Inc. 13,475 0.3
------------------------------------------------------------------------------------------------
Consumer--Goods 300 Newell Rubbermaid Inc. 7,725 0.2
------------------------------------------------------------------------------------------------
Consumer--Products 700 + Cendant Corporation 9,800 0.2
& Services
------------------------------------------------------------------------------------------------
Distribution 1,700 + Costco Wholesale Corporation 56,100 1.2
------------------------------------------------------------------------------------------------
Electrical &
Electronics 300 + The AES Corporation 13,687 0.3
------------------------------------------------------------------------------------------------
Electrical Equipment 200 Emerson Electric Co. 12,075 0.2
------------------------------------------------------------------------------------------------
Electronic Components 1,200 + 3Com Corporation 69,150 1.4
600 + LSI Logic Corporation 32,475 0.7
200 + Seagate Technology, Inc. 11,000 0.2
-------------------
112,625 2.3
------------------------------------------------------------------------------------------------
Electronics 300 + Analog Devices, Inc. 22,800 0.5
800 + Micron Technology, Inc. 70,450 1.5
-------------------
93,250 2.0
------------------------------------------------------------------------------------------------
Energy-Related 1,000 The Williams Companies, Inc. 41,688 0.9
------------------------------------------------------------------------------------------------
Entertainment 500 The Walt Disney Company 19,406 0.4
------------------------------------------------------------------------------------------------
Finance 600 Federal Home Loan Mortgage
Association 24,300 0.5
------------------------------------------------------------------------------------------------
Financial Services 1,900 American Express Company 99,037 2.1
700 Associates First Capital Corporation
(Class A) 15,619 0.3
3,500 Citigroup Inc. 210,875 4.4
2,200 Conseco, Inc. 21,450 0.4
1,000 Federal National Mortgage Association 52,188 1.1
1,100 Firstar Corporation 23,169 0.5
1,000 FleetBoston Financial Corporation 34,000 0.7
200 Franklin Resources, Inc. 6,075 0.1
500 Household International, Inc. 20,781 0.4
200 J.P. Morgan & Co., Incorporated 22,025 0.5
</TABLE>
June 30, 2000 (8) Mercury QA Large Cap Value Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
--------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
------------------------------------------------------------------------------------------------
UNITED STATES (continued)
================================================================================================
<S> <C> <C> <C> <C>
Financial Services 300 Lehman Brothers Holdings, Inc. $ 28,369 0.6%
(concluded) 1,400 Morgan Stanley Dean Witter & Co. 116,550 2.4
500 PaineWebber Group Inc. 22,750 0.5
200 T. Rowe Price Associates, Inc. 8,500 0.2
-------------------
681,388 14.2
------------------------------------------------------------------------------------------------
Food Merchandising 200 Albertson's, Inc. 6,650 0.1
------------------------------------------------------------------------------------------------
Footwear 200 Nike, Inc. (Class B) 7,963 0.2
------------------------------------------------------------------------------------------------
Health Care 600 HCA--The Healthcare Corporation 18,225 0.4
200 UnitedHealth Group Incorporated 17,150 0.3
-------------------
35,375 0.7
------------------------------------------------------------------------------------------------
Hospital Supplies 100 Baxter International Inc. 7,031 0.1
------------------------------------------------------------------------------------------------
Information Processing 100 First Data Corporation 4,963 0.1
400 Xerox Corporation 8,300 0.2
-------------------
13,263 0.3
------------------------------------------------------------------------------------------------
Insurance 200 AFLAC Incorporated 9,187 0.2
100 Aetna Inc. 6,419 0.1
700 The Allstate Corporation 15,575 0.3
200 American General Corporation 12,200 0.3
900 American International Group, Inc. 105,750 2.2
200 The Chubb Corporation 12,300 0.3
100 Cincinnati Financial Corporation 3,144 0.1
100 Jefferson--Pilot Corporation 5,644 0.1
200 Lincoln National Corporation 7,225 0.1
300 Marsh & McLennan Companies, Inc. 31,331 0.7
200 The Progressive Corporation 14,800 0.3
200 + The St. Paul Companies, Inc. 6,825 0.1
-------------------
230,400 4.8
------------------------------------------------------------------------------------------------
Machinery & Equipment 200 Caterpillar Inc. 6,775 0.1
------------------------------------------------------------------------------------------------
Media-- 400 + MediaOne Group, Inc. 26,526 0.6
Communications
------------------------------------------------------------------------------------------------
Metals & Mining 400 Newmont Mining Corporation 8,650 0.2
------------------------------------------------------------------------------------------------
Multimedia 200 The McGraw-Hill Companies, Inc. 10,800 0.2
600 + Viacom, Inc. (Class B) 40,913 0.9
140 Tribune Company 4,909 0.1
-------------------
56,622 1.2
------------------------------------------------------------------------------------------------
Natural Gas 800 El Paso Energy Corporation 40,750 0.8
1,100 Enron Corp. 70,950 1.5
-------------------
111,700 2.3
------------------------------------------------------------------------------------------------
Natural Gas--Pipelines 100 Duke Energy Corporation 5,638 0.1
200 Kansas City Southern Industries, Inc. 17,738 0.4
-------------------
23,376 0.5
------------------------------------------------------------------------------------------------
</TABLE>
June 30, 2000 (9) Mercury QA Large Cap Value Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
--------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
------------------------------------------------------------------------------------------------
UNITED STATES (continued)
================================================================================================
<S> <C> <C> <C> <C>
Natural Resources 200 Burlington Resources Inc. $ 7,650 0.2%
------------------------------------------------------------------------------------------------
Oil & Gas Producers 200 + Rowan Companies, Inc. 6,075 0.1
200 Tosco Corporation 5,663 0.1
-------------------
11,738 0.2
------------------------------------------------------------------------------------------------
Oil--Integrated 1,100 Chevron Corporation 93,294 2.0
400 Phillips Petroleum Company 20,275 0.4
1,200 Texaco Inc. 63,900 1.3
-------------------
177,469 3.7
------------------------------------------------------------------------------------------------
Oil--International 3,100 Exxon Mobil Corporation 243,350 5.1
------------------------------------------------------------------------------------------------
Oil--Related 200 Apache Corporation 11,762 0.2
300 Conoco Inc. (Class B) 7,369 0.2
-------------------
19,131 0.4
------------------------------------------------------------------------------------------------
Oil Field & Equipment 200 Halliburton Company 9,438 0.2
------------------------------------------------------------------------------------------------
Oil Services 600 Schlumberger Limited 44,775 0.9
200 Transocean Sedco Forex Inc. 10,687 0.2
500 USX-Marathon Group 12,531 0.3
-------------------
67,993 1.4
------------------------------------------------------------------------------------------------
Paper & 641 International Paper Company 19,110 0.4
Forest Products 300 Weyerhaeuser Company 12,900 0.3
-------------------
32,010 0.7
------------------------------------------------------------------------------------------------
Petroleum 200 Anadarko Petroleum Corporation 9,862 0.2
700 The Coastal Corporation 42,612 0.9
-------------------
52,474 1.1
------------------------------------------------------------------------------------------------
Pharmaceuticals 900 + ALZA Corporation 53,212 1.1
400 American Home Products Corporation 23,500 0.5
300 Cardinal Health, Inc. 22,200 0.5
-------------------
98,912 2.1
------------------------------------------------------------------------------------------------
Photography 300 Eastman Kodak Company 17,850 0.4
------------------------------------------------------------------------------------------------
Publishing 400 Gannett Co., Inc. 23,925 0.5
------------------------------------------------------------------------------------------------
Railroads 200 Burlington Northern Santa Fe Corp. 4,587 0.1
400 Union Pacific Corporation 14,875 0.3
-------------------
19,462 0.4
------------------------------------------------------------------------------------------------
Restaurants 1,300 McDonald's Corporation 42,819 0.9
------------------------------------------------------------------------------------------------
Retail 600 CVS Corporation 24,000 0.5
200 Circuit City Stores--Circuit City Group 6,637 0.1
400 Dollar General Corporation 7,800 0.2
300 + Federated Department Stores, Inc. 10,125 0.2
500 J.C. Penney Company, Inc. 9,219 0.2
400 The Limited, Inc. 8,650 0.2
400 Lowe's Companies, Inc. 16,425 0.3
4,900 + Rite Aid Corporation 32,156 0.7
</TABLE>
June 30, 2000 (10) Mercury QA Large Cap Value Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
In US Dollars
--------------------
Shares Percent of
Industries Held Common Stocks Value Net Assets
------------------------------------------------------------------------------------------------
UNITED STATES (concluded)
================================================================================================
<S> <C> <C> <C> <C>
Retail 600 + Safeway Inc. $ 27,075 0.6%
(concluded) 300 Sears, Roebuck & Co. 9,788 0.2
800 + Staples, Inc. 12,300 0.3
1,100 Target Corporation 63,800 1.3
-------------------
227,975 4.8
------------------------------------------------------------------------------------------------
Semiconductor 900 + KLA-Tencor Corporation 52,706 1.1
Production Equipment 400 + Teradyne, Inc. 29,400 0.6
-------------------
82,106 1.7
------------------------------------------------------------------------------------------------
Semiconductors 3,400 Motorola, Inc. 98,813 2.1
500 + National Semiconductor Corporation 28,375 0.6
-------------------
127,188 2.7
------------------------------------------------------------------------------------------------
Software 400 + Advanced Micro Devices, Inc. 30,900 0.6
------------------------------------------------------------------------------------------------
Telecommunications 4,300 AT&T Corp. 135,987 2.8
1,100 + Andrew Corporation 36,919 0.8
1,400 + Bell Atlantic Corporation 71,137 1.5
1,700 BellSouth Corporation 72,462 1.5
600 CenturyTel, Inc. 17,250 0.4
900 GTE Corporation 56,025 1.2
1,600 Sprint Corp. (FON Group) 81,600 1.7
3,600 + WorldCom, Inc. 165,150 3.4
-------------------
636,530 13.3
------------------------------------------------------------------------------------------------
Telecommunications 300 ALLTEL Corporation 18,581 0.4
& Equipment
------------------------------------------------------------------------------------------------
Tires & Rubber 300 The Goodyear Tire & Rubber Company 6,000 0.1
------------------------------------------------------------------------------------------------
Tobacco 2,000 Philip Morris Companies Inc. 53,125 1.1
------------------------------------------------------------------------------------------------
Toys 500 Mattel, Inc. 6,594 0.1
------------------------------------------------------------------------------------------------
Transportation 200 FedEx Corp. 7,600 0.2
------------------------------------------------------------------------------------------------
Travel & Lodging 700 Carnival Corporation 13,650 0.3
------------------------------------------------------------------------------------------------
Utilities--Gas Pipeline 700 Columbia Energy Group 45,937 1.0
------------------------------------------------------------------------------------------------
Waste Management 500 Waste Management, Inc. 9,500 0.2
------------------------------------------------------------------------------------------------
Total Common Stocks in the
United States (Cost--$4,928,941) 4,602,003 96.3
------------------------------------------------------------------------------------------------
Total Investments
(Cost--$5,093,517) 4,761,072 99.6
Other Assets Less Liabilities 18,649 0.4
-------------------
Net Assets $ 4,779,721 100.0%
===================
------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
See Notes to Financial Statements.
June 30, 2000 (11) Mercury QA Large Cap Value Fund
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
<TABLE>
<CAPTION>
As of June 30, 2000
-----------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investment at value (identified cost--$5,093,517) $ 4,761,072
Cash 20,281
Receivables:
Investment adviser $ 11,262
Securities sold 5,413
Dividends 4,414 21,089
-------------------------
Total assets 4,802,442
-----------
-----------------------------------------------------------------------------------------
Liabilities:
Payables:
Securities purchased 5,413
Distributor 314 5,727
-----------
Accrued expenses 16,994
-----------
Total liabilities 22,721
-----------
-----------------------------------------------------------------------------------------
Net Assets:
Net assets $ 4,779,721
===========
-----------------------------------------------------------------------------------------
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value, 125,000,000
shares authorized $ 46
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 1
Class C Shares of Common Stock, $.0001 par value, 125,000,000
shares authorized 4
Paid-in capital in excess of par 5,112,628
Accumulated investment loss--net (576)
Undistributed realized capital gains on investments--net 62
Unrealized depreciation on investments--net (332,445)
-----------
Net assets $ 4,779,721
===========
-----------------------------------------------------------------------------------------
Net Asset Value:
Class I--Based on net assets of $4,314,884 and 461,477 shares
outstanding $ 9.35
===========
Class A--Based on net assets of $27,806 and 2,974 shares
outstanding $ 9.35
===========
Class B--Based on net assets of $78,949 and 8,449 shares
outstanding $ 9.34
===========
Class C--Based on net assets of $358,082 and 38,325 shares
outstanding $ 9.34
===========
-----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
June 30, 2000 (12) Mercury QA Large Cap Value Fund
<PAGE>
STATEMENT OF OPERATIONS
For the Period June 2, 2000+ to June 30, 2000
--------------------------------------------------------------------------------
Investment Income:
Dividends $ 4,972
Interest and discount earned 498
---------
Total income 5,470
---------
--------------------------------------------------------------------------------
Expenses:
Registration fees $ 7,935
Organizational expenses 4,017
Accounting services 2,214
Investment advisory fees 1,529
Professional fees 1,375
Administration fees 1,338
Printing and shareholder reports 688
Custodian fees 347
Account maintenance and distribution fees--Class C 257
Pricing fees 206
Director's fees and expenses 164
Account maintenance and distribution fees--Class B 51
Transfer agent fees--Class I 43
Account maintenance fees--Class A 6
Transfer agent fees--Class C 3
Transfer agent fees--Class B 1
---------
Total expenses before reimbursement 20,174
Reimbursement of expenses (14,128)
---------
Total expenses after reimbursement 6,046
---------
Investment loss--net (576)
---------
--------------------------------------------------------------------------------
Realized & Unrealized Gain (Loss) on Investments--Net:
Realized gain on investments--net 62
Unrealized depreciation on investments--net (332,445)
---------
Net Decrease in Net Assets Resulting from Operations $(332,959)
=========
--------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
June 30, 2000 (13) Mercury QA Large Cap Value 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 $ (576)
Realized gain on investments--net 62
Unrealized depreciation on investments--net (332,445)
-----------
Net decrease in net assets resulting from operations (332,959)
-----------
-------------------------------------------------------------------------------
Capital Share Transactions:
Net increase in net assets derived from capital share transactions 5,012,680
-----------
-------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 4,679,721
Beginning of period 100,000
-----------
End of period $ 4,779,721
===========
-------------------------------------------------------------------------------
+ Commencement of operations.
See Notes to Financial Statements.
June 30, 2000 (14) Mercury QA Large Cap Value 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)
Realized and unrealized loss on
investments--net (.65) (.65) (.65) (.65)
---------------------------------------------------------
Total from investment operations (.65) (.65) (.66) (.66)
---------------------------------------------------------
Net asset value, end of period $ 9.35 $ 9.35 $ 9.34 $ 9.34
=========================================================
----------------------------------------------------------------------------------------------------
Total Investment Return:**
Based on net asset value per share (6.50%)++ (6.50%)++ (6.60%)++ (6.60%)++
=========================================================
----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses, net of reimbursement 1.50%* 1.75%* 2.50%* 2.50%*
=========================================================
Expenses 5.20%* 5.45%* 6.20%* 6.20%*
=========================================================
Investment loss--net (.08%)* (.15%)* (1.01%)* (.97%)*
=========================================================
----------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 4,315 $ 28 $ 79 $ 358
=========================================================
Portfolio turnover .50% .50% .50% .50%
=========================================================
----------------------------------------------------------------------------------------------------
</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 (15) Mercury QA Large Cap Value Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Significant Accounting Policies:
Mercury QA Large Cap Value 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. 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 Large Cap Value 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 Large Cap Value 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 Transaction 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 Large Cap Value Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 $1,529, all of which was voluntarily waived. Mercury also
reimbursed the Fund for additional expenses of $12,599.
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 direct commissions, and MLPF&S earned dealer concessions on
sales of the Fund's Class A Shares as follows:
FAMD MLPF&S
--------------------------------------------------------------------------------
Class A $-- $131
--------------------------------------------------------------------------------
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.
June 30, 2000 (19) Mercury QA Large Cap Value Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 $5,117,823 and $24,369,
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 $ 62 $ (332,445)
----------------------
Total $ 62 $ (332,445)
======================
--------------------------------------------------------------------------
As of June 30, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $332,445, of which $105,678 related to appreciated
securities and $438,123 related to depreciated securities. The aggregate
cost of investments at June 30, 2000 for Federal income tax purposes was
$5,093,517.
(4) Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$5,012,680 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 480,589 $ 4,805,008
Shares redeemed (21,612) (209,700)
------------------------
Net increase 458,977 $ 4,595,308
========================
--------------------------------------------------------------------------
+ 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 Large Cap Value 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 710 $ 7,100
Shares redeemed (236) (2,315)
---------------------------------
Net increase 474 $ 4,785
=================================
--------------------------------------------------------------------------------
+ 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 5,949 $ 58,125
---------------------------------
Net increase 5,949 $ 58,125
=================================
--------------------------------------------------------------------------------
+ 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 35,825 $ 354,462
---------------------------------
Net increase 35,825 $ 354,462
=================================
--------------------------------------------------------------------------------
+ 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 Value 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 Value 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 Value Fund of
Mercury QA Equity Series, Inc.
Box 9011
Princeton, NJ
08543-9011
[LOGO] Printed on post-consumer recycled paper MERCQAVAL--6/00
