<PAGE>
SUNAMERICA
THE RETIREMENT SPECIALIST
TAX MANAGED EQUITY FUND
1999 ANNUAL REPORT
[LOGO]
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- --------------------------------------------------------------------------------
SUNAMERICA TAX MANAGED EQUITY FUND ANNUAL REPORT
DECEMBER 1, 1999
Dear Shareholders:
We are pleased to present you with this first annual report for the
SunAmerica Tax Managed Equity Fund. Since the Fund has not been in operation for
a full twelve months, performance and portfolio activity is being reported for
the life of the Fund from its commencement of operations on March 1, 1999
through October 31, 1999.
PERFORMANCE REVIEW
SunAmerica Tax Managed Equity Fund seeks high total return while minimizing
the effect of taxes on investors' returns. With strategic buy and sell
decisions, only 9% portfolio turnover during the period, and other cutting-edge
tax-management policies, adviser J.P. Morgan successfully kept its tax liability
to a minimum. The Fund returned 9.20% during the eight month period, tracking
the S&P 500's return of 10.98%. (Returns do not reflect the impact of sales
charges.) Remember, the S&P 500 is an unmanaged index that does not incur fees
and expenses, unlike an actively managed mutual fund.
J.P. Morgan employed many techniques to meet its tax-efficiency goals. For
example, the adviser sought to buy stocks with excellent fundamentals that it
believed could be held for at least a year in order to benefit from long-term
capital gains treatment when eventually sold. Many of the stocks currently in
the portfolio are long-term holdings owned since the Fund's inception. In
another move to minimize the taxes incurred by the Fund, J.P. Morgan
strategically offset the gains of its top stocks by taking losses on certain
holdings.
PORTFOLIO ACTIVITY
J.P. Morgan also made some very strong buys during the period that performed
quite well. These include Sun Microsystems, Texas Instruments, Allied Signal,
Cisco Systems, and Union Pacific Corp.
Three of these companies--Sun Microsystems, Texas Instruments and Cisco
Systems--are technology companies, the sector that drove the equity market
during the eight months since the Fund's inception. Rapid advances in new
technologies, the growth of the Internet, and strong personal computer sales led
to excellent earnings for established technology companies. Thus, J.P. Morgan's
strategy was to focus on companies positioned to benefit from the expansion of
the Internet, rather than picking the hot ".com" company of the week that seldom
show revenues and earnings.
The technology sector also buoyed several telecommunications and service
stocks, as the world moves toward digital communications and the transport of
data through increased bandwidth. Exodus Communications, a leading provider of
Internet system network management solutions and technology professional
services for enterprises with mission-critical Internet operations, positively
contributed to portfolio performance. Exodus currently has 15 Internet Data
Centers (IDCs) in the United States and Europe with plans for four additional
IDCs and three international server hosting sites by the end of 1999, bringing
the total number of Exodus sites to 22 worldwide.
A few specific stock declines did impact Fund performance. Portfolio holding
Waste Management had recently undergone a merger with USA Waste and faced
unanticipated management transition problems. As for Mattel, even the sales of
Barbie in an anniversary year were not enough to offset what the Adviser
believes to be the temporary revenue shortfalls faced upon the company's
purchase of the Learning Company. Philip Morris declined on fears of a negative
outcome in pending litigation, but the company is still rewarding its investors
with a hefty dividend yield.
1
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MANAGER OUTLOOK
Given the market's extended exceptional run and the rising interest rate
environment, we believe it is difficult to forecast another period of superior
equity returns. However, corporate earnings have come back to life, which is a
particularly positive sign for stock valuations.
What is perhaps most crucial to remember as we move into the year 2000 is
that tax-aware investing is important in all market conditions and may help
increase the after-tax returns you actually receive in both rising and declining
equity markets. Paying attention to the different tax treatments of price
appreciation, dividends, and short- and long-term capital gains continues to set
SunAmerica Tax Managed Equity Fund and its cutting-edge approach apart from most
other traditionally-managed mutual funds that focus solely on pre-tax
performance.
We value your confidence in us and look forward to continuing to serve your
investment needs in the future.
Sincerely,
/s/ Peter A. Harbeck
Peter A. Harbeck
President
2
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SunAmerica Strategic Investment Series, Inc.
STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 1999
<TABLE>
<CAPTION>
TAX MANAGED
EQUITY
FUND
<S> <C>
------------
ASSETS:
Investments securities, at value*........................... $76,578,649
Short-term securites*....................................... 3,062,000
Cash........................................................ 39,783
Receivable for shares of beneficial interest sold........... 1,658,724
Receivable from investment adviser.......................... 59,987
Interest and dividends receivable........................... 45,901
Prepaid expenses............................................ 20,106
-----------
Total assets............................................ 81,465,150
-----------
LIABILITIES:
Payable for investments purchased........................... 756,234
Accrued expenses............................................ 130,901
Investment advisory and management fees payable............. 52,323
Distribution and service maintenance fees payable........... 49,001
Payable for shares of beneficial interest redeemed.......... 1,215
-----------
Total liabilities....................................... 989,674
-----------
Net assets............................................ $80,475,476
===========
NET ASSETS WERE COMPOSED OF:
Shares of beneficial interest, $.0001 par value............. $ 591
Paid-in capital............................................. 77,352,384
-----------
77,352,975
Accumulated undistributed net investment loss............... (1,592)
Accumulated undistributed net realized loss on
investments.............................................. (910,439)
Net unrealized appreciation of investments.................. 4,034,532
-----------
Net assets............................................ $80,475,476
===========
*Identified cost
Investment securities....................................... $72,544,117
===========
Short-term securities....................................... $ 3,062,000
===========
</TABLE>
See Notes to Financial Statements
3
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SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 1999 -- (CONTINUED)
<TABLE>
<CAPTION>
TAX MANAGED
EQUITY
FUND
<S> <C>
------------
CLASS A (UNLIMITED SHARES AUTHORIZED):
Net assets.................................................. $25,066,895
Shares of beneficial interest issued and outstanding........ 1,835,974
Net asset value and redemption price per share.............. $ 13.65
Maximum sales charge (5.75% of offering price).............. 0.83
-----------
Maximum offering price to public............................ $ 14.48
===========
CLASS B (UNLIMITED SHARES AUTHORIZED):
Net assets.................................................. $27,524,429
Shares of beneficial interest issued and outstanding........ 2,026,103
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales
charge)................................................... $ 13.58
===========
CLASS II (UNLIMITED SHARES AUTHORIZED):
Net assets.................................................. $27,884,152
Shares of beneficial interest issued and outstanding........ 2,050,672
Net asset value and redemption price per share
(excluding any applicable contigent deferred sales
charge)................................................... $ 13.60
Maximum sales charge (1.00% of offering price).............. 0.14
-----------
Maximum offering price to public............................ $ 13.74
===========
</TABLE>
See Notes to Financial Statements
4
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SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
STATEMENT OF OPERATIONS -- FOR THE PERIOD MARCH 1, 1999* THROUGH OCTOBER 31,
1999
<TABLE>
<CAPTION>
TAX MANAGED
EQUITY
FUND
<S> <C>
-----------
INVESTMENT INCOME:
Income:
Interest.................................................. $ 53,668
Dividends (net of withholding taxes of $8,921)............ 366,474
----------
Total investment income................................. 420,142
----------
Expenses:
Investment advisory and management fees................... 257,412
Distribution and service maintenance fees--Class A........ 42,765
Distribution and service maintenance fees--Class B........ 90,071
Distribution and service maintenance fees--Class II....... 90,581
Organizational expenses................................... 57,995
Custodian fees and expenses............................... 52,554
Printing expense.......................................... 36,450
Transfer agent fees and expenses--Class A................. 30,977
Transfer agent fees and expenses--Class B................. 25,836
Transfer agent fees and expenses--Class II................ 26,028
Registration fees--Class A................................ 29,825
Registration fees--Class B................................ 29,055
Registration fees--Class II............................... 29,776
Audit and tax consulting fees............................. 22,290
Legal fees and expenses................................... 11,825
Directors' fees and expenses.............................. 3,517
Miscellaneous expenses.................................... 2,450
----------
Total expenses.......................................... 839,407
Less: expenses reimbursed by investment adviser......... (282,219)
Less: custody credits earned on cash balances........... (649)
Net expenses............................................ 556,539
----------
Net investment loss......................................... (136,397)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................ (910,439)
Net unrealized appreciation/depreciation on investments..... 4,034,532
----------
Net realized and unrealized gain on investments............. 3,124,093
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $2,987,696
==========
</TABLE>
* Commencement of Operations
See Notes to Financial Statements
5
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SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TAX MANAGED
EQUITY FUND
----------------
FOR THE PERIOD
MARCH 1, 1999*
THROUGH
OCTOBER 31, 1999
<S> <C>
----------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment loss....................................... $ (136,397)
Net realized loss on investments.......................... (910,439)
Net unrealized appreciation/depreciation of investments... 4,034,532
-----------
Net increase in net assets resulting from operations........ 2,987,696
-----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (Class A)...................... --
From net investment income (Class B)...................... --
From net investment income (Class II)..................... --
From net realized gains on investments (Class A).......... --
From net realized gains on investments (Class B).......... --
From net realized gains on investments (Class II)......... --
-----------
Total dividends and distributions to shareholders........... --
-----------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL SHARE
TRANSACTIONS (NOTE 6).................................... 77,387,780
-----------
TOTAL INCREASE IN NET ASSETS................................ 80,375,476
NET ASSETS:
Beginning of period......................................... 100,000
-----------
End of period [including undistributed net investment loss
for October 31,1999 of ($1,592)]......................... $80,475,476
===========
</TABLE>
* Commencement of Operations
See Notes to Financial Statements
6
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SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
FINANCIAL HIGHLIGHTS
TAX MANAGED EQUITY FUND
<TABLE>
<CAPTION>
NET GAIN
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET
VALUE, NET INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE,
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF
ENDED OF PERIOD LOSS(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD
- ---------------------- --------- ----------- ----------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
3/01/99-
10/31/99(3)......... $12.50 $ -- $1.15 $1.15 $ -- $ -- $ -- $13.65
CLASS B
3/01/99-
10/31/99(3)......... $12.50 $(0.06) $1.14 $1.08 $ -- $ -- $ -- $13.58
CLASS II
3/01/99-
10/31/99(3)......... $12.50 $(0.06) $1.16 $1.10 $ -- $ -- $ -- $13.60
<CAPTION>
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
END OF EXPENSES LOSS
PERIOD TOTAL PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED RETURN(2) (000'S) NET ASSETS NET ASSETS TURNOVER
- ---------------------- --------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
CLASS A
3/01/99-
10/31/99(3)......... 9.20% $25,067 1.45%(4)(5) (0.02)%(4)(5) 9%
CLASS B
3/01/99-
10/31/99(3)......... 8.64% $27,524 2.10%(4)(5) (0.74)%(4)(5) 9%
CLASS II
3/01/99-
10/31/99(3)......... 8.80% $27,884 2.10%(4)(5) (0.75)%(4)(5) 9%
</TABLE>
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<TABLE>
<C> <S>
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales
load
(3) Commencement of operations
(4) Annualized
(5) Net of the following expense reimbursements (based on
average net assets):
</TABLE>
<TABLE>
<CAPTION>
10/31/99
--------
<S> <C>
Tax Managed Equity Class A................................. 1.07%
Tax Managed Equity Class B................................. 0.84
Tax Managed Equity Class II................................ 0.83
</TABLE>
See Notes to Financial Statements
7
<PAGE>
TAX MANAGED EQUITY FUND
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
COMMON STOCK -- 95.2%
AEROSPACE & MILITARY TECHNOLOGY -- 1.9%
Allied Signal, Inc................ 26,300 $ 1,497,456
-----------
AUTOMOTIVE -- 0.9%
Johnson Controls, Inc............. 12,200 741,150
-----------
BANKS -- 4.6%
BankAmerica Corp.................. 30,800 1,982,750
U.S. Bancorp...................... 45,800 1,697,462
-----------
3,680,212
-----------
BROADCASTING & MEDIA -- 2.7%
AT&T Corp.-Liberty Media Group,
Inc.+........................... 13,300 527,844
Comcast Corp., Class A+........... 18,100 762,462
News Corp. Ltd. ADR............... 28,800 853,200
-----------
2,143,506
-----------
CHEMICALS -- 1.4%
Rohm & Haas Co.................... 30,100 1,151,325
-----------
COMPUTERS & BUSINESS EQUIPMENT -- 11.0%
Cisco Systems, Inc.+.............. 40,500 2,997,000
EMC Corp.+........................ 18,500 1,350,500
International Business Machines
Corp............................ 18,400 1,810,100
Sun Microsystems, Inc.+........... 25,700 2,719,381
-----------
8,876,981
-----------
CONGLOMERATE -- 5.1%
Allegheny Teldyne, Inc............ 27,600 419,175
General Electric Co............... 12,500 1,694,531
Tyco International Ltd............ 50,500 2,016,844
-----------
4,130,550
-----------
DEPARTMENT STORES -- 2.5%
Wal-Mart Stores, Inc.............. 35,000 1,984,062
-----------
ELECTRONICS -- 4.6%
Intel Corp........................ 23,600 1,827,525
Motorola, Inc..................... 4,000 389,750
Texas Instruments, Inc............ 16,300 1,462,925
-----------
3,680,200
-----------
ENERGY SOURCES -- 6.0%
Exxon Corp........................ 18,100 1,340,531
Mobil Corp........................ 16,900 1,630,850
Royal Dutch Petroleum Co.......... 19,000 1,138,812
Tosco Corp........................ 26,600 673,313
-----------
4,783,506
-----------
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
ENTERTAINMENT PRODUCTS -- 0.6%
Mattel, Inc....................... 34,600 $ 462,775
-----------
FINANCIAL SERVICES -- 8.6%
Ambac Financial Group, Inc........ 14,200 848,450
Citigroup, Inc.................... 18,400 995,900
Federal National Mortgage
Association Corp................ 5,600 396,200
First Union Corp.................. 29,800 1,272,088
Goldman Sachs Group, Inc.......... 6,802 482,942
KeyCorp........................... 24,500 684,469
Washington Mutual, Inc............ 26,600 955,938
Wells Fargo Co.................... 27,300 1,306,987
-----------
6,942,974
-----------
FOOD, BEVERAGE & TOBACCO -- 4.7%
Coca-Cola Co...................... 15,300 902,700
PepsiCo, Inc...................... 26,100 905,344
Philip Morris Cos., Inc........... 36,800 926,900
Seagram Co., Ltd.................. 21,300 1,051,687
-----------
3,786,631
-----------
FOREST PRODUCTS -- 1.0%
Temple-Inland, Inc................ 13,600 790,500
-----------
HOTELS & CASINO -- 0.5%
Starwood Hotels & Resorts
Worldwide, Inc.................. 17,400 399,113
-----------
HOUSEHOLD PRODUCTS -- 4.5%
Gillette Co....................... 12,500 452,344
Procter & Gamble Co............... 15,600 1,636,050
Unilever NV....................... 10,417 694,684
Warner-Lambert Co................. 10,500 838,031
-----------
3,621,109
-----------
INSURANCE -- 2.4%
Marsh & McLennan Cos., Inc........ 14,400 1,138,500
UnumProvident Corp................ 11,351 373,874
XL Capital Ltd., Class A.......... 8,000 429,500
-----------
1,941,874
-----------
INTERNET CONTENT -- 1.3%
America Online, Inc.+............. 8,200 1,063,438
-----------
MACHINERY -- 1.0%
Deere & Co........................ 13,900 503,875
Eaton Corp........................ 4,200 316,050
-----------
819,925
-----------
</TABLE>
8
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TAX MANAGED EQUITY FUND
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 1999 -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
COMMON STOCK -- (CONTINUED)
PHARMACEUTICALS -- 8.7%
Abbott Laboratories, Inc.......... 7,500 $ 302,813
American Home Products Corp....... 23,200 1,212,200
Bristol-Myers Squibb Co........... 26,700 2,050,894
Forest Laboratories, Inc.+........ 12,400 568,850
Lilly, Eli & Co.+................. 14,700 1,012,462
Monsanto Co....................... 37,200 1,432,200
Schering-Plough Corp.............. 8,700 430,650
-----------
7,010,069
-----------
SOFTWARE -- 4.1%
Microsoft Corp.+.................. 35,300 3,267,456
-----------
SPECIALTY RETAIL -- 3.3%
Dayton Hudson Corp................ 16,100 1,040,462
Gap, Inc.......................... 20,200 749,925
Home Depot, Inc................... 8,000 604,000
Safeway, Inc.+.................... 7,500 264,844
-----------
2,659,231
-----------
TELECOMMUNICATIONS -- 10.1%
AT&T Corp......................... 10,250 479,187
Bell Atlantic Corp................ 7,900 513,006
Exodus Communications, Inc........ 6,400 550,400
GTE Corp.......................... 14,900 1,117,500
Level 3 Communications, Inc.+..... 6,500 444,438
Lucent Technologies, Inc.......... 14,100 905,925
MCI WorldCom, Inc.+............... 31,100 2,668,769
SBC Communications, Inc........... 28,800 1,467,000
-----------
8,146,225
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
TRANSPORTATION -- 1.4%
Union Pacific Corp............... 20,200 $ 1,126,150
-----------------------
UTILITIES -- 2.3%
Columbia Energy Group, Inc....... 6,600 429,000
Dominion Resources, Inc.......... 12,100 582,312
PP&L Resources, Inc.............. 12,300 332,869
Wisconsin Energy Corp............ 23,600 528,050
-----------------------
1,872,231
-----------------------
TOTAL INVESTMENT SECURITIES -- 95.2%
(cost $72,544,117)................................. 76,578,649
-----------------------
SHORT-TERM SECURITIES -- 3.8%
Cayman Island Time Deposit with
State Street Bank & Trust Co.
4.00% due 11/01/99
(cost $3,062,000).............. $ 3,062 3,062,000
-----------------------
TOTAL INVESTMENTS --
(cost $75,606,117)............... 99.0% 79,640,649
Other assets less liabilities...... 1.0 834,827
-------------- -----------------------
NET ASSETS --...................... 100.0% $ 80,475,476
============== =======================
</TABLE>
- ------------
<TABLE>
<S> <C>
+ Non-income producing security
ADR ("American Depository Receipt")
</TABLE>
See Notes to Financial Statements
9
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999
NOTE 1. ORGANIZATION
SunAmerica Strategic Investment Series, Inc. (the "Corporation") is an
open-end, diversified management investment company organized as a Maryland
corporation on December 16, 1998. It currently consists of one investment
fund, the Tax Managed Equity Fund (the "Fund") which seeks high total return
with a view towards minimizing the impact of capital gains taxes on
investors' returns. The Fund is managed by SunAmerica Asset Management Corp.
("SAAMCo"), an indirect wholly-owned subsidiary of American International
Group, Inc. The Fund currently offers three classes of shares. The cost
structure for each class is as follows:
Class A shares-- Offered at net asset value per share plus an
initial sales charge. Any purchases of
Class A shares in excess of $1,000,000 will
be subject to a contingent deferred sales
charge on redemptions made within two years
of purchase.
Class B shares-- Offered at net asset value per share without
an initial sales charge, although a declining
contingent deferred sales charge may be
imposed on redemptions made within six years
of purchase. Class B shares will convert
automatically to Class A shares on the first
business day of the month after seven years
from the issuance of such shares and at such
time will be subject to the lower
distribution fee applicable to Class A
shares.
Class II Offered at net asset value per share plus an
shares-- initial sales charge. Certain redemptions
made within 18 months of the date of purchase
are subject to a contingent deferred sales
charge.
Each class of shares bears the same voting, dividend, liquidation and other
rights and conditions and each makes distribution and account maintenance and
service fee payments under the distribution plans pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act"), except that
Class B shares and Class II shares are subject to higher distribution fee
rates.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from these estimates.
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements:
SECURITY VALUATIONS: Securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed by the Adviser to be over-the-counter, are valued at the
quoted bid price provided by principal market makers. Securities listed on
the New York Stock Exchange ("NYSE") or other national securities exchanges,
are valued on the basis of the last sale price on the exchange on which they
are primarily traded. If there is no sale on that day, then securities are
valued at the closing bid price on the NYSE or other primary exchange for
that day. However, if the last sale price on the
10
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999 -- (CONTINUED)
NYSE is different than the last sale price on any other exchange, the NYSE
price is used. Securities that are traded on foreign exchanges are ordinarily
valued at the last quoted sales price available before the time when the
assets are valued. If a security's price is available from more than one
foreign exchange, the Fund uses the exchange that is the primary market for
the security. The Fund makes use of a pricing service in the determination of
the net asset value. Securities for which market quotations are not readily
available and other assets are valued at fair value as determined pursuant to
procedures adopted in good faith by the Board of Directors. Short-term
investments which mature in less than 60 days are valued at amortized cost,
if their original maturity was 60 days or less, or by amortizing their value
on the 61st day prior to maturity, if their original term to maturity
exceeded 60 days.
SECURITIES TRANSACTIONS, INVESTMENT INCOME, EXPENSES, DIVIDENDS AND
DISTRIBUTIONS TO SHAREHOLDERS: As customary in the mutual fund industry,
securities transactions are recorded on a trade date basis. Realized gains
and losses on sales of investments are calculated on the identified cost
basis. Interest income is recorded on the accrual basis; dividend income is
recorded on the ex-dividend date. Funds investing in foreign securities may
be subject to taxes imposed by countries in which they invest. Such taxes are
generally based on either income or gains earned or repatriated.
Net investment income, other than class specific expenses, and realized and
unrealized gains and losses, are allocated daily to each class of shares
based upon the relative net asset value of outstanding shares (or the value
of the dividend-eligible shares, as appropriate) of each class of shares at
the beginning of the day (after adjusting for the current capital shares
activity of the respective class).
The Fund issues and redeems shares, invests in securities and distributes
dividends from net investment income and net realized gains which are paid in
cash or are reinvested at the discretion of shareholders. These activities
are reported in the Statement of Changes in Net Assets. Capital gain
distributions and dividends from net investment income, if any, are paid at
least annually.
The Fund records dividends and distributions to its shareholders on the
ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined and presented
in accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Net investment income/loss, net
realized gain/loss, and net assets are not affected.
For the period March 1, 1999 through October 31, 1999, the following
reclassification arising from book/tax differences was primarily the result
of reclassifications due to net operating losses.
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/LOSS INCOME/LOSS CAPITAL
------------- -------------- ----------
<S> <C> <C> <C>
Tax Managed Equity Fund........................... $ -- $134,805 $(134,805)
</TABLE>
11
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999 -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the mean of the quoted bid and
asked prices of such currencies against the U.S. dollar.
The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in the
market prices of securities held at fiscal year-end. Similarly, the Fund does
not isolate the effect of changes in foreign exchange rates from the changes
in the market prices of portfolio securities sold during the year.
NOTE 3. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT, DISTRIBUTION AGREEMENT AND
SERVICE AGREEMENT
The Corporation, on behalf of the Fund, has entered into an Investment
Advisory and Management Agreement (the "Agreement") with SAAMCo. Under the
Agreement, SAAMCo provides continuous supervision of the Fund and administers
its corporate affairs, subject to general review by the Board of Directors
(the "Directors"). In connection therewith, SAAMCo furnishes the Fund with
office facilities, maintains certain of the Fund's books and records, and
pays for the salaries and expenses of all personnel, including officers of
the Fund who are employees of SAAMCo and its affiliates. The investment
advisory and management fee payable by the Fund to SAAMCo is computed daily
and payable monthly, at an annual rate of 0.85% of the average daily net
assets. For the period March 1, 1999 through October 31, 1999, SAAMCo earned
fees in the amount stated on the Statement of Operations.
J.P. Morgan Investment Management, Inc. acts as Adviser to the Fund pursuant
to a subadvisory agreement with SAAMCo. Under the subadvisory agreement, the
Adviser manages the investment and reinvestment of the assets of the Fund.
The Adviser is independent of SAAMCo and discharges its responsibilities
subject to the policies of the Directors and the oversight and supervision of
SAAMCo, which pays the Adviser's fees. The annual rate of fees payable by
SunAmerica to the Adviser will be 0.45% of the Fund's average daily net
assets up to $200 million, 0.40% on the next $200 million, and 0.35%
thereafter. The Adviser has agreed to waive fees in the amount of 0.05% of
the Fund's average daily net assets on the first $200 million through
December 31, 1999. For the period March 1, 1999 through October 31, 1999,
SAAMCo paid fees in the amount of $121,105 to the Adviser.
SAAMCo has agreed to waive fees or reimburse expenses, if necessary, to keep
annual expenses at or below 1.45% of average daily net assets on Class A
shares and 2.10% of average daily net assets on Class B and Class II shares.
SAAMCo also may waive or reimburse additional amounts to increase the
investment return to the Fund's investors. Further, any waivers or
reimbursements made by SAAMCo are subject to recoupment from the Fund within
the following two years, provided that the Fund is able to effect such
payment to SAAMCo and remain in compliance with the foregoing expense
limitations.
For the period March 1, 1999 through October 31, 1999, SAAMCo has agreed to
reimburse expenses as follows:
<TABLE>
<CAPTION>
<S> <C>
Tax Managed Equity Fund Class A........... $131,349
Tax Managed Equity Fund Class B........... 75,489
Tax Managed Equity Fund Class II ......... 75,381
</TABLE>
12
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999 -- (CONTINUED)
The Corporation, on behalf of the Fund, has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. ("SACS" or the
"Distributor"), an affiliate of SAAMCo. The Fund has adopted a distribution
plan in accordance with the provisions of Rule 12b-1 under the 1940 Act. Rule
12b-1 permits an investment company directly or indirectly to pay expenses
associated with the distribution of its shares ("distribution expenses") in
accordance with a plan adopted by the investment company's Board of
Directors. Pursuant to such rule, the Directors have adopted distribution
plans hereinafter referred to as the "Class A Plan," the "Class B Plan" and
the "Class II Plan." In adopting the Class A Plan, the Class B Plan and the
Class II Plan, the Directors determined that there was a reasonable
likelihood that each such Plan would benefit the Fund and the shareholders of
the respective class. The sales charge and distribution fees of a particular
class will not be used to subsidize the sale of shares of any other class.
Under the Class A Plan, the Distributor receives payments from the Fund at an
annual rate of 0.10% of average daily net assets of the Fund's Class A shares
to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. Under
the Class B and Class II Plans, the Distributor may receive payments from the
Fund at the annual rate of 0.75% of the average daily net assets of the
Fund's Class B and Class II shares, respectively, to compensate the
Distributor and certain securities firms for providing sales and promotional
activities and for distributing each such class of shares. The distribution
costs for which the Distributor may be reimbursed out of such distribution
fees include fees paid to broker-dealers that have sold Fund shares,
commissions, and other expenses such as those incurred for sales literature,
prospectus printing and distribution and compensation to wholesalers. It is
possible that in any given year the amount paid to the Distributor under each
Class' Plan may exceed the Distributor's distribution costs as described
above. The Distribution Plans also provide that each class of shares of the
Fund may also pay the Distributor an account maintenance and service fee at
an annual rate of 0.25% of the aggregate average daily net assets of such
class of shares for payments to broker-dealers for providing continuing
account maintenance. Accordingly, for the period March 1, 1999 through
October 31, 1999, SACS received fees (see Statement of Operations) based on
the aforementioned rate.
SACS receives sales charges on the Funds' Class A and Class II shares,
portions of which are reallowed to affiliated broker-dealers and
non-affiliated broker-dealers. SACS also receives the proceeds of contingent
deferred sales charges paid by investors in connection with certain
redemptions of the Funds' Class B and Class II shares. SACS has advised the
Fund that for the period March 1, 1999 through October 31, 1999 the proceeds
received from sales (and paid out to affiliated and non-affiliated
broker-dealers) and redemptions are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS II CLASS II
------------------------------------------ ------------- ------------------------------------------- -------------
CONTINGENT CONTINGENT
SALES AFFILIATED NON-AFFILIATED DEFERRED SALES AFFILIATED NON-AFFILIATED DEFERRED
CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGES CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGES
-------- -------------- -------------- ------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$854,755 $509,061 $232,251 $10,344 $296,559 $151,987 $144,572 $2,111
</TABLE>
The Corporation, on behalf of the Fund, has entered into a service agreement
with SunAmerica Fund Services, Inc. ("SAFS"), an affiliate of SAAMCo. Under
the service agreement, SAFS performs certain shareholder account functions by
assisting the Fund's transfer agent in connection with the services that it
13
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999 -- (CONTINUED)
offers to the shareholders of the Fund. The service agreement, which permits
the Fund to compensate SAFS for services rendered based upon an annual rate
of 0.22% of average daily net assets, is approved annually by the Directors.
For the period March 1, 1999 through October 31, 1999 the Fund incurred the
following expenses which are included in transfer agent fees in the Statement
of Operations to compensate SAFS pursuant to the terms of the Service
Agreement.
<TABLE>
<CAPTION>
PAYABLE AT
EXPENSES OCTOBER 31, 1999
----------------------------- ------------------------------
CLASS A CLASS B CLASS II CLASS A CLASS B CLASS II
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$26,880 $19,815 $19,927 $4,249 $4,574 $4,719
</TABLE>
NOTE 4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales and maturities of long-term
investments during the period March 1, 1999 through October 31, 1999 were as
follows:
<TABLE>
<S> <C>
Purchases (excluding U.S. government securities)............ $77,702,888
Sales (excluding U.S. government securities)................ 4,248,332
Purchases of U.S. government securities..................... --
Sales of U.S. government securities......................... --
</TABLE>
NOTE 5. PORTFOLIO SECURITIES
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and distribute all of its
taxable income, including any net realized gain on investments, to its
shareholders. Therefore, no federal tax provision is required.
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities for tax purposes, including short-term securities, were as
follows:
<TABLE>
<S> <C>
Cost.................................... $75,606,128
==========
Appreciation............................ $6,879,095
Depreciation............................ (2,844,574)
----------
Net unrealized appreciation............. $4,034,521
==========
</TABLE>
At October 31, 1999 the Tax Managed Equity Fund had a capital loss
carryforward of $910,428 which were available to the extent provided in
regulations and which will expire in 2007. To the extent that these carryover
losses are used to offset future capital gains, it is probable that the gains
so offset will not be distributed.
14
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999 -- (CONTINUED)
NOTE 6. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each class of each series were as follows:
<TABLE>
<CAPTION>
TAX MANAGED EQUITY FUND
------------------------------------------------------------------------------
CLASS A CLASS B CLASS II
------------------------ ------------------------ ------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
MARCH 1, 1999* THROUGH MARCH 1, 1999* THROUGH MARCH 1, 1999* THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1999 OCTOBER 31, 1999
------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.......... 3,854,550 $49,922,780 2,060,880 $27,669,284 2,098,012 $28,177,645
Reinvested
dividends.......... -- -- -- -- -- --
Shares redeemed...... 2,026,576 27,210,196 34,777 496,594 47,340 675,139
--------- ----------- --------- ----------- --------- -----------
Net increase......... 1,827,974 $22,712,584 2,026,103 $27,172,690 2,050,672 $27,502,506
========= =========== ========= =========== ========= ===========
</TABLE>
* Commencement of Operations
NOTE 7. COMMITMENTS AND CONTINGENCIES
The SunAmerica Family of mutual funds may borrow up to $100,000,000 under an
uncommitted line of credit with State Street Bank and Trust Company, the
Funds' custodian, with interest payable at the Federal Funds rate plus 100
basis points. Borrowings under the line of credit will commence when the
respective Fund's cash shortfall exceeds $100,000.
NOTE 8. DIRECTORS' RETIREMENT PLAN
The Directors (and Trustees) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Directors. The Retirement Plan provides generally that if a disinterested
Director who has at least 10 years of consecutive service as a Disinterested
Director of any of the SunAmerica mutual funds (an "Eligible Director")
retires after reaching age 60 but before age 70 or dies while a Director,
such person will be eligible to receive a retirement or death benefit from
each SunAmerica mutual fund with respect to which he or she is an Eligible
Director. As of each birthday, prior to the 70th birthday, but in no event
for a period greater than 10 years, each Eligible Director will be credited
with an amount equal to 50% of his or her regular fees (excluding committee
fees) for services as a Disinterested Director of each SunAmerica mutual fund
for the calendar year in which such birthday occurs. In addition, an amount
equal to 8.5% of any amounts credited under the preceding clause during prior
years, is added to each Eligible Director's account until such Eligible
Trustee reaches his or her 70th birthday. An Eligible Director may receive
any benefits payable under the Retirement Plan, at his or her election,
either in one lump sum or in up to fifteen annual installments. As of October
31, 1999 the Fund had accrued $1,592 for the Retirement Plan, which is
included in accrued expenses on the Statement of Assets and Liabilities, and
for the period March 1, 1999 through October 31, 1999 expensed $1,592, which
is included in Directors' fees and expenses on the Statement of Operations.
15
<PAGE>
SunAmerica Taxed Managed Equity
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of SunAmerica Strategic Investment
Series, Inc.-Tax Managed Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of SunAmerica Strategic Investment
Series, Inc.-Tax Managed Equity Fund (the "Fund") at October 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the period March 1, 1999 (Commencement of Operations) through
October 31, 1999, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at
October 31, 1999 by correspondence with the custodian and brokers, provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 13, 1999
16
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
COMPARISON: PORTFOLIO VS. INDEX
TAX MANAGED EQUITY FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TAX MANAGED TAX MANAGED TAX MANAGED S & P 500 INDEX
<S> <C> <C> <C> <C>
Equity Class A Equity Class B Equity Class II (dividends reinvested)
3/1/99 9,425 10,000 9,900 10,000
3/31/99 9,840 10,440 10,336 10,400
4/30/99 10,273 10,899 10,790 10,802
5/31/99 10,040 10,637 10,545 10,548
6/30/99 10,528 11,146 11,051 11,133
7/31/99 10,154 10,748 10,656 10,786
8/31/99 10,019 10,597 10,506 10,732
9/30/99 9,711 10,262 10,182 10,438
10/30/99 10,292 10,864 10,771 11,098
</TABLE>
SunAmerica Tax Managed Equity Fund seeks high total return while minimizing the
effect of taxes on investors' returns. With strategic buy and sell decisions,
only 9% portfolio turnover during the period, and other cutting-edge
tax-management policies, adviser J.P. Morgan successfully kept its tax liability
to a minimum. The Fund returned 9.20% during the eight month period, tracking
the S&P 500's return of 10.98%. (Returns do not reflect the impact of sales
charges.) Remember, the S&P 500 is an unmanaged index that does not incur fees
and expenses, unlike an actively managed mutual fund.
<TABLE>
CLASS A CLASS B CLASS II
SEC SEC SEC
CUMULATIVE AVERAGE CUMULATIVE AVERAGE CUMULATIVE AVERAGE
TAX MANAGED TRADITIONAL ANNUAL TRADITIONAL ANNUAL TRADITIONAL ANNUAL
EQUITY FUND RETURN+ RETURN RETURN+ RETURN RETURN+ RETURN
<S> <C> <C> <C> <C> <C> <C>
1 Year Return N/A N/A N/A N/A N/A N/A
Since Inception* 9.20% 2.92% 8.64% 4.64% 8.80% 7.71%
</TABLE>
+ Traditional returns do not include sales load.
* Commencement of Operations - Class A: 3/01/99; Class B:
3/01/99; Class II: 3/01/99
For the period March 1, 1999 through October 31, 1999, Tax
Managed Equity Fund Class A returned 9.20%, Class B returned
8.64% and Class II returned 8.80%, compared to 10.98% for the
S&P 500 Index. (Past performance is no guarantee of future
results.)
17
<PAGE>
BULK RATE
U.S. POSTAGE
[LOGO] PAID
Kansas City, MO
Permit No. 2891
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Trustees
S. JAMES COPPERSMITH
SAMUEL M. EISENSTAT
STEPHEN J. GUTMAN
PETER A. HARBECK
SEBASTIANO STERPA
Officers
PETER A. HARBECK, PRESIDENT
J. STEVEN NEAMTZ, VICE PRESIDENT
ROBERT M. ZAKEM, SECRETARY
PETER C. SUTTON, TREASURER
PETER E. PISAPIA, ASSISTANT SECRETARY
ABBE P. STEIN, ASSISTANT SECRETARY
JOHN T. GENOY, ASSISTANT TREASURER
DONNA M. HANDEL, ASSISTANT TREASURER
CHERYL L. HAWTHORNE, ASSISTANT TREASURER
Investment Adviser
SUNAMERICA ASSET MANAGEMENT CORP.
THE SUNAMERICA CENTER
733 THIRD AVENUE
NEW YORK, NY 10017-3204
Distributor
SUNAMERICA CAPITAL SERVICES, INC.
THE SUNAMERICA CENTER
733 THIRD AVENUE
NEW YORK, NY 10017-3204
Shareholder Servicing Agent
SUNAMERICA FUND SERVICES, INC.
THE SUNAMERICA CENTER
733 THIRD AVENUE
NEW YORK, NY 10017-3204
Custodian and Transfer Agent
STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572
KANSAS CITY, MO 64141-6572
This report is submitted solely for the general information of shareholders
of the Fund. Distribution of this report to persons other than shareholders
of the Fund is authorized only in connection with a currently effective
prospectus, setting forth details of the Fund, which must precede or
accompany this report.
[LOGO]
TXANN-10/99
