<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT Two World Trade Center,
SECURITIES INC. New York, New York 10048
LETTER TO THE SHAREHOLDERS August 31, 1997
DEAR SHAREHOLDER:
At this time last year, commodity oil prices began a rise from $20 to $26 per
barrel as inventories were historically low going into the cold season. From
January to March, oil prices began to reverse just as rapidly, and today's
oil prices are roughly unchanged from September 1996. Gas prices, however,
which experienced a faster rise and fall, remain well above the year-ago
price. Inventories are still low, within a few percent of last year's storage
figures. Speculation about the possible warming effect of the weather pattern
called El Ni|fno may be partly behind the inventory picture, but if the winter
is colder than expected, a repeat of the inventory squeeze of winter 1996 is
possible.
Global demand for energy is approximately 75 million barrels daily and growth
in demand is estimated by the International Energy Agency to be rising at the
same time their estimate for growth in supply has been revised slightly
downward. We believe that even with Iraq's recent renewed participation in
the market, the perception is growing that the spread between growth in
demand and growth in supply is narrow and is likely to remain so.
PERFORMANCE AND PORTFOLIO
For the six-month period ended August 31, 1997, Dean Witter Natural Resource
Development Securities Class B produced a total return of
22.17 percent versus 14.78 percent for the Standard & Poor's 500 Composite
Stock Index (S&P 500) and 12.22 percent for the Lipper Natural Resources Fund
Average. The Fund's exposure to oilfield services and drilling equipment
through holdings such as Noble Drilling Corp., Nabors Industries, Inc., Rowan
Companies, Inc., Baker Hughes, Inc. and Schlumberger, Ltd. contributed
positively to the Fund's performance. These sectors have posted above-average
gains relative to the market; thus, we took this opportunity to secure
profits in Parker Drilling Co., Reading & Bates, Inc., Cooper Cameron Corp.
and Weatherford Enterra, Inc. We also added new positions in this sector,
including Barrett Resources Corp., Sonat, Inc., Lomak Petroleum, Inc. and
Swift Energy Co..
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
LETTER TO THE SHAREHOLDERS, August 31, 1997, continued
The Fund's basic industry sectors continued to have mixed results, with
strength concentrated in the forest products/paper and aluminum sectors.
These groups have benefited from low inventory levels, increased demand and
an improved pricing environment. We expect that they will continue to have
positive fundamentals in the year ahead. Accordingly, we have increased the
Fund's exposure to these sectors with new positions in companies such as
Bowater, Inc., Reynolds Metal Co. and Alcan Aluminium, Ltd..
Gold stocks remain out of favor, due to low inflation and the Australian
Central Bank's decision to sell reserves, which raised concerns that the
central banks of other governments would follow suit. As a result, we have
lowered our exposure to this sector and are focused on lower-cost gold
producers.
The chemical group has had good performance in selective issues. The Fund has
focused on well-managed companies that are engaged in ongoing restructuring
programs.
On July 28, 1997, the Fund began offering four classes of shares: A, B, C and
D, each with its own sales charge and distribution fee structure. A revised
prospectus, which includes complete details regarding the Fund's conversion
to multiple classes of shares, was mailed to shareholders in mid-summer.
LOOKING AHEAD
Worldwide economic growth appears to be moving ahead at an uneven pace.
However, demand for most industrial commodities continues to be favorable and
inventories of many resources remain low, which should create a positive
pricing environment. We will continue to seek out companies that are
operating in an attractive supply/demand environment. In our view, the
outlook for the coming year is favorable for most natural resource companies.
We appreciate your support of Dean Witter Natural Resource Development
Securities Inc. and look forward to continuing to serve your investment
needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
RESULTS OF SPECIAL MEETING (UNAUDITED)
On May 21, 1997, a special meeting of shareholders of Dean Witter Natural
Resource Development Securities Inc. was held for the purpose of voting on
five separate matters, the results of which are as follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND
DEAN WITTER INTERCAPITAL INC., IN CONNECTION WITH THE MERGER OF MORGAN
STANLEY GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<CAPTION>
<S> <C>
For ...................................... 10,427,574
Against ................................. 331,727
Abstain ................................. 964,326
</TABLE>
(2) Election of Directors:
<TABLE>
<CAPTION>
<S> <C>
Michael Bozic
For .............. 10,941,039
Withheld ......... 782,588
Charles A. Fiumefreddo
For .............. 10,961,658
Withheld ......... 761,969
Edwin J. Garn
For .............. 10,954,201
Withheld ......... 769,426
John R. Haire
For .............. 10,930,947
Withheld ......... 792,680
Wayne E. Hedien
For .............. 10,954,411
Withheld ......... 769,216
Dr. Manuel H. Johnson
For .............. 10,972,791
Withheld ......... 750,836
Michael E. Nugent
For .............. 10,977,012
Withheld ......... 746,615
Philip J. Purcell
For .............. 10,976,171
Withheld ......... 747,456
John L. Schroeder
For .............. 10,957,396
Withheld ......... 766,231
</TABLE>
(3) APPROVAL OF AN AMENDMENT TO THE CORPORATION'S ARTICLES OF INCORPORATION
TO PERMIT MULTIPLE CLASSES OR SERIES OF SHARES:
<TABLE>
<CAPTION>
<S> <C>
For ......................................... 9,885,862
Against .................................... 660,373
Abstain .................................... 1,177,392
</TABLE>
(4) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN
CERTAIN OTHER INVESTMENT COMPANIES:
<TABLE>
<CAPTION>
<S> <C>
For ......................................... 9,868,090
Against .................................... 662,615
Abstain .................................... 1,192,922
</TABLE>
(5) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ......................................... 10,785,014
Against .................................... 112,208
Abstain .................................... 826,405
</TABLE>
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.9%)
BASIC ENERGY (42.9%)
Natural Gas (11.2%)
40,000 Anardarko Petroleum Corp. ...................................... $ 2,937,500
80,000 Apache Corp. ................................................... 3,175,000
55,000 Cabot Oil & Gas Corp. .......................................... 1,275,312
40,000 Devon Energy Corp. ............................................. 1,707,500
50,000 El Paso Natural Gas Co. ........................................ 2,812,500
120,000 Elan Energy, Inc. (Canada)* .................................... 778,098
60,000 Enron Corp. .................................................... 2,313,750
125,000 Numac Energy Inc. (Canada)* .................................... 594,380
40,000 Petro-Canada (Canada) .......................................... 691,643
40,000 Questar Corp. .................................................. 1,600,000
80,000 Rigel Energy Corp. (Canada)* ................................... 855,908
65,000 Sonat, Inc. .................................................... 3,237,812
60,000 Suncor, Inc. (Canada) .......................................... 1,882,565
85,000 Tenneco, Inc. .................................................. 4,127,812
60,000 United Meridian Corp.* ......................................... 2,351,250
85,000 Williams Companies, Inc. ....................................... 3,957,812
--------------
34,298,842
--------------
Natural Gas -Exploration & Production (5.0%)
80,000 Barrett Resources Corp.* ....................................... 2,930,000
70,000 Burlington Resources, Inc. ..................................... 3,543,750
50,000 Chieftain International, Inc.* ................................. 1,200,000
50,000 Edge Petroleum Co.* ............................................ 800,000
50,000 KN Energy, Inc. ................................................ 2,075,000
100,000 Ranger Oil Ltd. (Canada) ....................................... 968,750
50,000 St. Mary Land & Exploration Co. ................................. 1,762,500
80,000 Swift Energy Co.* .............................................. 2,075,000
--------------
15,355,000
--------------
Oil & Gas (0.9%)
50,000 Lomak Petroleum, Inc. .......................................... 881,250
40,000 Newfield Exploration Co.* ...................................... 1,027,500
40,000 Union Pacific Resources Group, Inc. ............................ 1,000,000
--------------
2,908,750
--------------
Oil & Gas Drilling (0.7%)
85,000 Parker Drilling Co.* ........................................... 1,120,937
25,000 Sante Fe International Corp. ................................... 1,118,750
--------------
2,239,687
--------------
Oil & Gas Services (1.3%)
40,000 Input/Output, Inc.* ............................................ 840,000
50,000 Petroleum Geo -Services ASA (ADR)(Norway)* ..................... 3,034,375
--------------
3,874,375
--------------
Oil Integrated -Domestic (7.3%)
75,000 Amerada Hess Corp. ............................................. $ 4,359,375
150,000 Occidental Petroleum Corp. ..................................... 3,515,625
75,000 Oryx Energy Co.* ............................................... 1,982,813
65,000 Phillips Petroleum Co. ......................................... 3,091,563
25,000 Synder Oil Corp. ............................................... 492,188
75,000 Unocal Corp. ................................................... 2,929,688
80,000 USX-Marathon Group ............................................. 2,605,000
40,000 Vintage Petroleum, Inc. ........................................ 1,717,500
105,000 Wiser Oil Co. .................................................. 1,647,188
--------------
22,340,940
--------------
Oil Integrated -International (15.0%)
40,000 Amoco Corp. .................................................... 3,782,500
77,000 British Petroleum Co. PLC (ADR)(United Kingdom) ................ 6,516,125
55,000 Ente Nazionale Idrocarburi SpA (ADR)(Italy) .................... 3,052,500
120,000 Exxon Corp. .................................................... 7,342,500
70,000 Mobil Corp. .................................................... 5,092,500
137,000 Royal Dutch Petroleum Co. (ADR)(Netherlands) ................... 6,952,750
40,000 Texaco, Inc. ................................................... 4,610,000
75,000 Total S.A. (ADR)(France) ....................................... 3,553,125
155,000 Yacimentos Petroliferos Fiscales S.A. (ADR)(Argentina) ......... 5,047,187
--------------
45,949,187
--------------
Oil Refineries (1.5%)
50,000 Ashland, Inc. .................................................. 2,506,250
65,000 Tosco Corp. .................................................... 2,149,063
--------------
4,655,313
--------------
TOTAL BASIC ENERGY ............................................. 131,622,094
--------------
ENERGY DEVELOPMENT & TECHNOLOGY (16.1%)
Oil Drilling (3.1%)
35,000 Marine Drilling Company, Inc.* ................................. 840,000
45,000 Noble Drilling Corp.* .......................................... 1,279,687
75,000 Reading & Bates Corp.* ......................................... 2,723,438
90,000 Rowan Companies, Inc.* ......................................... 2,688,750
20,000 Transocean Offshore, Inc. ...................................... 1,901,250
--------------
9,433,125
--------------
Oil Equipment & Services (11.5%)
40,000 American Oilfield Divers, Inc.* ................................ 755,000
60,000 Baker Hughes, Inc. ............................................. 2,542,500
40,000 Camco International, Inc. ...................................... 2,755,000
75,000 Cooper Cameron Corp.* .......................................... 4,865,625
139,400 Dawson Production Services, Inc.* ............................... 2,613,750
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS August 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
75,000 Dresser Industries, Inc.* ...................................... $ 3,131,250
55,000 Global Industries Ltd.* ........................................ 2,004,063
50,000 Halliburton Co. ................................................ 2,387,500
65,000 Nabors Industries, Inc. ........................................ 2,238,438
46,000 Schlumberger, Ltd. ............................................. 3,504,625
65,000 Varco International, Inc.* ..................................... 2,583,750
70,000 Veritas DGC Inc.* .............................................. 2,397,500
75,000 Weatherford Enterra, Inc.* ..................................... 3,454,688
--------------
35,233,689
--------------
Transportation (0.5%)
50,000 Teekay Shipping Corp. .......................................... 1,646,875
--------------
Utilities -Gas (1.0%)
50,000 Consolidated Natural Gas Co. ................................... 2,953,125
--------------
TOTAL ENERGY DEVELOPMENT & TECHNOLOGY .......................... 49,266,814
--------------
METALS & BASIC MATERIALS (36.9%)
Aluminum (3.7%)
30,000 Alcan Aluminium Ltd. (Canada) .................................. 1,048,125
100,000 Alumax Inc.* ................................................... 4,143,750
50,000 Aluminum Co. of America ........................................ 4,112,500
30,000 Reynolds Metals Co. ............................................ 2,120,625
--------------
11,425,000
--------------
Building Materials (0.4%)
50,000 Shaw Group, Inc.* .............................................. 1,081,250
--------------
Chemicals (7.1%)
50,000 Du Pont (E.I.) de Nemours & Co., Inc. .......................... 3,115,625
25,000 Eastman Chemical Co. ........................................... 1,495,312
65,000 Hercules, Inc. ................................................. 3,359,687
50,000 Imperial Chemical Industries PLC (ADR)(United Kingdom) ......... 3,281,250
90,000 Monsanto Co. ................................................... 3,954,375
90,000 Olin Corp. ..................................................... 4,005,000
30,000 Rohm & Haas Co. ................................................ 2,874,375
--------------
22,085,624
--------------
Chemicals -Diversified (0.8%)
35,000 ChemFirst Inc. ................................................. 879,375
75,000 Engelhard Corp. ................................................ 1,565,625
--------------
2,445,000
--------------
Chemicals -Specialty (4.6%)
75,000 Cabot Corp. .................................................... 2,053,125
73,500 Calgon Carbon Corp. ............................................ 1,010,625
100,000 Cytec Industries, Inc.* ........................................ 4,881,250
90,000 IMC Global, Inc. ............................................... 3,166,875
40,000 Morton International, Inc. ..................................... $ 1,330,000
Stolt Comex Seaway, S.A.
35,000 (United Kingdom)* .............................................. 1,863,750
--------------
14,305,625
--------------
Electrical Equipment (0.7%)
50,000 UCAR International, Inc. ....................................... 2,359,375
--------------
Gold (2.5%)
145,000 Barrick Gold Corp. (Canada) .................................... 3,298,750
100,954 Newmont Mining Corp. ........................................... 4,271,616
--------------
7,570,366
--------------
Household Appliances (0.8%)
50,000 American Standard Companies, Inc.* ............................. 2,350,000
--------------
Machinery -Construction & Materials (1.0%)
60,000 Kennametal, Inc. ............................................... 2,808,750
--------------
Machinery -Diversified (1.4%)
50,000 EVI, Inc.* ..................................................... 2,628,125
85,000 Global Industrial Technologies, Inc.* .......................... 1,609,687
--------------
4,237,812
--------------
Manufacturing -Diversified (2.1%)
75,000 Millipore Corp. ................................................ 3,712,500
60,000 Pall Corp. ..................................................... 1,421,250
20,000 Parker-Hannifin Corp. .......................................... 1,286,250
--------------
6,420,000
--------------
Metals -Miscellaneous (1.7%)
80,687 Freeport-McMoran Copper & Gold, Inc. (Series A) ................ 2,158,377
1,000,000 M.I.M. Holdings Ltd. (Australia) ............................... 1,192,834
Rio Tinto PLC (ADR)
30,000 (United Kingdom) ............................................... 1,927,500
--------------
5,278,711
--------------
Paper & Forest Products (8.6%)
50,000 Boise Cascade Corp. ............................................ 1,978,125
60,000 Bowater, Inc. .................................................. 3,071,250
50,000 Buckeye Cellulose Corp. ........................................ 1,968,750
50,000 Champion International Corp. ................................... 2,959,375
150,000 Louisiana-Pacific Corp. ........................................ 3,318,750
50,000 Mead Corp. ..................................................... 3,546,875
40,000 Temple-Inland, Inc. ............................................ 2,580,000
70,000 Union Camp Corp. ............................................... 4,151,875
35,000 Willamette Industries, Inc. .................................... 2,791,250
--------------
26,366,250
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS August 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Steel (1.5%)
49,700 Algoma Steel, Inc. (Canada)* ................................... $ 284,665
60,000 Nucor Corp. .................................................... 3,401,250
40,000 Steel Dynamics, Inc.* .......................................... 1,007,500
--------------
4,693,415
--------------
TOTAL METALS & BASIC MATERIALS ................................. 113,427,178
--------------
TOTAL COMMON STOCKS
(Identified Cost $238,090,868) ................................. 294,316,086
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.3%)
U.S. GOVERNMENT AGENCY (a)(5.2%)
Federal Home Loan Mortgage Corp. 5.50% due 09/02/97
$16,000 (Amortized Cost $15,996,333) ................................... 15,996,333
------------
REPURCHASE AGREEMENT (0.1%)
The Bank of New York 5.25% due 09/02/97 (dated 08/29/97;
proceeds $377,985)(b)
378 (Identified Cost $377,765) ..................................... 377,765
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $16,374,098) .................................. 16,374,098
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- ---------------------------------- -------- --------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $254,464,966)(c) 101.2% $310,690,184
LIABILITIES IN EXCESS OF
OTHER ASSETS ..................... (1.2) (3,776,275)
-------- --------------
NET ASSETS ........................ 100.0% $306,913,909
======== ==============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $371,889 U.S. Treasury Note 6.625% due 05/15/07
valued at $385,320.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$58,442,218 and the aggregate gross unrealized depreciation is
$2,216,998, resulting in a net unrealized appreciation of
$56,225,220.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUGUST 31, 1997:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
RECEIVE EXCHANGE FOR DATE DEPRECIATION
- -------------- -------------- ---------- --------------
<S> <C> <C> <C>
$ 147,884 CAD 205,381 09/02/97 $ (85)
$ 13,271 CAD 18,446 09/03/97 (19)
--------------
Unrealized depreciation $(104)
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $254,464,966)............................ $310,690,184
Receivable for:
Capital stock sold........................................ 910,900
Dividends................................................. 556,558
Investments sold.......................................... 486,984
Prepaid expenses and other assets.......................... 121,407
--------------
TOTAL ASSETS............................................. 312,766,033
--------------
LIABILITIES:
Payable for:
Capital stock repurchased................................. 4,412,693
Investments purchased..................................... 957,650
Plan of distribution fee.................................. 247,058
Investment management fee................................. 154,123
Accrued expenses and other payables........................ 80,600
--------------
TOTAL LIABILITIES........................................ 5,852,124
--------------
NET ASSETS............................................... $306,913,909
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................ $240,774,406
Net unrealized appreciation ............................... 56,225,220
Accumulated undistributed net investment income ........... 31,988
Accumulated undistributed net realized gain................ 9,882,295
--------------
NET ASSETS............................................... $306,913,909
==============
CLASS A SHARES:
Net Assets................................................. $36,133
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 2,410
NET ASSET VALUE PER SHARE................................ $ 14.99
==============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net asset value) ........ $ 15.82
==============
CLASS B SHARES:
Net Assets................................................. $296,972,132
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 19,815,383
NET ASSET VALUE PER SHARE................................ $ 14.99
==============
CLASS C SHARES:
Net Assets................................................. $242,638
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 16,192
NET ASSET VALUE PER SHARE................................ $ 14.99
==============
CLASS D SHARES:
Net Assets................................................. $9,663,006
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 644,376
NET ASSET VALUE PER SHARE................................ $ 15.00
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended August 31, 1997* (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $76,864 foreign withholding tax).................... $ 2,114,105
Interest.............................................................. 415,410
------------
TOTAL INCOME ....................................................... 2,529,515
------------
EXPENSES
Plan of distribution fee (Class B shares)............................. 1,355,778
Investment management fee............................................. 848,503
Transfer agent fees and expenses...................................... 149,013
Registration fees..................................................... 22,839
Custodian fees........................................................ 19,481
Shareholder reports and notices....................................... 16,917
Professional fees..................................................... 16,761
Directors' fees and expenses.......................................... 10,129
Other................................................................. 3,946
------------
TOTAL EXPENSES...................................................... 2,443,367
------------
NET INVESTMENT INCOME............................................... 86,148
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... 10,049,264
Foreign exchange transactions....................................... (430)
------------
NET GAIN............................................................ 10,048,834
------------
Net change in unrealized appreciation/depreciation on:
Investments......................................................... 45,553,305
Net translation of other assets and liabilities denominated in
foreign currencies................................................. (1,097)
------------
NET APPRECIATION.................................................... 45,552,208
------------
NET INCREASE.......................................................... $55,687,190
============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 1997* FEBRUARY 28, 1997
- ------------------------------------------------- ---------------- -----------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................ $ 86,148 $ 102,912
Net realized gain................................. 10,048,834 49,178,705
Net change in unrealized appreciation............. 45,552,208 (15,813,380)
---------------- -----------------
NET INCREASE.................................... 55,687,190 33,468,237
---------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares.................................. (105,069) (287,205)
Net realized gain
Class B shares.................................. (21,942,185) (30,377,434)
---------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (22,047,254) (30,664,639)
---------------- -----------------
Net increase from capital stock transactions .... 25,285,290 92,523,643
---------------- -----------------
NET INCREASE.................................... 58,925,226 95,327,241
NET ASSETS:
Beginning of period............................... 247,988,683 152,661,442
---------------- -----------------
END OF PERIOD
(Including undistributed net investment income
of $31,988 and $50,909, respectively)........... $306,913,909 $247,988,683
================ =================
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Natural Resource Development Securities Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"),
as a diversified, open-end management investment company. The Fund's
investment objective is capital growth. The Fund invests primarily in common
stock of companies in the natural resources and related areas. The Fund was
incorporated in Maryland on December 22, 1980 and commenced operations on
March 30, 1981. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares, other than shares
which were purchased prior to July 2, 1984 (and with respect to such shares,
certain shares acquired through reinvestment of dividends and capital gains
distributions (collectively the "Old Shares")), designated as Class B shares.
The Old Shares have been designated Class D shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
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. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated as the primary market
pursuant to procedures adopted by the Directors); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Directors (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or
an appropriate matrix utilizing similar factors); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited) continued
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized
cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities, other assets and liabilities and forward foreign
currency contracts are translated at the exchange rates prevailing at the end
of the period; and (2) purchases, sales, income and expenses are translated
at the exchange rates prevailing on the respective dates of such
transactions. The resultant exchange gains and losses are included in the
Statement of Operations as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations,
certain foreign exchange gains/losses included in realized and unrealized
gain/loss are included in or are a reduction of ordinary income for federal
income tax purposes. 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 the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized gain/loss on foreign exchange
transactions. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- 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 in accordance with federal income tax
regulations
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited) continued
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. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager,
the Fund pays a management fee, accrued daily and payable monthly, by
applying the following annual rates to the net assets of the Fund determined
at the close of each business day: 0.625% to the portion of daily net assets
not exceeding $250 million and 0.50% to the portion of daily net assets
exceeding $250 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan"), pursuant to Rule 12b-1 under the Act.
The Plan provides that the Fund pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -0.25% of
the average daily net assets of Class A; (ii) Class B -1.0% of the lesser of:
(a) the average daily aggregate gross sales of the Class B shares since the
inception of the Plan on July 2, 1984 (not including reinvestment of dividend
or capital gain distributions) less the average daily aggregate net asset
value of the Class B shares redeemed since the Plan's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the Plan's inception; and (iii) Class C -1.0%
of the average daily net assets of Class C. In the case of Class A shares,
amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the
Plan are paid to the Distributor for services provided and the expenses borne
by it and others in the distribution of the shares of these Classes,
including the payment of
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited) continued
commissions for sales of these Classes and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and others who engage in
or support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class
B shares, to compensate DWR and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $6,839,332 at August 31,
1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended August 31, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended August
31, 1997, it received contingent deferred sales charges from certain
redemptions of the Fund's Class B shares of $154,460 and received $1,402 in
front-end sales charges from sales of the Fund's Class A shares. The
respective shareholders pay such charges which are not an expense of the
Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended August 31, 1997
aggregated $136,437,035 and $124,546,960, respectively.
For the six months ended August 31, 1997, the Fund incurred brokerage
commissions of $73,175 with DWR for portfolio transactions executed on behalf
of the Fund.
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited) continued
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Directors of the Fund who will have served as
independent Directors for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. At August 31, 1997, the Fund had an
accrued pension liability of $48,604 which is included in accrued expenses in
the Statement of Assets and Liabilities.
5. CAPITAL STOCK+
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
------------------------------- -------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold........................................ 2,410 $ 35,257 -- --
-------------- --------------- -------------- ---------------
CLASS B SHARES
Sold........................................ 11,043,430 156,531,503 24,642,984 $ 344,947,391
Reinvestment of dividends and
distributions.............................. 1,510,479 20,436,775 2,080,543 28,455,203
-------------- --------------- -------------- ---------------
12,553,909 176,968,278 26,723,527 373,402,594
Redeemed.................................... (10,682,212) (151,936,493) (20,151,281) (280,878,951)
-------------- --------------- -------------- ---------------
Net increase -Class B....................... 1,871,697 25,031,785 6,572,246 92,523,643
-------------- --------------- -------------- ---------------
CLASS C SHARES*
Sold........................................ 16,192 240,155 -- --
-------------- --------------- -------------- ---------------
CLASS D SHARES*
Redeemed.................................... (1,485) (21,907) -- --
-------------- --------------- -------------- ---------------
Net increase in Fund........................ 1,888,814 $ 25,285,290 6,572,246 $ 92,523,643
============== =============== ============== ===============
</TABLE>
- ------------
+ On July 28, 1997, 645,861 shares representing $9,326,226 were transferred
to Class D.
* For the period July 28, 1997 (issue date) through August 31, 1997.
6. FEDERAL INCOME TAX STATUS
As of February 28, 1997, the Fund has temporary book/tax differences
attributable to capital loss deferrals on wash sales.
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28
MONTHS ENDED ---------------------------------------------------------------
AUGUST 31, 1997* 1997 1996** 1995 1994 1993
- ---------------------------------------- ---------------- ------------ ------------ ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $13.34 $12.70 $10.77 $11.82 $11.36 $10.20
---------------- ------------ ------------ ------------ ------------ ------------
Net investment income ................... -- -- 0.06 0.09 0.09 0.16
Net realized and unrealized gain (loss) 2.83 2.66 2.53 (0.24) 1.25 1.18
---------------- ------------ ------------ ------------ ------------ ------------
Total from investment operations ....... 2.83 2.66 2.59 (0.15) 1.34 1.34
---------------- ------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income .................. (0.01) (0.02) (0.04) (0.12) (0.09) (0.18)
Net realized gain ...................... (1.17) (2.00) (0.62) (0.78) (0.79) --
---------------- ------------ ------------ ------------ ------------ ------------
Total dividends and distributions ...... (1.18) (2.02) (0.66) (0.90) (0.88) (0.18)
---------------- ------------ ------------ ------------ ------------ ------------
Net asset value, end of period .......... $14.99 $13.34 $12.70 $10.77 $11.82 $11.36
================ ============ ============ ============ ============ ============
TOTAL INVESTMENT RETURN+ ................ 22.17%(1) 20.88% 24.32% (1.26)% 12.16% 13.31%
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.77%(2) 1.84% 1.90% 1.90% 1.91% 1.96%
Net investment income ................... 0.05%(2) 0.05% 0.52% 0.77% 0.73% 1.46%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $296,972 $247,989 $152,661 $132,812 $139,459 $118,496
Portfolio turnover rate ................. 48%(1) 156% 49% 59% 69% 52%
Average commission rate paid ............ $0.0518 $0.0534 -- -- -- --
</TABLE>
- ------------
* Prior to July 28, 1997, the Fund issued one class of shares. All
shares of the Fund held prior to that date, other than shares which
were purchased prior to July 2, 1984 (and with respect to such
shares, certain shares acquired through reinvestment of dividends and
capital gains distributions (collectively the "Old Shares")), have
been designated Class B shares. The Old Shares have been designated
Class D shares.
** Year ended February 29.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
AUGUST 31, 1997
- ---------------------------------------- ---------------
(UNAUDITED)
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $14.44
---------------
Net investment income ................... 0.02
Net realized and unrealized gain ....... 0.53
---------------
Total from investment operations ....... 0.55
---------------
Net asset value, end of period .......... $14.99
===============
TOTAL INVESTMENT RETURN+ ................ 3.81% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.04%(2)
Net investment income ................... 1.44%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $36
Portfolio turnover rate ................. 48%(1)
Average commission rate paid ............ $0.0518
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $14.44
---------------
Net investment income ................... 0.02
Net realized and unrealized gain ....... 0.53
---------------
Total from investment operations ....... 0.55
---------------
Net asset value, end of period .......... $14.99
===============
TOTAL INVESTMENT RETURN+ ................ 3.81% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 1.78%(2)
Net investment income ................... 0.70%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $243
Portfolio turnover rate ................. 48%(1)
Average commission rate paid ............ $0.0518
</TABLE>
- ------------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
AUGUST 31, 1997
- ---------------------------------------- ---------------
(UNAUDITED)
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $14.44
---------------
Net investment income.................... 0.02
Net realized and unrealized gain ........ 0.54
---------------
Total from investment operations ........ 0.56
---------------
Net asset value, end of period........... $15.00
===============
TOTAL INVESTMENT RETURN+ ................ 3.88% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.80%(2)
Net investment income.................... 1.74%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $9,663
Portfolio turnover rate.................. 48%(1)
Average commission rate paid ............ $0.0518
</TABLE>
- ------------
* The date shares were first issued. Shareholders who held shares of
the Fund prior to July 28, 1997 (the date the Fund converted to a
multiple class share structure) should refer to the Financial
Highlights of Class B to obtain the historical per share data and
ratio information of their shares.
+ Calculated based on the net asset value as of the last business day
of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
David F. Myers
Vice President
Catherine Maniscalco
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records
of the Fund without examination by the independent accountants and
accordingly they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and directors,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
NATURAL RESOURCE
DEVELOPMENT
SECURITIES
SEMIANNUAL REPORT
AUGUST 31, 1997
