<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC. TWO WORLD TRADE
CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS FEBRUARY 28, 1997
DEAR SHAREHOLDER:
At this time last year, extreme cold temperatures, record low inventory levels
for heating oil and natural gas and strong global demand for energy had created
an unusually favorable background for natural resource securities. This fiscal
year, we operated in a very different environment: temperatures were above
normal, inventory levels for heating oil and natural gas were at normal levels
and demand for energy products weakened. These factors created a tougher
near-term pricing environment for energy in early 1997 than we experienced last
year. However, strong global fundamentals continue to reinforce our bullish
outlook on energy products. Other industries in the portfolio were affected by
high real interest rates and a strong dollar. These factors precipitated a
negative move in gold and steel stocks, which were among the worst performing
industries for the year.
PERFORMANCE
For the fiscal year ended February 28, 1997, Dean Witter Natural Resource
Development Securities, Inc. produced a total return of 20.88 percent versus
26.18 percent for the Standard & Poor's 500 Composite Stock Index (S&P 500) and
22.40 percent for the Lipper Natural Resources Funds Average. During the
reporting period, the Fund distributed income dividends totaling $0.02 per
share, and short- and long-term capital gain distributions of $0.50 and $1.50
per share, respectively. The accompanying chart compares the performance of the
Fund to that of similar hypothetical investments in the S&P 500 and the Lipper
Natural Resources Funds Average.
PORTFOLIO COMPOSITION
Energy-related holdings represented 56 percent of the Fund's net assets at
fiscal year-end. The Fund's investments in the major integrated oil companies
and oil service companies provided a positive total return. Drilling activity
was strong all year and pricing for oil service equipment and rigs should
continue to be firm given the strong demand for these services. This should
positively impact the Fund's holdings in companies such as Exxon Corp., British
Petroleum Co. PLC, Cooper Cameron Corp., Schlumberger, Ltd. and Transocean
Offshore, Inc.
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
LETTER TO THE SHAREHOLDERS FEBRUARY 28, 1997, CONTINUED
The remainder of the Fund's net assets
(approximately 40 percent) were invested
in industries that are positioned to
benefit from growing global economies.
These companies tend to be global market
leaders, have good balance sheets and
have lowered their costs through
investment in technology. The Fund's
holdings in chemicals, paper and forest
products, machinery and metals are
concentrated in companies positioned to
benefit from current low inventory
levels in these industries and from the
potential for global economic growth.
Some examples of the Fund's core
holdings in these industries include
Aluminum Co. of America, Du Pont (E.I.)
de Nemours & Co., Inc., Monsanto Co.,
Fort Howard Corp., Deere & Co. and RTZ
Corp. PLC.
LOOKING AHEAD
The Fund's investment strategy is
designed to provide shareholders with
the opportunity to participate in the
earnings of companies that will benefit
from the growing demand for resources
over the long term. The Fund's balanced
approach, using a combination of energy
and cyclical stocks, should temper the
risk of owning a single commodity, such
as oil or copper, while offering the
potential for above-average returns at
any point in the market cycle.
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
LETTER TO THE SHAREHOLDERS FEBRUARY 28, 1997, CONTINUED
[GRAPH]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-5%, 5
years-2%, 10 years-0). See the Fund's current prospectus for complete
details on fees and sales charges.
(3) Closing value assuming a complete redemption on February 28, 1997.
(4) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(5) The Lipper Natural Resources Funds Average tracks the performance of all
funds which invest more than 65% of their equity commitment in natural
resource stocks, as reported by Lipper Analytical Services, Inc.
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,
[SIG]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (91.5%)
BASIC ENERGY (39.1%)
NATURAL GAS (8.8%)
30,000 Anardarko Petroleum Corp............ $ 1,687,500
35,000 Cabot Oil & Gas Corp................ 555,625
75,000 Chesapeake Energy Corp.............. 1,556,250
50,000 Devon Energy Corp................... 1,562,500
55,000 El Paso Natural Gas Co.............. 2,949,375
120,000 Elan Energy, Inc. (Canada)*......... 964,771
30,000 FX Energy, Inc.*.................... 307,500
175,000 Gulf Canada Resources, Ltd.
(Canada)*......................... 1,225,000
125,000 Numac Energy Inc. (Canada)*......... 571,006
65,000 Petro-Canada (Canada)............... 940,652
60,000 Questar Corp........................ 2,175,000
83,800 Rigel Energy Corp. (Canada)*........ 796,229
55,000 Sonat, Inc.......................... 2,530,000
40,000 Suncor, Inc. (Canada)............... 1,780,442
50,000 Williams Companies, Inc............. 2,187,500
---------------
21,789,350
---------------
NATURAL GAS - EXPLORATION & PRODUCTION (6.9%)
175,000 Archer Resources Ltd. (Canada)*..... 722,665
50,000 Barrett Resources Corp.*............ 1,643,750
35,000 Belden & Blake Corp.*............... 787,500
65,000 Burlington Resources, Inc........... 2,851,875
65,000 Chieftain International, Inc.*...... 1,300,000
40,000 Clayton Williams Energy, Inc.*...... 510,000
100,000 Comstock Resources, Inc.*........... 900,000
21,200 Edge Petroleum Co.*................. 368,350
110,000 Enserch Exploration, Inc.*.......... 1,058,750
40,000 Flores & Rucks, Inc.*............... 1,800,000
40,000 KN Energy, Inc...................... 1,580,000
100,000 Ranger Oil Ltd. (Canada)............ 900,000
50,000 St. Mary Land & Exploration Co...... 1,218,750
70,000 Swift Energy Co.*................... 1,505,000
---------------
17,146,640
---------------
OIL INTEGRATED - DOMESTIC (7.9%)
35,000 Amerada Hess Corp................... 1,868,125
32,000 Atlantic Richfield Co............... 4,000,000
12,900 Louisiana Land & Exploration Co..... 615,975
90,000 Occidental Petroleum Corp........... 2,295,000
75,000 Oryx Energy Co.*.................... 1,500,000
50,000 Phillips Petroleum Co............... 2,068,750
60,000 Unocal Corp......................... 2,317,500
100,000 USX-Marathon Group.................. 2,662,500
40,000 Vintage Petroleum, Inc.............. 1,205,000
60,000 Wiser Oil Co........................ 1,125,000
---------------
19,657,850
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
OIL INTEGRATED - INTERNATIONAL (13.3%)
30,000 British Petroleum Co. PLC (ADR)
(United Kingdom).................. $ 3,971,250
85,000 Ente Nazionale Idrocarburi SpA (ADR)
(Italy)........................... 4,228,750
70,000 Exxon Corp.......................... 6,991,250
38,000 Mobil Corp.......................... 4,664,500
30,000 Royal Dutch Petroleum Co. (ADR)
(Netherlands)..................... 5,190,000
40,000 Texaco, Inc......................... 3,955,000
100,000 Total S.A. (ADR) (France)........... 3,962,500
---------------
32,963,250
---------------
OIL REFINERIES (2.2%)
50,000 Ashland, Inc........................ 2,093,750
99,000 Tosco Corp.......................... 2,759,625
20,000 Ultramar Diamond Shamrock Corp...... 610,000
---------------
5,463,375
---------------
TOTAL BASIC ENERGY.................. 97,020,465
---------------
ENERGY DEVELOPMENT & TECHNOLOGY (16.4%)
OIL DRILLING (5.3%)
20,000 Diamond Offshore Drilling, Inc.*.... 1,180,000
30,000 ENSCO International, Inc.*.......... 1,301,250
50,000 Falcon Drilling Company, Inc.*...... 1,693,750
50,000 Helmerich & Payne, Inc.............. 2,112,500
90,000 Marine Drilling Company, Inc.*...... 1,338,750
40,000 Noble Drilling Corp.*............... 710,000
55,000 Patterson Energy, Inc.*............. 1,223,750
50,000 Reading & Bates Corp.*.............. 1,212,500
50,000 Rowan Companies, Inc.*.............. 993,750
25,000 Transocean Offshore, Inc............ 1,396,875
---------------
13,163,125
---------------
OIL EQUIPMENT & SERVICES (10.6%)
55,000 American Oilfield Divers, Inc.*..... 632,500
35,000 Baker Hughes, Inc................... 1,242,500
20,000 BJ Services Co.*.................... 795,000
50,000 Camco International, Inc............ 1,931,250
45,000 Cooper Cameron Corp.*............... 2,947,500
125,000 Dawson Production Services, Inc.*... 1,437,500
60,000 Dresser Industries, Inc............. 1,822,500
120,000 Global Industries Ltd.*............. 2,160,000
35,000 Halliburton Co...................... 2,261,875
75,000 Nabors Industries, Inc.*............ 1,153,125
20,000 Schlumberger, Ltd................... 2,012,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
45,000 SEACOR Holdings, Inc.*.............. $ 2,086,875
40,500 Seitel Inc.......................... 1,377,000
150,000 Veritas DGC Inc.*................... 2,493,750
60,000 Weatherford Enterra, Inc.*.......... 1,800,000
---------------
26,153,875
---------------
TRANSPORTATION (0.5%)
44,000 Teekay Shipping Corp................ 1,210,000
---------------
TOTAL ENERGY DEVELOPMENT &
TECHNOLOGY.......................... 40,527,000
---------------
METALS & BASIC MATERIALS (36.0%)
ALUMINUM (2.0%)
55,000 Alumax Inc.*........................ 2,151,875
40,000 Aluminum Co. of America............. 2,850,000
---------------
5,001,875
---------------
BUILDING MATERIALS (1.2%)
60,000 Caraustar Industries, Inc........... 1,770,000
65,000 Shaw Group, Inc.*................... 1,300,000
---------------
3,070,000
---------------
CHEMICALS (10.4%)
50,000 Du Pont (E.I.) de Nemours & Co.,
Inc............................... 5,362,500
60,000 Eastman Chemical Co................. 3,307,500
90,000 Georgia Gulf Corp................... 2,430,000
50,000 Hercules, Inc....................... 2,325,000
40,000 Imperial Chemical Industries PLC
(ADR) (United Kingdom)............ 1,995,000
140,000 Monsanto Co......................... 5,092,500
85,000 Olin Corp........................... 3,400,000
20,000 Rohm & Haas Co...................... 1,840,000
---------------
25,752,500
---------------
CHEMICALS - DIVERSIFIED (0.5%)
60,000 Engelhard Corp...................... 1,327,500
---------------
CHEMICALS - SPECIALTY (4.5%)
100,000 Asia Pacific Resources Ltd.
(Canada)*......................... 606,636
60,000 Cabot Corp.......................... 1,410,000
75,000 Cytec Industries, Inc.*............. 2,971,875
70,000 IMC Global, Inc..................... 2,441,250
60,000 Morton International, Inc........... 2,475,000
75,000 Polymer Group, Inc.*................ 1,134,375
---------------
11,039,136
---------------
GOLD (4.6%)
80,000 Agnico-Eagle Mines Ltd. (Canada).... 1,140,000
85,000 Barrick Gold Corp. (Canada)......... 2,401,250
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
200,000 Dayton Mining Corp. (Canada)*....... $ 1,062,500
50,000 Getchell Gold Corp.*................ 2,575,000
50,000 Golden Star Resources Ltd.*......... 718,750
35,954 Newmont Mining Corp................. 1,707,815
200,000 Triton Mining Corp. (Canada)*....... 584,710
125,000 TVX Gold, Inc. (Canada)*............ 1,109,375
---------------
11,299,400
---------------
MACHINERY - DIVERSIFIED (1.6%)
55,000 Deere & Co.......................... 2,344,375
85,000 Global Industrial Technologies,
Inc.*............................. 1,508,750
---------------
3,853,125
---------------
METALS - MISCELLANEOUS (2.5%)
50,687 Freeport-McMoran Copper & Gold, Inc.
(Series A)........................ 1,653,663
700,000 M.I.M. Holdings Ltd. (Australia).... 974,207
30,000 RTZ Corp. PLC (ADR) (United
Kingdom).......................... 1,848,750
75,000 Stillwater Mining Co.*.............. 1,715,625
---------------
6,192,245
---------------
PAPER & FOREST PRODUCTS (6.1%)
65,000 Buckeye Cellulose Corp.............. 1,958,125
45,000 Champion International Corp......... 1,985,625
50,000 Fort Howard Corp.*.................. 1,487,500
85,000 Louisiana-Pacific Corp.............. 1,806,250
30,000 Mead Corp........................... 1,747,500
45,000 Temple-Inland, Inc.................. 2,480,625
50,000 Union Camp Corp..................... 2,412,500
20,000 Willamette Industries, Inc.......... 1,280,000
---------------
15,158,125
---------------
POLLUTION CONTROL (0.7%)
50,000 U.S.A. Waste Services, Inc.*........ 1,800,000
---------------
STEEL (1.9%)
225,000 Algoma Steel, Inc. (Canada)*........ 1,175,815
50,000 Nucor Corp.......................... 2,406,250
60,000 Steel Dynamics, Inc.*............... 1,200,000
---------------
4,782,065
---------------
TOTAL METALS & BASIC MATERIALS...... 89,275,971
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $216,151,523)...... 226,823,436
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (6.9%)
U.S. GOVERNMENT AGENCIES (a) (4.0%)
$ 5,000 Federal Home Loan Banks 5.17% due
03/06/97.......................... $ 4,996,410
5,000 Federal Home Loan Mortgage Corp.
5.21% due 03/04/97................ 4,997,829
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $9,994,239)......... 9,994,239
---------------
REPURCHASE AGREEMENT (2.9%)
7,312 The Bank of New York 5.25% due
03/03/97 (dated 02/28/97; proceeds
$7,315,538; collateralized by
$863,272 U.S. Treasury Note 7.50%
due 11/15/01 valued at $919,955
and $6,417,958 U.S. Treasury Note
5.625% due 10/31/97 valued at
$6,538,631) (Identified Cost
$7,312,339)....................... 7,312,339
---------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- ------------------------------------------------------------------
<C> <S> <C>
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $17,306,578)....... $ 17,306,578
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $233,458,101)
(B)........................... 98.4% 244,130,014
OTHER ASSETS IN EXCESS OF
LIABILITIES................... 1.6 3,858,669
----- ------------
NET ASSETS.................... 100.0% $247,988,683
----- ------------
----- ------------
<FN>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost.
The aggregate gross unrealized appreciation is $19,213,468 and the
aggregate gross unrealized depreciation is $8,541,555, resulting in a net
unrealized appreciation of $10,671,913.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $233,458,101)............................ $244,130,014
Receivable for:
Investments sold........................................ 16,067,395
Capital stock sold...................................... 631,369
Dividends............................................... 486,658
Foreign withholding taxes reclaimed..................... 29,242
Prepaid expenses and other assets........................... 32,621
------------
TOTAL ASSETS........................................... 261,377,299
------------
LIABILITIES:
Payable for:
Investments purchased................................... 12,524,343
Capital stock repurchased............................... 416,740
Plan of distribution fee................................ 191,427
Investment management fee............................... 121,339
Accrued expenses............................................ 134,767
------------
TOTAL LIABILITIES...................................... 13,388,616
------------
NET ASSETS:
Paid-in-capital............................................. 215,489,116
Net unrealized appreciation................................. 10,673,012
Accumulated undistributed net investment income............. 50,909
Accumulated undistributed net realized gain................. 21,775,646
------------
NET ASSETS............................................. $247,988,683
------------
------------
NET ASSET VALUE PER SHARE,
18,589,547 SHARES OUTSTANDING (500,000,000 SHARES
AUTHORIZED OF $.01 PAR VALUE).............................
$13.34
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $66,360 foreign withholding tax).......... $ 2,993,820
Interest.................................................... 702,288
------------
TOTAL INCOME........................................... 3,696,108
------------
EXPENSES
Plan of distribution fee.................................... 1,910,070
Investment management fee................................... 1,221,826
Transfer agent fees and expenses............................ 222,190
Registration fees........................................... 74,599
Shareholder reports and notices............................. 55,672
Professional fees........................................... 55,473
Custodian fees.............................................. 34,268
Directors' fees and expenses................................ 16,999
Other....................................................... 2,099
------------
TOTAL EXPENSES......................................... 3,593,196
------------
NET INVESTMENT INCOME.................................. 102,912
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 49,178,705
Net change in unrealized appreciation....................... (15,813,380)
------------
NET GAIN............................................... 33,365,325
------------
NET INCREASE................................................ $ 33,468,237
------------
------------
</TABLE>
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 YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 102,912 $ 743,674
Net realized gain........................................... 49,178,705 9,657,602
Net change in unrealized appreciation....................... (15,813,380) 20,867,725
----------------- -----------------
NET INCREASE........................................... 33,468,237 31,269,001
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (287,205) (476,340)
Net realized gain........................................... (30,377,434) (7,165,637)
----------------- -----------------
TOTAL.................................................. (30,664,639) (7,641,977)
----------------- -----------------
Net increase (decrease) from capital stock transactions..... 92,523,643 (3,777,196)
----------------- -----------------
NET INCREASE........................................... 95,327,241 19,849,828
NET ASSETS:
Beginning of period......................................... 152,661,442 132,811,614
----------------- -----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$50,909 AND $235,202, RESPECTIVELY)..................... $247,988,683 $152,661,442
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997
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.
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
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.
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997, CONTINUED
C. 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.
D. 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 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 pursuant
to which the Fund pays the Distributor compensation, accrued
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997, CONTINUED
daily and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the
implementation 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 Fund's shares redeemed since the Fund's implementation of the
Plan upon which a contingent deferred sales charge has been imposed or upon
which such charge has been waived; or (b) the Fund's average daily net assets
attributable to shares issued, net of related shares redeemed, since
implementation of the Plan. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne by
it and others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares 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 other employees or
selected broker-dealers who engage in or support distribution of the Fund's
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 the Fund's shares to other than current
shareholders and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may be compensated under the
Plan for its opportunity costs in advancing such amounts, which compensation
would be in the form of a carrying charge on any unreimbursed expenses incurred
by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered, may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
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 the investors upon redemption of
shares, if for any reason the Plan is terminated, the Directors 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
$6,803,658 at February 28, 1997.
The Distributor has informed the Fund that for the year ended February 28, 1997,
it received approximately $151,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended February 28, 1997 aggregated
$336,164,177 and $284,502,518, respectively.
For the year ended February 28, 1997, the Fund incurred brokerage commissions of
$263,065 with DWR for portfolio transactions executed on behalf of the Fund. At
February 28, 1997, the Fund's receivable for investments sold included unsettled
trades with DWR of $2,697,660.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At February 28, 1997, the Fund had
transfer agent fees and expenses payable of approximately $4,800.
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 February 28, 1997, the Fund had an accrued pension liability of
$48,913 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 YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 24,642,984 $ 344,947,391 17,740,630 $213,549,836
Reinvestment of dividends and distributions...................... 2,080,543 28,455,203 587,535 7,130,881
----------- -------------- ----------- ------------
26,723,527 373,402,594 18,328,165 220,680,717
Repurchased...................................................... (20,151,281) (280,878,951) (18,637,754) (224,457,913)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... 6,572,246 $ 92,523,643 (309,589) $ (3,777,196)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of February 28, 1997, the Fund had 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 YEAR ENDED FEBRUARY 28
----------------------------------------------------------------------------------------
1997 1996* 1995 1994 1993 1992* 1991 1990 1989 1988*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 12.70 $ 10.77 $ 11.82 $ 11.36 $ 10.20 $ 11.03 $ 11.33 $ 9.93 $ 9.46 $ 9.10
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment
income.......... -- 0.06 0.09 0.09 0.16 0.20 0.25 0.30 0.23 0.20
Net realized and
unrealized gain
(loss).......... 2.66 2.53 (0.24) 1.25 1.18 (0.44) 0.02 1.80 0.72 0.44
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations...... 2.66 2.59 (0.15) 1.34 1.34 (0.24) 0.27 2.10 0.95 0.64
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less dividends
and
distributions
from:
Net investment
income........ (0.02) (0.04) (0.12) (0.09) (0.18) (0.20) (0.28) (0.32) (0.21) (0.28)
Net realized
gain.......... (2.00) (0.62) (0.78) (0.79) -- (0.39) (0.29) (0.38) (0.27) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends
and
distributions... (2.02) (0.66) (0.90) (0.88) (0.18) (0.59) (0.57) (0.70) (0.48) (0.28)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period... $ 13.34 $ 12.70 $ 10.77 $ 11.82 $ 11.36 $ 10.20 $ 11.03 $ 11.33 $ 9.93 $ 9.46
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT
RETURN+.......... 20.88% 24.32% (1.26)% 12.16% 13.31% (1.91)% 2.87% 21.11% 10.29% 7.32%
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.84% 1.90% 1.90% 1.91% 1.96% 1.93% 1.80% 1.81% 1.92% 1.81%
Net investment
income.......... 0.05% 0.52% 0.77% 0.73% 1.46% 1.67% 2.28% 2.57% 2.09% 2.14%
SUPPLEMENTAL DATA:
Net assets, end
of period, in
thousands....... $247,989 $152,661 $132,812 $139,459 $118,496 $113,145 $150,636 $154,741 $136,911 $171,725
Portfolio
turnover rate... 156% 49% 59% 69% 52% 31% 29% 22% 7% 26%
Average
commission rate
paid............ $0.0534 -- -- -- -- -- -- -- -- --
<FN>
- ---------------------
* 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
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 Dean Witter Natural Resource
Development Securities Inc. (the "Fund") at February 28, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the ten years in the period then ended, 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 audits. We conducted our audits 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 audits, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
APRIL 11, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended February 28, 1997, the Fund paid to its
shareholders $1.50 per share from long-term capital gains. For
such period, 21.03% of the income paid qualified for the dividends
received deduction available to corporations.
<PAGE>
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
Konrad Krill
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
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
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
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
GROWTH OF $10,000
<TABLE>
<CAPTION>
DATE TOTAL S&P 500 LIPPER
<S> <C> <C> <C>
February 28, 1987 $10,000 $10,000 $10,000
February 29, 1988 $10,732 $ 9,728 $ 9,782
February 28, 1989 $11,836 $10,879 $10,992
February 28, 1990 $14,334 $12,929 $13,385
February 28, 1991 $14,746 $14,825 $13,141
February 29, 1992 $14,464 $17,200 $12,760
February 28, 1993 $16,390 $19,032 $14,030
February 28, 1994 $18,382 $20,612 $16,794
February 28, 1995 $18,150 $22,129 $15,837
February 29, 1996 $22,564 $29,799 $19,842
February 28, 1997 $27,277(3) $37,601 $24,286
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C>
20.88(1) 13.53(1) 10.56(1)
15.88(2) 13.29(2) 10.56(2)
</TABLE>
___ Fund ___ S&P 500(4) ___ LIPPER(5)
Past performance is not predictive of future returns.
- ----------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-5%,
5 years-2%, 10 years-0). See the Fund's current prospectus for complete
details on fees and sales charges.
(3) Closing value assuming a complete redemption on February 28, 1997.
(4) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a broad-
based index, the performance of which is based on the average performance
of 500 widely held common stocks. The performance of the index does not
include any expenses, fees or charges. The Index is unmanaged and should
not be considered an investment.
(5) The Lipper Natural Resources Funds Average tracks the performance of all
funds which invest more than 65% of their equity commitment in natural
resource stocks, as reported by Lipper Analytical Services, Inc.
