<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE Two World Trade Center,
DEVELOPMENT SECURITIES INC. New York, New York 10048
LETTER TO THE SHAREHOLDERS August 31, 1998
DEAR SHAREHOLDER:
During the six months ended August 31, 1998, commodity and energy prices
continued to fall as a result of increased supply and reduced demand. Energy
supplies were increased by the Organization of Petroleum Exporting Countries'
(OPEC) decision last year to raise its production quota ceiling and Iraq's
renewed participation in oil sales. At the same time, demand fell as a result
of the slide in Asian purchasing power and the warm weather produced by El
Nino.
In the first quarter of 1998, commodity prices approached a ten-year low and,
for a short time, it seemed that they had hit bottom and were poised to turn.
However, the slowdown persisted as the so-called "Asian contagion" spread.
Currencies weakened from Canada to Latin America to Russia, hurting the ability
of purchasers to buy dollar-based commodities, especially oil. Lower share
prices have resulted in increased merger activity, most prominently British
Petroleum and Amoco, and companies have used the opportunity to announce share
repurchases.
The most notable recent shift in energy fundamentals has been the attempt by
OPEC and non-OPEC members to tighten production, an attempt viewed by the
markets with skepticism even though it appears that these attempts have been
somewhat successful. Both oil and natural gas inventories have been relatively
high for most of this year, further dampening expectations that prices would
rebound quickly.
PERFORMANCE AND PORTFOLIO
During the six-month period under review, financial markets were highly
volatile as they reacted to the spread of the Asian economic crisis. Energy and
commodity stocks were particularly hard hit during this time as these companies
dealt with all the global issues affecting the broader market, as well as
conditions unique to the sector. During this time, the average Natural
Resources Fund, as measured by Lipper Analytical Services Inc., was down 32.98
percent. Morgan Stanley Dean Witter Natural Resource Development Securities was
no exception and its Class B shares ended the
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
LETTER TO THE SHAREHOLDERS August 31, 1998
period down 30.62 percent. For the same period, the Fund's Class A, C and D
shares had total returns of -30.34 percent, -30.62 percent and -30.23 percent,
respectively. THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE
OF DIFFERING EXPENSES. The broader market, as measured by the Standard & Poor's
500 Composite Stock Price Index (S&P 500), fared better than the natural
resources sector, but was down 8.08 percent. It is important to remember that,
as a sector fund, Morgan Stanley Dean Witter Natural Resources Development
Securities invests in a relatively small portion of the market and, thus, is
likely to produce returns that differ significantly from the broad market.
At period end, the Fund was nearly fully invested, with approximately 60
percent exposure to energy and 38 percent to basic industries. As valuations in
natural resources markets have become increasingly attractive, we have used the
opportunity to gain exposure to companies that are leaders in their sectors.
During the quarter, we initiated new positions in Solutia (chemicals) and Nucor
(steel), and have added to our positions in Imperial Chemical (chemicals) and
Phelps Dodge (minerals). At the same time, we have taken selective profits on
some chemical companies such as Olin, Sigma-Aldrich and Monsanto.
LOOKING AHEAD
We expect that the volatility in global financial markets will continue to
affect the Fund over the near term. In particular, Japan's ability to solve its
banking problems and resume lending to the region will play a large role in the
degree that worldwide demand for energy resumes its growth. However, we believe
that we have already experienced most of the damage to commodity and share
prices. Basic industries and energy are selling at very compressed valuations,
even given lower earnings forecasts. Seasonally, we are approaching the winter
heating season, and rough weather in the Gulf of Mexico has begun to interrupt
the flow of gas supplies, both of which may improve the supply/demand
relationship.
We appreciate your support of Morgan Stanley Dean Witter Natural Resource
Development Securities and look forward to continuing to serve your investment
needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
2
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS August 31, 1998 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.5%)
BASIC ENERGY (45.6%)
Canadian Oil & Gas (1.3%)
45,000 Chieftain International, Inc.* .................................. $ 630,000
160,000 Gulf Canada Resources, Ltd. (Canada)* ........................... 480,000
57,600 Numac Energy, Inc.* ............................................. 136,242
194,831 Ranger Oil Ltd. ................................................ 1,035,040
--------------
2,281,282
--------------
Crude Products (0.1%)
10,000 Noble Affiliates, Inc. .......................................... 231,250
--------------
Integrated Oil Companies (22.7%)
35,000 Atlantic Richfield Co. .......................................... 2,030,000
60,000 British Petroleum Co. PLC (ADR)(United Kingdom) ................. 4,387,500
20,000 Chevron Corp. .................................................. 1,481,250
115,000 Exxon Corp. .................................................... 7,525,313
95,000 Mobil Corp. ..................................................... 6,566,875
35,000 Pennzoil Co. .................................................... 1,251,250
50,000 Phillips Petroleum Co. ......................................... 2,040,625
112,000 Royal Dutch Petroleum Co. (ADR)(Netherlands) .................... 4,452,000
95,000 Texaco, Inc. .................................................... 5,278,437
70,000 Unocal Corp. .................................................... 2,191,875
95,000 Yacimentos Petroliferos Fiscales S.A. (ADR)(Class D)(Argentina) . 2,101,875
--------------
39,307,000
--------------
Multi-Sector Companies (0.7%)
40,000 Tenneco, Inc. ................................................... 1,267,500
--------------
Natural Gas -Distribution (1.7%)
45,000 KN Energy, Inc. ................................................. 1,760,625
70,000 Questar Corp. ................................................... 1,137,500
--------------
2,898,125
--------------
Oil & Gas Production (11.6%)
60,000 Anardarko Petroleum Corp. ....................................... 1,725,000
80,000 Apache Corp. .................................................... 1,830,000
50,000 Barrett Resources Corp.* ........................................ 1,015,625
70,000 Burlington Resources, Inc. ...................................... 2,069,375
55,000 Cabot Oil & Gas Corp. (Class A) ................................. 701,250
25,000 Devon Energy Corp. ............................................. 660,937
50,000 Edge Petroleum Corp.* ........................................... 431,250
42,000 EEX Corp.* ...................................................... 186,375
40,000 Enron Oil & Gas Co. ............................................. $ 520,000
45,000 Ente Nazionale Idrocarburi SpA (ADR)(Italy) ..................... 2,278,125
17,500 Forcenergy Inc. ................................................. 99,531
40,000 Newfield Exploration Co. ....................................... 627,500
22,500 Nuevo Energy Co.* ............................................... 367,031
90,000 Occidental Petroleum Corp. ...................................... 1,665,000
68,000 Ocean Energy, Inc.* ............................................. 603,500
65,000 Oryx Energy Co.* ................................................ 808,438
65,000 Range Resources Corp. ........................................... 442,812
45,000 Seagull Energy Corp.* ........................................... 399,375
25,000 Snyder Oil Corp. ................................................ 371,875
55,000 St. Mary Land & Exploration Co. ................................. 907,500
71,500 Swift Energy Co.* ............................................... 630,094
10,000 Triton Energy Ltd.* ............................................. 115,000
55,000 Union Pacific Resources Group, Inc. ............................. 470,938
80,000 Vintage Petroleum, Inc. ........................................ 625,000
100,000 Wiser Oil Co. ................................................... 593,750
--------------
20,145,281
--------------
Oil Refining/Marketing (2.3%)
40,000 Petro-Canada (Canada) ........................................... 382,531
75,000 Total S.A. (ADR)(France) ........................................ 3,604,688
--------------
3,987,219
--------------
Oil/Gas Transmission (5.2%)
70,000 El Paso Energy Corp. ............................................ 1,736,875
50,000 Enron Corp. ..................................................... 2,115,625
65,000 Sonat, Inc. ..................................................... 1,759,063
145,000 Williams Companies, Inc. ........................................ 3,335,000
--------------
8,946,563
--------------
TOTAL BASIC ENERGY .............................................. 79,064,220
--------------
ENERGY DEVELOPMENT & TECHNOLOGY (13.1%)
Contract Drilling (3.4%)
75,000 ENSCO International, Inc. ....................................... 787,500
30,000 Global Marine, Inc.* ............................................ 281,250
40,000 Marine Drilling Company, Inc.* .................................. 360,000
65,000 Nabors Industries, Inc. ......................................... 767,812
25,000 Noble Drilling Corp.* ........................................... 275,000
20,000 Patterson Energy, Inc.* ......................................... 82,500
25,000 Precision Drilling Corp. (Class A)(Canada)* ..................... 270,313
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS August 31, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
10,000 Pride International, Inc.* ...................................... $ 79,375
88,500 R & B Falcon Corp.* ............................................. 796,500
90,000 Rowan Companies, Inc.* .......................................... 832,500
25,000 Santa Fe International Corp. .................................... 337,500
40,000 Transocean Offshore, Inc. ....................................... 982,500
--------------
5,852,750
--------------
Diversified Manufacturing (2.2%)
65,000 AlliedSignal, Inc. .............................................. 2,230,312
65,000 Dresser Industries, Inc. ........................................ 1,661,562
--------------
3,891,874
--------------
Oil -Exploration & Production (0.1%)
32,500 Stolt Comex Seaway, S.A. (United Kingdom)* ...................... 182,813
--------------
Oilfield Services/Equipment (7.4%) .............................
50,000 Baker Hughes, Inc. .............................................. 912,500
40,000 Camco International, Inc. ....................................... 2,010,000
60,000 Cooper Cameron Corp.* ........................................... 1,275,000
25,000 Dawson Production Services, Inc.* ............................... 390,625
110,000 Global Industries Ltd.* ......................................... 1,031,250
60,000 Halliburton Co. ................................................. 1,593,750
10,000 Input/Output, Inc.* ............................................. 97,500
5,000 National-Oilwell, Inc.* ......................................... 38,750
20,000 Offshore Logistics, Inc.* ....................................... 180,000
20,000 Petroleum Geo -Services ASA (ADR)(Norway)* ...................... 260,000
46,000 Schlumberger, Ltd. ............................................. 2,015,375
25,000 Smith International, Inc.* ...................................... 440,625
65,000 Stolt Comex Seaway, S.A. (United Kingdom)* ...................... 520,000
30,000 Trico Marine Service, Inc.* ..................................... 174,375
55,000 UTI Energy Corp.* ............................................... 360,938
90,000 Varco International, Inc.* ...................................... 641,250
65,000 Veritas DGC Inc.* ............................................... 975,000
--------------
12,916,938
--------------
TOTAL ENERGY DEVELOPMENT & TECHNOLOGY ........................... 22,844,375
--------------
METALS AND BASIC MATERIALS (40.8%)
Aluminum (3.1%)
65,333 Aluminum Co. of America ......................................... 3,911,813
30,000 Reynolds Metals Co. ............................................ 1,438,125
--------------
5,349,938
--------------
Building Materials (0.7%)
30,000 Southdown, Inc. ................................................. $ 1,267,500
--------------
Building Products (2.2%)
60,000 American Standard Companies, Inc.* .............................. 2,347,500
30,000 Armstrong World Industries Inc. ................................. 1,440,000
--------------
3,787,500
--------------
Construction/Ag Equip/Trucks (0.9%)
45,000 Deere & Co. ..................................................... 1,482,187
--------------
Containers/Packaging (2.0%)
52,500 Owens-Illinois, Inc.* ........................................... 1,637,344
40,000 Temple-Inland, Inc. ............................................. 1,792,500
--------------
3,429,844
--------------
Environmental Services (1.3%)
75,000 Allied Waste Industries, Inc.* .................................. 1,406,250
Casella Waste Systems Inc.
35,500 (Class A)* ...................................................... 891,937
--------------
2,298,187
--------------
Fluid Controls (0.9%)
55,000 Parker-Hannifin Corp. .......................................... 1,595,000
--------------
Home Building (0.8%)
40,000 Centex Corp. ................................................... 1,415,000
--------------
Industrial Machinery/Components (1.9%)
20,000 Halter Marine Group, Inc.* ...................................... 180,000
40,000 Ingersoll-Rand Co. .............................................. 1,590,000
60,000 Kennametal, Inc. ................................................ 1,556,250
--------------
3,326,250
--------------
Industrial Specialties (0.8%)
90,000 Buckeye Technologies Inc.* ...................................... 1,423,125
--------------
Major Chemicals (8.6%)
35,000 Dow Chemical Co. ................................................ 2,730,000
75,000 Du Pont (E.I.) de Nemours & Co., Inc. ........................... 4,326,562
50,000 Hercules, Inc. .................................................. 1,278,125
40,000 Imperial Chemical Industries PLC (ADR)(United Kingdom) .......... 1,705,000
70,000 Monsanto Co. .................................................... 3,828,125
50,000 Solutia, Inc. ................................................... 1,121,875
--------------
14,989,687
--------------
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS August 31, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Metals Fabrications (1.6%)
116,500 EVI Weatherford, Inc.* .......................................... $ 1,776,625
30,000 Reliance Steel & Aluminum Co. ................................... 915,000
--------------
2,691,625
--------------
Other Metals/Minerals (2.6%)
100,687 Freeport-McMoran Copper & Gold, Inc. (Class A) .................. 1,145,315
20,000 Freeport-McMoran Copper & Gold, Inc. (Class B) .................. 232,500
50,000 Phelps Dodge Corp. .............................................. 2,237,500
22,000 Rio Tinto PLC (ADR)(United Kingdom) ............................. 823,625
--------------
4,438,940
--------------
Paper (6.3%)
50,000 Boise Cascade Corp. ............................................. 1,221,875
40,000 Bowater, Inc. ................................................... 1,512,500
50,000 Champion International Corp. .................................... 1,650,000
100,000 Mead Corp. ...................................................... 2,737,500
50,000 Union Camp Corp. ................................................ 1,853,125
80,000 Willamette Industries, Inc. ..................................... 1,970,000
--------------
10,945,000
--------------
Precious Metals (2.1%)
140,000 Barrick Gold Corp. (Canada) ..................................... 1,820,000
75,000 Getchell Gold Corp.* ............................................ 675,000
80,954 Newmont Mining Corp. ............................................ 1,108,058
--------------
3,603,058
--------------
Specialty Chemicals (2.7%)
40,000 Avery Dennison Corp. ............................................ 2,147,500
75,000 Cabot Corp. ..................................................... 1,631,250
40,000 Cytec Industries, Inc.* ......................................... 915,000
--------------
4,693,750
--------------
Specialty Steel (0.6%)
30,000 Nucor Corp. ..................................................... 1,078,125
--------------
Steel/Iron Ore (1.7%)
80,000 AK Steel Holding Corp. .......................................... $ 1,110,000
90,000 Bethlehem Steel Corp.* .......................................... 646,875
45,000 Lone Star Technologies, Inc.* ................................... 447,188
70,000 Steel Dynamics, Inc.* ........................................... 765,625
--------------
2,969,688
--------------
TOTAL METALS & BASIC MATERIALS .................................. 70,784,404
--------------
TOTAL COMMON STOCKS
(Identified Cost $218,161,490) .................................. 172,692,999
--------------
PRINCIPAL
AMOUNT IN
THOUSANDS
---------
SHORT-TERM INVESTMENT (0.8%)
REPURCHASE AGREEMENT
The Bank of New York 5.75% due 09/01/98 (dated 08/31/98;
$ 1,381 proceeds $1,381,415)(a) (Identified Cost $1,381,194) ............ 1,381,194
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $219,542,684)(b) . 100.3% 174,074,193
LIABILITIES IN EXCESS OF OTHER
ASSETS ............................ (0.3) (589,838)
-------- -------------
NET ASSETS......................... 100.0% $173,484,355
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $963,665 U.S. Treasury Bond 9.125% due 05/15/18
valued at $1,408,818.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$12,774,671 and the aggregate gross unrealized depreciation is
$58,243,162, resulting in net unrealized depreciation of $45,468,491.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost
$219,542,684).................................................... $174,074,193
Receivable for:
Dividends....................................................... 532,568
Capital stock sold.............................................. 104,903
Foreign withholding taxes reclaimed............................. 34,594
Prepaid expenses and other assets................................. 167,968
---------------
TOTAL ASSETS ................................................... 174,914,226
---------------
LIABILITIES:
Payable for:
Capital stock repurchased....................................... 761,699
Investments purchased........................................... 299,269
Plan of distribution fee........................................ 165,771
Investment management fee....................................... 108,601
Payable to bank................................................... 500
Accrued expenses and other payables............................... 94,031
---------------
TOTAL LIABILITIES .............................................. 1,429,871
---------------
NET ASSETS ..................................................... $173,484,355
==============-
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................... $212,826,073
Net unrealized depreciation....................................... (45,468,491)
Accumulated net investment loss................................... (256,158)
Accumulated undistributed net realized gain....................... 6,382,931
---------------
NET ASSETS ..................................................... $173,484,355
===============
CLASS A SHARES:
Net Assets........................................................ $459,893
Shares Outstanding (500,000,000 authorized $.01 par value) ....... 48,117
NET ASSET VALUE PER SHARE ...................................... $9.56
===============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)................ $10.09
===============
CLASS B SHARES:
Net Assets........................................................ $164,372,922
Shares Outstanding (500,000,000 authorized $.01 par value) ....... 17,332,773
NET ASSET VALUE PER SHARE ...................................... $9.48
===============
CLASS C SHARES:
Net Assets........................................................ $918,826
Shares Outstanding (500,000,000 authorized $.01 par value) ....... 96,946
NET ASSET VALUE PER SHARE ...................................... $9.48
===============
CLASS D SHARES:
Net Assets........................................................ $7,732,714
Shares Outstanding (500,000,000 authorized $.01 par value) ....... 806,643
NET ASSET VALUE PER SHARE ...................................... $9.59
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended August 31, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $72,043 foreign withholding
tax).............................................. $ 2,092,584
Interest........................................... 111,497
--------------
TOTAL INCOME .................................... 2,204,081
--------------
EXPENSES ..........................................
Plan of distribution fee (Class A shares) ......... 599
Plan of distribution fee (Class B shares) ......... 1,271,807
Plan of distribution fee (Class C shares) ......... 6,798
Investment management fee.......................... 822,340
Transfer agent fees and expenses................... 182,828
Registration fees.................................. 47,512
Shareholder reports and notices.................... 28,394
Professional fees.................................. 24,657
Custodian fees..................................... 13,762
Directors' fees and expenses....................... 8,769
Other.............................................. 3,594
--------------
TOTAL EXPENSES .................................. 2,411,060
--------------
NET INVESTMENT LOSS ............................. (206,979)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ................................. 7,136,617
Net change in unrealized appreciation ............. (85,087,346)
--------------
NET LOSS ........................................ (77,950,729)
--------------
NET DECREASE ...................................... $(78,157,708)
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY 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, 1998 FEBRUARY 28, 1998*
- ------------------------------------------------------ --------------- ------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (206,979) $ (351,725)
Net realized gain...................................... 7,136,617 13,069,671
Net change in unrealized appreciation ................. (85,087,346) 28,945,843
--------------- ------------------
NET INCREASE (DECREASE).............................. (78,157,708) 41,663,789
--------------- ------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares........................................ -- (105,075)
Net realized gain
Class A shares........................................ (5,526) (9,967)
Class B shares........................................ (2,604,507) (32,041,346)
Class C shares........................................ (14,135) (36,377)
Class D shares........................................ (114,256) (416,177)
--------------- ------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................... (2,738,424) (32,608,942)
--------------- ------------------
Net increase (decrease) from capital stock
transactions.......................................... (33,910,265) 31,247,222
--------------- ------------------
NET INCREASE (DECREASE).............................. (114,806,397) 40,302,069
NET ASSETS:
Beginning of period.................................... 288,290,752 247,988,683
--------------- ------------------
END OF PERIOD
(Including net investment losses of $256,158 and
$49,179, respectively)............................... $ 173,484,355 $288,290,752
=============== ==================
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Natural Resource Development Securities Inc. (the
"Fund"), formerly Dean Witter Natural Resource Development Securities Inc., 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 and 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., 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
9
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1998 (unaudited) continued
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.
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. 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.
E. 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
10
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1998 (unaudited) continued
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 Morgan Stanley 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 will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -up
to 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 Fund (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 Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C -up to 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 commissions for sales
of these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors 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 Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor
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.
11
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1998 (unaudited) continued
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 $6,074,642 at August 31, 1998.
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 Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representative may be reimbursed in the subsequent
calendar year. For the six months ended August 31, 1998, 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,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $204,678 and $1,323,
respectively and received $5,231 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, 1998
aggregated $31,030,453 and $59,125,971, respectively.
For the six months ended August 31, 1998, the Fund incurred brokerage
commissions of $28,175 with DWR for portfolio transactions executed on behalf
of the Fund.
For the six months ended August 31, 1998, the Fund incurred $6,500 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $5,000.
12
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1998 (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. Aggregate pension costs for the six months ended August 31,
1998 included in Directors' fees and expenses in the Statement of Operations
amounted to $3,334. At August 31, 1998, the Fund had an accrued pension
liability of $51,519 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, 1998 FEBRUARY 28, 1998*+
------------------------------ -------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ....................................... 35,391 $ 494,327 27,229 $ 407,922
Reinvestment of distributions............... 384 5,103 673 8,808
Redeemed.................................... (9,939) (145,184) (5,621) (78,162)
------------- --------------- -------------- ---------------
Net increase -Class A....................... 25,836 354,246 22,281 338,568
------------- --------------- -------------- ---------------
CLASS B SHARES
Sold ....................................... 6,394,840 89,192,371 17,476,686 251,041,315
Reinvestment of dividends and
distributions.............................. 184,797 2,441,170 2,235,739 29,908,674
Redeemed ................................... (9,037,852) (123,716,173) (17,865,123) (255,937,003)
------------- --------------- -------------- ---------------
Net increase (decrease) -Class B ........... (2,458,215) (32,082,632) 1,847,302 25,012,986
------------- --------------- -------------- ---------------
CLASS C SHARES
Sold ....................................... 331,769 4,699,319 214,875 2,958,438
Reinvestment of distributions............... 1,001 13,227 2,477 32,320
Redeemed ................................... (343,604) (4,838,788) (109,573) (1,457,551)
------------- --------------- -------------- ---------------
Net increase (decrease) -Class C ........... (10,834) (126,242) 107,779 1,533,207
------------- --------------- -------------- ---------------
CLASS D SHARES
Sold ....................................... 38,952 562,599 292,553 4,265,324
Reinvestment of distributions............... 8,305 110,702 30,695 402,418
Redeemed ................................... (188,177) (2,728,938) (21,545) (305,281)
------------- --------------- -------------- ---------------
Net increase (decrease) -Class D............ (140,920) (2,055,637) 301,703 4,362,461
------------- --------------- -------------- ---------------
Net increase (decrease) in Fund ............ (2,584,133) $ (33,910,265) 2,279,065 $ 31,247,222
============= =============== ============== ===============
</TABLE>
- ------------
+ On July 28, 1997, 645,861 shares representing $9,326,226 were transferred
to Class D.
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through February 28, 1998.
13
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS August 31, 1998 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $621,000 during fiscal 1998.
As of February 28, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
14
<PAGE>
MORGAN STANLEY 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
MONTHS ENDED FOR THE YEAR ENDED FEBRUARY 28
AUGUST 31, ---------------------------------------------------------
1998++ 1998*++ 1997 1996** 1995 1994
- ---------------------------------------- ---------------- ---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 13.81 $13.34 $12.70 $10.77 $11.82 $11.36
---------------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss)............. (0.01) (0.02) -- 0.06 0.09 0.09
Net realized and unrealized gain (loss) . (3.79) 2.18 2.66 2.53 (0.24) 1.25
---------------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (3.80) 2.16 2.66 2.59 (0.15) 1.34
---------------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income................... -- (0.01) (0.02) (0.04) (0.12) (0.09)
Net realized gain....................... (0.53) (1.68) (2.00) (0.62) (0.78) (0.79)
---------------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions ...... (0.53) (1.69) (2.02) (0.66) (0.90) (0.88)
---------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period .......... $ 9.48 $13.81 $13.34 $12.70 $10.77 $11.82
================ ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ................ (30.62)%(1) 16.93 % 20.88% 24.32% (1.26)% 12.16%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 1.84 %(2)(3) 1.80 % 1.84% 1.90% 1.90 % 1.91%
Net investment income (loss)............. (0.20)%(2)(3) (0.15)% 0.05% 0.52% 0.77 % 0.73%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $164,373 $273,333 $247,989 $152,661 $132,812 $139,459
Portfolio turnover rate ................. 12 %(1) 67 % 156% 49% 59 % 69%
</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.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
AUGUST 31, FEBRUARY 28,
1998++ 1998++
- ------------------------------------------ ---------------- ------------------
(UNAUDITED)
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 13.87 $14.44
---------------- ------------------
Net investment income...................... 0.04 0.04
Net realized and unrealized loss........... (3.82) (0.10)
---------------- ------------------
Total from investment operations .......... (3.78) (0.06)
---------------- ------------------
Less distributions from net realized gain (0.53) (0.51)
---------------- ------------------
Net asset value, end of period ............ $ 9.56 $13.87
================ ==================
TOTAL INVESTMENT RETURN+ .................. (30.34)%(1) (0.22)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 1.09 %(2)(3) 1.11 %(2)
Net investment income ..................... 0.55 %(2)(3) 0.45 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $460 $309
Portfolio turnover rate.................... 12 %(1) 67 %(1)
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 13.81 $14.44
---------------- ------------------
Net investment loss ....................... (0.01) (0.02)
Net realized and unrealized loss .......... (3.79) (0.10)
---------------- ------------------
Total from investment operations .......... (3.80) (0.12)
---------------- ------------------
Less distributions from net realized gain (0.53) (0.51)
---------------- ------------------
Net asset value, end of period ............ $ 9.48 $13.81
================ ==================
TOTAL INVESTMENT RETURN+ .................. (30.62)%(1) (0.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 1.84 %(2)(3) 1.87 %(2)
Net investment loss ....................... (0.20) %(2)(3) (0.23)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $919 $1,488
Portfolio turnover rate.................... 12 %(1) 67 %(1)
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
AUGUST 31, FEBRUARY 28,
1998++ 1998++
- ------------------------------------------ ---------------- ------------------
(UNAUDITED)
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 13.89 $14.44
---------------- ------------------
Net investment income...................... 0.05 0.07
Net realized and unrealized loss........... (3.82) (0.11)
---------------- ------------------
Total from investment operations .......... (3.77) (0.04)
---------------- ------------------
Less distributions from net realized gain (0.53) (0.51)
---------------- ------------------
Net asset value, end of period ............ $ 9.59 $13.89
================ ==================
TOTAL INVESTMENT RETURN+ .................. (30.23)%(1) (0.08)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.84 %(2)(3) 0.84 %(2)
Net investment income...................... 0.80 %(2)(3) 0.82 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $7,733 $13,161
Portfolio turnover rate.................... 12 %(1) 67 %(1)
</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.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day
of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn MORGAN STANLEY
John R. Haire DEAN WITTER
Wayen E. Hedien NATURAL RESOURCE
Dr. Manuel H. Johnson DEVELOPMENT
Michael E. Nugent SECURITIES
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
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors 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.
SEMIANNUAL REPORT
AUGUST 31, 1998
