<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NOS.: 2-70421
811-3129
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 24 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 25 /X/
-------------------
DEAN WITTER NATURAL RESOURCE DEVELOPMENT
SECURITIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
_X_ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
Amending the Prospectus and Updating Financial Statements
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<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<S> <C>
ITEM CAPTION
- --------------------------------------------- -------------------------------------------------------------------
PART A PROSPECTUS
1. ........................................ Cover Page
2. ........................................ Prospectus Summary; Summary of Fund Expenses
3. ........................................ Financial Highlights; Performance Information
4. ........................................ Investment Objective and Policies; The Fund and its Management;
Cover Page; Investment Restrictions; Prospectus Summary
5. ........................................ The Fund and Its Management; Back Cover; Investment Objective and
Policies
6. ........................................ Dividends, Distributions and Taxes; Additional Information
7. ........................................ Purchase of Fund Shares; Shareholder Services; Redemptions and
Repurchases
8. ........................................ Purchase of Fund Shares; Redemptions and Repurchases; Shareholder
Services
9. ........................................ Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ........................................ Cover Page
11. ........................................ Table of Contents
12. ........................................ The Fund and Its Management
13. ........................................ Investment Practices and Policies; Investment Restrictions;
Portfolio Transactions and Brokerage
14. ........................................ The Fund and Its Management; Directors and Officers
15. ........................................ Directors and Officers
16. ........................................ The Fund and Its Management; Custodian and Transfer Agent;
Independent Accountants
17. ........................................ Portfolio Transactions and Brokerage
18. ........................................ Shares of the Fund
19. ........................................ Purchase of Fund Shares; Redemptions and Repurchases; Financial
Statements; Determination of Net Asset Value; Shareholder Services
20. ........................................ Dividends, Distributions and Taxes
21. ........................................ The Distributor; Purchase of Fund Shares
22. ........................................ Performance Information
23. ........................................ Experts
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
APRIL 27, 1998
Dean Witter Natural Resource Development Securities Inc. (the
"Fund") is an open-end, diversified management investment company whose
investment objective is capital growth. The Fund invests primarily in common
stock of companies in the natural resources and related areas, including
companies engaged in the exploration for and development, production and
distribution of natural resources or in the development of energy-efficient
technologies or other natural resource related supplies or products. (See
"Investment Objective and Policies.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated April 27, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and its Management/9
Investment Objective and Policies/9
Risk Considerations and
Investment Practices/11
Investment Restrictions/15
Purchase of Fund Shares/16
Shareholder Services/27
Redemptions and Repurchases/30
Dividends, Distributions and Taxes/31
Performance Information/32
Additional Information/33
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dean Witter
Natural Resource Development
Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
The The Fund, a Maryland corporation, is an open-end, diversified management investment company investing primarily
Fund in common stock of companies in the natural resources and related areas.
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Shares Offered Common Stock with $0.01 par value (see page 33). The Fund offers four Classes of shares, each with a different
combination of sales charges, ongoing fees and other features (see pages 16-26).
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Minimum The minimum initial investment for each Class is $1,000; ($100 if the account is opened through EasyInvest-SM-).
Purchase Class D shares are only available to persons investing $5 million ($25 million for certain qualified plans) or
more and to certain other limited categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) investment for Class D shares, and subject to the $1,000 minimum initial investment for each Class
of the Fund, an investor's existing holdings of Class A shares and shares of funds for which Dean Witter
InterCapital Inc. serves as investment manager ("Dean Witter Funds") that are sold with a front-end sales
charge, and concurrent investments in Class D shares of the Fund and other Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent investment is $100 (see page 16).
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Investment The investment objective of the Fund is capital growth (see page 9).
Objective
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies and other portfolios with assets of approximately $114
billion at March 31, 1998 (see page 9).
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Management The Investment Manager receives a monthly fee at an annual rate of 0.625 of 1% of daily net assets up to $250
Fee million and 0.50 of 1% of daily net assets over $250 million (see page 9).
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Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan pursuant to Rule
Distribution Fee 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the distribution fees paid by the
Class A, Class B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee payable by Class A and
a portion of the 12b-1 fee payable by each of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within the meaning of the National Association of
Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1 fee, if any, is characterized as an
asset-based sales charge (see pages 16 and 25).
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Alternative Four classes of shares are offered:
Purchase
Arrangements - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class A shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 0.25% of average daily net assets of the Class (see pages 16, 19 and 25).
</TABLE>
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2
<PAGE>
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<TABLE>
<S> <C>
- Class B shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC
(scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the aggregate current value of a Class B account with the Fund
falls below the aggregate amount of the investor's purchase payments made during the six years preceding the
redemption. A different CDSC schedule applies to investments by certain qualified plans. Class B shares are also
subject to a 12b-1 fee assessed at the annual rate of 1.0% of the lesser of: (a) the average daily net sales of
the Fund's Class B shares since the inception of the 12b-1 Plan on July 2, 1984 or (b) the average daily net
assets of Class B attributable to shares issued since the inception of the 12b-1 Plan. All shares of the Fund
held prior to July 28, 1997, 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), have
been designated Class B shares. 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) have been
designated Class D shares. Shares held before May 1, 1997 that have been designated Class B shares will convert
to Class A shares in May, 2007. In all other instances, Class B shares convert to Class A shares approximately
ten years after the date of the original purchase (see pages 16, 22 and 25).
- Class C shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class C shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 1.0% of average daily net assets of the Class (see pages 16, 24 and 25).
- Class D shares are offered only to investors meeting an initial investment minimum of $5 million ($25 million
for certain qualified plans) and to certain other limited categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not subject to any 12b-1 fee (see pages 16, 24 and 25).
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid at least once
Capital Gains each year. The Fund may, however, determine to retain all or part of any net long-term capital gains in any year
Distributions for reinvestment. Dividends and capital gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset value unless the shareholder elects to receive
cash. Shares acquired by dividend and distribution reinvestment will not be subject to any sales charge or CDSC
(see pages 27 and 31).
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed if the total value of the account is less than $100,
or, if the account was opened through EasyInvest-SM-, if after twelve months the shareholder has invested less
than $1,000 in the account (see page 30).
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Risks The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio securities.
Emphasis on natural resources may result in exposure of some companies to foreign political and currency risks
and substantial price fluctuations (see page 11). Investors should review the investment objective and policies
of the Fund carefully and consider their ability to assume the risks involved in purchasing shares of the Fund
(9-14). The Fund may also invest in futures and options which may be considered speculative in nature and may
involve greater risks than those customarily assumed by other investment companies which do not invest in such
instruments (see page 13). In addition, the investor is directed to the discussions of foreign securities on
pages 11-12.
</TABLE>
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
3
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are based on
the expenses and fees for the fiscal year ended February 28, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- ------- --------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds)................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Management Fees................................................................. 0.61% 0.61% 0.61% 0.61%
12b-1 Fees (5) (6).............................................................. 0.25% 1.00%(7) 1.00% None
Other Expenses.................................................................. 0.20% 0.20% 0.20% 0.20%
Total Fund Operating Expenses (8)............................................... 1.06% 1.81% 1.81% 0.81%
</TABLE>
- ------------
(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES-- LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.25% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS ARE
CURRENTLY EACH CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS
MADE FOR PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE
REMAINDER OF THE 12b-1 FEE, IF ANY, IS AN ASSET-BASED SALES CHARGE, AND IS A
DISTRIBUTION FEE PAID TO THE DISTRIBUTOR TO COMPENSATE IT FOR THE SERVICES
PROVIDED AND THE EXPENSES BORNE BY THE DISTRIBUTOR AND OTHERS IN THE
DISTRIBUTION OF THE FUND'S SHARES (SEE "PURCHASE OF FUND SHARES--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) THE 12b-1 FEE HAS BEEN RESTATED TO REFLECT WHAT THE FEE WOULD HAVE BEEN IF
THE SHARES THAT HAVE BEEN DESIGNATED CLASS D SHARES WERE NOT INCLUDED IN THE
FUND AS OF FEBRUARY 28, 1998. THE ACTUAL 12b-1 FEE WAS 0.99%.
(8) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO
JULY 28, 1997. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE
WITH RESPECT TO THOSE CLASSES, ARE ESTIMATES BASED UPON THE SUM OF 12b-1
FEES, MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
4
<PAGE>
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<TABLE>
<CAPTION>
EXAMPLES 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) a
5% annual return and (2) redemption at the end of each time period:
Class A................................................................ $ 63 $ 84 $ 108 $ 175
Class B................................................................ $ 68 $ 87 $ 118 $ 213
Class C................................................................ $ 28 $ 57 $ 98 $ 213
Class D................................................................ $ 8 $ 26 $ 45 $ 100
You would pay the following expenses on the same $1,000 investment assuming
no redemption at the end of the period:
Class A................................................................ $ 63 $ 84 $ 108 $ 175
Class B................................................................ $ 18 $ 57 $ 98 $ 213
Class C................................................................ $ 18 $ 57 $ 98 $ 213
Class D................................................................ $ 8 $ 26 $ 45 $ 100
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see "
The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of capital stock
outstanding throughout each period have been audited by Price Waterhouse LLP
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
Selected ratios and per share data for a share of capital stock outstanding
throughout each period.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------------------------------------
CLASS B SHARES 1998*++ 1997 1996** 1995 1994 1993 1992** 1991 1990 1989
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 13.34 $ 12.70 $ 10.77 $ 11.82 $ 11.36 $ 10.20 $ 11.03 $ 11.33 $ 9.93 $ 9.46
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income
(loss)................... (0.02) -- 0.06 0.09 0.09 0.16 0.20 0.25 0.30 0.23
Net realized and
unrealized gain (loss)... 2.18 2.66 2.53 (0.24) 1.25 1.18 (0.44) 0.02 1.80 0.72
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............... 2.16 2.66 2.59 (0.15) 1.34 1.34 (0.24) 0.27 2.10 0.95
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions from:
Net investment
income................. (0.01) (0.02) (0.04) (0.12) (0.09) (0.18) (0.20) (0.28) (0.32) (0.21)
Net realized gain...... (1.68) (2.00) (0.62) (0.78) (0.79) -- (0.39) (0.29) (0.38) (0.27)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............ (1.69) (2.02) (0.66) (0.90) (0.88) (0.18) (0.59) (0.57) (0.70) (0.48)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period............ $13.81 $13.34 $12.70 $10.77 $11.82 $11.36 $10.20 $11.03 $11.33 $9.93
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT
RETURN+.................. 16.93% 20.88% 24.32% (1.26)% 12.16% 13.31% (1.91)% 2.87% 21.11% 10.29%
RATIOS TO AVERAGE NET
ASSETS:
Expenses.................. 1.80% 1.84% 1.90% 1.90% 1.91% 1.96% 1.93% 1.80% 1.81% 1.92%
Net investment income
(loss)................... (0.15)% 0.05% 0.52% 0.77% 0.73% 1.46% 1.67% 2.28% 2.57% 2.09%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands............. $273,333 $247,989 $152,661 $132,812 $139,459 $118,496 $113,145 $150,636 $154,741 $136,911
Portfolio turnover rate... 67% 156% 49% 59% 69% 52% 31% 29% 22% 7%
Average commission
rate paid................ $0.0485 $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.
++ 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.
6
<PAGE>
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
CLASS A SHARES 1998++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.44
-------
Net investment income................................................. 0.04
Net realized and unrealized gain...................................... (0.10)
-------
Total from investment operations...................................... (0.06)
-------
Less distributions from net realized gain............................. (0.51)
-------
Net asset value, end of period........................................ $ 13.87
-------
-------
TOTAL INVESTMENT RETURN+.............................................. (0.22)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.11%(2)
Net investment income................................................. 0.45%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $309
Portfolio turnover rate............................................... 67%(1)
Average commission rate paid.......................................... $0.0485
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.44
-------
Net investment loss................................................... (0.02)
Net realized and unrealized gain...................................... (0.10)
-------
Total from investment operations...................................... (0.12)
-------
Less distributions from net realized gain............................. (0.51)
-------
Net asset value, end of
period............................................................... $ 13.81
-------
-------
TOTAL INVESTMENT RETURN+.............................................. (0.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.87%(2)
Net investment loss................................................... (0.23)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,488
Portfolio turnover rate............................................... 67%(1)
Average commission rate
paid................................................................. $0.0485
</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.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
CLASS D SHARES 1998
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.44
-------
Net investment income................................................. 0.07
Net realized and unrealized gain...................................... (0.11)
-------
Total from investment operations...................................... (0.04)
-------
Less distributions from net realized gain............................. (0.51)
-------
Net asset value, end of period........................................ $ 13.89
-------
-------
TOTAL INVESTMENT RETURN+.............................................. (0.08)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.84%(2)
Net investment income................................................. 0.82%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $13,161
Portfolio turnover rate............................................... 67%(1)
Average commission rate paid.......................................... $0.0485
</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.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
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Dean Witter Natural Resource Development Securities Inc. (the "Fund") is an
open-end, diversified management investment company incorporated in Maryland on
December 22, 1980.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
investment manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.,
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 101 investment companies, twenty-eight of which are
listed on the New York Stock Exchange, with combined total assets of
approximately $110 billion as of March 31, 1998. The Investment Manager also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $4 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services to the Fund.
The Fund's Board of Directors reviews the various services provided by the
Investment Manager to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.625% of the portion of the daily net assets not
exceeding $250 million and 0.50% of the portion of the daily net assets
exceeding $250 million. For the fiscal year ended February 28, 1998, the Fund
accrued total compensation to the Investment Manager amounting to 0.61% of the
Fund's average daily net assets and the total expenses of Class B amounted to
1.80% of the Fund's average daily net assets of Class B. Shares of Class A,
Class C and Class D were first issued on July 28, 1997. The expenses of the Fund
include: the fee of the Investment Manager; the fee pursuant to the Plan of
Distribution (see "Purchase of Fund Shares"); taxes; transfer agent, custodian
and auditing fees; certain legal fees; and printing and other expenses relating
to the Fund's operations which are not expressly assumed by the Investment
Manager under its Investment Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is capital growth. There is no
assurance that the objective will be achieved. This objective is fundamental and
may not be changed without the approval of the stockholders of the Fund. The
Fund will invest primarily in common stock of companies in the natural resources
and related areas, and will invest at least 65% of its net assets at all times,
except for temporary and defensive purposes, in the securities of companies
engaged in these areas. A portfolio company is considered to be so engaged when
at least 50% of its assets and/or revenues are currently
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the result of ownership or development of assets in such areas. Such companies
include those engaged in the exploration for and development, production and
distribution of natural resources, in the development of energy-efficient
technologies or in other natural resource related supplies or services.
The Fund will seek capital growth by investing in securities of issuers
believed to be responsive to domestic and world demand for natural resources. As
a result of the challenges presented by natural resource needs, the Fund
believes that opportunities for growth can be found in securities of issuers
which: (1) own or process natural resources, such as precious metals, other
minerals, water, timberland and forest products; (2) own or produce sources of
energy such as oil, natural gas, coal, uranium, geothermal, oil shale and
biomass; (3) participate in the exploration for and development of natural
resources supplies from new and conventional sources; (4) own or control oil,
gas, or other mineral leases (which may not produce recoverable energy or
resources), rights or royalty interests; (5) provide natural resources
transportation, distribution or processing services, such as refining and
pipeline services; (6) provide related services or supplies, such as drilling,
well servicing, chemicals, parts and equipment; and (7) contribute energy-
efficient technologies, such as systems for energy conversion, conservation and
pollution control. Emphasis on natural resources may result in exposure of some
portfolio companies to foreign political and currency risks and substantial
price fluctuations.
The Fund may purchase securities on a when issued or delayed delivery basis,
may purchase or sell securities on a forward commitment basis and may purchase
securities on a "when, as and if issued" basis, may enter into repurchase
agreements and may invest in options and futures transactions all as described
below.
SPECIFIC INVESTMENT POLICIES
The Fund has adopted the following specific policies which are not
fundamental investment policies and which may be changed by the Fund's Board of
Directors:
(1) At least 65% of the Fund's total assets will be invested in common stock
of domestic and foreign companies in the natural resources areas described
above. The Fund may also invest in securities convertible into common stock and
may acquire warrants and other rights to acquire common stock in connection with
purchases of portfolio securities.
(2) The Fund may invest in securities of foreign companies. However, the Fund
will not invest more than 25% of the value of its total assets, at the time of
purchase, in foreign securities (other than securities of Canadian issuers or
American Depository Receipts, on which there is no such limit). The Fund's
investments in unlisted foreign securities are subject to the overall policy
limiting investments in illiquid securities to 15% of its net assets. For a
discussion of the risks of investing in foreign securities, see "Risk
Considerations and Investment Practices."
(3) Up to 35% of the value of the Fund's total assets may be invested in: (a)
common stock of companies not in the natural resources areas; (b) investment
grade corporate debt securities when, in the opinion of the Investment Manager,
the projected total return on such securities is equal to or greater than the
expected total return on equity securities, or when such holdings might be
expected to reduce the volatility of the portfolio (for purposes of this
provision, the term "total return" means the difference between the cost of a
security and the aggregate of its market value and dividends received); (c) U.S.
Government securities (securities issued or guaranteed as to principal and
interest by the United States or its agencies and instrumentalities); and (d) in
money market instruments
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under any one or more of the following circumstances: (i) pending investment of
proceeds of sale of Fund shares or of portfolio securities; (ii) pending
settlement of purchases of portfolio securities; or (iii) to maintain liquidity
for the purpose of meeting anticipated redemptions.
(4) Notwithstanding any of the foregoing limitations, the Fund may invest
more than 35% of its total assets in money market instruments to maintain,
temporarily, a "defensive" posture when, in the opinion of the Investment
Manager, it is advisable to do so because of economic or market conditions.
The foregoing limitations will apply at the time of acquisition based on the
last determined value of the relevant security or other change in the Fund's
assets. Any subsequent change in any applicable percentage resulting from
fluctuations in value will not require elimination of any security from the
portfolio.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
FOREIGN SECURITIES. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of exchange between the currencies of different nations
will affect the value of the Fund's investments denominated in foreign currency.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments. To the extent the Fund purchases Eurodollar
certificates of deposit issued by foreign branches of domestic Unites States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions and future international political and
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economic developments which might adversely affect the payment of principal or
interest.
CANADIAN SECURITIES. The economy of Canada is strongly influenced by the
activities of companies involved in the production and processing of natural
resources, particularly those involved in the energy industry, industrial
materials (e.g., chemicals, base metals, timber and paper) and agricultural
materials (e.g., grain cereals). The securities of companies in the energy
industry are subject to changes in value and dividend yield, which depend, to a
large extent, on the price and supply of energy fuels. Rapid price and supply
fluctuations may be caused by events relating to international politics, energy
conservation and the success of exploration projects.
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES. The Fund may invest up to 5%
of its total assets in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or which are otherwise restricted. (Securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction). These securities are
generally referred to as private placements or restricted securities.
Limitations on the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Directors of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which under current
policy may not exceed 15% of the Fund's net assets. However, investing in Rule
144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be unable
to find qualified institutional buyers interested in purchasing such securities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures
designed to minimize those risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well established financial
institutions and maintaining adequate collateralization. See the Statement of
Additional Information for a further discussion of such investments.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon
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reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on debt and
equity securities which are listed on Exchanges or are written in over-the-
counter transactions ("OTC Options"). Listed options, which are currently listed
on several different Exchanges, are issued by the Options Clearing Corporation
("OCC"). OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
The Fund will engage in OTC option transactions only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. The Fund will not write covered options on portfolio securities exceeding
in the aggregate 25% of the value of its total assets.
The Fund may invest up to 10% of its total assets in the purchase of put and
call options on securities and stock indexes, with a maximum of 5% of the Fund's
total assets invested in stock index options. The Fund may purchase put options
on securities which it holds (or has the right to acquire) in its portfolio only
to protect itself against a decline in the value of the security. The Fund may
also purchase put options to close out written put positions. There are no other
limits on the Fund's ability to purchase call and put options. The Fund may also
purchase and write options on stock indexes. See "Risks of Options on Indexes"
in the Statement of Additional Information.
The Fund may also purchase and sell interest rate and stock index futures
contracts ("futures contracts") that are traded on U.S. commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, and bills and GNMA
Certificates ("interest rate" futures) and such indexes as the S&P 500 Index and
the New York Stock Exchange Composite Index ("stock index" futures) and the
Moody's Investment-Grade Corporate Bond Index ("bond index" futures). The Fund
will purchase or sell interest rate futures contracts and bond index futures
contracts for the purpose of hedging its fixed-income portfolio (or anticipated
portfolio) securities against changes in prevailing interest rates. The Fund
will purchase or sell stock index futures contracts for the purpose of hedging
its equity portfolio (or anticipated portfolio) securities against changes in
their prices.
The Fund also may purchase and write call and put options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. The extent to which the Fund may enter into
transactions involving options and futures contracts may be limited by the
Internal Revenue Code's requirements for qualification as a regulated investment
company and the Fund's intention to qualify as such. See "Dividends,
Distributions and Taxes."
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While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down, causing bond
prices to rise, the Fund would incur a loss on the sale. Another risk which may
arise in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities and indexes subject to
futures contracts (and thereby the futures contracts prices) may correlate
imperfectly with the behavior of the cash prices of the Fund's portfolio
securities. See the Statement of Additional Information for further discussion
of such risks.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning on January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), Morgan Stanley & Co. Incorporated and other brokers and
dealers that are affiliates of the Investment Manager, and others regarding
economic developments and interest rate trends; and the Investment Manager's own
analysis of factors it deems relevant. In addition, the Fund may incur brokerage
commissions on transactions conducted through such affiliates. No particular
emphasis will be given to investments in securities for the purpose of earning
current income. The Fund is managed within InterCapital's Growth Group, which
manages 27 funds and fund porfolios with approximately $10 billion in assets at
March 31, 1998. David F. Myers and Catherine A. Maniscalco, each a Vice
President of InterCapital and a member of the Growth Group, have been the
primary portfolio managers of the
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Fund since July 1997. Mr. Myers has been a portfolio manager at InterCapital for
over five years. Prior to joining InterCapital in March 1995, Ms. Maniscalco was
a portfolio management software product specialist at National Investor Data
Services (April 1994 - March 1995) and a portfolio manager at Prudential
Securities Investment Management (July 1990 - April 1994).
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR and other
brokers and dealers that are affiliates of the Investment Manager. The Fund may
incur brokerage commissions on transactions conducted through such affiliates.
It is not anticipated that the portfolio trading will result in the Fund's
portfolio turnover rate exceeding 200% in any one year. The Fund will incur
brokerage costs commensurate with its portfolio turnover rate.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR.
Although the Fund does not engage in substantial short-term trading as a
means of achieving its investment objective, it may sell portfolio securities
without regard to the length of time they have been held, in accordance with the
investment policies described earlier. The Fund will incur underwriting discount
costs (on underwritten securities) and brokerage costs commensurate with its
portfolio turnover rate. Short term gains and losses may result from such
portfolio transactions. See "Dividends, Distributions and Taxes" for a full
discussion of the tax implications of the Fund's trading policy.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. Invest more than 5% of the value of its total assets in the securities of
any one issuer (other than obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any class
of securities of any one issuer.
3. Invest more than 25% of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to bank obligations
or obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
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PURCHASE OF FUND SHARES
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GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and Dean
Witter Distributors Inc. (the "Distributor"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other brokers and dealers who have entered into agreements with the
Distributor ("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are subject
to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years after
purchase.) Class C shares are sold without an initial sales charge but are
subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Directors of the
Fund, Class A shares may be sold to categories of investors in addition to those
set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of investors,
in each case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements-- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A shares of the Fund and other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") and shares of Dean Witter Funds sold with a
front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Dean Witter Multi-Class Funds will be aggregated.
Subsequent purchases of $100 or more may be made by sending a check, payable to
Dean Witter Natural Resource Development Securities Inc., directly to Morgan
Stanley Dean Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box
1040, Jersey City, NJ 07303 or by contacting an account executive of DWR or
other Selected Broker-Dealer. When purchasing shares of the Fund, investors must
specify whether the purchase is for Class A, Class B, Class C or Class D shares.
If no Class is specified, the Transfer Agent will not process the transaction
until the proper Class is identified. The minimum initial purchase in the case
of investments through EasyInvest-SM-, an automatic purchase plan (see
"Shareholder Services"), is $100, provided that the schedule of automatic
investments will result in investments totalling at least $1,000 within the
first twelve months. The minimum initial purchase in the case of an "Education
IRA" is $500, if the Distributor has reason to believe that additional
investments will increase the investment in the account to $1,000 within three
years. In the case of investments pursuant to (i) Systematic Payroll Deduction
Plans (including Individual Retirement Plans), (ii) the InterCapital mutual fund
asset
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allocation program and (iii) fee-based programs approved by the Distributor,
pursuant to which participants pay an asset based fee for services in the nature
of investment advisory, administrative and/or brokerage services, the Fund, in
its discretion, may accept investments without regard to any minimum amounts
which would otherwise be required, provided, in the case of Systematic Payroll
Deduction Plans, that the Distributor has reason to believe that additional
investments will increase the investment in all accounts under such Plans to at
least $1,000. Certificates for shares purchased will not be issued unless
requested by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund by the Distributor or any of its affiliates and/or
the Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
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<PAGE>
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the 12b-1 Plan on July 2, 1984 (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
inception of the 12b-1 Plan upon which a CDSC 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 inception of the 12b-1 Plan. The Class B
shares' distribution fee will cause that Class to have higher expenses and pay
lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time.
18
<PAGE>
Thus, Class B shares may be more attractive than Class C shares to investors
with longer term investment outlooks. Other investors, however, may elect to
purchase Class C shares if, for example, they determine that they do not wish to
be subject to a front-end sales charge and they are uncertain as to the length
of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds
for which such shares have been exchanged will be included together with the
current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<C> <S> <C> <C>
- --------------------------------------------------------------
A Maximum 5.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
- --------------------------------------------------------------
B Maximum 5.0% CDSC 1.0 % B shares convert
during the first to A shares
year decreasing to automatically
0 after six years after
approximately
ten years
- --------------------------------------------------------------
C 1.0% CDSC during 1.0 % No
first year
- --------------------------------------------------------------
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
19
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 5.25% 5.54%
$25,000 but less
than $50,000........ 4.75% 4.99%
$50,000 but less
than $100,000....... 4.00% 4.17%
$100,000 but less
than $250,000....... 3.00% 3.09%
$250,000 but less
than $1 million..... 2.00% 2.04%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The sales
charge payable on the purchase of the Class A shares of the Fund, the Class A
shares of the other Dean Witter Multi-Class Funds and the shares of the FSC
Funds will be at their respective rates applicable to the total amount of the
combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Dean Witter Funds previously
purchased at a price including a front-end sales charge (including shares of the
Fund and other Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares of
FSC Funds and Class A and Class D shares that, together with the current
investment amount, is equal to at least $5 million ($25 million for certain
qualified plans), such investor is eligible to purchase Class D shares subject
to the $1,000 minimum initial investment requirement of that Class of the Fund.
See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an
20
<PAGE>
order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Selected Broker-Dealer or the Transfer Agent fails to confirm
the investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Dean Witter Funds which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, or of Class A shares
of the Fund or shares of other Dean Witter Funds acquired in exchange for shares
of such funds purchased during such period at a price including a front-end
sales charge, which are still owned by the shareholder, may also be included in
determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which MSDW Trust (an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the program's
agreements and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
21
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the 12b-1 Plan
on July 2, 1984 (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the inception of the 12b-1 Plan upon which a CDSC
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
inception of the 12b-1 Plan.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 5.0%
Second................................ 4.0%
Third................................. 3.0%
Fourth................................ 2.0%
Fifth................................. 2.0%
Sixth................................. 1.0%
Seventh and thereafter................ None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject to
any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 2.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years)
22
<PAGE>
prior to the redemption; and (iii) the current net asset value of shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of FSC Funds or other Dean Witter Funds acquired
in exchange for such shares. Moreover, in determining whether a CDSC is
applicable it will be assumed that amounts described in (i), (ii) and (iii)
above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan, which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which MSDW Trust serves as Trustee
or DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (a)
the plan continues to be an Eligible Plan after the redemption; or (b) the
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997, other than shares which were purchased prior to July 2, 1984 (and, with
respect to such shares, including such proportion of shares acquired through
reinvestment of dividends and capital gains distributions as the total number of
shares acquired prior to such date bears to the total number of Fund shares
purchased and owned by a shareholder (collectively, the "Old Shares")), have
been designated Class B shares. Shares held before May 1, 1997 that have been
designated Class B shares will convert to Class A shares in May, 2007. In all
other instances Class B shares will convert automatically to Class A shares,
based on the relative net asset values of the shares of the two Classes on the
conversion date, which will be approximately ten (10) years after the date of
the original purchase. The ten year period is calculated from the last day of
the month in which the shares were purchased or, in the case of Class B shares
acquired through an exchange or a series of exchanges, from the last day of the
month in which the original Class B shares were purchased, provided that shares
originally purchased before May 1, 1997 will convert to Class A shares in May,
2007. The conversion of shares purchased on or after May 1, 1997 will take place
in the month following the tenth anniversary of the purchase. There will
23
<PAGE>
also be converted at that time such proportion of Class B shares acquired
through automatic reinvestment of dividends and distributions owned by the
shareholder as the total number of his or her Class B shares converting at the
time bears to the total number of outstanding Class B shares purchased and owned
by the shareholder. In the case of Class B shares held by a Qualified Retirement
Plan for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement,
the plan is treated as a single investor and all Class B shares will convert to
Class A shares on the conversion date of the first shares of a Dean Witter
Multi-Class Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Dean
Witter Multi-Class Fund, the holding period resumes on the last day of the month
in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Directors and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services
24
<PAGE>
Agreement) and the following categories of investors: (i) investors
participating in the InterCapital mutual fund asset allocation program pursuant
to which such persons pay an asset based fee; (ii) persons participating in a
fee-based program approved by the Distributor, pursuant to which such persons
pay an asset based fee for services in the nature of investment advisory,
administrative and/or brokerage services (subject to all of the terms and
conditions of such programs referred to in (i) and (ii) above, which may include
termination fees, mandatory redemption upon termination and such other
circumstances as specified in the programs' agreements and restrictions on
transferability of Fund shares); (iii) 401(k) plans established by DWR and SPS
Transaction Services, Inc. (an affiliate of DWR) for their employees; (iv)
certain Unit Investment Trusts sponsored by DWR; (v) certain other open-end
investment companies whose shares are distributed by the Distributor; and (vi)
other categories of investors, at the discretion of the Board, as disclosed in
the then current prospectus of the Fund. The Old Shares have been designated
Class D shares. Investors who require a $5 million (or $25 million) minimum
initial investment to qualify to purchase Class D shares may satisfy that
requirement by investing that amount in a single transaction in Class D shares
of the Fund and other Dean Witter Multi-Class Funds, subject to the $1,000
minimum initial investment required for that Class of the Fund. In addition, for
the purpose of meeting the $5 million (or $25 million) minimum investment
amount, holdings of Class A shares in all Dean Witter Multi-Class Funds, shares
of FSC Funds and shares of Dean Witter Funds for which such shares have been
exchanged will be included together with the current investment amount. If a
shareholder redeems Class A shares and purchases Class D shares, such redemption
may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 1.0% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Plan on July 2, 1984 (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Plan's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B shares
attributable to shares issued, net of related shares redeemed, since inception
of the Plan. The fee is treated by the Fund as an expense in the year it is
accrued. In the case of Class A shares, the entire amount of the fee currently
represents a service fee within the meaning of the NASD guidelines. In the case
of Class B and Class C shares, a portion of the fee payable pursuant to the
Plan, equal to 0.25% of the average daily net assets of each of these Classes,
is currently characterized as a service fee. A service fee is a payment made for
personal service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including
25
<PAGE>
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 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.
For the fiscal year ended February 28, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $2,789,293, which amount is equal
to 0.99% of the Fund's average daily net assets for the fiscal year. The
payments accrued under the Plan were calculated pursuant to clause (a) of the
compensation formula under the Plan. All shares held prior to July 28, 1997
(other than the Old Shares) have been designated Class B shares. For the fiscal
period July 28, 1997 through February 28, 1998, Class A and Class C shares of
the Fund accrued payments under the Plan amounting to $296 and $3,825,
respectively, which amounts on an annualized basis are equal to 0.25% and 1.00%
of the average daily net assets of Class A and Class C, respectively, for such
period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that such
excess amounts, including the carrying charge described above, totalled
$6,431,607 at February 28, 1998, which was equal to 2.35% of the net assets of
Class B on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, such excess amount does not constitute
a liability of the Fund. 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 CDSCs paid by 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. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A 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 commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily by at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. The net
asset value per share will not be determined on Good Friday and on such other
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federal and non-federal holidays as are are observed by the New York Stock
Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange; if there
were no sales that day, the security is valued at the latest bid price (in cases
where a security is traded on more than one exchange, the security is valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Directors), and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price. When market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager that sale
and 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 Fund's
Directors.
Short-term debt securities with remaining maturities of sixty days or less
are valued at amortized cost unless the Directors determine such does not
reflect the securities' market value, in which case these securities will be
valued at their fair value as determined by the Directors.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Dean Witter Funds), unless the shareholder
requests that they be paid in cash. Shares so acquired are acquired at net asset
value and are not subject to the imposition of a front-end sales charge or a
CDSC (see "Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25 or in any whole
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<PAGE>
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be considered
as dividends, yields or income. If periodic withdrawal plan payments
continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Each withdrawal constitutes a redemption of shares and any gain or
loss realized must be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, eligible Individual Retirement Accounts and
Custodial Accounts under Section 403(b)(7) of the Internal Revenue Code.
Adoption of such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter funds which are money market funds (the "Exchange Funds").
Class A shares may also be exchanged for shares of Dean Witter Multi-State
Municipal Series Trust and Dean Witter Hawaii Municipal Trust, which are Dean
Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B shares
may also be exchanged for shares of Dean Witter Global Short-Term Income Fund
Inc. ("Global Short-Term"), which is a Dean Witter Fund offered with a CDSC.
Exchanges may be made after the shares of the Fund acquired by purchase (not by
exchange or dividend reinvestment) have been held for thirty days. There is no
waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term or any Exchange Fund that is not a money market fund is on the basis
of the next calculated net asset value per share of each fund after the exchange
order is received. When exchanging into a money market fund from the Fund,
shares of the Fund are redeemed out of the Fund at their next calculated net
asset value and the proceeds of the redemption are used to purchase shares of
the money market fund at their net asset value determined the following business
day. Subsequent exchanges between any of the money market funds and any of the
Dean Witter Multi-Class Funds, FSC Funds, Global Short-Term or any Exchange Fund
that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the shares were acquired), the holding period (for the
purpose of determining the rate of the CDSC) is frozen. If those shares are
subsequently re-exchanged for shares of a Dean Witter Multi-Class Fund or shares
of Global Short-Term, the holding period previously frozen when the first
exchange was made resumes on the last day of the month in which shares of a Dean
Witter Multi-Class Fund or shares of Global Short-Term are reacquired. Thus, the
CDSC is based upon the time (calculated as described above) the shareholder was
invested
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<PAGE>
in shares of a Dean Witter Multi-Class Fund or in shares of Global Short-Term
(see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. In the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution fees
are described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for shares of Global Short-Term or Class B shares of
another Dean Witter Multi-Class Fund having a different CDSC schedule than that
of this Fund will be subject to the higher CDSC schedule, even if such shares
are subsequently re-exchanged for shares of the fund with the lower CDSC
schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/ or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular situation
is abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other Dean
Witter Funds may in their discretion limit or otherwise restrict the number of
times this Exchange Privilege may be exercised by any investor. Any such
restriction will be made by the Fund on a prospective basis only, upon notice to
the shareholder not later than ten days following such shareholder's most recent
exchange.
Also, the Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Dean Witter Funds for which shares of the Fund may be
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain one and examine it carefully before
investing. Exchanges are subject to the minimum investment requirement of each
Class of shares and any other conditions imposed by each fund. In the case of
any shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificate(s) have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another other Selected Broker-Dealer is the current dealer of
record and its account numbers are part of the account information, shareholders
may initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their DWR or other Selected Broker-Dealer
account executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who
29
<PAGE>
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made by contacting
the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions will also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of each Class of the Fund can be redeemed for cash at
any time at net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a stock
certificate, a written request for redemption to the Fund's Transfer Agent at P.
O. Box 983, Jersey City, New Jersey 07303 is required. If certificates are held
by the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption along with any additional information
required by the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a stock certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a stock
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value per share, next determined (see "Purchase of Fund Shares") after
such repurchase order is received by DWR or other Selected Broker-Dealer,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offers by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g. when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been
30
<PAGE>
purchased by check, payment of the redemption proceeds may be delayed for the
minimum time needed to verify that the check used for investment has been
honored (not more than fifteen days from the time of receipt of the check by the
Transfer Agent). Shareholders maintaining margin accounts with DWR or another
Selected Broker-Dealer are referred to their account executive regarding
restrictions on redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at their net asset value next determined after a reinstatement
request, together with proceeds, is received by the Transfer Agent and receive a
pro rata credit for any CDSC paid in connection with such redemption or
repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days' notice,
to redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100, or such lesser amount as may
be fixed by the Fund's Board of Directors or, in the case of an account opened
through EasyInvest, if after twelve months the shareholder has invested less
than $1,000 in the account. However, before the Fund redeems such shares and
sends the proceeds to the shareholder, it will notify the shareholder that the
value of the shares is less than the applicable amount and allow the shareholder
sixty days to make an additional investment in an amount which will increase the
value of the account to at least the applicable amount before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay dividends and to distribute
substantially all of the Fund's net investment income and net short-term and
long-term capital gains, if any, at least once each year. The Fund may, however,
determine to retain all or part of any net long-term capital gains in any year
for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and will be automatically credited to the shareholder's
account without issuance of a stock certificate unless the shareholder requests
in writing that all dividends be paid in cash. Shares acquired by dividend and
distribution reinvestments will not be subject to any front-end sales charge or
CDSC. Class B shares acquired through dividend and distribution reinvestments
will become eligible for conversion to Class A shares on a pro rata basis.
Distributions paid on Class A and Class D shares will be higher than for Class B
and Class C shares because distribution fees paid by Class B and Class C shares
are higher (See "Shareholder Services--Automatic Investment of Dividends and
Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, it is not expected that the Fund will be required to pay
any federal income tax on such income and capital gains. Shareholders who are
required to pay taxes on their income will normally have to pay Federal income
taxes, and any state income taxes and/or local income taxes, on the dividends
and distributions they receive from the
31
<PAGE>
Fund. Such dividends and distributions, to the extent that they are derived from
net investment income or net short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Any dividends
declared in the last quarter of any calendar year which are paid in the
following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% Federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy. Shareholders will also be notified of the
proportionate share of long-term capital gains distributions that are eligible
for a reduced rate of tax under the Taxpayer Relief Act of 1997.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in a Class of the Fund of $1,000 over periods of one, five and ten
years. Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets, all expenses incurred by the
applicable Class and all sales charges which would be incurred by shareholders,
for the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
32
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of common stock of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares. There are no conversion, pre-emptive or other subscription rights. In
the event of liquidation, each share of common stock of the Fund is entitled to
its portion of all of the Fund's assets after all debts and expenses have been
paid. The shares do not have cumulative voting rights.
Under ordinary circumstances, the Fund is not required, nor does it intend,
to hold Annual Meetings of Stockholders. The Directors may call Special Meetings
of Stockholders for action by stockholder vote as may be required by the Act or
the Fund's By-Laws.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
33
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS FIXED-INCOME FUNDS
Dean Witter California Tax-Free Daily Dean Witter Balanced Income Fund
Income Trust Dean Witter California Tax-Free Income
Dean Witter Liquid Asset Fund Inc. Fund
Dean Witter New York Municipal Money Dean Witter Convertible Securities
Market Trust Trust
Dean Witter Tax-Free Daily Income Trust Dean Witter Diversified Income Trust
Dean Witter U.S. Government Money Dean Witter Federal Securities Trust
Market Trust Dean Witter Global Short-Term Income
EQUITY FUNDS Fund Inc.
Dean Witter American Value Fund Dean Witter Hawaii Municipal Trust
Dean Witter Balanced Growth Fund Dean Witter High Yield Securities Inc.
Dean Witter Capital Appreciation Fund Dean Witter Intermediate Income
Dean Witter Capital Growth Securities Securities
Dean Witter Developing Growth Dean Witter Intermediate Term U.S.
Securities Trust Treasury Trust
Dean Witter Dividend Growth Securities Dean Witter Limited Term Municipal
Inc. Trust
Dean Witter European Growth Fund Inc. Dean Witter Multi-State Municipal
Dean Witter Financial Services Trust Series Trust
Dean Witter Fund of Funds Dean Witter New York Tax-Free Income
Dean Witter Global Dividend Growth Fund
Securities Dean Witter Short-Term Bond Fund
Dean Witter Global Utilities Fund Dean Witter Short-Term U.S. Treasury
Dean Witter Health Sciences Trust Trust
Dean Witter Income Builder Fund Dean Witter Tax-Exempt Securities Trust
Dean Witter Information Fund Dean Witter U.S. Government Securities
Dean Witter International SmallCap Fund Trust
Dean Witter Japan Fund Dean Witter World Wide Income Trust
Dean Witter Market Leader Trust DEAN WITTER RETIREMENT SERIES
Dean Witter Mid-Cap Growth Fund American Value Series
Dean Witter Natural Resource Capital Growth Series
Development Securities Inc. Dividend Growth Series
Dean Witter Pacific Growth Fund Inc. Global Equity Series
Dean Witter Precious Metals and Intermediate Income Securities Series
Minerals Trust Liquid Asset Series
Dean Witter Special Value Fund Strategist Series
Dean Witter S&P 500 Index Fund U.S. Government Money Market Series
Dean Witter Utilities Fund U.S. Government Securities Series
Dean Witter Value-Added Market Series Utilities Series
Dean Witter World Wide Investment Trust Value-Added Market Series
Morgan Stanley Dean Witter Competitive ACTIVE ASSETS ACCOUNT PROGRAM
Edge Fund, "BEST IDEAS" PORTFOLIO Active Assets California Tax-Free Trust
Morgan Stanley Dean Witter Growth Fund Active Assets Government Securities
Morgan Stanley Dean Witter Mid-Cap Trust
Dividend GrowthSecurities Active Assets Money Trust
ASSET ALLOCATION FUNDS Active Assets Tax-Free Trust
Dean Witter Global Asset Allocation
Fund
Dean Witter Strategist Fund
<PAGE>
Dean Witter
Natural Resource Development Securities Inc.
Two World Trade Center
New York, New York 10048
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
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley 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.
DEAN WITTER
NATURAL RESOURCE
DEVELOPMENT SECURITIES
[PHOTO]
PROSPECTUS -- APRIL 27, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION Dean Witter
APRIL 27, 1998 Natural Resource
Development
Securities
- --------------------------------------------------------------------------------
Dean Witter Natural Resource Development Securities Inc. (the "Fund") is an
open-end, diversified management investment company whose investment objective
is capital growth. The Fund invests primarily in common stock of companies in
the natural resources and related areas, including companies engaged in the
exploration for and development, production and distribution of natural
resources or in the development of energy-efficient technologies or other
natural resource related supplies or products. (See "Investment Practices and
Policies.")
A Prospectus for the Fund dated April 27, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc., at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter Natural Resource Development Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management................................................................. 3
Directors and Officers...................................................................... 6
Investment Practices and Policies........................................................... 12
Investment Restrictions..................................................................... 23
Portfolio Transactions and Brokerage........................................................ 24
The Distributor............................................................................. 26
Determination of Net Asset Value............................................................ 30
Purchase of Fund Shares..................................................................... 30
Shareholder Services........................................................................ 33
Redemptions and Repurchases................................................................. 37
Dividends, Distributions and Taxes.......................................................... 39
Performance Information..................................................................... 40
Shares of the Fund.......................................................................... 41
Custodian and Transfer Agent................................................................ 42
Independent Accountants..................................................................... 42
Reports to Shareholders..................................................................... 42
Legal Counsel............................................................................... 42
Experts..................................................................................... 42
Registration Statement...................................................................... 42
Report of Independent Accountants........................................................... 43
Financial Statements--February 28, 1998..................................................... 48
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was incorporated in the State of Maryland on December 22, 1980
under the name InterCapital Natural Resource Development Securities Inc. On
March 16, 1983 the Fund's shareholders approved a change in the Fund's name,
effective March 21, 1983, to Dean Witter Natural Resource Development Securities
Inc.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a Delaware corporation.
In an internal reorganization which took place in January, 1993, InterCapital
assumed the investment advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the Fund's portfolio is
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to review by the Fund's Board of Directors.
Information as to these Directors and Officers is contained under the caption
"Directors and Officers."
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., InterCapital Insured Municipal Bond Trust, InterCapital
Insured Municipal Trust, Dean Witter High Yield Securities Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter Developing Growth Securities Trust,
Dean Witter Tax-Exempt Securities Trust, Dean Witter Dividend Growth Securities
Inc., Dean Witter American Value Fund, Dean Witter U.S. Government Money Market
Trust, Dean Witter Variable Investment Series, Dean Witter World Wide Investment
Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter U.S.
Government Securities Trust, Dean Witter California Tax-Free Income Fund, Dean
Witter New York Tax-Free Income Fund, Dean Witter Convertible Securities Trust,
Dean Witter Federal Securities Trust, Dean Witter Value-Added Market Series,
High Income Advantage Trust, High Income Advantage Trust II, High Income
Advantage Trust III, Dean Witter Government Income Trust, Dean Witter Utilities
Fund, Dean Witter California Tax-Free Daily Income Trust, Dean Witter Strategist
Fund, Dean Witter World Wide Income Trust, Dean Witter Intermediate Income
Securities, Dean Witter New York Municipal Money Market Trust, Dean Witter
Capital Growth Securities, Dean Witter European Growth Fund Inc., Dean Witter
Precious Metals and Minerals Trust, Dean Witter Global Short-Term Income Fund
Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Diversified Income Trust, InterCapital Quality Municipal Investment Trust,
InterCapital Quality Municipal Income Trust, Dean Witter Retirement Series, Dean
Witter Health Sciences Trust, InterCapital Insured Municipal Income Trust,
InterCapital California Insured Municipal Income Trust, Dean Witter Global
Dividend Growth Securities, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, InterCapital Quality Municipal Securities,
InterCapital California Quality Municipal Securities, InterCapital New York
Quality Municipal Securities, InterCapital Insured Municipal Securities,
InterCapital Insured California Municipal Securities, Dean Witter Global
Utilities Fund, Dean Witter International SmallCap Fund, Dean Witter Mid-Cap
Growth Fund, Dean Witter Select Dimensions Series, Dean Witter Global Asset
Allocation Fund, Dean Witter Balanced Income Fund, Dean Witter Balanced Growth
Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Capital Appreciation Fund,
Dean Witter Information Fund, Dean Witter Intermediate Term U.S. Treasury Trust,
Dean Witter Japan Fund, Dean Witter Income Builder Fund, Dean Witter Financial
Services Trust, Dean Witter Market Leader Trust, Dean Witter Special Value Fund,
Dean Witter S&P 500 Index Fund, Dean Witter Fund of Funds, Morgan Stanley Dean
Witter Competitive Edge Fund--"BEST IDEAS" Portfolio, Morgan Stanley Dean Witter
Mid-Cap Dividend Growth Securities, Morgan Stanley Dean Witter Growth Fund,
Active Assets Money Trust, Active Assets Tax-Free Trust, Active Assets
California Tax-Free Trust, Active Assets Government Securities Trust, Municipal
Income Trust, Municipal
3
<PAGE>
Income Trust II, Municipal Income Trust III, Municipal Income Opportunities
Trust, Municipal Income Opportunities Trust II, Municipal Income Opportunities
Trust III, Prime Income Trust and Municipal Premium Income Trust. The foregoing
investment companies, together with the Fund, are collectively referred to as
the Dean Witter Funds. In addition, Dean Witter Services Company Inc. ("DWSC"),
a wholly-owned subsidiary of InterCapital, serves as manager for the following
investment companies, for which TCW Funds Management Inc. is the investment
adviser: TCW/DW North American Government Income Trust, TCW/DW Latin American
Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW
Total Return Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom Trust,
TCW/DW Term Trust 2000, TCW/DW Term Trust 2002, TCW/DW Term Trust 2003 and
TCW/DW Emerging Markets Opportunities Trust (the "TCW/ DW Funds"). InterCapital
also serves as (i) administrator of The Black Rock Strategic Term Trust Inc., a
closed-end investment company; (ii) sub-administrator of Templeton Global
Governments Income Trust, a closed-end investment company; and (iii) investment
adviser of Offshore Dividend Growth Fund and Offshore Money Market Fund, mutual
funds established under the laws of the Cayman Islands and available only to
investors who are participants in DWR's International Active Assets Account
program and are neither citizens nor residents of the United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective and policies.
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, such office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal and
state securities commissions (except insofar as the participation or assistance
of independent accountants and attorneys is, in the opinion of the Investment
Manager, necessary or desirable). In addition, the Investment Manager 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
service, heat, light, power and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement between InterCapital and DWSC on that date. The
foregoing internal reorganizations did not result in any change in the nature or
scope of the administrative services being provided to the Fund or any of the
fees being paid by the Fund for the overall services being performed under the
terms of the existing Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "The Distributor") will be paid by
the Fund. These expenses will be allocated among the four classes of shares of
the Fund (each, a "Class") pro rata based on the net assets of the Fund
attributable to each Class, except as described below. Such expenses include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses of any
registrar, custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing stock certificates; registration
costs of the Fund and its shares under federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of
4
<PAGE>
the Fund's shares; fees and expenses of legal counsel, including counsel to the
Directors who are not interested persons of the Fund or of the Investment
Manager (not including compensation or expenses of attorneys who are employees
of the Investment Manager) and independent accountants; membership dues of
industry associations; interest on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation. The 12b-1 fees
relating to a particular Class will be allocated directly to that Class. In
addition, other expenses associated with a particular Class (except advisory or
custodial fees) may be allocated directly to that Class, provided that such
expenses are reasonably identified as specifically attributable to that Class
and the direct allocation to that Class is approved by the Directors.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.625% of the portion of the daily net assets not
exceeding $250 million and 0.50% of the portion of the daily net assets
exceeding $250 million. The management fee is allocated among the Classes pro
rata based on the net assets of the Fund attributable to each Class. For the
fiscal years ended February 29, 1996, February 28, 1997 and February 28, 1998,
the Fund accrued to the Investment Manager total compensation under the
Agreement in the amounts of $883,804, $1,221,826 and $1,752,565, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Agreement was initially approved by the Directors on February 21, 1997
and by the shareholders of the Fund at a Special Meeting of Shareholders on May
21, 1997. The Agreement is substantially identical to a prior investment
management agreement which was initially approved by the Directors on October
30, 1992 and by the shareholders of the Fund at a Meeting of Shareholders held
on January 12, 1993. The Agreement took effect on May 31, 1997 upon the
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. The Agreement may be terminated at any time, without penalty, on
thirty days' notice by the Board of Directors of the Fund, by the holders of a
majority, as defined in the Investment Company Act of 1940, as amended (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager. The
Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999 and
will continue from year to year thereafter, provided continuance of the
Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of the Fund, or by
the Board of Directors of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Directors of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at a
meeting called for the purpose of voting on such approval.
The following owned 5% or more of the outstanding shares of Class A of the
Fund on April 3, 1998: Lillie H. Hammer, trustee and Richard H. Hammer, trustee
U/A/D 09/28/93 by Lillie H. Hammer, 1201 Fleet Landing Blvd., Atlantic Beach, FL
32233--15.615%; Insulation & Refractories Svc. Inc., P/S/T U/A, dated 03/01/79,
JG Whitsett, JW Whitsett, Freddie Veteto, Mary Harri, Carl W. Lovell, trustees,
462 Decatur, Memphis, TN 38105-- 13.058%; Dean Witter Reynolds, custodian for
Charles R. Killins, IRA Rollover, dated 09/03/87, 2 Oriente Ct., Santa Fe, NM
87505--10.461%; Dean Witter Reynolds, custodian for Shirley A. Becker
(Beneficiary) IRA standard, dated 03/26/86, 456 Ricecreek Blvd., Fridley, MN
55432--10.235%; Joseph Sheredy & Olga Sheredy as co-trustees of the Sheredy
Living Trust, dated 08/10/89, 19095 Cox Ave., Saratoga, CA 95070-- 7.378%. The
following owned 5% or more of the outstanding shares of Class C of the Fund on
April 3, 1998: Ronald D. Rod, 11805 Old Oaks Ln., Conroe, TX 77385--8.508%;
Benjamin Du & Carmela Du, trustees of the Benjamin Du & Carmela Du Family Trust,
dated 04/26/85, 22832 Sky View Way, South Laguna, CA
5
<PAGE>
92677--5.345%. The following owned 5% or more of the outstanding shares of Class
D of the Fund on April 3, 1998: IAM & AW Local Lodge, PM#2848, Multi-Emp. Wage
Reduction 401K PSP, 03/06/86, trustee, J. Winterhalter, P.O. Box 3039,
Birmingham, MI 48012--19.887%; Hare & Co., C/O The Bank of New York, P.O. Box
11203, New York, NY 10286--11.081%.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use or, at any time,
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 86 Dean Witter Funds and the 11 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ---------------------------------------------------------------------------
<S> <C>
Michael Bozic (57) Chairman and Chief Executive Officer of Levitz Furniture Corporation (since
Director November, 1995); Director or Trustee of the Dean Witter Funds; formerly
c/o Levitz Furniture Corporation President and Chief Executive Officer of Hills Department Stores (May,
7887 N. Federal Hwy. 1991-July, 1995); formerly variously Chairman, Chief Executive Officer,
Boca Raton, Florida President and Chief Operating Officer (1987-1991) of the Sears Merchandise
Group of Sears, Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., and Weirton Steel Corporation.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of InterCapital,
Chairman, Director, Distributors and DWSC; Executive Vice President and Director of DWR;
President and Chief Chairman, Trustee or Director, President and Chief Executive Officer of the
Executive Officer Dean Witter Funds; Chairman, Chief Executive Officer and Trustee of the
Two World Trade Center TCW/DW Funds; Chairman and Director of Morgan Stanley Dean Witter Trust FSB
New York, New York ("MSDW Trust"); Director and/or officer of various MSDW subsidiaries.
Edwin J. Garn (65) Director or Trustee of the Dean Witter Funds; formerly United States
Director Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
c/o Huntsman Corporation (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974); formerly
500 Huntsman Way Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice Chairman,
Salt Lake City, Utah Huntsman Corporation; Director of Franklin Covey (time management systems),
John Alden Financial Corp. (health insurance), United Space Alliance (joint
venture between Lockheed Martin and the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing); member of the board of various civic and
charitable organizations.
John R. Haire (73) Chairman of the Audit Committee and Chairman of the Committee of the
Director Independent Directors or Trustees and Director or Trustee of the Dean
Two World Trade Center Witter Funds; Chairman of the Audit Committee and Chairman of the Committee
New York, New York of the Independent Trustees and Trustee of the TCW/DW Funds; formerly
President, Council for Aid to Education (1978-1989) and formerly Chairman
and Chief Executive Officer of Anchor Corporation, an Investment Adviser
(1964-1978).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ---------------------------------------------------------------------------
<S> <C>
Wayne E. Hedien (64) Retired; Director of The PMI Group, Inc. (private mortgage insurance);
Director Trustee and Vice Chairman of The Field Museum of Natural History; formerly
c/o Gordon Altman Butowsky associated with the Allstate Companies (1966-1994), most recently as
Weitzen Shalov & Wein Chairman of The Allstate Corporation (March, 1993-December, 1994) and
Counsel to the Independent Chairman and Chief Executive Officer of its wholly-owned subsidiary,
Directors Allstate Insurance Company (July, 1989-December, 1994); director of various
114 West 47th Street other business and charitable organizations.
New York, New York
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Director Co-Chairman and a founder of the Group of Seven Council (G7C), an
c/o Johnson Smick International, Inc. international economic commission; Director or Trustee of the Dean Witter
1133 Connecticut Avenue, N.W. Funds; Trustee of the TCW/DW Funds; Director of NASDAQ (since June, 1995);
Washington, D.C. Chairman and Trustee of the Financial Accounting Foundation (oversight
organization for the Financial Accounting Standards Board); Director of
Greenwich Capital Markets Inc. (broker-dealer) and NVR, Inc. (home
construction); formerly Vice Chairman of the Board of Governors of the
Federal Reserve System (1986-1990) and Assistant Secretary of the U.S.
Treasury (1982-1986).
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private investment partnership;
Director Director or Trustee of the Dean Witter Funds; Trustee of the TCW/DW Funds;
c/o Triumph Capital, L.P. formerly Vice President, Bankers Trust Company and BT Capital Corporation
237 Park Avenue (1984-1988); director of various business organizations.
New York, New York
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief Executive Officer of MSDW, DWR
Director and Novus Credit Services Inc.; Director of InterCapital, DWSC and
1585 Broadway Distributors; Director or Trustee of the Dean Witter Funds; Director and/or
New York, New York officer of various MSDW subsidiaries.
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds; Director of Citizens
Director Utilities Company; formerly Executive Vice President and Chief Investment
c/o Gordon Altman Butowsky Officer of the Home Insurance Company (August, 1991-September, 1995).
Weitzen Shalov & Wein
Counsel to the Independent Directors
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997) and Secretary and General Counsel
Vice President, Secretary (since February, 1997) of InterCapital and DWSC; Senior Vice President
and General Counsel (since March, 1997) and Assistant Secretary and Assistant General Counsel
Two World Trade Center (since February, 1997) of Distributors; Assistant Secretary of DWR (since
New York, New York August, 1996); Vice President, Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since February, 1997); previously First
Vice President (June, 1993-February, 1997), Vice President (until June,
1993) and Assistant Secretary and Assistant General Counsel of InterCapital
and DWSC and Assistant Secretary of the Dean Witter Funds and the TCW/DW
Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ---------------------------------------------------------------------------
<S> <C>
David F. Myers (43) Vice President of InterCapital.
Vice President
Two World Trade Center
New York, New York
Catherine Maniscalco (34) Vice President (since June, 1997) and a portfolio manager (since March,
Vice President 1995) of InterCapital; formerly a portfolio management product specialist
Two World Trade Center at National Investor Data Services (April, 1994-March, 1995) and a
New York, New York portfolio manager at Prudential Securities Investment Management (July,
1990-April, 1994).
Thomas F. Caloia (52) First Vice President and Assistant Treasurer of InterCapital and DWSC;
Treasurer Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
</TABLE>
- ------------
*Denotes Directors who are "interested persons" of the Fund, as defined in the
Act.
In addition, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and MSDW Trust
and Director of MSDW Trust, Executive Vice President, Chief Administrative
Officer and Director of DWR and Director of SPS Transaction Services, Inc. and
various other MSDW subsidiaries, Robert M. Scanlan, President and Chief
Operating Officer of InterCapital and DWSC, Executive Vice President of
Distributors and MSDW Trust and Director of MSDW Trust, Joseph J. McAlinden,
Executive Vice President and Chief Investment Officer of InterCapital and
Director of MSDW Trust, Robert S. Giambrone, Senior Vice President of
InterCapital, DWSC, Distributors and MSDW Trust and Director of MSDW Trust, and
Paul D. Vance, Kenton J. Hinchliffe and Ira N. Ross, Senior Vice Presidents of
InterCapital, are Vice Presidents of the Fund. In addition, Marilyn K. Cranney,
First Vice President and Assistant General Counsel of InterCapital and DWSC, and
LouAnne D. McInnis, Carsten Otto and Ruth Rossi, Vice Presidents and Assistant
General Counsels of InterCapital and DWSC, and Frank Bruttomesso and Todd Lebo,
Staff Attorneys with InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF DIRECTORS, THE INDEPENDENT DIRECTORS, AND THE COMMITTEES
The Board of Directors consists of nine (9) directors. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Directors. As of the date of this
Statement of Additional Information, there are a total of 86 Dean Witter Funds,
comprised of 130 portfolios. As of March 31, 1998, the Dean Witter Funds had
total net assets of approximately $105 billion and more than six million
shareholders.
Seven Directors (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, MSDW. These
are the "Disinterested" or "Independent" Directors. The other two Directors (the
"Management Directors") are affiliated with InterCapital. Four of the seven
Independent Directors are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Directors. The Dean Witter Funds seek as Independent Directors
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Directors who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Directors serve as members of the Audit Committee and
the Committee of the Independent Directors. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1997,
the three Committees held a combined total of seventeen meetings.
8
<PAGE>
The Committees hold some meetings at InterCapital's offices and some outside
InterCapital. Management Directors or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Directors is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Directors are required to select and nominate individuals to
fill any Independent Director vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT DIRECTORS AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Directors and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Directors to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Directors and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service providers.
In effect, the Chairman of the Committees serves as a combination of chief
executive and support staff of the Independent Directors.
The Chairman of the Committee of the Independent Directors and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Director of the Dean Witter Funds and as an Independent Director and as Chairman
of the Committee of the Independent Directors and the Audit Committee of the
TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS FOR ALL DEAN
WITTER FUNDS
The Independent Directors and the Funds' management believe that having the
same Independent Directors for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Directors for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Directors of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
9
<PAGE>
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of separate
groups of Independent Directors arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same Independent Directors serve on all
Fund Boards enhances the ability of each Fund to obtain, at modest cost to each
separate Fund, the services of Independent Directors, and a Chairman of their
Committees, of the caliber, experience and business acumen of the individuals
who serve as Independent Directors of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT DIRECTORS
The Fund pays each Independent Director an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Directors or committees of the
Board of Directors attended by the Director (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Directors an additional annual fee of $1,200). If a Board
meeting and a Committee meeting, or more than one Committee meeting, take place
on a single day, the Directors are paid a single meeting fee by the Fund. The
Fund also reimburses such Directors for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Directors and
officers of the Fund who are or have been employed by the Investment Manager or
an affiliated company receive no compensation or expense reimbursement from the
Fund.
The following table illustrates the compensation paid to the Fund's
Independent Directors by the Fund for the fiscal year ended Feburary 28, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,650
Edwin J. Garn................................................. 1,750
John R. Haire................................................. 3,700
Wayne E. Hedien............................................... 832
Dr. Manuel H. Johnson......................................... 1,700
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,750
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Directors for the calendar year ended December 31, 1997 for services
to the 84 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1997.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Hedien's term as Director or
Trustee of each Dean Witter Fund commenced on September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS FOR SERVICE
CHAIRMAN OF AS TOTAL CASH
COMMITTEES OF CHAIRMAN OF COMPENSATION
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 84 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 84 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 84 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT DIRECTOR FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
10
<PAGE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Director who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent Director
or Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Director referred to
as an "Eligible Director") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Director
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation plus 0.4166666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Director for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Director's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Directors by the Fund for the fiscal year ended February 28,
1998 and by the 57 Dean Witter Funds (including the Fund) for the year ended
December 31, 1997, and the estimated retirement benefits for the Fund's
Independent Directors, to commence upon their retirement, from the Fund as of
February 28, 1998 and from the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
-------------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED --------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT DIRECTOR (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------------------- ------------------- ----------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.......................... 10 50.0% $ $ 20,499 $ $ 47,025
Edwin J. Garn.......................... 10 50.0 30,878 47,025
John R. Haire.......................... 10 50.0 (19,823 (3) 127,897
Wayne E. Hedien........................ 9 42.5 0 39,971
Dr. Manuel H. Johnson.................. 10 50.0 12,832 47,025
Michael E. Nugent...................... 10 50.0 22,546 47,025
John L. Schroeder...................... 8 41.7 39,350 39,504
</TABLE>
- ------------
(1) An Eligible Director may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Director
and his or her spouse on the date of such Eligible Director's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Director and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Director may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Director's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of common stock of the Fund owned by the Fund's officers and
Directors as a group was less than 1 percent of the Fund's shares of common
stock outstanding.
11
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
FOREIGN SECURITIES
As discussed in the Prospectus, the Fund may invest in securities of foreign
companies. It should be noted that there may be less publicly available
information about foreign issuers than about domestic issuers, and foreign
issuers may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of domestic issuers. Securities
of some foreign issuers are less liquid and more volatile than securities of
comparable domestic issuers and foreign brokerage commissions are generally
higher than in the United States. Foreign securities markets may also be less
liquid, more volatile and less subject to government supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation and potential difficulties in enforcing contractual obligations.
SECURITY LOANS
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues
to receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations.
A loan may be terminated by the borrower on one business day's notice, or by
the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and, in some cases, even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Fund's management to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price of the securities during the period of the loan would
inure to the Fund. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities. The creditworthiness
of firms to which the Fund lends its portfolio securities will be monitored on
an ongoing basis.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. During its fiscal year ended February 28, 1998, the Fund
did not loan any of its portfolio securities and it has no intention of doing so
in the coming year.
BORROWING OF MONEY
The Fund, from time to time, may borrow from a bank for temporary or
emergency purposes in amounts not exceeding 5% of its total assets. (See
Investment Restriction 6.)
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and stock indexes and purchase options of the same series
to effect closing transactions, and may hedge against potential changes in the
market value of investments (or anticipated investments) by purchasing put and
call options on portfolio (or eligible portfolio) securities and engaging in
transactions involving futures contracts and options on such contracts. Call and
put options on U.S. Treasury notes, bonds and bills and equity securities are
listed on Exchanges and are written in over-the-counter transactions ("OTC
options"). Listed options are issued by the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Fund the right to buy from
the OCC the underlying security covered by the option at the stated exercise
price (the price per unit of the underlying
12
<PAGE>
security) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to sell
to the OCC the underlying security at that exercise price prior to the
expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security to the OCC at the stated exercise price. Upon notice of
exercise of the put option, the writer of the put would have the obligation to
purchase the underlying security from the OCC at the exercise price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the transacting dealer, without the intermediation of a third party
such as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. This Fund will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities in order to aid in achieving
its investment objective. Generally, a call option is "covered" if the Fund
owns, or has the right to acquire, without additional cash consideration (or for
additional cash consideration held for the Fund by its Custodian in a segregated
account) the underlying security subject to the option except that in the case
of call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills
of a different series from those underlying the call option, but with a
principal amount and value corresponding to the exercise price and a maturity
date no later than that of the securities deliverable under the call option. A
call option is also covered if the Fund holds a call on the same security as the
underlying security of the written option, where the exercise price of the call
used for coverage is equal to or less than the exercise price of the call
written or greater than the exercise price of the call written if the mark to
market difference is maintained by the Fund in cash, U.S. Government securities
or other liquid portfolio securities which the Fund holds in a segregated
account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities alone. Moreover, the premium
received will offset a portion of the potential loss incurred by the Fund if the
securities underlying the option are ultimately sold by the Fund at a loss. The
premium received will fluctuate with varying economic market conditions. If the
market value of the portfolio securities upon which call options have been
written increases, the Fund may receive less total return from the portion of
its portfolio upon which calls have been written than it would have had such
calls not been written.
13
<PAGE>
During the option period, the Fund may be required, at any time, to deliver
the underlying security against payment of the exercise price on any calls it
has written (exercise of certain listed options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of an underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. Also, effecting a closing purchase transaction
will permit the cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments by the Fund. The Fund may
realize a net gain or loss from a closing purchase transaction depending upon
whether the amount of the premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be wholly or partially offset by
unrealized appreciation in the market value of the underlying security.
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security.
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security during
the option period. If a call option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security equal to the difference between
the purchase price of the underlying security and the proceeds of the sale of
the security plus the premium received on the option less the commission paid.
Options written by a Fund normally have expiration dates of from up to nine
months (equity securities) to eighteen months (fixed-income securities) from the
date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written. See "Risks of Options and Futures Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the Fund incurs an obligation to buy the security underlying the
option from the purchaser of the put, at the option's exercise price at any time
during the option period, at the purchaser's election (certain listed put
options written by the Fund will be exercisable by the purchaser only on a
specific date). A put is "covered" if, at all times, the Fund maintains, in a
segregated account maintained on its behalf at the Fund's Custodian, cash, U.S.
Government securities or other liquid portfolio securities in an amount equal to
at least the exercise price of the option, at all times during the option
period. Similarly, a short put position could be covered by the Fund by its
purchase of a put option on the same security as the underlying security of the
written option, where the exercise price of the purchased option is equal to or
more than the exercise price of the put written or less than the exercise price
of the put written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other liquid portfolio securities which the
Fund holds in a segregated account maintained at its Custodian. In writing puts,
the Fund assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). During the
option period, the Fund may be required, at any time, to make payment of the
exercise price against delivery of the underlying security. The operation of and
limitations on covered put options in other respects are substantially identical
to those of call options.
The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals
14
<PAGE>
the differences between the exercise price of the option and the current market
price of the underlying securities when the put is exercised, offset by the
premium received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options on securities and stock indexes in
amounts equalling up to 10% of its total assets, with a maximum of 5% of the
Fund's assets invested in stock index options. The Fund may purchase call
options only in order to close out a covered call position (see "Covered Call
Writing" above). The purchase of the call option to effect a closing transaction
on a call written over-the-counter may be a listed or OTC option. In either
case, the call purchased is likely to be on the same securities and have the
same terms as the written option. If purchased over-the-counter, the option
would generally be acquired from the dealer or financial institution which
purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline in
the value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. The Fund
may also purchase put options to close out written put positions in a manner
similar to call options closing purchase transactions. In addition, the Fund may
sell a put option which it has previously purchased prior to the sale of the
securities underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put option which is sold.
And such gain or loss could be offset in whole or in part by a change in the
market value of the underlying security. If a put option purchased by the Fund
expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security increase, but has retained the risk of loss should the price
of the underlying security decline. The secured put writer also retains the risk
of loss should the market value of the underlying security decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction, it cannot sell
the underlying security until the option expires or the option is exercised.
Accordingly, a covered call option writer may not be able to sell an underlying
security at a time when it might otherwise be advantageous to do so. A secured
put option writer who is unable to effect a closing purchase transaction would
continue to bear the risk of decline in the market price of the underlying
security until the option expires or is exercised. In addition, a secured put
writer would be unable to utilize the amount held in cash or U.S. Government or
other liquid portfolio securities as security for the put option for other
investment purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on Option Exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options. However, the Fund may be able to purchase an offsetting option
which does not close out its position as a writer but constitutes an asset of
equal value to the obligation under the option written. If the Fund is not able
to either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to maintain the securities subject to the call, or
the collateral underlying the put, even though it might not be advantageous to
do so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of
15
<PAGE>
options or underlying securities; (iv) interruption of the normal operations on
an Exchange; (v) inadequacy of the facilities of an Exchange or the OCC to
handle current trading volume; or (vi) a decision by one or more Exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that Exchange (or in that class or series
of options) would cease to exist, although outstanding options on that Exchange
that had been issued by the OCC as a result of trades on that Exchange would
generally continue to be excercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
STOCK INDEX OPTIONS. As stated in the Prospectus, options on stock indexes
are similar to options on stock except that, rather than the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the "multiplier"). The
multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike stock options, all
settlements are in cash and a gain or loss depends on price movements in the
stock market generally (or in a particular segment of the market) rather than
the price movements in individual stocks. Currently, options are traded on the
S&P 100 Index and the S&P 500 Index on the Chicago Board Options Exchange, the
Major Market Index and the Computer Technology Index, Oil Index and
Institutional Index on the American Stock Exchange and the NYSE Index and NYSE
Beta Index on the New York Stock Exchange, The Financial News Composite Index on
the Pacific Stock Exchange and the Value Line Index, National O-T-C Index and
Utilities Index on the Philadelphia Stock Exchange, each of which and any
similar index on which options are traded in the future which include stocks
that are not limited to any particular industry or segment of the market is
referred to as a "broadly based stock market index." The Fund will invest only
in broadly based indexes. Options on broad-based stock indexes provide the Fund
with a means of protecting the Fund against the risk of market wide price
movements. If the Investment Manager anticipates a market decline, the Fund
could purchase a stock index put option. If the expected market decline
materialized, the resulting decrease in the value of the Fund's portfolio would
be offset to the extent of the increase in the value of the put option. If the
Investment Manager anticipates a market rise, the Fund may purchase a stock
index call option to enable the Fund to participate in such rise until
completion of anticipated common stock purchases by the Fund. Purchases and
sales of stock index options also enable the Investment Manager to more speedily
achieve changes in the Fund's equity positions.
16
<PAGE>
The Fund will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other liquid portfolio securities
equal to the aggregate exercise price of the puts, or by a put option on the
same stock index with a strike price no lower than the strike price of the put
option sold by the Fund, which cover is held for the Fund in a segregated
account maintained for it by the Fund's Custodian. All call options on stock
indexes written by the Fund will be covered either by a portfolio of stocks
substantially replicating the movement of the index underlying the call option
or by holding a separate call option on the same stock index with a strike price
no higher than the strike price of the call option sold by the Fund.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decrease in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts") that
are traded on U.S. commodity exchanges on such underlying securities as U.S.
Treasury bonds, notes, bills and GNMA Certificates ("interest rate" futures) and
such indexes as the S&P 500 Index, the Moody's Investment-Grade Corporate Bond
Index and the New York Stock Exchange Composite Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing
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interest rates. If the Investment Manager anticipates that interest rates may
rise and, concomitantly, the price of fixed-income securities falls, the Fund
may sell an interest rate futures contract or a bond index futures contract. If
declining interest rates are anticipated, the Fund may purchase an interest rate
futures contract to protect against a potential increase in the price of U.S.
Government securities the Fund intends to purchase. Subsequently, appropriate
fixed-income securities may be purchased by the Fund in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated by
offsetting sales of contracts.
The Fund will purchase or sell stock index futures contracts for the purpose
of hedging its equity portfolio (or anticipated portfolio) securities against
changes in their prices. If the Investment Manager anticipates that the prices
of stock held by the Fund may fall, the Fund may sell a stock index futures
contract. Conversely, if the Investment Manager wishes to hedge against
anticipated price rises in those stocks which the Fund intends to purchase, the
Fund may purchase stock index futures contracts. In addition, interest rate and
stock index futures contracts will be bought or sold in order to close out a
short or long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase for
the same aggregate amount of the specific type of equity security and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities called "variation margin," with the Fund's futures contract clearing
broker, which are reflective of price fluctuations in the futures contract.
Currently, interest rate futures contracts can be purchased on debt securities
such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with Maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to
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<PAGE>
current industry practice, daily variations in gains and losses on open
contracts are required to be reflected in cash in the form of variation margin
payments. The Fund may be required to make additional margin payments during the
term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Value Line Stock Index on the
Kansas City Board of Trade and the Moody's Investment-Grade Corporate Bond Index
on the Chicago Board of Trade.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid), and the writer
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
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RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Fund may sell a futures contract to protect against the
decline in the value of securities held by the Fund. However, it is possible
that the futures market may advance and the value of securities held in the
portfolio of the Fund may decline. If this occurred, the Fund would lose money
on the futures contract and also experience a decline in value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the CFTC either: 1) a
substantial majority (i.e., approximately 75%) of all anticipatory hedge
transactions (transactions in which the Fund does not own at the time of the
transaction, but expects to acquire, the securities underlying the relevant
futures contract) involving the purchase of futures contracts will be completed
by the purchase of securities which are the subject of the hedge or 2) the
underlying value of all long positions in futures contracts will not exceed the
total value of a) all short-term debt obligations held by the Fund; b) cash held
by the Fund; c) cash proceeds due to the Fund on investments within thirty days;
d) the margin deposited on the contracts; and e) any unrealized appreciation in
the value of the contracts.
If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other liquid portfolio securities equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Investment Manager.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities which are the
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<PAGE>
subject of the hedge. If participants in the futures market elect to close out
their contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the securities and
futures markets could result. Price distortions could also result if investors
in futures contracts opt to make or take delivery of underlying securities
rather than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of stock price or interest rate trends by the Investment Manager may still not
result in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position and, in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked-to-market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to any
limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Board of Directors of the Fund. In
addition, as described above, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price, including
any accrued interest earned on the repurchase agreement. In the event of a
default or bankruptcy by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercising of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a
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loss. It is the current policy of the Fund not to invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Fund, amounts to more than 15% of its
net assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of the commitment, but delivery and payment can take place a month or
more after the date of commitment. While the Fund will only purchase securities
on a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date. At the time the Fund makes the
commitment to purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis, it will record the transaction and thereafter reflect
the value, each day, of such security purchased, or if a sale, the proceeds to
be received, in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price. The
Fund will also establish a segregated account with its custodian bank in which
it will continually maintain cash or cash equivalents or other liquid portfolio
securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis. During the fiscal
year ended February 28, 1998, the Fund did not purchase securities on a
when-issued, delayed delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other liquid portfolio securities equal in value to recognized
commitments for such securities. The value of the Fund's commitments to purchase
the securities of any one issuer, together with the value of all securities of
such issuer owned by the Fund, may not exceed 5% of the value of the Fund's
total assets at the time the initial commitment to purchase such securities is
made (see "Investment Restrictions"). An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. During the
fiscal year ended February 28, 1998, the Fund did not purchase securities on a
"when, as and if issued" basis. The Fund may also sell securities on a "when, as
and if issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the Fund at
the time of sale.
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Fund may invest up to 5% of its total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise restricted. (Securities eligible for resale pursuant to Rule 144A of
the Securities Act, and determined to be liquid pursuant to the procedures
discussed in the following paragraph, are not subject to the foregoing
restriction.) These securities are generally referred to as private placements
or restricted securities. Limitations on the resale of such securities may have
an adverse effect on their marketability, and may prevent the Fund from
disposing of them promptly at reasonable prices. The Fund may have to bear the
expense of registering such securities for resale and the risk of substantial
delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. The procedures require that the following factors
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be taken into account in making a liquidity determination: (1) the frequency of
trades and price quotes for the security; (2) the number of dealers and other
potential purchasers who have issued quotes on the security; (3) any dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
If a restricted security is determined to be "liquid," such security will not be
included within the category "illiquid securities," which under current policy
may not exceed 15% of the Fund's net assets. During the fiscal year ended
February 28, 1998, the Fund did not purchase any restricted securities.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares are present or represented by proxy; or (b) more than 50% of
the outstanding shares of the Fund. For purposes of the following restrictions:
(i) all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or of the Investment Manager owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers and directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein (including
limited partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities which are
secured by real estate or interests therein.
3. Purchase or sell commodities except that the Fund may purchase and
sell futures contracts and related options.
4. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
6. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
7. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6). (To meet the requirements of regulations in certain states, the Fund,
as a matter of operating policy but not as a fundamental policy, will limit
any pledge of its assets to 4.5% of its net assets so long as shares of the
Fund are being sold in those states.) For the purposes of this restriction,
collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial or variation margin for
futures are not deemed to be pledges of assets.
8. Issue senior securities as defined in the Act except insofar as
the Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) borrowing money in accordance
with restrictions described above; or (c) lending portfolio securities.
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<PAGE>
9. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; or (c)
by lending its portfolio securities.
10. Make short sales of securities.
11. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities. The
deposit or payment by the Fund of initial or variation margin in connection
with futures contracts or related options thereon is not considered the
purchase of a security on margin.
12. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security and then only in an aggregate amount not
to exceed 5% of the Fund's total assets.
13. Invest for the purpose of exercising control or management of any
other issuer.
In addition, the Fund, as a non-fundamental policy, will not invest more
than 5% of the value of its net assets in warrants, including not more than 2%
of such assets in warrants not listed on the New York or American Stock
Exchange. However, the acquisition of warrants attached to other securities is
not subject to this restriction.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Board of Directors, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. The Fund also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
Options and futures transactions will usually be effected through a broker and a
commission will be charged. On occasion, the Fund may also purchase certain
money market instruments directly from an issuer, in which case no commissions
or discounts are paid. For the fiscal years ended February 29, 1996, February
28, 1997 and February 28, 1998, the Fund paid a total of $270,398, $986,176 and
$638,253, respectively, in brokerage commissions.
The Investment Manager currently serves as investment manager or adviser to
a number of clients, including other investment companies, and may in the future
act as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated among
the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client accounts,
various factors may be considered, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts. In the case of
certain initial and secondary public offerings, the Investment Manager may
utilize a pro rata allocation based on the size of the Dean Witter Funds
involved and the number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest
24
<PAGE>
possible commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment Manager
from obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Investment Manager relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such price and execution are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities. During the
fiscal year ended February 28, 1998, the Fund directed the payment of $456,809
in brokerage commissions in connection with transactions in the aggregate amount
of $212,594,065 to brokers because of research services provided.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and other
affiliated brokers and dealers. In order for an affiliated broker or dealer to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by the affiliated broker or dealer must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Directors of the Fund,
including a majority of the Directors who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The Fund
does not reduce the management fee it pays to the Investment Manager by any
amount of the brokerage commissions it may pay to an affiliated broker or
dealer. During the fiscal years ended February 29, 1996, February 28, 1997 and
February 28, 1998, the Fund paid a total of $88,566, $263,065 and $129,925,
respectively, in brokerage commissions to DWR. During the year ended February
28, 1998, the brokerage commissions paid to DWR represented approximately 20.36%
of the total brokerage commissions paid by the Fund during the year and were
paid on account of transactions having an aggregate dollar value equal to
approximately 31.63% of the aggregate dollar value of all portfolio transactions
of the Fund during the year for which commissions were paid. During the period
June 1, 1997 through February 28, 1998, the Fund paid a total of $4,800 in
brokerage commissions to MS & Co., which broker-dealer became an affiliate of
the Investment Manager on May 31, 1997 upon consummation of the merger of Dean
Witter, Discover & Co. with Morgan Stanley Group Inc. The brokerage commissions
paid to MS & Co. represented approximately 0.75% of the total brokerage
commissions paid by the Fund for this period and were paid on account of
transactions having an aggregate dollar value equal to approximately 1.06% of
the aggregate dollar value of all portfolio transactions of the Fund during the
period for which commissions were paid.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e. Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During its fiscal year ended February 28, 1998, the Fund did
not effect any principal transactions with DWR.
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<PAGE>
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the Fund does not reduce the management fee it
pays to the Investment Manager by any amount that may be attributable to the
value of such services.
PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
200% during the fiscal year ending February 28, 1999. A 200% turnover rate would
occur, for example, if 200% of the securities held in the Fund's portfolio
(excluding all securities whose maturities at acquisition were one year or less)
were sold and replaced within one year. During the fiscal years ended February
28, 1997 and February 28, 1998, the Fund's portfolio turnover rates were 156%
and 67%, respectively.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is an indirect wholly-owned subsidiary of MSDW. The
Directors of the Fund, including a majority of the Directors who are not, and
were not at the time they voted, interested persons of the Fund, as defined in
the Act (the "Independent Directors"), approved, at their meeting held on June
30, 1997, the current Distribution Agreement (the "Distribution Agreement")
appointing the Distributor exclusive distributor of the Fund's shares and
providing for the Distributor to bear distribution expenses not borne by the
Fund. By its terms, the Distribution Agreement has an initial term ending April
30, 1998 and will remain in effect from year to year thereafter if approved by
the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to prospective
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal securities laws and pays filing fees in accordance with
state securities laws. The Fund and the Distributor have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Under the Distribution Agreement, the
Distributor uses its best efforts in rendering services to the Fund, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations, the Distributor is not liable to the Fund or any
of its shareholders for any error of judgement or mistake of law or for any act
or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), pursuant to which each Class other than Class D pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Plan on July 2, 1984 (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's Class B shares redeemed since the Plan's inception upon
which a contingent deferred sales charge has been imposed or upon which such
charge has been waived, or (b) the average daily net assets of Class B
attributable to shares issued, net of related shares redeemed, since inception
of the Plan. The Distributor also
26
<PAGE>
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $184,694, $151,113 and $372,894 in contingent
deferred sales charges from Class B for the fiscal years ended February 29,
1996, February 28, 1997 and February 28, 1998, respectively, (b) approximately
$0.00 and $885 in contingent deferred sales charges from Class A and Class C,
respectively, for the fiscal year ended February 28, 1998, and (c) approximately
$18,000 in front-end sales charges from Class A for the fiscal year ended
February 28, 1998, none of which was retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets,
are currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers (of which the
Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by a Class, if any, is characterized as an "asset-based
sales charge" pursuant to the aforementioned Rules of the Association.
The Plan was originally adopted by a majority vote of the Board of
Directors, including all of the Directors who are not "interested persons" of
the Fund, as defined in the Act, (the "Independent Directors"), none of whom had
or have any direct or indirect financial interest in the operation of the Plan
(the "Independent 12b-1 Directors"), cast in person at a meeting called for the
purpose of voting on the Plan, on April 16, 1984, and by the shareholders
holding a majority, as defined in the Act, of the outstanding shares of the
Fund, at the Fund's Annual Meeting of Stockholders held on June 22, 1984.
At their meeting held on October 30, 1992, the Directors of the Fund,
including all of the Independent 12b-1 Directors, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon an internal reorganization, the share distribution activities
theretofore performed for the Fund by DWR were assumed by the Distributor and
DWR's sales activities are now being performed pursuant to the terms of a
selected dealer agreement between the Distributor and DWR. The amendments
provide that payments under the Plan will be made to the Distributor rather than
to DWR as before the amendment, and that the Distributor in turn is authorized
to make payments to DWR, its affiliates or other selected broker-dealers (or
direct that the Fund pay such entities directly). The Distributor is also
authorized to retain part of such fee as compensation for its own
distribution-related expenses.
At their meeting held on April 28, 1993, the Directors, including a majority
of the Independent 12b-1 Directors, approved certain technical amendments to the
Plan in connection with amendments adopted by the National Association of
Securities Dealers, Inc. to its Rules of the Association. At their meeting held
on October 26, 1995, the Directors of the Fund, including all of the Independent
12b-1 Directors, approved an amendment to the Plan to permit payments to be made
under the Plan with respect to certain distribution expenses incurred in
connection with the distribution of shares, including personal services to
shareholders with respect to holdings of such shares, of an investment company
whose assets are acquired by the Fund in a tax-free reorganization. At their
meeting held on June 30, 1997, the Directors, including a majority of the
Independent 12b-1 Directors, approved amendments to the Plan to reflect the
multiple-class structure for the Fund, which took effect on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Directors receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended February
28, 1998, of $2,789,293. This amount is equal to 0.99% of the Fund's average
daily net assets for the fiscal year and was calculated pursuant to clause (b)
of the compensation formula under the Plan. This amount is treated by the Fund
as an expense in the year it is accrued. This amount represents amounts paid by
Class B only. For the fiscal period July 28, 1997 through February 28, 1998,
Class A and Class C shares of the Fund accrued payments under the Plan amounting
to $296 and $3,825, respectively, which amounts are equal to 0.25% and 1.00% of
the average daily net assets of Class A and Class C, respectively, for such
period.
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<PAGE>
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust")
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, the Investment Manager
compensates DWR's account executives by paying them, from its own funds, a gross
sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.25% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares purchased on or after July 28, 1997 by Qualified Retirement Plans
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its account executives by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in
InterCapital's mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's account executives by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the account executives of record (not including accounts of
participants in the InterCapital mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its account executives and DWR's Fund associated distribution-related expenses,
including sales compensation and overhead. The distribution fee that the
Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred on behalf of the Fund, and in the case of Class B
shares, opportunity costs, such as the gross sales credit and an assumed
interest charge thereon ("carrying charge"). In the Distributor's reporting of
distribution expenses to the Fund, in the case of Class B shares, such assumed
interest (computed at the "broker's call rate") has been calculated on the gross
sales credit as it is reduced by amounts received by the Distributor under the
Plan and any contingent deferred sales charges received by the Distributor upon
redemption of shares of the Fund. No other interest charge is included as a
distribution expense in the Distributor's calculation of its distribution costs
for this purpose. The broker's call rate is the interest rate charged to
securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 1.0%, in the case of
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<PAGE>
Class C, of the average net assets of the respective Class during the month. No
interest or other financing charges, if any, incurred on any distribution
expenses on behalf of Class A and Class C will be reimbursable under the Plan.
With respect to Class A, in the case of all expenses other than expenses
representing the service fee, and, with respect to Class C, in the case of all
expenses other than expenses representing a gross sales credit or a residual to
account executives, such amounts shall be determined at the beginning of each
calendar quarter by the Directors, including a majority of the Independent 12b-1
Directors. Expenses representing the service fee (for Class A) or a gross sales
credit or a residual to account executives (for Class C) may be reimbursed
without prior determination. In the event that the Distributor proposes that
monies shall be reimbursed for other than such expenses, then in making
quarterly determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Directors will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund, together
with a report explaining the purposes and anticipated benefits of incurring such
expenses. The Directors will determine which particular expenses, and the
portions thereof, that may be borne by the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended February 28, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
27,969,083 on behalf of Class B since the inception of the Plan. It is estimated
that this amount was spent in approximately the following ways: (i) 12.46%
($3,484,729) -- advertising and promotional expenses; (ii) 1.21% ($339,436) --
printing of prospectuses for distribution to other than current shareholders;
and (iii) 86.33% ($24,144,918) -- other expenses, including the gross sales
credit and the carrying charge, of which 11.10% ($2,679,315) represents carrying
charges, 35.94% ($8,678,543) represents commission credits to DWR branch offices
for payments of commissions to account executives and 52.96% ($12,787,060)
represents overhead and other branch office distribution-related expenses. The
amounts accrued by Class A and Class C for distribution during the fiscal period
July 28, 1997 through February 28, 1998 were for expenses which relate to
compensation of sales personnel and associated overhead expenses.
In the case of Class B shares at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares, the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $6,431,607 as of
February 28, 1998, which amount constitutes 2.35% of the Fund's net assets on
such date. Because there is no requirement under the Plan that the Distributor
be reimbursed for all distribution expenses with respect to Class B shares or
any requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred by the Distributor 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 Directors will consider at that time the
manner in which to treat such expenses. Any cumulative expenses incurred, but
not yet recovered through distribution fees or contingent deferred sales
charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
No interested person of the Fund nor any Director of the Fund who is not an
interested person of the Fund, as defined in the Act, had any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWSC, DWR or certain of their employees may be deemed
to have such interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Fund.
Under its terms, the Plan will continue in effect from year to year,
provided such continuance is approved annually by a vote of the Directors in the
manner described above. Prior to the Board's approval of amendments to the Plan
to reflect the multiple-class structure for the Fund, the most recent
continuance of the Plan for one year, until April 30, 1998, was approved by the
Board of Directors of the Fund, including a majority of
29
<PAGE>
the Independent 12b-1 Directors, at a Board meeting held on April 24, 1997.
Prior to approving the continuation of the Plan, the Board requested and
received from DWR and reviewed all the information which it deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Directors considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing to
be provided under the Plan by the Distributor to the Fund and its stockholders.
Based upon their review, the Directors of the Fund, including each of the
Independent 12b-1 Directors, determined that continuation of the Plan would be
in the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Directors' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Directors in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan, or
by a vote of a majority of the outstanding voting securities of the Fund (as
defined in the Act) on not more than thirty days' written notice to any other
party to the Plan. So long as the Plan is in effect, the election and nomination
of Independent Directors shall be committed to the discretion of the Independent
Directors.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term debt securities with remaining
maturities of 60 days or less at the time of purchase are valued at amortized
cost, unless the Directors determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Other short-term debt securities will be valued
on a mark-to-market basis until such time as they reach a remaining maturity of
60 days, whereupon they will be valued at amortized cost using their value on
the 61st day unless the Directors determine such does not reflect the
securities' market value, in which case these securities will be valued at their
fair value as determined by the Directors. Listed options on debt securities are
valued at the latest sale price on the exchange on which they are listed unless
no sales of such options have taken place that day, in which case they will be
valued at the mean between their latest bid and asked prices. Unlisted options
on debt securities and all options on equity securities are valued at the mean
between their latest bid and asked prices. Futures are valued at the latest sale
price on the commodities exchange on which they trade unless the Directors
determine that such price does not reflect their market value, in which case
they will be valued at their fair value as determined by the Directors. All
other securities and other assets are valued at their fair value as determined
in good faith under procedures established by and under the supervision of the
Directors.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4 p.m., at such earlier time), on each day that
the New York Stock Exchange is open. The New York Stock Exchange currently
observes the following holidays: New Year's Day, Reverend Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
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<PAGE>
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") or shares of other Dean Witter Funds sold with
a front-end sales charge purchased at a price including a front-end sales charge
having a current value of $5,000, and purchases $20,000 of additional shares of
the Fund, the sales charge applicable to the $20,000 purchase would be 4.75% of
the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Morgan Stanley Dean Witter Trust FSB (the
"Transfer Agent") fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Dean Witter Funds
held by the shareholder which were previously purchased at a price including a
front-end sales charge (including shares of the Fund and other Dean Witter Funds
acquired in exchange for those shares, and including in each case shares
acquired through reinvestment of dividends and distributions) will be added to
the cost or net asset value of shares of the Fund owned by the investor.
However, shares of "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") and the purchase of shares of other Dean Witter Funds will not be
included in determining whether the stated goal of a Letter of Intent has been
reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
31
<PAGE>
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of shares
acquired in exchange for (i) shares of Dean Witter front-end sales charge funds,
or (ii) shares of other Dean Witter Funds for which shares of front-end sales
charge funds have been exchanged (see "Shareholder Services--Exchange
Privilege"), plus (d) increases in the net asset value of the investor's shares
above the total amount of payments for the purchase of Fund shares made during
the preceding six (three) years. The CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter front-end sales charge funds, or
for shares of other Dean Witter funds for which shares of front-end sales charge
funds have been exchanged. A portion of the amount redeemed which exceeds an
amount which represents both such increase in value and the value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in the above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ---------------------------------------------------------------------- -----------------
<S> <C>
First................................................................. 5.0%
Second................................................................ 4.0%
Third................................................................. 3.0%
Fourth................................................................ 2.0%
Fifth................................................................. 2.0%
Sixth................................................................. 1.0%
Seventh and thereafter................................................ None
</TABLE>
32
<PAGE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ---------------------------------------------------------------------- -----------------
<S> <C>
First................................................................. 2.0%
Second................................................................ 2.0%
Third................................................................. 1.0%
Fourth and thereafter................................................. None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a stock certificate. If a
stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be redeposited
in the account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a shareholder instituted transaction takes place in the
Shareholder Investment Account, the shareholder will be mailed a written
confirmation of the transaction from the Fund or from DWR or other selected
broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or other selected
broker-dealer, and will be forwarded to the shareholder, upon the receipt of
proper instructions. It has been and remains the Fund's policy and practice
that, if checks for dividends or distributions paid in cash remain uncashed, no
interest will accrue on amounts represented by such uncashed checks.
TARGETED DIVIDENDS-SM-. In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Dean
33
<PAGE>
Witter Fund other than Dean Witter Natural Resource Development Securities Inc.
or in another Class of Dean Witter Natural Resource Development Securities Inc.
Such investment will be made as described above for automatic investment in
shares of the applicable Class of the Fund, at the net asset value per share of
the selected Dean Witter Fund as of the close of business on the payment date of
the dividend or distribution and will begin to earn dividends, if any, in the
selected Dean Witter Fund the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the Fund
must be shareholders of the selected Class of the Dean Witter Fund targeted to
receive investments from dividends at the time they enter the Targeted Dividends
program. Investors should review the prospectus of the targeted Dean Witter Fund
before entering the program.
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected (subject to applicable sales charges). Shares of
Dean Witter money market funds redeemed in connection with EasyInvest are
redeemed on the business day preceding the transfer of funds. For further
information or to subscribe to EasyInvest, shareholders should contact their DWR
or other selected broker-dealer account executive or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or distribution may invest
such dividend or distribution in shares of the applicable Class at net asset
value, without the imposition of a CDSC upon redemption, by returning the check
or the proceeds to the Transfer Agent within thirty days after the payment date.
If the shareholder returns the proceeds of a dividend or distribution, such
funds must be accompanied by a signed statement indicating that the proceeds
constitute a dividend or distribution to be invested. Such investment will be
made at the net asset value per share next determined after receipt of the check
or proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a withdrawal
plan (the "Withdrawal Plan") is available for shareholders who own or purchase
shares of the Fund having a minimum value of $10,000 based upon the then current
net asset value. The Withdrawal Plan provides for monthly or quarterly (March,
June, September and December) checks in any dollar amount, not less than $25, or
in any whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). Therefore, any shareholder participating in the
Withdrawal Plan will have sufficient shares redeemed from his or her account so
that the proceeds (net of any applicable CDSC) to the shareholder will be the
designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR or other
broker-dealer brokerage account, within five business days after the date of
redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
34
<PAGE>
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her account executive or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
shareholder investment account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases") at any time.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Dean Witter Natural Resource Development Securities Inc.,
and indicating the selected Class, directly to the Fund's Transfer Agent. In the
case of Class A shares, after deduction of any applicable sales charge, the
balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount will be applied to the purchase
of Fund shares, at the net asset value per share next computed after receipt of
the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for shares of the same Class of shares of any other Dean Witter Multi-Class Fund
without the imposition of any exchange fee. Shares may also be exchanged for
shares of any of the following funds: Dean Witter Short-Term U.S. Treasury
Trust, Dean Witter Intermediate Term U.S. Treasury Trust, Dean Witter Limited
Term Municipal Trust, Dean Witter Short-Term Bond Fund, and for five Dean Witter
Funds which are money market funds (the foregoing nine funds are hereinafter
referred to as the "Exchange Funds"). Class A shares may also be exchanged for
shares of Dean Witter Multi-State Municipal Series Trust and Dean Witter Hawaii
Municipal Trust, which are Dean Witter Funds sold with a front-end sales charge
("FSC Funds"). Class B shares may also be exchanged for shares of Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a Dean Witter
Fund offered with a CDSC. Exchanges may be made after the shares of the Fund
acquired by purchase (not by exchange or dividend reinvestment) have been held
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares, on which
the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Dean Witter
Multi-Class Fund or Global Short-Term are exchanged for shares of an Exchange
Fund, the exchange is executed at no charge to the shareholder, without the
imposition of the CDSC at the time of the exchange. During the period of time
the shareholder remains in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired), the holding period
or "year since purchase
35
<PAGE>
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a Dean Witter Multi-Class Fund or in Global
Short-Term. However, in the case of shares of the Fund exchanged into an
Exchange Fund on or after April 23, 1990, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the CDSC)
will be given in an amount equal to the Exchange Fund 12b-1 distribution fees
incurred on or after that date which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a Dean Witter Multi-Class Fund or
Global Short-Term from the Exchange Fund, with no CDSC being imposed on such
exchange. The holding period previously frozen when shares were first exchanged
for shares of the Exchange Fund resumes on the last day of the month in which
shares of a Dean Witter Multi-Class Fund or of Global Short-Term are reacquired.
A CDSC is imposed only upon an ultimate redemption, based upon the time
(calculated as described above) the shareholder was invested in a Dean Witter
Multi-Class Fund or in Global Short-Term. In the case of exchanges of Class A
shares which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in
Global Short-Term are exchanged for shares of Global Short-Term, shares of a FSC
Fund, or shares of an Exchange Fund, the date of purchase of the shares of the
fund exchanged into, for purposes of the CDSC upon redemption, will be the last
day of the month in which the shares being exchanged were originally purchased.
In allocating the purchase payments between funds for purposes of the CDSC the
amount which represents the current net asset value of shares at the time of the
exchange which were (i) purchased more than one, three or six years (depending
on the CDSC schedule applicable to the shares) prior to the exchange, (ii)
originally acquired through reinvestment of dividends or distributions and (iii)
acquired in exchange for shares of FSC Funds, or for shares of other Dean Witter
Funds for which shares of FSC Funds have been exchanged (all such shares called
"Free Shares"), will be exchanged first. Shares of Dean Witter American Value
Fund (formerly Dean Witter Industry-Valued Securities Inc.) acquired prior to
April 30, 1984, shares of the Fund and Dean Witter Dividend Growth Securities
Inc. acquired prior to July 2, 1984, and shares of Dean Witter Strategist Fund
acquired prior to November 8, 1989, are also considered Free Shares and will be
the first Free Shares to be exchanged. After an exchange, all dividends earned
on shares in an Exchange Fund will be considered Free Shares. If the exchanged
amount exceeds the value of such Free Shares, an exchange is made, on a
block-by-block basis, of non-Free Shares held for the longest period of time
(except that, with respect to Class B shares, if shares held for identical
periods of time but subject to different CDSC schedules are held in the same
Exchange Privilege account, the shares of that block that are subject to a lower
CDSC rate will be exchanged prior to the shares of that block that are subject
to a higher CDSC rate). Shares equal to any appreciation in the value of
non-Free Shares exchanged will be treated as Free Shares, and the amount of the
purchase payments for the non-Free Shares of the fund exchanged into will be
equal to the lesser of (a) the purchase payments for, or (b) the current net
asset value of, the exchanged non-Free Shares. If an exchange between funds
would result in exchange of only part of a particular block of non-Free Shares,
then shares equal to any appreciation in the value of the block (up to the
amount of the exchange) will be treated as Free Shares and exchanged first, and
the purchase payment for that block will be allocated on a pro rata basis
between the non-Free Shares of that block to be retained and the non-Free Shares
to be exchanged. The prorated amount of such purchase payment attributable to
the retained non-Free Shares will remain as the purchase payment for such
shares, and the amount of purchase payment for the exchanged non-Free Shares
will be equal to the lesser of (a) the prorated amount of the purchase payment
for, or (b) the current net asset value of, those exchanged non-Free Shares.
Based upon the procedures described in the Prospectus under the caption
"Purchase of Fund Shares," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions.
36
<PAGE>
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter New York
Municipal Money Market Trust and Dean Witter California Tax-Free Daily Income
Trust although those funds may, at their discretion, accept initial investments
of as low as $1,000. The minimum initial investment for the Exchange Privilege
account of each Class for Dean Witter Short-Term U.S. Treasury Trust is $10,000,
although that fund, in its discretion, may accept initial purchases of as low as
$5,000. The minimum investment for the Exchange Privilege account of each Class
for Dean Witter Special Value Fund is $5,000. The minimum initial investment for
the Exchange Privilege account of each Class for all other Dean Witter Funds for
which the Exchange Privilege is available is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of those funds, including the check writing
feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that six months' prior written notice of termination will be
given to the shareholders who hold shares of Exchange Funds, pursuant to this
Exchange Privilege and provided further that the Exchange Privilege may be
terminated or materially revised without notice at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, (d) during any other period when the Securities and
Exchange Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist) or (e) if the Fund would be
unable to invest amounts effectively in accordance with its investment
objective, policies and restrictions.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. An exchange will be treated for federal income tax purposes
the same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses on
an exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share
37
<PAGE>
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption. The share certificate, or an accompanying stock
power, and the request for redemption must be signed by the shareholder or
shareholders exactly as the shares are registered. Each request for redemption,
whether or not accompanied by a share certificate, must be sent to the Fund's
Transfer Agent, which will redeem the shares at their net asset value next
computed (see "Purchase of Fund Shares" in the Prospectus) after it receives the
request, and certificate, if any, in good order. Any redemption request received
after such computation will be redeemed at the next determined net asset value.
The term "good order" means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by the
Transfer Agent, and bear signature guarantees when required by the Fund or the
Transfer Agent. If redemption is requested by a corporation, partnership, trust
or fiduciary, the Transfer Agent may require that written evidence of authority
acceptable to the Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a supplement
to the prospectus or a new prospectus.
REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. Such payment may be postponed
or the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified or bank cashier's
check), payment of redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
If the shares to be redeemed have recently been purchased by check (including a
certificate or bank cashier's check), payment of redemption proceeds may be
delayed for the minimum time needed to verify that the check used for investment
has been honored (not more than fifteen days from the time of investment of the
check by the Transfer Agent). It has been and remains the Fund's policy and
practice that, if checks for redemption proceeds remain uncashed, no interest
will accrue on amounts represented by such uncashed checks. Shareholders
maintaining margin accounts with DWR or another selected broker-dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares
38
<PAGE>
subject to the charge have been held), any transfer involving less than all of
the shares in an account will be made on a pro rata basis (that is, by
transferring shares in the same proportion that the transferred shares bear to
the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request is received by the
Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and shareholders will be able to claim their share of the tax paid
by the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
capital gains to shareholders and otherwise continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
and/or income taxes, on the dividends and distributions they receive from the
Fund. Such dividends and distributions, to the extent that they are derived from
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed received by the shareholder in the prior calendar
year.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than one
year. Gains or losses on the sale of securities held for one year or less will
be short-term gains or losses.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction. The Treasury intends to issue regulations to
permit shareholders to take into account their proportionate share of the Fund's
capital gains distributions that will be subject to a reduced rate under the
Taxpayer Relief Act of 1997. The Taxpayer Relief Act reduces the maximum tax on
long-term capital gains from 28% to 20%; however, it also lengthens the required
holding period to obtain the lower rate from more than 12 months to more than 18
months. The lower rates do not apply to collectibles and certain other assets.
Additionally, the maximum capital gain rate for assets that are held more than
five years and that are acquired after December 31, 2000 is 18%.
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986. If
so qualified, the Fund will not be subject to federal income tax on its net
investment income and net short-term and long-term capital gains, if any,
realized during any fiscal year in which it distributes such income and capital
gains to its shareholders. Distributions of net long-term capital gains, if any,
are taxable to shareholders as long-term capital gains regardless of how long a
shareholder has held the Fund's shares and regardless of whether the
distribution is received in additional shares or in cash. Capital gains
distributions are not eligible for the dividends received deduction.
39
<PAGE>
Dividends and interest received by the Fund with respect to foreign
securities in its portfolio may give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and some
portion of the dividends are subject to federal income taxes. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends or the distribution of realized long-term capital
gains, such payment or distribution would be a return of capital but nonetheless
would be taxable to the shareholder. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund had held to
a minimum period, usually 46 days within a 90-day period beginning 45 days
before the ex-dividend date of each qualifying dividend. Shareholders must meet
a similar holding requirement with respect to their shares to claim the
dividends received deduction with respect to any distribution of qualifying
dividends. Any long-term capital gain distributions will also not be eligible
for the dividends received deduction. The ability to take the dividends received
deduction will also be limited in the case of a Fund shareholder which incurs or
continues indebtedness which is directly attributable to its investment in the
Fund.
Any loss realized by Shareholders upon a redemption of Shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the
six-month period.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the portion eligible for the dividends received
deduction. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to their accuracy.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The Fund's
"average annual total return" represents an annualization of the Fund's total
return over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period. The ending
redeemable value is reduced by any CDSC at the end of the one, five or ten year
or other period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total returns of
Class B for the year ended February 28, 1998, the five years ended February 28,
1998, and for the ten years ended February 28, 1998, were 11.93%, 14.01% and
11.51%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods
40
<PAGE>
by determining the aggregate percentage rate which will result in the ending
value of a hypothetical $1,000 investment made at the beginning of the period.
For the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing aggregate total return
involves a percentage obtained by dividing the ending value by the initial
$1,000 investment and subtracting 1 from the result. The ending redeemable value
is reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through February
28, 1998 were -5.46%, -1.60% and -0.08% for Class A, Class C and Class D,
respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average total
return of the Fund may be calculated in the manner described in the preceding
paragraph, but without deduction of any applicable sales charge. Based on this
calculation, the average annual total returns of Class B for the year ended
February 28, 1998, for the five years ended February 28, 1998, and for the ten
years ended February 28, 1998, were 16.93%, 14.24% and 11.51%, respectively.
Based on the foregoing calculations, the total returns for Class A, Class C and
Class D for the period July 28, 1997 through February 28, 1998 were -0.22%,
- -0.64% and -0.08%, respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns of Class B for the year ended February 28, 1997,
the five years ended February 28, 1998, and the ten years ended February 28,
1998, were 16.93%, 94.60% and 197.19%, respectively. Based on the foregoing
calculations, the total returns for Class A, Class C and Class D for the period
July 28, 1997 through February 28, 1998 were -0.22, -0.64 and -0.08,
respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at February 28,
1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
PERIOD -----------------------------------
CLASS COMMENCING $10,000 $50,000 $100,000
- ------------------------------------------------------------------ -------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Class A........................................................... 7/28/97 $ 9,454 $ 47,894 $ 96,787
Class B........................................................... 3/30/81 37,817 189,085 378,170
Class C........................................................... 7/28/97 9,936 49,680 99,360
Class D........................................................... 7/28/97 9,992 49,960 99,920
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
SHARES OF THE FUND
- --------------------------------------------------------------------------------
The Fund is authorized to issue 2 billion shares of common stock of $0.01
par value (500 million shares for each Class). Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Except for agreements entered into by the Fund in its ordinary
course of business within the limitations of the Fund's fundamental investment
policies (which may be modified only by shareholder vote), the Fund will not
issue any securities other than common stock.
41
<PAGE>
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of the
directors can elect 100% of the directors if they choose to do so, and in such
event, the holders of the remaining shares voting for the election of directors
will not be able to elect any person or persons to the Board of Directors.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans described herein. MSDW Trust is an affiliate of Dean Witter InterCapital
Inc., the Fund's Investment Manager, and of Dean Witter Distributors Inc., the
Fund's Distributor. As Transfer Agent and Dividend Disbursing Agent, MSDW
Trust's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
MSDW Trust receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report, containing
financial statements audited by independent accountants, will be sent to
shareholders each year.
The Fund's fiscal year ends on the last day of February. The financial
statements of the Fund must be audited at least once a year by independent
accountants whose selection is made annually by the Fund's Board of Directors.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the fiscal year ended February 28,
1998, included in this Statement of Additional Information and incorporated by
reference in the Prospectus, have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
42
<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, 1998, 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 periods presented, 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
APRIL 13, 1998
43
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FEDERAL TAX NOTICE (UNAUDITED)
1998 FEDERAL TAX NOTICE
For the year ended February 28, 1998, the Fund paid to shareholders the
following per share amounts from long-term capital gains. These distributions
are taxable as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
PER SHARE
----------
CLASS A
----------
<S> <C>
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... $0.23
20% rate gain......................................................................................................... 0.08
-----
Total................................................................................................................... $0.31
-----
-----
<CAPTION>
CLASS B
----------
<S> <C>
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... $0.83
20% rate gain......................................................................................................... 0.08
-----
Total................................................................................................................... $0.91
-----
-----
<CAPTION>
CLASS C
----------
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... $0.23
20% rate gain......................................................................................................... 0.08
-----
Total................................................................................................................... $0.31
-----
-----
<CAPTION>
CLASS D
----------
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... $0.23
20% rate gain......................................................................................................... 0.08
-----
Total................................................................................................................... $0.31
-----
-----
</TABLE>
For the year ended February 28, 1998, 23.42% of the income dividends qualified
for the dividends received deduction available to corporations.
44
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (96.7%)
BASIC ENERGY (40.8%)
NATURAL GAS (10.5%)
40,000 Anardarko Petroleum Corp........................................................... $ 2,580,000
80,000 Apache Corp........................................................................ 2,720,000
55,000 Cabot Oil & Gas Corp. (Class A).................................................... 1,155,000
35,000 Devon Energy Corp.................................................................. 1,192,186
47,500 El Paso Natural Gas Co............................................................. 3,152,812
60,000 Enron Corp......................................................................... 2,820,000
100,000 Gulf Canada Resources, Ltd. (Canada)*.............................................. 587,500
5,000 NGC Corp........................................................................... 77,500
10,000 Noble Affiliates, Inc.............................................................. 390,000
22,500 Nuevo Energy Co.*.................................................................. 807,187
57,600 Numac Energy Inc. (Canada)*........................................................ 228,571
40,000 Petro-Canada (Canada).............................................................. 741,677
40,000 Questar Corp....................................................................... 1,700,000
65,000 Sonat, Inc......................................................................... 2,803,125
60,000 Tenneco, Inc....................................................................... 2,467,500
60,000 United Meridian Corp.*............................................................. 1,638,750
160,000 Williams Companies, Inc............................................................ 5,230,000
--------------------
30,291,808
--------------------
NATURAL GAS - DISTRIBUTION (0.1%)
42,000 EEX Corp.*......................................................................... 359,625
--------------------
NATURAL GAS - DIVERSIFIED (0.1%)
17,500 Forcenergy Inc.*................................................................... 390,469
--------------------
NATURAL GAS - EXPLORATION & PRODUCTION (4.6%)
80,000 Barrett Resources Corp.*........................................................... 2,425,000
70,000 Burlington Resources, Inc.......................................................... 3,132,500
50,000 Chieftain International, Inc.*..................................................... 1,087,500
45,000 KN Energy, Inc..................................................................... 2,337,187
194,831 Ranger Oil Ltd. (Canada)........................................................... 1,254,225
50,000 St. Mary Land & Exploration Co..................................................... 1,812,500
71,500 Swift Energy Co.*.................................................................. 1,282,531
--------------------
13,331,443
--------------------
NATURAL GAS - PIPELINES (0.2%)
50,000 Edge Petroleum Co.*................................................................ 518,750
--------------------
OIL & GAS (1.0%)
50,000 Lomak Petroleum, Inc............................................................... 828,125
40,000 Newfield Exploration Co............................................................ 960,000
55,000 Union Pacific Resources Group, Inc................................................. 1,230,625
--------------------
3,018,750
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL & GAS - REFINING & MARKETING (0.1%)
10,000 Sun Company, Inc................................................................... $ 399,375
--------------------
OIL & GAS DRILLING (0.6%)
40,000 Parker Drilling Co.*............................................................... 440,000
20,000 Precision Drilling Corp. (Class A) (Canada)*....................................... 368,750
25,000 Santa Fe International Corp........................................................ 885,937
--------------------
1,694,687
--------------------
OIL & GAS PRODUCTS (0.3%)
40,000 Enron Oil & Gas Co................................................................. 855,000
--------------------
OIL - DOMESTIC (0.3%)
42,500 Union Texas Petroleum Holdings, Inc................................................ 857,969
--------------------
OIL INTEGRATED - DOMESTIC (7.0%)
65,000 Amerada Hess Corp.................................................................. 3,855,313
105,000 Occidental Petroleum Corp.......................................................... 2,684,063
65,000 Oryx Energy Co.*................................................................... 1,653,438
65,000 Phillips Petroleum Co.............................................................. 3,185,000
25,000 Snyder Oil Corp.................................................................... 465,625
70,000 Unocal Corp........................................................................ 2,638,125
80,000 USX-Marathon Group................................................................. 2,765,000
80,000 Vintage Petroleum, Inc............................................................. 1,605,000
105,000 Wiser Oil Co....................................................................... 1,338,750
--------------------
20,190,314
--------------------
OIL INTEGRATED - INTERNATIONAL (15.4%)
35,000 Amoco Corp......................................................................... 2,975,000
66,000 British Petroleum Co. PLC (ADR) (United Kingdom)................................... 5,457,375
45,000 Ente Nazionale Idrocarburi SPA (ADR) (Italy)....................................... 2,643,750
120,000 Exxon Corp......................................................................... 7,665,000
95,000 Mobil Corp......................................................................... 6,881,563
112,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)...................................... 6,083,000
95,000 Texaco, Inc........................................................................ 5,302,188
75,000 Total S.A. (ADR) (France).......................................................... 4,148,438
95,000 Yacimentos Petroliferos Fiscales S.A. (ADR) (Class D) (Argentina).................. 3,004,375
--------------------
44,160,689
--------------------
OIL - INTERNATIONAL (0.6%)
20,000 Chevron Corp....................................................................... 1,622,500
--------------------
TOTAL BASIC ENERGY................................................................. 117,691,379
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENERGY DEVELOPMENT &
TECHNOLOGY (16.3%)
OIL DRILLING (2.0%)
40,000 Marine Drilling Company, Inc.*..................................................... $ 715,000
25,000 Noble Drilling Corp.*.............................................................. 709,375
90,000 Rowan Companies, Inc.*............................................................. 2,536,875
40,000 Transocean Offshore, Inc........................................................... 1,720,000
--------------------
5,681,250
--------------------
OIL DRILLING & SERVICES (0.5%)
20,000 ENSCO International, Inc........................................................... 582,500
30,000 Global Marine, Inc.*............................................................... 695,625
20,000 Offshore Logistics, Inc.*.......................................................... 352,500
--------------------
1,630,625
--------------------
OIL EQUIPMENT & SERVICES (12.5%)
70,000 American Oilfield Divers, Inc.*.................................................... 822,500
60,000 Baker Hughes, Inc.................................................................. 2,456,250
40,000 Camco International, Inc........................................................... 2,340,000
70,000 Cooper Cameron Corp.*.............................................................. 3,753,750
139,400 Dawson Production Services, Inc.*.................................................. 1,655,375
75,000 Dresser Industries, Inc............................................................ 3,351,563
15,000 Eagle Geophysical, Inc.*........................................................... 202,500
110,000 Global Industries Ltd.*............................................................ 1,870,000
60,000 Halliburton Co..................................................................... 2,790,000
25,000 Lone Star Technologies, Inc.*...................................................... 775,000
65,000 Nabors Industries, Inc............................................................. 1,486,875
10,000 Pride International, Inc.*......................................................... 228,125
88,500 R & B Falcon Corp*................................................................. 2,345,250
46,000 Schlumberger, Ltd.................................................................. 3,467,250
130,000 Varco International, Inc.*......................................................... 3,233,750
65,000 Veritas DGC Inc.*.................................................................. 2,685,313
70,000 Weatherford Enterra, Inc.*......................................................... 2,423,750
--------------------
35,887,251
--------------------
TRANSPORTATION (0.5%)
30,000 Teekay Shipping Corp............................................................... 954,375
30,000 Trico Marine Service, Inc.*........................................................ 558,750
--------------------
1,513,125
--------------------
UTILITIES - GAS (0.8%)
40,000 Consolidated Natural Gas Co........................................................ 2,300,000
--------------------
TOTAL ENERGY DEVELOPMENT & TECHNOLOGY.............................................. 47,012,251
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
METALS & BASIC MATERIALS (39.6%)
ALUMINUM (3.7%)
30,000 Alcan Aluminium Ltd. (Canada)...................................................... $ 931,875
100,000 Alumax Inc.*....................................................................... 3,706,250
55,000 Aluminum Co. of America............................................................ 4,035,625
35,000 Reynolds Metals Co................................................................. 2,180,937
--------------------
10,854,687
--------------------
BUILDING MATERIALS (1.7%)
40,000 Armstrong World Industries Inc..................................................... 3,140,000
30,000 Southdown, Inc..................................................................... 1,920,000
--------------------
5,060,000
--------------------
CHEMICALS (9.0%)
60,000 Avery Dennison Corp................................................................ 3,030,000
30,000 BetzDearborn, Inc.................................................................. 1,925,625
40,000 Dow Chemical Co.................................................................... 3,660,000
50,000 Du Pont (E.I.) De Nemours & Co., Inc............................................... 3,065,625
65,000 Hercules, Inc...................................................................... 3,140,312
25,000 Imperial Chemical Industries PLC (ADR) (United Kingdom)............................ 1,828,125
90,000 Monsanto Co........................................................................ 4,578,750
60,000 Olin Corp.......................................................................... 2,748,750
20,000 Rohm & Haas Co..................................................................... 2,038,750
--------------------
26,015,937
--------------------
CHEMICALS - SPECIALTY (6.0%)
75,000 Cabot Corp......................................................................... 2,643,750
73,500 Calgon Carbon Corp................................................................. 955,500
100,000 Cytec Industries, Inc.*............................................................ 4,887,500
35,000 Dexter Corp........................................................................ 1,421,875
70,000 IMC Global, Inc.................................................................... 2,673,125
40,000 Morton International, Inc.......................................................... 1,322,500
45,000 Sigma-Aldrich Corp................................................................. 1,777,500
65,000 Stolt Comex Seaway, S.A. (United Kingdom)*......................................... 1,568,125
--------------------
17,249,875
--------------------
CONTAINERS - PAPER (1.0%)
50,000 Union Camp Corp.................................................................... 2,987,500
--------------------
ELECTRICAL EQUIPMENT (0.6%)
50,000 UCAR International, Inc............................................................ 1,721,875
--------------------
GOLD (2.0%)
145,000 Barrick Gold Corp. (Canada)........................................................ 2,800,312
60,000 Getchell Gold Corp.*............................................................... 1,117,500
60,954 Newmont Mining Corp................................................................ 1,763,856
--------------------
5,681,668
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOME BUILDING (0.8%)
30,000 Centex Corp........................................................................ $ 2,191,875
--------------------
HOUSEHOLD APPLIANCES (0.8%)
50,000 American Standard Companies, Inc.*................................................. 2,225,000
--------------------
MACHINERY - CONSTRUCTION & MATERIALS (1.1%)
60,000 Kennametal, Inc.................................................................... 3,157,500
--------------------
MACHINERY - DIVERSIFIED (2.7%)
30,000 Deere & Co......................................................................... 1,683,750
50,000 EVI, Inc.*......................................................................... 2,453,125
40,000 Ingersoll-Rand Co.................................................................. 1,905,000
40,000 Parker-Hannifin Corp............................................................... 1,865,000
--------------------
7,906,875
--------------------
METALS & MINING (0.5%)
20,000 Case Corp.......................................................................... 1,301,250
--------------------
METALS - MISCELLANEOUS (1.8%)
80,687 Freeport-McMoran Copper & Gold, Inc. (Class A)..................................... 1,159,876
45,000 Phelps Dodge Corp.................................................................. 2,857,500
22,000 Rio Tinto PLC (ADR) (United Kingdom)............................................... 1,215,500
--------------------
5,232,876
--------------------
PAPER & FOREST PRODUCTS (5.8%)
50,000 Boise Cascade Corp................................................................. 1,665,625
40,000 Bowater, Inc....................................................................... 1,980,000
100,000 Buckeye Technologies Inc.*......................................................... 2,131,250
50,000 Champion International Corp........................................................ 2,553,125
100,000 Mead Corp.......................................................................... 3,418,750
40,000 Temple-Inland, Inc................................................................. 2,385,000
70,000 Willamette Industries, Inc......................................................... 2,585,625
--------------------
16,719,375
--------------------
POLLUTION CONTROL (1.0%)
80,000 Allied Waste Industries, Inc.*..................................................... 1,720,000
35,500 Casella Waste Systems Inc. (Class A)*.............................................. 863,094
--------------------
2,583,094
--------------------
STEEL (1.1%)
90,000 Bethlehem Steel Corp.*............................................................. 956,250
30,000 Reliance Steel & Aluminium Co...................................................... 1,057,500
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
60,000 Steel Dynamics, Inc.*.............................................................. $ 1,132,500
--------------------
3,146,250
--------------------
TOTAL METALS & BASIC MATERIALS..................................................... 114,035,637
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $239,120,408)..................................................... 278,739,267
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
$7,854 The Bank of New York 5.4375% due 03/02/98 (dated 02/27/98; proceeds $7,857,253) (a)
(IDENTIFIED COST $7,853,694)..................................................... 7,853,694
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $246,974,102) (b)........................................................... 99.4 % 286,592,961
OTHER ASSETS IN EXCESS OF LIABILITIES........................................................ 0.6 1,697,791
------ -------------
NET ASSETS................................................................................... 100.0 % $ 288,290,752
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $5,527,919 Federal National Mortgage Assoc. 6.54% due
12/09/02 valued at $5,627,082 and $2,308,013 U.S. Treasury Note 5.875% due
08/31/99 valued at $2,383,686.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $50,389,756 and the
aggregate gross unrealized depreciation is $10,770,897, resulting in net
unrealized appreciation of $39,618,859.
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $246,974,102)............................ $286,592,961
Receivable for:
Capital stock sold........................................................................ 1,906,431
Dividends................................................................................. 524,608
Prepaid expenses and other assets............................................................. 96,368
------------
TOTAL ASSETS............................................................................. 289,120,368
------------
LIABILITIES:
Payable for:
Capital stock repurchased................................................................. 371,923
Plan of distribution fee.................................................................. 215,144
Investment management fee................................................................. 137,444
Accrued expenses.............................................................................. 105,105
------------
TOTAL LIABILITIES........................................................................ 829,616
------------
NET ASSETS............................................................................... $288,290,752
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $246,736,338
Net unrealized appreciation................................................................... 39,618,855
Net investment loss........................................................................... (49,179)
Accumulated undistributed net realized gain................................................... 1,984,738
------------
NET ASSETS............................................................................... $288,290,752
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $308,961
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................... 22,281
NET ASSET VALUE PER SHARE................................................................ $13.87
------------
------------
MAXIMUM OFFERING PRICE
PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $14.64
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $273,332,706
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................... 19,790,988
NET ASSET VALUE PER SHARE................................................................ $13.81
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $1,488,183
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................... 107,779
NET ASSET VALUE PER SHARE................................................................ $13.81
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $13,160,902
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................... 947,564
NET ASSET VALUE PER SHARE................................................................ $13.89
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $114,907 foreign withholding tax)............................................ $ 4,122,333
Interest....................................................................................... 651,978
-----------
TOTAL INCOME.............................................................................. 4,774,311
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 296
Plan of distribution fee (Class B shares)...................................................... 2,789,293
Plan of distribution fee (Class C shares)...................................................... 3,825
Investment management fee...................................................................... 1,752,565
Transfer agent fees and expenses............................................................... 366,157
Registration fees.............................................................................. 56,061
Shareholder reports and notices................................................................ 51,371
Professional fees.............................................................................. 44,893
Custodian fees................................................................................. 34,102
Directors' fees and expenses................................................................... 20,766
Other.......................................................................................... 6,707
-----------
TOTAL EXPENSES............................................................................ 5,126,036
-----------
NET INVESTMENT LOSS....................................................................... (351,725)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain.............................................................................. 13,069,671
Net change in unrealized appreciation.......................................................... 28,945,843
-----------
NET GAIN.................................................................................. 42,015,514
-----------
NET INCREASE................................................................................... $41,663,789
-----------
-----------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
48
<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, FEBRUARY 28,
1998* 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss)................................ $ (351,725) $ 102,912
Net realized gain........................................... 13,069,671 49,178,705
Net change in unrealized appreciation....................... 28,945,843 (15,813,380)
-------------- --------------
NET INCREASE........................................... 41,663,789 33,468,237
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares.......................................... (105,075) (287,205)
Net realized gain
Class A shares.......................................... (9,967) --
Class B shares.......................................... (32,041,346) (30,377,434)
Class C shares.......................................... (36,377) --
Class D shares.......................................... (416,177) --
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (32,608,942) (30,664,639)
-------------- --------------
Net increase from capital stock transactions................ 31,247,222 92,523,643
-------------- --------------
NET INCREASE........................................... 40,302,069 95,327,241
NET ASSETS:
Beginning of period......................................... 247,988,683 152,661,442
-------------- --------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $49,179 AND
UNDISTRIBUTED NET INVESTMENT INCOME OF $50,909,
RESPECTIVELY)........................................... $ 288,290,752 $ 247,988,683
-------------- --------------
-------------- --------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998
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
50
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
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.
51
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
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 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, 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.
52
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
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 $6,431,607 at February 28, 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 account executives may be reimbursed in the subsequent
calendar year. For the period ended February 28, 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 year ended February 28, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $372,894 and $885, respectively and
received approximately $18,000 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 year ended February 28, 1998 aggregated
$192,577,973 and $182,627,112, respectively.
For the year ended February 28, 1998, the Fund incurred brokerage commissions of
$129,925 with DWR for portfolio transactions executed on behalf of the Fund.
53
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
For the period May 31, 1997 through February 28, 1998, the Fund incurred $4,800
in brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager since May 31, 1997, for portfolio transactions executed on
behalf of the Fund.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At February 28, 1998, the Fund had transfer agent
fees and expenses payable of approximately $2,000.
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 year ended February 28, 1998
included in Directors' fees and expenses in the Statement of Operations amounted
to $3,423. At February 28, 1998, the Fund had an accrued pension liability of
$49,176 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, 1998+ FEBRUARY 28, 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 27,229 $ 407,922 -- --
Reinvestment of distributions.................................... 673 8,808 -- --
Redeemed......................................................... (5,621) (78,162) -- --
----------- -------------- ----------- ------------
Net increase - Class A........................................... 22,281 338,568 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 17,476,686 251,041,315 24,642,984 $344,947,391
Reinvestment of dividends and distributions...................... 2,235,739 29,908,674 2,080,543 28,455,203
Redeemed......................................................... (17,865,123) (255,937,003) (20,151,281) (280,878,951)
----------- -------------- ----------- ------------
Net increase - Class B........................................... 1,847,302 25,012,986 6,572,246 92,523,643
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 214,875 2,958,438 -- --
Reinvestment of distributions.................................... 2,477 32,320 -- --
Redeemed......................................................... (109,573) (1,457,551)
----------- -------------- ----------- ------------
Net increase - Class C........................................... 107,779 1,533,207 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 292,553 4,265,324 -- --
Reinvestment of distributions.................................... 30,695 402,418 -- --
Redeemed......................................................... (21,545) (305,281) -- --
----------- -------------- ----------- ------------
Net increase - Class D........................................... 301,703 4,362,461 -- --
----------- -------------- ----------- ------------
Net increase in Fund............................................. 2,279,065 $ 31,247,222 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 February 28, 1998.
54
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, 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 and
permanent book/tax differences primarily attributable to a net operating loss.
To reflect reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged and net investment loss was credited
$356,712.
55
<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
----------------------------------------------------------------------------------------
1998*++ 1997 1996** 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<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
(loss)....................... (0.02) -- 0.06 0.09 0.09 0.16
Net realized and unrealized
gain (loss).................. 2.18 2.66 2.53 (0.24) 1.25 1.18
------ ------ ------ ------ ------ ------
Total from investment
operations................... 2.16 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.......... (1.68) (2.00) (0.62) (0.78) (0.79) --
------ ------ ------ ------ ------ ------
Total dividends and
distributions................ (1.69) (2.02) (0.66) (0.90) (0.88) (0.18)
------ ------ ------ ------ ------ ------
Net asset value, end of
period....................... $ 13.81 $ 13.34 $ 12.70 $ 10.77 $ 11.82 $ 11.36
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN+...... 16.93% 20.88% 24.32% (1.26)% 12.16% 13.31%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.80% 1.84% 1.90% 1.90% 1.91% 1.96%
Net investment income
(loss)....................... (0.15)% 0.05% 0.52% 0.77% 0.73% 1.46%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $ 273,333 $ 247,989 $ 152,661 $ 132,812 $ 139,459 $ 118,496
Portfolio turnover rate....... 67% 156% 49% 59% 69% 52%
Average commission rate
paid......................... $ 0.0485 $ 0.0534 -- -- -- --
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28
----------------------------------------------------------
1992** 1991 1990 1989
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 11.03 $ 11.33 $ 9.93 $ 9.46
------ ------ ------ ------
Net investment income
(loss)....................... 0.20 0.25 0.30 0.23
Net realized and unrealized
gain (loss).................. (0.44) 0.02 1.80 0.72
------ ------ ------ ------
Total from investment
operations................... (0.24) 0.27 2.10 0.95
------ ------ ------ ------
Less dividends and
distributions from:
Net investment income...... (0.20) (0.28) (0.32) (0.21)
Net realized gain.......... (0.39) (0.29) (0.38) (0.27)
------ ------ ------ ------
Total dividends and
distributions................ (0.59) (0.57) (0.70) (0.48)
------ ------ ------ ------
Net asset value, end of
period....................... $ 10.20 $ 11.03 $ 11.33 $ 9.93
------ ------ ------ ------
------ ------ ------ ------
TOTAL INVESTMENT RETURN+...... (1.91)% 2.87% 21.11% 10.29%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.93% 1.80% 1.81% 1.92%
Net investment income
(loss)....................... 1.67% 2.28% 2.57% 2.09%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $ 113,145 $ 150,636 $ 154,741 $ 136,911
Portfolio turnover rate....... 31% 29% 22% 7%
Average commission rate
paid......................... -- -- -- --
</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.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.44
------
Net investment income................................................. 0.04
Net realized and unrealized gain...................................... (0.10)
------
Total from investment operations...................................... (0.06)
------
Less distributions from net realized gain............................. (0.51)
------
Net asset value, end of period........................................ $ 13.87
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.22)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.11%(2)
Net investment income................................................. 0.45%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $309
Portfolio turnover rate............................................... 67%(1)
Average commission rate paid.......................................... $0.0485
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.44
------
Net investment loss................................................... (0.02)
Net realized and unrealized gain...................................... (0.10)
------
Total from investment operations...................................... (0.12)
------
Less distributions from net realized gain............................. (0.51)
------
Net asset value, end of period........................................ $ 13.81
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.87%(2)
Net investment loss................................................... (0.23)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,488
Portfolio turnover rate............................................... 67%(1)
Average commission rate paid.......................................... $0.0485
</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.
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.44
------
Net investment income................................................. 0.07
Net realized and unrealized gain...................................... (0.11)
------
Total from investment operations...................................... (0.04)
------
Less distributions from net realized gain............................. (0.51)
------
Net asset value, end of period........................................ $ 13.89
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.08)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.84%(2)
Net investment income................................................. 0.82%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $13,161
Portfolio turnover rate............................................... 67%(1)
Average commission rate paid.......................................... $0.0485
</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.
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
<TABLE>
<CAPTION>
<S> <C>
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
Prospectus
----------
Financial Highlights for the years ended the last day of February
1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997 and
1998 (Class B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Financial Highlights for the period July 28, 1997 through February
28, 1998 ( Classes A, C and D). . . . . . . . . . . . . . . . . . . . . 7
(2) Financial statements included in the Statement of Additional
Information (Part B): Page in
SAI
-------
Portfolio of Investments at February 28, 1998 . . . . . . . . . . . . . 45
Statement of Assets and Liabilities at February 28, 1998. . . . . . . . 48
Statement of Operations for the year ended February 28, 1998. . . . . . 48
Statement of Changes in Net Assets for the years ended
February 28, 1997 and February 28, 1998 . . . . . . . . . . . . . . . . 49
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 50
Financial Highlights for the years ended the last day of February
1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997
and 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(3) Financial statements included in Part C:
None
</TABLE>
b) EXHIBITS:
11. Consent of Independent Accountants.
16. Schedules for Computation of Performance Quotations.
27. Financial Data Schedules.
All other exhibits were previously filed via EDGAR and are hereby incorporated
by reference.
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
(1) (2)
Number of Record Holders
Title of Class At March 31, 1998
-------------- ------------------------
<S> <C>
Shares of Common Stock
Class A 38
Class B 24,433
Class C 175
Class D 915
</TABLE>
Item 27. INDEMNIFICATION
Reference is made to Section 3.15 of the Registrant's By-Laws and Section
2-418 of the Maryland General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ( the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities ( other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such director, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17 (h) and 17 (I) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Directors, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Director, officer, employee, or agent of registrant, or who is or was serving at
the request of registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The principal
address of the Dean Witter Funds is Two World Trade Center, New York, New York
10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) Dean Witter Government Income Trust
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) InterCapital California Insured Municipal Income Trust
(6) InterCapital California Quality Municipal Securities
(7) InterCapital Income Securities Inc.
(8) InterCapital Insured California Municipal Securities
(9) InterCapital Insured Municipal Bond Trust
(10) InterCapital Insured Municipal Income Trust
(11) InterCapital Insured Municipal Securities
(12) InterCapital Insured Municipal Trust
(13) InterCapital New York Quality Municipal Securities
(14) InterCapital Quality Municipal Income Trust
(15) InterCapital Quality Municipal Investment Trust
(16) InterCapital Quality Municipal Securities
(17) Municipal Income Opportunities Trust
(18) Municipal Income Opportunities Trust II
(19) Municipal Income Opportunities Trust III
(20) Municipal Income Trust
(21) Municipal Income Trust II
(22) Municipal Income Trust III
(23) Municipal Premium Income Trust
(24) Prime Income Trust
OPEN-END INVESTMENT COMPANIES:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Dean Witter American Value Fund
(6) Dean Witter Balanced Growth Fund
(7) Dean Witter Balanced Income Fund
(8) Dean Witter California Tax-Free Daily Income Trust
(9) Dean Witter California Tax-Free Income Fund
(10) Dean Witter Capital Appreciation Fund
(11) Dean Witter Capital Growth Securities
(12) Dean Witter Convertible Securities Trust
(13) Dean Witter Developing Growth Securities Trust
<PAGE>
(14) Dean Witter Diversified Income Trust
(15) Dean Witter Dividend Growth Securities Inc.
(16) Dean Witter European Growth Fund Inc.
(17) Dean Witter Federal Securities Trust
(18) Dean Witter Financial Services Trust
(19) Dean Witter Fund of Funds
(20) Dean Witter Global Asset Allocation Fund
(21) Dean Witter Global Dividend Growth Securities
(22) Dean Witter Global Short-Term Income Fund Inc.
(23) Dean Witter Global Utilities Fund
(24) Dean Witter Hawaii Municipal Trust
(25) Dean Witter Health Sciences Trust
(26) Dean Witter High Yield Securities Inc.
(27) Dean Witter Income Builder Fund
(28) Dean Witter Information Fund
(29) Dean Witter Intermediate Income Securities
(30) Dean Witter Intermediate Term U.S. Treasury Trust
(31) Dean Witter International SmallCap Fund
(32) Dean Witter Japan Fund
(33) Dean Witter Limited Term Municipal Trust
(34) Dean Witter Liquid Asset Fund Inc.
(35) Dean Witter Market Leader Trust
(36) Dean Witter Mid-Cap Growth Fund
(37) Dean Witter Multi-State Municipal Series Trust
(38) Dean Witter Natural Resource Development Securities Inc.
(39) Dean Witter New York Municipal Money Market Trust
(40) Dean Witter New York Tax-Free Income Fund
(41) Dean Witter Pacific Growth Fund Inc.
(42) Dean Witter Precious Metals and Minerals Trust
(43) Dean Witter Retirement Series
(44) Dean Witter S&P 500 Index Fund
(45) Dean Witter Select Dimensions Investment Series
(46) Dean Witter Select Municipal Reinvestment Fund
(47) Dean Witter Short-Term Bond Fund
(48) Dean Witter Short-Term U.S. Treasury Trust
(49) Dean Witter Special Value Fund
(50) Dean Witter Strategist Fund
(51) Dean Witter Tax-Exempt Securities Trust
(52) Dean Witter Tax-Free Daily Income Trust
(53) Dean Witter U.S. Government Money Market Trust
(54) Dean Witter U.S. Government Securities Trust
(55) Dean Witter Utilities Fund
(56) Dean Witter Value-Added Market Series
(57) Dean Witter Variable Investment Series
(58) Dean Witter World Wide Income Trust
(59) Dean Witter World Wide Investment Trust
(60) Morgan Stanley Dean Witter Competitive Edge Fund
(61) Morgan Stanley Dean Witter Growth Fund
(62) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
<PAGE>
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Charles A. Fiumefreddo Executive Vice President and Director of Dean Witter
Chairman, Chief Executive Reynolds Inc. ("DWR"); Chairman, Chief Executive
Officer and Director Officer and Director of Dean Witter Distributors Inc.
("Distributors") and Dean Witter Services Company Inc.
("DWSC"); Chairman and Director of Morgan Stanley Dean
Witter Trust FSB ("MSDW Trust"); Chairman, Director or
Trustee, President and Chief Executive Officer of the
Dean Witter Funds and Chairman, Chief Executive Officer
and Trustee of the TCW/DW Funds; Director and/or
officer of various Morgan Stanley Dean Witter & Co.
("MSDW") subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director
Director of MSDW and DWR; Director of DWSC and Distributors;
Director or Trustee of the Dean Witter Funds; Director
and/or officer of various MSDW subsidiaries.
Richard M. DeMartini President and Chief Operating Officer
Director of Dean Witter Capital, a division of DWR;
Director of DWR, DWSC, Distributors
and MSDW Trust; Trustee of the TCW/DW Funds.
James F. Higgins President and Chief Operating Officer of
Director Dean Witter Financial; Director of DWR,
DWSC, Distributors and MSDW Trust.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Thomas C. Schneider Executive Vice President and Chief Strategic
Executive Vice and Administrative Officer of MSDW; Executive
President, Chief Vice President and Chief Financial Officer of
Financial Officer and DWSC and Distributors; Director of DWR,
Director DWSC, Distributors and MSDW.
Christine A. Edwards Executive Vice President, Chief Legal Officer
Director and Secretary of MSDW; Executive Vice
President, Secretary and Chief Legal Officer
of Distributors; Director of DWR, DWSC and
Distributors.
Mitchell M. Merin President and Chief Strategic Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Strategic Officer Executive Vice President and Director of MSDW Trust;
Executive Vice President and Director of DWR;
Director of SPS Transaction Services, Inc. and
various other MSDW subsidiaries.
John B. Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of MSDW Trust.
President
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of MSDW Trust;
Vice President of the Dean Witter Funds and the TCW/DW
Funds.
Joseph J. McAlinden Vice President of the Dean Witter Funds and
Executive Vice President Director of MSDW Trust.
and Chief Investment
Officer
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
Secretary and General President, Assistant Secretary and Assistant
Counsel General Counsel of Distributors; Vice President,
Secretary and General Counsel of the Dean Witter
Funds and the TCW/DW Funds.
Peter M. Avelar Vice President of various Dean Witter Funds.
Senior Vice President
Mark Bavoso Vice President of various Dean Witter Funds.
Senior Vice President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Dean Witter Funds.
Senior Vice President
Robert S. Giambrone Senior Vice President of DWSC, Distributors
Senior Vice President and MSDW Trust and Director of MSDW Trust; Vice
President of the Dean Witter Funds and the TCW/DW
Funds.
Rajesh K. Gupta Vice President of various Dean Witter Funds.
Senior Vice President
Kenton J. Hinchliffe Vice President of various Dean Witter Funds.
Senior Vice President
Kevin Hurley Vice President of various Dean Witter Funds.
Senior Vice President
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of Dean Witter Special Value Fund.
Senior Vice President
John B. Kemp, III President of Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Dean Witter Funds.
Senior Vice President
Jonathan R. Page Vice President of various Dean Witter Funds.
Senior Vice President
Ira N. Ross Vice President of various Dean Witter Funds.
Senior Vice President
Guy G. Rutherfurd, Jr. Vice President of Dean Witter Market Leader
Senior Vice President Trust.
Rochelle G. Siegel Vice President of various Dean Witter Funds.
Senior Vice President
Jayne M. Stevlingson Vice President of various Dean Witter Funds.
Senior Vice President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Paul D. Vance Vice President of various Dean Witter Funds.
Senior Vice President
Elizabeth A. Vetell
Senior Vice President
James F. Willison Vice President of various Dean Witter Funds.
Senior Vice President
Ronald J. Worobel Vice President of various Dean Witter Funds.
Senior Vice President
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Robert Zimmerman
First Vice President
Dale Albright
Vice President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Dean Witter Funds.
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and Assistant
Controller
Joseph Cardwell
Vice President
Philip Casparius
Vice President
B. Catherine Connelly
Vice President
Salvatore DeSteno Vice President of DWSC.
Vice President
Bruce Dunn
Vice President
Michael Durbin
Vice President
Jeffrey D. Geffen
Vice President
Michael Geringer
Vice President
Stephen Greenhut
Vice President
Peter W. Gurman
Vice President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Matthew Haynes Vice President of Dean Witter Variable Investment
Vice President Series.
Peter Hermann Vice President of various Dean Witter Funds.
Vice President
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
James P. Kastberg
Vice President
Michelle Kaufman Vice President of various Dean Witter Funds
Vice President
Paula LaCosta Vice President of various Dean Witter Funds.
Vice President
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Dean Witter Funds.
Vice President
Catherine Maniscalco Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Mary Beth Mueller
Vice President
David Myers Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
Richard Norris
Vice President
Carsten Otto Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
George Paoletti
Vice President
Anne Pickrell Vice President of various Dean Witter Funds.
Vice President
Michael Roan
Vice President
John Roscoe
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of Dean Witter Precious Metal and
Vice President Minerals Trust.
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Peter J. Seeley Vice President of various Dean Witter Funds.
Vice President
Naomi Stein
Vice President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
<S> <C>
Kathleen H. Stromberg
Vice President Vice President of various Dean Witter Funds.
Marybeth Swisher
Vice President
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware corporation,
is the principal underwriter of the Registrant. Distributors is also the
principal underwriter of the following investment companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Dean Witter American Value Fund
(6) Dean Witter Balanced Growth Fund
(7) Dean Witter Balanced Income Fund
(8) Dean Witter California Tax-Free Daily Income Trust
(9) Dean Witter California Tax-Free Income Fund
(10) Dean Witter Capital Appreciation Fund
(11) Dean Witter Capital Growth Securities
(12) Dean Witter Convertible Securities Trust
(13) Dean Witter Developing Growth Securities Trust
(14) Dean Witter Diversified Income Trust
(15) Dean Witter Dividend Growth Securities Inc.
(16) Dean Witter European Growth Fund Inc.
(17) Dean Witter Federal Securities Trust
(18) Dean Witter Financial Services Trust
(19) Dean Witter Fund of Funds
(20) Dean Witter Global Asset Allocation
(21) Dean Witter Global Dividend Growth Securities
(22) Dean Witter Global Short-Term Income Fund Inc.
(23) Dean Witter Global Utilities Fund
(24) Dean Witter Hawaii Municipal Trust
(25) Dean Witter Health Sciences Trust
(26) Dean Witter High Yield Securities Inc.
<PAGE>
(27) Dean Witter Income Builder Fund
(28) Dean Witter Information Fund
(29) Dean Witter Intermediate Income Securities
(30) Dean Witter Intermediate Term U.S. Treasury Trust
(31) Dean Witter International SmallCap Fund
(32) Dean Witter Japan Fund
(33) Dean Witter Limited Term Municipal Trust
(34) Dean Witter Liquid Asset Fund Inc.
(35) Dean Witter Market Leader Trust
(36) Dean Witter Mid-Cap Growth Fund
(37) Dean Witter Multi-State Municipal Series Trust
(38) Dean Witter New York Municipal Money Market Trust
(39) Dean Witter New York Tax-Free Income Fund
(40) Dean Witter Pacific Growth Fund Inc.
(41) Dean Witter Precious Metals and Minerals Trust
(42) Dean Witter Retirement Series
(43) Dean Witter S&P 500 Index Fund
(44) Dean Witter Short-Term Bond Fund
(45) Dean Witter Short-Term U.S. Treasury Trust
(46) Dean Witter Special Value Fund
(47) Dean Witter Strategist Fund
(48) Dean Witter Tax-Exempt Securities Trust
(49) Dean Witter Tax-Free Daily Income Trust
(50) Dean Witter U.S. Government Money Market Trust
(51) Dean Witter U.S. Government Securities Trust
(52) Dean Witter Utilities Fund
(53) Dean Witter Value-Added Market Series
(54) Dean Witter Variable Investment Series
(55) Dean Witter World Wide Income Trust
(56) Dean Witter World Wide Investment Trust
(57) Morgan Stanley Dean Witter Competitive Edge Fund
(58) Morgan Stanley Dean Witter Growth Fund
(59) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(60) Prime Income Trust
(1) TCW/DW North American Government Income Trust
(2) TCW/DW Latin American Growth Fund
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Balanced Fund
(5) TCW/DW Total Return Trust
(6) TCW/DW Mid-Cap Equity Trust
(7) TCW/DW Global Telecom Trust
(8) TCW/DW Emerging Markets Opportunities Trust
(b) The following information is given regarding directors and officers
of Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None
of the following persons has any position or office with the Registrant.
<PAGE>
<TABLE>
<CAPTION>
Name Positions and Office with Distributors
- ---- --------------------------------------
<S> <C>
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 24th day of April, 1998.
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
By /s/ Barry Fink
------------------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 24 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- --------------------- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Director and Chairman
By /s/ Charles A. Fiumefreddo 04/24/98
------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 04/24/98
------------------------------
Thomas F. Caloia
(3) Majority of the Directors
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 04/24/98
------------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/ David M. Butowsky 04/24/98
------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
EXHIBIT INDEX
11. Consent of Independent Accounts.
16. Schedules for computation of Performance Quotations.
27. Financial Data Schedules.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 24 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
April 13, 1998, relating to the financial statements and financial highlights
of Dean Witter Natural Resource Development Securities Inc., which appears in
such Statement of Additional Information, and to the incorporation by reference
of our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings
"Independent Accountants" and "Experts" in such Statement of Additional
Information and to the reference to us under the heading "Financial Highlights"
in such Prospectus.
Price Waterhouse LLP
- ----------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 23, 1998
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
NATURAL RESOURCE DEVELOPMENT SECURTITIES(A)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ________________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 28-Feb-98 TOTAL RETURN YEARS - n TOTAL RETURN - T
------------ ----------- ------------ ---------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $945.40 -5.46% 0.59 NA
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ________________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 28-Feb-98 RETURN - TR YEARS - n TOTAL RETURN - t
------------ ----------- ------------ ---------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $997.80 -0.22% 0.59 NA
</TABLE>
(D) GROWTH OF $10,000*
(E) GROWTH OF $50,000*
(F) GROWTH OF $100,000*
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
------------ ----------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
28-Jul-97 -0.22 $9,454 $47,894 $96,787
</TABLE>
*INITIAL INVESTMENT $9,475, $48,000 & 97,000 RESPECTIVELY REFLECTS A 5.25%,
4.00% & 3.00% SALES CHARGE
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
NATURAL RESOURCE DEVELOPMENT SECURTITIES(B)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ________________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 28-Feb-98 YEARS - n TOTAL RETURN - T
------------ --------- --------- ----------------
<S> <C> <C> <C>
28-Feb-97 $1,119.30 1 11.93%
28-Feb-93 $1,926.00 5 14.01%
29-Feb-88 $2,971.90 10 11.51%
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ________________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 28-Feb-98 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------ --------- ----------- --------- ----------------
<S> <C> <C> <C> <C>
28-Feb-97 $1,169.30 16.93% 1 16.93%
28-Feb-93 $1,946.00 94.60% 5 14.24%
29-Feb-88 $2,971.90 197.19% 10 11.51%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
30-Mar-81 278.17 $37,817 $189,085 $378,170
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
NATURAL RESOURCE DEVELOPMENT SECURTITIES(C)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ________________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 28-Feb-98 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------ ----------- ------------ --------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $984.00 -1.60% 0.59 NA
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ________________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 28-Feb-98 RETURN - TR YEARS - n TOTAL RETURN - t
------------ ----------- ----------- --------- ----------------
<S> <C> <C> <C> <C>
28-Jul-97 $993.60 -0.64% 0.59 NA
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
------------ ----------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
28-Jul-97 -0.64 $9,936 $49,680 $99,360
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
NATURAL RESOURCE DEVELOPMENT SECURTITIES(D)
(A) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)
(B) TOTAL RETURN (NO LOAD FUND)
_ _
| ________________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 28-Feb-98 RETURN - TR YEARS - n COMPOUND RETURN - t
------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
28-Jul-97 $999.20 -0.08% 0.59 NA
</TABLE>
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (C) GROWTH OF (D) GROWTH OF (E) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT- G $50,000 INVESTMENT- G $100,000 INVESTMENT- G
------------ ----------- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
28-Jul-97 -0.08 $9,992 $49,960 $99,920
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> DW NATURAL RESOURCES DEV. SECURITIES INC. CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 246,974,102
<INVESTMENTS-AT-VALUE> 286,592,961
<RECEIVABLES> 2,431,039
<ASSETS-OTHER> 96,368
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 289,120,368
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 829,616
<TOTAL-LIABILITIES> 829,616
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 246,736,338
<SHARES-COMMON-STOCK> 22,281
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (49,179)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,984,738
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,618,855
<NET-ASSETS> 308,961
<DIVIDEND-INCOME> 4,122,333
<INTEREST-INCOME> 651,978
<OTHER-INCOME> 0
<EXPENSES-NET> 5,126,036
<NET-INVESTMENT-INCOME> (351,725)
<REALIZED-GAINS-CURRENT> 13,069,671
<APPREC-INCREASE-CURRENT> 28,945,843
<NET-CHANGE-FROM-OPS> 41,663,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 9,967
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,229
<NUMBER-OF-SHARES-REDEEMED> 5,621
<SHARES-REINVESTED> 673
<NET-CHANGE-IN-ASSETS> 40,302,069
<ACCUMULATED-NII-PRIOR> 50,909
<ACCUMULATED-GAINS-PRIOR> 21,775,646
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,752,565
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,126,036
<AVERAGE-NET-ASSETS> 202,104
<PER-SHARE-NAV-BEGIN> 14.44
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.51)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.87
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> DW NATURAL RESOURCES DEV. SECURITIES INC. CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 246,974,102
<INVESTMENTS-AT-VALUE> 286,592,961
<RECEIVABLES> 2,431,039
<ASSETS-OTHER> 96,368
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 289,120,368
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 829,616
<TOTAL-LIABILITIES> 829,616
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 246,736,338
<SHARES-COMMON-STOCK> 19,790,988
<SHARES-COMMON-PRIOR> 18,589,547
<ACCUMULATED-NII-CURRENT> (49,179)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,984,738
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,618,855
<NET-ASSETS> 273,332,706
<DIVIDEND-INCOME> 4,122,333
<INTEREST-INCOME> 651,978
<OTHER-INCOME> 0
<EXPENSES-NET> 5,126,036
<NET-INVESTMENT-INCOME> (351,725)
<REALIZED-GAINS-CURRENT> 13,069,671
<APPREC-INCREASE-CURRENT> 28,945,843
<NET-CHANGE-FROM-OPS> 41,663,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105,069
<DISTRIBUTIONS-OF-GAINS> 32,041,352
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,476,686
<NUMBER-OF-SHARES-REDEEMED> 17,865,123
<SHARES-REINVESTED> 2,235,739
<NET-CHANGE-IN-ASSETS> 40,302,069
<ACCUMULATED-NII-PRIOR> 50,909
<ACCUMULATED-GAINS-PRIOR> 21,775,646
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,752,565
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,126,036
<AVERAGE-NET-ASSETS> 280,733,061
<PER-SHARE-NAV-BEGIN> 13.34
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 2.18
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (1.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.81
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> DW NATURAL RESOURCES DEV. SECURITIES INC. CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 246,974,102
<INVESTMENTS-AT-VALUE> 286,592,961
<RECEIVABLES> 2,431,039
<ASSETS-OTHER> 96,368
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 289,120,368
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 829,616
<TOTAL-LIABILITIES> 829,616
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 246,736,338
<SHARES-COMMON-STOCK> 107,779
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (49,179)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,984,738
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,618,855
<NET-ASSETS> 1,488,183
<DIVIDEND-INCOME> 4,122,333
<INTEREST-INCOME> 651,978
<OTHER-INCOME> 0
<EXPENSES-NET> 5,126,036
<NET-INVESTMENT-INCOME> (351,725)
<REALIZED-GAINS-CURRENT> 13,069,671
<APPREC-INCREASE-CURRENT> 28,945,843
<NET-CHANGE-FROM-OPS> 41,663,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 36,377
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 214,875
<NUMBER-OF-SHARES-REDEEMED> 109,573
<SHARES-REINVESTED> 2,477
<NET-CHANGE-IN-ASSETS> 40,302,069
<ACCUMULATED-NII-PRIOR> 50,909
<ACCUMULATED-GAINS-PRIOR> 21,775,646
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,752,565
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,126,036
<AVERAGE-NET-ASSETS> 652,448
<PER-SHARE-NAV-BEGIN> 14.44
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.51)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.81
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> DW NATURAL RESOURCES DEV. SECURITIES INC. CLASS D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 246,974,102
<INVESTMENTS-AT-VALUE> 286,592,961
<RECEIVABLES> 2,431,039
<ASSETS-OTHER> 96,368
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 289,120,368
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 829,616
<TOTAL-LIABILITIES> 829,616
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 246,736,338
<SHARES-COMMON-STOCK> 947,564
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (49,179)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,984,738
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,618,855
<NET-ASSETS> 13,160,902
<DIVIDEND-INCOME> 4,122,333
<INTEREST-INCOME> 651,978
<OTHER-INCOME> 0
<EXPENSES-NET> 5,126,036
<NET-INVESTMENT-INCOME> (351,725)
<REALIZED-GAINS-CURRENT> 13,069,671
<APPREC-INCREASE-CURRENT> 28,945,843
<NET-CHANGE-FROM-OPS> 41,663,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 416,177
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 292,553
<NUMBER-OF-SHARES-REDEEMED> 21,545
<SHARES-REINVESTED> 30,695
<NET-CHANGE-IN-ASSETS> 40,302,069
<ACCUMULATED-NII-PRIOR> 50,909
<ACCUMULATED-GAINS-PRIOR> 21,775,646
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,752,565
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,126,036
<AVERAGE-NET-ASSETS> 11,665,003
<PER-SHARE-NAV-BEGIN> 14.44
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> (.11)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.51)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.89
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
