UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21359
MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
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(Exact name of registrant as specified in charter)
2455 Corporate West Drive, Lisle, IL 60532
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(Address of principal executive offices) (Zip code)
Nicholas Dalmaso
2455 Corporate West Drive, Lisle, IL 60532
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 505-3700
----------------
Date of fiscal year end: July 31
Date of reporting period: January 31, 2008
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The registrant's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), is as follows:
SEMIANNUAL
REPORT
January 31, 2008
(Unaudited)
|
MBIA Capital/Claymore Managed Duration | MZF
Investment Grade Municipal Fund |
|
Photo of: Man fishing in stream.
mbia
ASSET MANAGEMENT
Logo: Claymore(R)
www.mbiaclaymore.com
... YOUR STREAM TO THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
MBIA CAPITAL/CLAYMORE MANAGED DURATION
INVESTMENT GRADE MUNICIPAL FUND
Photo of: Man fishing in stream.
MZF
LISTED
NYSE
MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
mbia
ASSET MANAGEMENT
Logo: CLAYMORE
There can be no assurance the Fund will achieve its investment objective. The
value of the Fund will fluctuate with the value of the underlying securities.
Historically, closed-end funds often trade at a discount to their net asset
value.
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
The shareholder report you are reading right now is just the beginning of the
story. Online at WWW.MBIACLAYMORE.COM, you will find:
o Daily, weekly and monthly data on share prices, distributions and more
o Portfolio overviews and performance analyses
o Announcements, press releases, special notices and tax characteristics
MBIA Capital Management and Claymore are continually updating and expanding
shareholder information services on the Fund's website, in an ongoing effort to
provide you with the most current information about how your Fund's assets are
managed, and the results of our efforts. It is just one more way we are working
to keep you better informed about your investment in the Fund.
2 SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Dear SHAREHOLDER
We thank you for your investment in MBIA Capital/Claymore Managed Duration
Investment Grade Municipal Fund (the "Fund"). This report covers performance for
the six months ended January 31, 2008.
As you may know, the Fund's investment objective is to provide common
shareholders with high current income exempt from regular Federal income tax
while seeking to protect the value of the Fund's assets during periods of
interest rate volatility. Under normal market conditions, the Fund seeks to
achieve these objectives by investing at least 80% of its total assets in
municipal bonds of investment-grade quality and normally investing substantially
all of its total assets in securities of investment-grade quality.
The Fund's Investment Adviser, MBIA Capital Management Corp. ("MBIA"), is part
of the MBIA Asset Management Group, which manages fixed-income products with a
total value of approximately $67 billion as of January 31, 2008. MBIA's parent
company, MBIA, Inc., is listed on the New York Stock Exchange and is a component
stock of the S&P 500 Index. Claymore Securities, Inc. serves as the Fund's
Servicing Agent. Claymore entities have provided supervision, management,
servicing or distribution on more than $18.5 billion in assets as of December
31, 2007. Claymore Securities, Inc. currently offers closed-end funds, unit
investment trusts and exchange-traded funds.
The latest reports indicate that the U.S. economy continues to expand at a
moderate pace, but there is mounting concern about the possibility of a
recession. As 2007 progressed, what began as a correction in the U.S. housing
market accelerated into a crisis in the sub-prime mortgage market with profound
implications for the entire economy. By the fourth quarter of 2007, there had
been pronounced changes in attitudes toward risk in financial markets, as
demonstrated by wider credit spreads, severe dislocation in short-term credit
markets, overall tightening of financial conditions and increasing volatility in
the equity and bond markets. Beginning in September, the Federal Reserve reduced
interest rates five times, striving to strike a balance between providing
liquidity to financial markets and keeping inflation at a moderate level. Even
with this stimulus, by early 2008 many economists were forecasting a recession
in the U.S.
All Fund returns cited - whether based on net asset value ("NAV") or market
price - assume the reinvestment of all distributions. For the six-month period
ended January 31, 2008, the Fund returned 2.35% on an NAV basis. This represents
a change in NAV to $14.23 on January 31, 2008, compared with $14.21 on July 31,
2007. For the same period, the Fund provided a total return of 3.31% based on
market price. This represents a closing market price of $12.73 on January 31,
2008, versus $12.63 on July 31, 2007. As of January 31, 2008, the Fund was
trading at discount to NAV. We believe that the Fund's market price discount to
NAV represents an opportunity, as common shares of the Fund are available in the
market at prices below the value of the securities in the underlying portfolio.
SemiAnnual Report | January 31, 2008 | 3
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
DEAR SHAREHOLDER continued
We encourage shareholders to consider the opportunity to reinvest their
distributions from the Fund through the Dividend Reinvestment Plan ("DRIP"),
which is described in detail on page 22 of the Fund's semi-annual report. When
shares trade at a discount to NAV, the DRIP takes advantage of the discount by
reinvesting the monthly dividend distribution in common shares of the Fund
purchased in the market at a price less than NAV. Conversely, when the market
price of the Fund's common shares is at a premium above NAV, the DRIP reinvests
participants' dividends in newly-issued common shares at NAV, subject to an IRS
limitation that the purchase price cannot be more than 5% below the market price
per share. The DRIP provides a cost-effective means to accumulate additional
shares and enjoy the benefits of compounding returns over time. Since the Fund
endeavors to maintain a steady monthly distribution rate, the DRIP plan
effectively provides an income averaging technique, which causes shareholders to
accumulate a larger number of Fund shares when the market price is depressed
than when the price is higher.
In August and September 2007, the Fund paid monthly dividends of $0.0495 per
share. The monthly dividend was raised to $0.0525 beginning in October 2007.
This dividend represents an annualized distribution rate of 4.95% based on the
closing market price of $12.73 on January 31, 2008, or 7.61% on a taxable
equivalent basis, assuming a 35% federal income tax bracket.
To learn more about the Fund's performance, we encourage you to read the
Questions & Answers section of the report, which begins on page 5. You will find
information about how the Fund is managed, what factors impacted the performance
of the Fund during the six months ended January 31, 2008, and MBIA's views on
the market environment.
We appreciate your investment, and we look forward to serving your investment
needs in the future. For the most up-to-date information on your investment,
please visit the Fund's website at www.mbiaclaymore.com
Sincerely,
/s/ Clifford D. Corso
Clifford D. Corso
President MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
The broad auction-rate preferred securities market has experienced some
disruption in the past few months, but those disruptions have increased
dramatically in recent days, and your Fund was not immune to this disruption.
The result has been an increasing number of failed auctions on many, if not all,
auction-rate preferred shares, including Auction Market Preferred Shares
("AMPS") such as those issued by the Fund. We believe this increase in failed
auctions is simply a liquidity issue. Investors need to be aware that a failed
auction is not a default nor does it require the redemption of a fund's
auction-rate preferred shares. Provisions in the offering documents of the
Fund's AMPS provide a mechanism to set a maximum rate in the event of a failed
auction, and, thus, investors will continue to be entitled to receive payment
for holding these AMPS. This maximum rate is determined based upon a multiple of
or a spread to a reference rate. The reference rate is either LIBOR (the London
Interbank Offered Rate, a widely used benchmark for short-term interest rates)
or 90% of the taxable equivalent of the short-term municipal rate, whichever is
greater.
The Fund has two series of AMPS; a seven day series auctioning each Monday
("M-7") and a 28-day series that auctions every fourth Wednesday ("W-28"). The
auctions for the M-7 series for February 25, 2008, and for the W-28 series for
February 27, 2008, failed. The maximum rate established for this failed auction
of the M-7 series was 4.908%; the next auction for this series is scheduled for
March 3, 2008. The maximum rate established for this failed auction of the W-28
series was 5.060%; the next auction for this series is scheduled for March 26,
2008. We will continue to evaluate the benefits and impacts of leverage on the
Fund.
4 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
QUESTIONS & ANSWERS |
CLIFFORD D. CORSO - PORTFOLIO MANAGER
Mr. Corso is President of MBIA Asset Management and Chief Investment Officer of
MBIA Insurance Corp. He joined the firm in 1994 and helped develop the company's
fixed-income asset management platform. He now directs the investment of
approximately $64 billion in fixed-income assets under management. In addition
to the portfolios of MBIA Insurance Corp. and its affiliates, Mr. Corso's
responsibilities include the direction of investments for outside clients such
as pension funds, sovereign governments, state and local governments, and large
institutional investors. He was previously the co-head of fixed-income at a
subsidiary of Alliance Capital Management. Throughout his 23-year career, Mr.
Corso has managed a broad range of fixed-income products, including corporate,
asset-backed, government, mortgage and derivative products. Mr. Corso holds a
bachelor's degree from Yale University and a master's degree from Columbia
University. He holds Series 7, 24, and 63 registrations from the Financial
Industry Regulatory Authority ("FINRA").
E. GERARD BERRIGAN - PORTFOLIO MANAGER
Mr. Berrigan, who joined the firm in 1994, is a Managing Director and head of
portfolio management for MBIA Asset Management. A member of the firm's
Investment Strategy Committee, he manages MBIA's asset/ liability management
products and is responsible for structured investments across all managed
portfolios. He is also a member of MBIA's Investment Review and Market Risk
Committees. Mr. Berrigan has more than 15 years of experience in securities
trading and portfolio management, including positions at the Federal National
Mortgage Association and CS First Boston. He has a bachelor's degree from
Bucknell University and a master's degree from Columbia University. He holds
Series 7 and 63 registrations from FINRA.
JEFFREY S. MACDONALD, CFA - PORTFOLIO MANAGER
Mr. MacDonald, who joined the firm in 2007, has extensive experience in the
fixed-income markets across a variety of sectors with particular emphasis on
core and core plus strategies. He was previously a vice president and portfolio
manager at Hartford Investment Management Company (HIMCO), where he managed
core, core plus, intermediate core, and other broad-based fixed-income styles.
He was also instrumental in designing some of HIMCO's fixed-income-based
products, including a number of "alternative" strategies. Prior to joining
HIMCO, Mr. MacDonald was a fixed-income portfolio analyst specializing in
taxable/insurance portfolios at Wellington Management Company. He began his
career with Fidelity Investments as a fixed-income trader and lead systems
analyst.
Mr. MacDonald earned his bachelor's degree from Trinity College in Connecticut
and his master's degree from Boston University. He holds the designation of
Chartered Financial Analyst (CFA) through the CFA Institute and is a member of
the Hartford Security Analysts Society.
In the following interview Portfolio Managers Clifford D. Corso, E. Gerard
Berrigan and Jeffrey S. MacDonald discuss the market environment and the
performance of the MBIA Capital/Claymore Managed Duration Investment Grade
Municipal Fund (the "Fund") for the six-month period ended January 31, 2008.
- --------------------------------------------------------------------------------
WILL YOU PLEASE PROVIDE AN OVERVIEW OF THE MUNICIPAL MARKET DURING THE SIX-MONTH
PERIOD ENDED JANUARY 31, 2008?
This was a period of considerable economic uncertainty and significant turmoil
throughout capital markets, including the municipal bond market. At the
beginning of the period, there was growing concern about the impact of problems
in the sub-prime mortgage market on the broad market for fixed-income
securities. Initial concerns about the sub-prime segment of the mortgage-backed
securities market broadened to include a wide range of financial institutions
and markets, as nervous investors became less tolerant of risk.
Beginning in late summer, markets became extremely volatile and increasingly
illiquid. The trend began in the taxable bond market, and then spread to the
municipal market. The last few months of 2007 were tumultuous, with a flight to
quality driving a pronounced rally in U.S. Treasury securities. Treasury
securities were by far the best performing category in the bond market, as
investors shied away from bonds with any credit risk.
As concerns developed about the possibility of a recession, the Federal Reserve
(the "Fed") began lowering interest rates. Between September 18, 2007, and
January 30, 2008, the Fed lowered its target for the federal funds rate five
times for a total of 225 basis points, from 5.25% in early September before the
first cut to 3.00% at the end of January 2008. These rate cuts, combined with
investors' flight to quality, resulted in a dramatic drop in yields on U.S.
Treasury securities: the yield on three-month treasury bills fell from 4.94% at
July 31, 2007, to 1.04% at January 31, 2008. Rates on long-term treasury
securities fell much less, from 4.90% to 4.32% over the same period, producing a
much steeper yield curve. (The yield curve is a graph with a left-to-right line
that shows how high or low yields are, from the shortest to the longest
maturities. Typically, the line rises from left to right as investors who are
willing to tie up their money for a longer period are rewarded with higher
yields.)
Although municipal bonds have throughout their existence been regarded as a high
quality fixed-income asset class with an extremely low default rate, investors
became wary of even the highest rated bonds, causing a widening of spreads
between municipal securities and U.S. Treasury securities. According to the
Thomson Municipal Market Monitor, a leading provider of municipal bond data, at
one point in November the yield on AA-rated 30-year general obligation municipal
bonds was over 104% of the yield on 30-year treasury bonds, compared with a
10-year average of 95.4%.
SemiAnnual Report | January 31, 2008 | 5
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
In the last few months of 2007 municipal bonds began to come under pressure
because of concerns about the financial strength of the monoline insurance
companies that insure municipal bonds. Approximately 50% of outstanding
municipal bonds are insured; issuers have traditionally purchased the insurance
because it reduces interest costs by conferring on the bonds the high credit
rating of the insurance provider. (The companies that insure municipal bonds are
called monolines because financial guaranty insurance is the only type of
insurance they offer. Insurance regulations prevent multiline insurance
companies such as property/ casualty and life insurance companies from offering
financial guaranty insurance.) In the last months of 2007, as the sub-prime
mortgage crisis developed, the monoline insurers suffered losses from insurance
of structured products backed by residential mortgages.
As rating agencies began to downgrade the credit ratings of some monoline
insurers, investors continued to re-evaluate risk, and many insured municipal
bonds traded as if they were uninsured, effectively discounting monoline
insurance. Spreads within the municipal bond market widened, as investors were
eager to buy bonds of the highest credit quality independent of insurance but
avoided bonds with ratings of BBB (the lowest investment grade) or below.
Accordingly, the differences between returns of municipal bonds of the highest
and lowest investment grade ratings were dramatic. For the six months ended
January 31, 2008, Lehman Brothers reports that of the bonds included in the
Lehman Municipal Bond Index, which returned 3.71%, the average return was 4.03%
for AAA-rated bonds, 4.29% for AA-rated bonds, 2.85% for A-rated bonds, and
- -1.37% for BBB-rated bonds.
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM IN THIS MARKET ENVIRONMENT?
All Fund returns cited - whether based on net asset value ("NAV") or market
price - assume the reinvestment of all distributions. For the six-month period
ended January 31, 2008, the Fund returned 2.35% on an NAV basis and returned
3.31% on a market price basis. As of January 31, 2008, the Fund was trading at
discount to NAV. We believe that the Fund's market price discount to NAV
represents an opportunity, as common shares of the Fund are now available in the
market at prices below the value of the securities in the underlying portfolio.
As most investors may know, the market value of the Fund's shares fluctuates
from time to time, and it may be higher or lower than the Fund's NAV. The
current discount to NAV may provide an opportunity for suitable investors to
purchase shares of the Fund below the market value of the securities in the
underlying portfolio. We believe that, over the long term, the progress of NAV
will be reflected in the market price return earned by shareholders.
This return is consistent with the Fund's investment objective, which is to
provide its common shareholders with high current income exempt from regular
federal income tax while seeking to protect the value of the Fund's assets
during periods of interest rate volatility. Under normal market conditions, the
Fund seeks to achieve these objectives by investing at least 80% of its total
assets in municipal bonds of investment grade quality and will normally invest
substantially all of its assets in securities of investment grade quality.
- --------------------------------------------------------------------------------
HOW HAVE YOU STRUCTURED THE PORTFOLIO DURING THIS CHALLENGING PERIOD?
We always maintain a high quality portfolio that is diversified across issuers,
sectors and states. In the first half of 2007, when lower-quality securities
provided the highest returns, this focus on quality hurt performance. In the
last few months, as investors have become increasingly uncomfortable with credit
risk, the Fund's high quality orientation has been advantageous. At the
beginning of the six-month period, the Fund's average credit quality was AA- (as
rated by Moody's Investors Service and Standard & Poor's, the major rating
agencies for municipal bonds). By the end of the period, the average rating was
A+, reflecting our decision to sell some pre-refunded bonds after their prices
rose and replace them with higher yielding BBB-rated bonds from issuers in which
we have confidence. Another factor in the lower average rating was downgrading
of some insured bonds held in the portfolio.
As we select securities for the portfolio, in addition to paying careful
attention to ratings, we also have a team of credit analysts who evaluate the
credit quality of the issuers and individual bonds. We employ thorough credit
analysis to ensure that we are maintaining the desired level of quality in the
Fund's portfolio while adding significant yield by buying good quality bonds at
what we consider to be attractive prices.
The Fund has a significant representation in pre-refunded bonds, which
represented 28.0% of the portfolio as of July 31, 2007, and 26.4% as of January
31, 2008. (A bond is pre-refunded when the issuer has purchased U.S. Treasury or
agency securities that provide a stream of cash flow to pay off the bonds on
their first call date.) The shorter duration and high credit quality of the
Fund's pre-refunded holdings add to the defensive structure of the portfolio.
(Duration is a measure of the interest rate sensitivity of a bond or
fixed-income portfolio which incorporates time to maturity and coupon size. The
longer the duration, the greater the interest rate risk.)
Over this period the municipal bond yield curve steepened dramatically as
several interest rate cuts by Fed led to much lower short-term interest rates.
As the yield curve became steeper, we sold some pre-refunded bonds, realizing
significant gains, and invested in bonds with longer maturities, extending the
durations of these holdings in order to increase yield.
6 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
- --------------------------------------------------------------------------------
WHICH TRENDS OR INVESTMENT DECISIONS MOST HELPED THE FUND'S PERFORMANCE AND WHY?
A major positive was the Fund's high credit quality during this period when
investors became increasingly uncomfortable with risk. Consistent with the high
credit quality of the Fund's portfolio, the absence of an allocation to
non-investment-grade bonds contributed to performance relative to other
municipal bond funds, many of which do invest in non-investment-grade bonds.
Also positive was the Fund's position in pre-refunded bonds, which performed
very well in a risk-averse market environment. Lehman Brothers reports that
pre-refunded bonds returned 5.88% for the six months ended January 31, 2008,
compared with a return of 3.71% from the Lehman Municipal Bond Index.
With regard to sectors, the Fund's position in education bonds made a positive
contribution to performance.
- --------------------------------------------------------------------------------
WHICH AREAS OF THE FUND HURT PERFORMANCE DURING THE PERIOD?
Most securities that carry any degree of credit risk dropped in market value
during this period, and that includes some of the bonds rated BBB (the lowest
investment grade) in this portfolio.
Insured bonds have performed poorly, as concerns have mounted regarding the
financial strength of the monoline bond insurers. The Fund owns bonds insured by
all the major insurers except the largest insurer, MBIA. (Because MBIA is the
parent company of the Fund's Investment Adviser, Securities & Exchange
Commission regulations preclude the Fund's ownership of MBIA-insured bonds.) As
of January 31, 2008, insured bonds represent less than 20% of the value of the
Fund's portfolio, compared with over 50% of the Lehman Municipal Bond Index.
Prices of insured bonds have deteriorated as some bonds were downgraded when
ratings of two of the insurance providers were cut. However, all of the Fund's
insured bonds have underlying credits with solid ratings, and we are very
comfortable with all of the underlying credits in the portfolio.
INSURED BONDS HELD AT JANUARY 31, 2008
- --------------------------------------------------------------------------------
% OF LONG-TERM
INSURER INVESTMENTS
- --------------------------------------------------------------------------------
FGIC 7.0%
AMBAC 6.2%
FSA 3.2%
CIFG 2.7%
- --------------------------------------------------------------------------------
The Fund's holdings in the health care and housing sectors detracted from
performance, as both of these sectors underperformed the Lehman Brothers
Municipal Bond Index. The sub-prime mortgage crisis has caused some investors to
question the attractiveness of housing-related investments. Municipal housing
bonds are traditionally highly rated securities, since state and local housing
finance agencies do not issue the kind of high interest variable rate loans that
are prevalent in the sub-prime category of mortgages; all the housing bond
investments in this portfolio are rated AAA or AA.
- --------------------------------------------------------------------------------
PLEASE TELL US ABOUT THE FUND'S DISTRIBUTIONS DURING THE PERIOD.
In August and September 2007, the Fund paid monthly dividends of $0.0495 per
share. The monthly dividend was raised to $0.0525 beginning in October 2007.
This dividend represents an annualized distribution rate of 4.95% based on the
closing market price of $12.73 on January 31, 2008, or 7.61% on a taxable
equivalent basis, assuming a 35% federal income tax bracket.
- --------------------------------------------------------------------------------
WOULD YOU EXPLAIN THE FUND'S LEVERAGE STRATEGY AND ITS EFFECT ON FUND RETURNS?
The Fund, like many closed-end funds, utilizes leverage (borrowing) as part of
its investment strategy. The purpose of leverage is to fund the purchase of
additional securities that provide increased income and potentially greater
appreciation to common shareholders than could be achieved from an un-leveraged
portfolio. Of course, leverage results in greater NAV volatility and entails
more downside risk than an un-leveraged portfolio. (Volatility is a measure of
the extent to which the price of a financial asset fluctuates.) The use of
leverage also makes the Fund more vulnerable to rising interest rates. The Fund
generally employs leverage by issuing Auction Market Preferred Shares ("AMPS")
on which the interest rate is re-set in periodic auctions, which typically take
place every seven to 28 days.
The following addendum to the annual shareholder letter discusses the AMPS
situation subsequent to January 31, 2008:
The broad auction-rate preferred securities market has experienced some
disruption in the past few months, but those disruptions have increased
dramatically in recent days, and your Fund was not immune to this disruption.
The result has been an increasing number of failed auctions on many, if not all,
auction-rate preferred shares, including Auction Market Preferred Shares
("AMPS") such as those issued by the Fund. We believe this increase in failed
auctions is simply a liquidity issue. Investors need to be aware that a failed
auction is not a default nor does it require the redemption of a fund's
auction-rate preferred shares. Provisions in the offering documents of the
Fund's AMPS provide a mechanism to set a maximum rate in the event of a failed
auction, and, thus, investors will continue to be entitled to receive payment
for holding these AMPS. This maximum rate is determined based upon a multiple of
or a spread to a reference rate. The reference rate is either LIBOR (the London
Interbank Offered Rate, a widely used benchmark for short-term interest rates)
or 90% of the taxable equivalent of the short-term municipal rate, whichever is
greater.
The Fund has two series of AMPS; a seven day series auctioning
each Monday ("M-7") and a 28-day series that auctions every fourth Wednesday
("W-28"). The auctions for the M-7 series for February 25, 2008, and for the
W-28 series for February 27, 2008, failed. The maximum rate established for this
failed auction of the M-7 series was 4.908%; the next auction for this series is
scheduled for March 3, 2008. The maximum rate established for this failed
auction of the W-28 series was 5.060%; the next auction for this series is
scheduled for March 26, 2008. We will continue to evaluate the benefits and
impacts of leverage on the Fund.
SemiAnnual Report | January 31, 2008 | 7
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
- --------------------------------------------------------------------------------
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET IN THE COMING MONTHS?
Despite widening spreads and investor concerns, we have great confidence in the
municipal bond market, especially in the high-quality segment of the market in
which this Fund invests. Defaults on municipal bonds are very rare. In fact,
despite the recent volatility, the municipal market is off to a good start in
2008: the Lehman Brothers Municipal Index was up 1.26% for the month of January.
Currently, some AAA-rated municipal bonds are yielding more than Treasury issues
with comparable maturities. This relative cheapness is attracting the attention
of crossover and other nontraditional municipal investors.
We believe that the Fund is well positioned in the current environment. We have
taken advantage of the widening of spreads to increase the Fund's exposure to
good quality BBB credits. We have also taken advantage of the steepening of the
yield curve by selling some of our pre-refunded credits and extending maturities
to pick up additional yield.
Although the financial strength of the bond insurers continues to affect the
municipal securities market, the credit quality of municipal securities backed
by insurance has not deteriorated. We believe that individual bonds should be
evaluated on their own fundamentals, bearing in mind that insurance is usually
purchased to lower the interest rate paid by the issuer, not to secure a
low-quality credit. With municipal bonds trading at significantly lower prices
than we saw a few months ago, some strategists are touting municipal bonds as an
attractive investment value for 2008.
We believe that the market has over-reacted to credit problems in certain
sectors, dumping any securities perceived as risky, regardless of underlying
fundamentals. Whenever such imbalances occur, we believe that opportunities may
be created. Although we believe that there may still be further problems in the
credit markets, we are selectively looking for opportunities to purchase bonds
of reasonable quality that may be selling below their long-term intrinsic value.
- --------------------------------------------------------------------------------
MZF RISKS AND OTHER CONSIDERATIONS
The views expressed in this report reflect those of the portfolio managers only
through the report period as stated on the cover. These views are subject to
change at any time, based on market and other conditions and should not be
construed as a recommendation of any kind. The material may also include forward
looking statements that involve risk and uncertainty, and there is no guarantee
that any predictions will come to pass.
There can be no assurance that the Fund will achieve its investment objective.
The value of the Fund will fluctuate with the value of the underlying
securities. Historically, closed-end funds often trade at a discount to their
net asset value. An investment in this Fund may not be suitable for investors
who are, or as a result of this investment would become, subject to the federal
alternative minimum tax because the securities in the Fund may pay interest that
is subject to taxation under the federal alternative minimum tax. Special rules
apply to corporate holders. Additionally, any capital gains dividends will be
subject to capital gains taxes.
There can be no guarantee that hedging strategies will be employed or will be
successful. The premium paid for entering into such hedging strategies will
result in a reduction in the net asset value of the Funds and a subsequent
reduction of income to the Fund. Any income generated from hedging transactions
will not be exempt from income taxes.
Certain risks are associated with the leveraging of common stock. Both the net
asset value and the market value of shares of common stock may be subject to
higher volatility and a decline in value.
There are also specific risks associated with investing in municipal bonds. The
secondary market for municipal bonds is less liquid than many other securities
markets, which may adversely affect the Fund's ability to sell its bonds at
prices approximating those at which the Fund currently values them. The ability
of municipal issuers to make timely payments of interest and principal may be
diminished during general economic downturns. In addition, laws enacted in the
future by Congress or state legislatures or referenda could extend the time for
payment of principal and/or interest. In the event of bankruptcy of an issuer,
the Fund could experience delays in collecting principal and interest.
There also risks associated with investing in Auction Market Preferred Shares or
AMPS. The AMPS are redeemable, in whole or in part, at the option of the Fund on
any dividend payment date for the AMPS, and will be subject to mandatory
redemption in certain circumstances. The AMPS will not be listed on an exchange.
You may only buy or sell AMPS through an order placed at an auction with or
through a broker-dealer that has entered into an agreement with the auction
agent and the Fund or in a secondary market maintained by certain
broker-dealers. These broker-dealers are not required to maintain this market,
and it may not provide you with liquidity.
8 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Fund SUMMARY | AS OF JANUARY 31, (2008) (unaudited)
FUND INFORMATION
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: MZF
Initial Offering Date: August 27, 2003
Closing Market Price as of 01/31/08: $12.73
Net Asset Value as of 01/31/08: $14.23
Yield on Closing Market Price as of 01/31/08: 4.95%
Taxable Equivalent Yield on Closing Market Price as of 01/31/08(1): 7.61%
Current Monthly Distribution Per Common Share(2): $0.0525
Leverage as of 01/31/08(3): 38%
Percentage of total investments subject to alternative minimum tax 22.2%
- --------------------------------------------------------------------------------
1 Taxable equivalent yield is calculated assuming a 35% federal income tax
bracket.
2 Monthly distribution is subject to change.
3 As a percentage of total investments.
TOTAL RETURNS
- --------------------------------------------------------------------------------
(Inception 8/27/03) Market NAV
- --------------------------------------------------------------------------------
Six Months 3.31% 2.35%
One Year 2.37% 2.25%
Three Year - average annual 3.35% 3.35%
Since Inception - average annual 1.39% 4.58%
- --------------------------------------------------------------------------------
Pie Chart:
SECTOR CONCENTRATION*
- --------------------------------------------------------------------------------
Prerefunded 26.4%
Housing 11.9%
Health Care 10.8%
IDR/IRB 8.4%
Miscellaneous Revenue 7.4%
Transportation 7.2%
Secondary Education 5.9%
Higher Education 5.1%
General Obligation 4.7%
Power 4.3%
Lease Backed Rev Bond 2.8%
Tobacco 2.7%
Enhanced Tobacco 2.4%
Other (Swaptions) 0.0%
- --------------------------------------------------------------------------------
*As a percentage of long-term municipal bonds and notes, preferred shares and
swaptions.
- --------------------------------------------------------------------------------
Pie Chart:
STATE/TERRITORY ALLOCATION*
- --------------------------------------------------------------------------------
California 16.0%
New York 15.3%
Florida 10.9%
Texas 7.9%
Ohio 6.4%
Puerto Rico 4.2%
Colorado 3.8%
Missouri 3.7%
Illinois 3.5%
South Dakota 3.4%
All other states 24.9%
- --------------------------------------------------------------------------------
*As a percentage of long-term municipal bonds and notes.
- --------------------------------------------------------------------------------
Line Chart:
SHARE PRICE & NAV PERFORMANCE
- --------------------------------------------------------------------------------
SHARE PRICE NAV
1/31/07 13.04 14.52
13.08 14.52
13.09 14.54
13.11 14.56
13.12 14.55
13.06 14.57
13.08 14.58
13.1 14.56
13.11 14.55
13.12 14.55
13.12 14.6
13.11 14.64
13.1 14.65
13.12 14.65
13.15 14.66
13.11 14.63
13.21 14.68
13.26 14.72
13.36 14.78
13.3 14.76
13.25 14.76
13.35 14.79
13.35 14.79
13.23 14.74
13.25 14.75
13.27 14.75
13.28 14.69
13.3 14.7
13.3 14.72
13.22 14.71
13.15 14.7
13.13 14.71
13.1 14.7
13.13 14.71
13.12 14.72
13.14 14.68
13.14 14.67
13.13 14.67
13.18 14.66
13.2 14.65
13.28 14.62
13.3 14.61
13.27 14.61
13.2 14.54
13.15 14.54
13.13 14.54
13.12 14.48
13.14 14.5
13.12 14.49
13.18 14.49
13.24 14.47
13.14 14.48
13.1 14.51
13.12 14.55
13.12 14.56
13.18 14.56
13.21 14.56
13.22 14.58
13.17 14.57
13.31 14.53
13.28 14.52
13.32 14.56
13.3 14.55
13.35 14.55
13.32 14.54
13.35 14.52
13.37 14.52
13.31 14.52
13.34 14.51
13.27 14.52
13.27 14.52
13.29 14.5
13.29 14.49
13.31 14.49
13.31 14.45
13.27 14.42
13.3 14.42
13.11 14.4
13.1 14.37
13.11 14.37
13.06 14.38
13.12 14.37
13.14 14.37
13.2 14.35
13.2 14.31
13.2 14.32
13.06 14.29
13.01 14.23
12.99 14.13
12.84 14.12
12.81 14.1
12.72 14.02
12.72 14.03
12.88 14.02
12.84 14.03
12.82 14.05
12.73 14.08
12.68 14.06
12.72 14.04
12.61 14.05
12.7 14.09
12.64 14.09
12.59 14.11
12.65 14.1
12.69 14.13
12.66 14.15
12.88 14.09
12.73 14.03
12.71 14.01
12.76 14.04
12.78 14.1
12.77 14.09
12.82 14.07
12.72 14.08
12.61 14.11
12.53 14.1
12.51 14.14
12.55 14.13
12.59 14.18
12.61 14.17
12.59 14.18
12.57 14.18
12.55 14.22
12.5 14.23
12.62 14.23
12.63 14.21
12.62 14.22
12.61 14.19
12.67 14.19
12.58 14.09
12.53 14.06
12.52 13.97
12.5 13.99
12.57 13.99
12.61 13.99
12.55 13.95
12.3 13.89
12.26 13.77
12.51 13.73
12.62 13.72
12.59 13.71
12.56 13.68
12.54 13.67
12.45 13.64
12.39 13.67
12.4 13.73
12.48 13.83
12.53 13.91
12.5 13.93
12.65 13.93
12.63 13.97
12.56 14.07
12.69 14.24
12.84 14.31
12.91 14.29
12.71 14.28
12.6 14.22
12.63 14.23
12.66 14.23
12.8 14.2
12.64 14.18
12.64 14.08
12.52 14.09
12.48 14.09
12.59 14.15
12.66 14.14
12.67 14.18
12.74 14.19
12.79 14.21
12.68 14.25
12.65 14.19
12.61 14.21
12.57 14.15
12.53 14.15
12.55 14.14
12.55 14.14
12.57 14.12
12.6 14.12
12.54 14.12
12.5 14.15
12.5 14.21
12.51 14.25
12.55 14.33
12.6 14.33
12.56 14.32
12.55 14.35
12.56 14.33
12.61 14.3
12.69 14.3
12.54 14.25
12.44 14.19
12.5 14.22
12.42 14.23
12.56 14.2
12.42 14.05
12.41 14
12.35 13.96
12.2 13.96
12.09 13.96
12.05 13.95
11.77 13.94
11.79 13.99
11.96 14.02
12 14.06
12.03 14.07
12.09 14.1
12.04 14.11
12.13 14.18
12.16 14.13
12.17 14.12
12.19 14.17
12.3 14.17
12.32 14.19
12.34 14.21
12.42 14.14
12.36 14.11
12.36 14.01
12.49 13.99
12.39 14.07
12.33 14.02
12.3 14.05
12.21 14.02
12.22 14.02
12.24 14.07
12.25 14.11
12.2 14.12
12.11 14.04
12.07 14.01
12.05 13.98
12.14 14
12.22 14.06
12.42 14.09
12.48 14.2
12.6 14.21
12.67 14.25
12.78 14.27
12.76 14.29
12.76 14.37
12.79 14.36
12.93 14.39
12.93 14.41
12.93 14.48
12.94 14.49
12.93 14.52
12.66 14.51
12.86 14.58
12.95 14.61
12.92 14.41
12.82 14.38
12.84 14.33
12.83 14.24
12.77 14.19
1/31/08 12.73 14.23
Pie Chart:
CREDIT QUALITY*
- --------------------------------------------------------------------------------
AAA 28.3%
AA 28.8%
A 26.2%
BBB 16.1%
BB 0.6%
- --------------------------------------------------------------------------------
*As a percentage of long-term municipal bonds and notes and preferred shares.
Based on Standard & Poor's or other equivalent rating.
- --------------------------------------------------------------------------------
Pie Chart:
MATURITY BREAKDOWN*
- --------------------------------------------------------------------------------
0-5 Years 20.7%
6-10 Years 6.9%
11-15 Years 20.5%
16-20 Years 17.2%
21-25 Years 11.2%
26-30 Years 17.9%
30+ Years 5.6%
- --------------------------------------------------------------------------------
*As a percentage of long-term municipal bonds and notes, preferred shares
swaptions.
- --------------------------------------------------------------------------------
Past performance does not guarantee future results. All portfolio data is
subject to change daily. For more current information, please visit
www.claymore.com. The above summaries are provided for informational purposes
only and should not be viewed as recommendations.
SemiAnnual Report | January 31, 2008 | 9
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Portfolio of Investments | JANUARY 31, 2008 (unaudited)
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- --------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES - 156.9%
ALABAMA - 0.8%
BBB $ 845 Courtland, AL Ind Dev Brd
Environ Imp Rev, AMT, Ser B,
6.25%, 08/01/25 08/01/13 @ 100 $ 861,461
- --------------------------------------------------------------------------------
CALIFORNIA - 25.1%
A+ 350 California Gen Oblig,
5.50%, 04/01/30
(Prerefunded @ 04/01/14)+ 04/01/14 @ 100 401,800
A+ 125 California Gen Oblig,
5.50%, 04/01/30
(Prerefunded @ 04/01/14)+ 04/01/14 @ 100 143,500
A+ 2,025 California Gen Oblig,
5.50%, 04/01/30
(Prerefunded @ 04/01/14)+ 04/01/14 @ 100 2,330,856
A 5,000 California Public Works Brd
Dept Mental Health Lease Rev, Ser A,
5.00%, 06/01/24 06/01/14 @ 100 5,002,350
A+ 6,000 California Various Purpose Gen Oblig,
5.125%, 11/01/24 11/01/13 @ 100 6,252,060
A- 2,500 Chula Vista, CA Ind Dev Rev, Ser B
AMT, 5.50% 12/01/21 06/02/14 @ 102 2,601,350
BBB 2,065 Golden State Tobacco Securitization
Rev, Ser A-1, 5.00%, 06/01/33 06/01/17 @ 100 1,812,141
AAA 2,750 Golden State Tobacco Settlement
Rev, Ser B, 5.375%, 06/01/28
(Prerefunded @ 06/01/10)+ 06/01/10 @ 100 2,933,617
AA 4,000 Port of Oakland, CA Rev, AMT,
Ser L, 5.00%, 11/01/22 (FGIC) 11/01/12 @ 100 4,089,360
AA 2,500 San Diego, CA Unified School Dist,
Ser D, 5.25%, 07/01/25
(Subject to cross over refunding
@ 07/01/12) (FGIC) 07/01/12 @ 101 2,755,800
- --------------------------------------------------------------------------------
28,322,834
- --------------------------------------------------------------------------------
COLORADO - 6.0%
AA 4,500 Colorado Health Facs Auth Rev,
5.25%, 09/01/21
(Prerefunded @ 09/01/11)+ 09/01/11 @ 100 4,905,810
BBB 2,000 Colorado Health Facs Auth Rev,
5.25%, 05/15/42 05/15/17 @ 100 1,874,880
- --------------------------------------------------------------------------------
6,780,690
- --------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 3.1%
AA 1,550 District of Columbia Ballpark Rev,
Ser B-1, 5.00%, 02/01/35 (FGIC) 02/01/16 @ 100 1,534,128
Aaa 2,000 District of Columbia FHA Multi Family
Henson Ridge-Rmkt, AMT,
5.10%, 06/01/37 (FHA) 06/01/15 @ 102 1,955,200
- --------------------------------------------------------------------------------
3,489,328
- --------------------------------------------------------------------------------
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- --------------------------------------------------------------------------------
FLORIDA - 17.1%
A+ $ 2,500 Highlands Co., FL Health Facs
Auth Rev, Ser B, 5.25%, 11/15/23
(Prerefunded @ 11/15/12)+ 11/15/12 @ 100 $ 2,759,075
A1 3,000 Highlands Co., FL Health Facs
Auth Rev, Ser D, 5.875%, 11/15/29
(Prerefunded @ 11/15/13)+ 11/15/13 @ 100 3,455,970
AAA 5,000 Miami-Dade Co., FL Aviation Rev, AMT,
6.19%, 10/01/38 (CIFG)(1) 10/01/15 @ 100 4,847,200
AA 4,275 Miami-Dade Co., FL School Brd, Ser B,
5.00%, 05/01/32 (FGIC) 05/01/17 @ 100 4,262,773
BBB 1,000 Seminole Indian Tribe FL Rev, Ser A,
144A, 5.25%, 10/01/27 10/01/17 @ 100 942,620
AA- 2,750 South Broward Co., FL Hosp Dist
Rev, 5.60%, 05/01/27
(Prerefunded @ 05/01/12)+ 05/01/12 @ 101 3,084,758
- --------------------------------------------------------------------------------
19,352,396
- --------------------------------------------------------------------------------
ILLINOIS - 5.4%
A1 3,000 Illinois Dev Fin Auth Hosp Rev,
5.65%, 11/15/24
(Prerefunded @ 11/15/09)+ 11/15/09 @ 101 3,207,690
Baa1 1,000 Illinois Fin Auth, Roosevelt Univ Rev,
5.50%, 04/01/37 04/01/17 @ 100 994,170
AA 2,000 Illinois Hsg Dev Auth Homeowner Mtg,
AMT, Ser A-2, 5.00%, 08/01/36 02/01/16 @ 100 1,915,120
- --------------------------------------------------------------------------------
6,116,980
- --------------------------------------------------------------------------------
LOUISIANA - 3.5%
BBB 1,000 De Soto Parish, LA Environ Imp
Rev, AMT, Ser A,
5.85%, 11/01/27 11/01/13 @ 100 988,370
BBB+ 3,000 St. John Baptist Parish, LA
Marathon Oil Corp., Ser A,
5.125%, 06/01/37 06/01/17 @ 100 2,913,390
- --------------------------------------------------------------------------------
3,901,760
- --------------------------------------------------------------------------------
MASSACHUSETTS - 0.9%
AA- 1,000 Massachusetts Housing Fin Agency,
AMT, 5.10%, 12/01/27 06/01/17 @ 100 1,001,400
- --------------------------------------------------------------------------------
MICHIGAN -1.8%
A- 2,000 Michigan Strategic Fund Ltd Oblig
Rev Ref, Ser C, 5.45%, 09/01/29 09/01/11 @ 100 2,038,840
- --------------------------------------------------------------------------------
MISSOURI - 5.8%
AAA 6,000 Missouri Health & Educ Facs Auth
Rev, Ser A, 5.25%, 06/01/28
(Prerefunded @ 06/01/11)
(AMBAC)+ 06/01/11 @ 101 6,590,040
- --------------------------------------------------------------------------------
NEBRASKA - 2.6%
AAA 3,000 Public Power Generation Agency,
Whelan Energy Ctr Unit 2,
5.00%, 01/01/41 (AMBAC) 01/01/17 @ 100 2,952,240
- --------------------------------------------------------------------------------
NEVADA - 5.0%
A 5,410 Henderson, NV Health Care Fac Rev,
Ser A, 5.625%, 07/01/24 07/01/14 @ 100 5,629,159
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
10 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
PORTFOLIO OF INVESTMENTS (unaudited) continued
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- --------------------------------------------------------------------------------
NEW YORK - 23.9%
A- $ 2,750 Long Island, NY Power Auth Rev, Ser A,
5.10%, 09/01/29 09/01/14 @ 100 $ 2,783,577
AA- 4,000 Metropolitan Trans Auth Rev, Ser A,
5.125%, 01/01/24 07/01/12 @ 100 4,150,520
AA- 1,650 New York Dorm Auth Lease Rev, Ser A,
5.375%, 05/15/23
(Prerefunded 05/15/13)+ 05/15/13 @ 100 1,860,491
Aaa 1,500 New York Dorm Auth Rev, North Shore
Long Island Jewish Group,
5.375%, 05/01/23
(Prerefunded 05/01/13)+ 05/01/13 @ 100 1,690,050
BB 1,000 New York Dorm Auth Rev, NYU Hosp Ctr,
Ser B, 5.25%, 07/01/24 07/01/17 @ 100 996,900
AA 2,250 New York, NY Gen Oblig, Ser J,
5.00%, 05/15/23 05/15/14 @ 100 2,328,187
A+ 3,650 New York Muni Bond Bank Agy Special
School Purpose Rev, Ser C,
5.25%, 12/01/22 06/01/13 @ 100 3,857,612
AA- 4,000 New York Tobacco Settlement Funding
Corp, Ser A1, 5.50%, 06/01/19 06/01/13 @ 100 4,350,760
A- 5,000 Suffolk Co, NY Ind Dev Agy Rev, AMT,
5.25%, 06/01/27 06/01/13 @ 100 5,011,100
- --------------------------------------------------------------------------------
27,029,197
- --------------------------------------------------------------------------------
NORTH CAROLINA - 3.4%
BBB 1,000 North Carolina Eastern Muni Power Agy
Sys Rev Ref, Ser D,
5.125%, 01/01/23 01/01/13 @ 100 1,017,070
BBB 1,000 North Carolina Eastern Muni Power Agy
Sys Rev Ref, Ser D,
5.125%, 01/01/26 01/01/13 @ 100 1,007,490
AAA 1,775 North Carolina Housing Fin Agy Rev, AMT,
Ser 14A,
5.35%, 01/01/22 (AMBAC) 07/01/11 @ 100 1,808,157
- --------------------------------------------------------------------------------
3,832,717
- --------------------------------------------------------------------------------
OHIO - 10.1%
BBB 1,150 Buckeye OH, Tobacco Settlement Turbo Rev,
Ser A-2, 5.875%, 06/01/30 06/01/17 @ 100 1,125,356
BBB 2,000 Buckeye OH, Tobacco Settlement Turbo Rev,
Ser A-2, 5.75%, 06/01/34 06/01/17 @ 100 1,923,880
AA- 3,000 Cuyahoga Co., OH Rev Ref, Ser A,
6.00%, 01/01/20 07/01/13 @ 100 3,287,430
AA- 5,000 Lorain Co., OH Hosp Rev Ref, Ser A,
5.25%, 10/01/33 10/01/11 @ 101 5,053,200
- --------------------------------------------------------------------------------
11,389,866
- --------------------------------------------------------------------------------
OKLAHOMA - 3.1%
AA- 3,525 Oklahoma Dev Fin Auth Rev,
5.00%, 02/15/42 02/15/17 @ 100 3,490,772
- --------------------------------------------------------------------------------
PENNSYLVANIA - 4.6%
BBB 2,340 Pennsylvania Higher Education Facs Auth
Rev, 5.25%, 05/01/23 05/01/13 @ 100 2,378,329
BBB+ 2,000 Pennsylvania State Higher Education,
5.00%, 07/15/39 07/15/15 @ 100 1,888,160
BBB 1,000 Pennsylvania State Higher Education,
5.00%, 05/01/37 11/01/17 @ 100 940,040
- --------------------------------------------------------------------------------
5,206,529
- --------------------------------------------------------------------------------
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- --------------------------------------------------------------------------------
PUERTO RICO - 6.6%
AAA $ 1,500 Puerto Rico Hwy & Trans Auth Rev,
Ser J, 5.50%, 07/01/24
(Prerefunded @ 07/01/14)+ 07/01/14 @ 100 $ 1,727,400
BBB- 5,000 Puerto Rico Public Bldgs Auth Rev,
Ser I, 5.50%, 07/01/25
(Prerefunded @ 07/01/14)+ 07/01/14 @ 100 5,695,250
- --------------------------------------------------------------------------------
7,422,650
- --------------------------------------------------------------------------------
SOUTH CAROLINA - 3.1%
AAA 2,500 Florence Co., SC Hosp Rev, Ser A,
5.25%, 11/01/27 (FSA) 11/01/14 @ 100 2,600,400
BBB 1,000 Georgetown Co., SC Environ Imp Rev,
AMT, Ser A, 5.30%, 03/01/28 03/01/14 @ 100 909,320
- --------------------------------------------------------------------------------
3,509,720
- --------------------------------------------------------------------------------
SOUTH DAKOTA - 5.3%
AAA 5,000 South Dakota Hsg Dev Auth, Ser K, AMT,
5.05%, 05/01/36 11/01/15 @ 100 4,831,800
AA- 1,200 South Dakota St Hlth & Edl Fac, Ser A
5.25%, 11/01/34 11/01/14 @ 100 1,212,108
- --------------------------------------------------------------------------------
6,043,908
- --------------------------------------------------------------------------------
TEXAS - 12.5%
Aaa 2,000 Bexar Co., TX Hsg Fin, AMT,
5.20%, 10/20/34 (GNMA/FHA) 10/20/14 @ 100 1,965,820
AAA 3,795 Eagle Mtn & Saginaw, TX Indep School
Dist, Ser A, 5.25%, 08/15/23
(Prerefunded @ 08/15/13) (PSF)+ 08/15/13 @ 100 4,276,358
AAA 205 Eagle Mtn & Saginaw, TX Indep School
Dist, Ser A,
5.25%, 08/15/23 (PSF) 08/15/13 @ 100 218,325
AAA 3,000 Houston Utility System,
(Underlying Obligor: Houston, TX Utility System
First Lien Revenue Refunding Bonds)
7.58%, 11/15/33 (FSA) (2) 11/15/17 @ 100 3,229,350
AAA 2,325 Pampa, TX Indep School
Dist, 5.00%, 08/15/36 (PSF) 08/15/17 @ 100 2,410,583
BBB+ 2,100 San Leanna Ed Facs Corp Higher Ed Rev,
5.125%, 06/01/36 06/01/17 @ 100 1,967,448
- --------------------------------------------------------------------------------
14,067,884
- --------------------------------------------------------------------------------
WEST VIRGINIA - 4.5%
AAA 5,000 West Virginia Housing Dev Fund Rev,
Ser D, 5.20%, 11/01/21 05/01/11 @ 100 5,102,850
- --------------------------------------------------------------------------------
WYOMING - 2.7%
AA+ 3,100 Wyoming Cmnty Dev Auth Hsg Rev,
Ser 7, AMT, 5.10%, 12/01/38 12/01/16 @ 100 3,024,515
- --------------------------------------------------------------------------------
Total Municipal Bonds & Notes - 156.9%
(Cost $170,556,395) 177,157,736
- --------------------------------------------------------------------------------
See notes to financial statements.
SemiAnnual Report | January 31, 2008 | 11
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
PORTFOLIO OF INVESTMENTS (unaudited) continued
RATING PRINCIPAL OPTIONAL
(MOODY'S)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------------------------
PREFERRED SHARES - 3.8%
A3 $ 2,000 Capmark Municipal Mortgage Trust, AMT,
Ser A1-3, 5.30%, 10/31/39,
(10/31/19 remarketing), 144A $ 2,096,120
Aaa 2,000 Centerline Equity Issuer Trust, AMT, Ser A-4-1,
5.75%, 04/30/15 (remarketing), 144A 2,202,060
- ----------------------------------------------------------------------------------------------------------
TOTAL PREFERRED SHARES - 3.8%
(Cost $4,000,000) 4,298,180
- ----------------------------------------------------------------------------------------------------------
COUNTER- NOTIONAL EXPIRATION
PARTY AMOUNT (000) DESCRIPTION DATE VALUE
- ----------------------------------------------------------------------------------------------------------
SWAPTIONS (3) - 0.0%
Goldman Sachs $ 85,000 Option on a pay fixed/receive floating rate 20
year interest rate swap (pay fixed rate of 5.20%
and receive BMA rate with a weekly reset) 09/03/08 $ 20,778
Goldman Sachs 7,000 Option on a pay fixed/receive floating rate 20
year interest rate swap (pay fixed rate of 6.50%
and receive LIBOR rate with a weekly reset) 09/03/08 11,979
- ----------------------------------------------------------------------------------------------------------
TOTAL SWAPTIONS
(Cost $5,402,500) 32,757
- ----------------------------------------------------------------------------------------------------------
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.2%
ALASKA - 0.1%
AAA $ 100 Valdez, AK Marine Term Rev, Ref-Exxon
Pipeline Co., Ser A, VRDN, 1.70%, 12/01/33 (4) 02/01/08 @ 100 100,000
- ----------------------------------------------------------------------------------------------------------
MASSACHUSETTS - 0.2%
Aaa 200 Massachusetts Health & Ed Fac Auth,
Ser E, VRDN, 1.83%, 01/01/35 (4) 02/01/08 @ 100 200,000
- ----------------------------------------------------------------------------------------------------------
MICHIGAN - 0.6%
AAA 710 Royal Oak, MI Hosp Fin Auth,
VRDN, 4.75%, 01/01/20 (AMBAC) (4) 02/01/08 @ 100 710,000
- ----------------------------------------------------------------------------------------------------------
UTAH - 0.3%
AAA 300 Utah Trans Auth Sales Tax Rev,
Ser B, VRDN, 1.80%, 06/15/36 (4) 02/01/08 @ 100 300,000
- ----------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,310,000) 1,310,000
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 161.9%
(Cost $181,268,895) 182,798,673
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION VALUE
- ----------------------------------------------------------------------------------------------------------
FLOATING RATE NOTE OBLIGATIONS - (2.2%)
$ (2,500) Note with interest rate of 2.28% and contractual maturity
of collateral to 2038. See Note 1 in the Notes to Financial
Statements section of this report. $ (2,500,000)
- ----------------------------------------------------------------------------------------------------------
TOTAL NET INVESTMENTS 159.7%
(Cost $178,768,895) 180,298,673
Other assets in excess of liabilities - 1.8% 2,038,527
Preferred Shares, at redemption value -
(-61.5% of Net Assets Applicable to Common
Shareholders or -38.5% of Total Net Investments) (69,450,000)
- ----------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS - 100.0% (5) $112,887,200
- ----------------------------------------------------------------------------------------------------------
* For securities not rated by Standard & Poor's Rating Group, the rating by
Moody's Investor Services, Inc. or Fitch Ratings is provided.
** Date and price of the earliest optional call or put provision. There may be
other call provisions at varying prices at later dates.
+ This bond is prerefunded. U.S. government or U.S. government agency
securities, held in escrow, are used to pay interest on this security, as
well as to retire the bond in full at the date and price indicated under
the Optional Call Provisions.
(1) Underlying security related to inverse floating rate investments entered
into by the Fund. See Note 1 of the financial statements.
(2) Inverse floating rate investment. Interest rate shown is that in effect at
January 31, 2008. See Note 1 of the financial statements.
(3) Non-income producing securities.
(4) Security has a maturity of more than one year, but has variable rate and
demand features that qualify it as a short-term security. The rate shown is
as of January 31, 2008.
(5) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
Glossary:
AMBAC - Insured by Ambac Assurance Corporation
AMT - Alternative Minimum Tax
BMA - Bond Market Association
CIFG - Insured by CIFG Assurance NA
FGIC - Insured by Financial Guaranty Insurance Co.
FHA - Guaranteed by Federal Housing Administration
FSA - Insured by Financial Security Assurance, Inc.
GNMA - Guaranteed by Ginnie Mae
LIBOR - London Inter-Bank Offered Rate
PSF - Guaranteed by Texas Permanent School Fund
VRDN - Variable rate demand notes are instruments whose interest rates change on
a specified date (such as coupon date or interest payment date) and/or
whose interest rates vary with changes in a designated base rate (such as
the prime interest rate).
144A - Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. The securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At January 31, 2008 these securities amounted to $5,240,800 which
represents 4.6% of net assets applicable to common shareholders.
See notes to financial statements.
12 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of ASSETS AND LIABILITIES | JANUARY 31, 2008 (unaudited)
ASSETS
Investments, at value (cost $181,268,895) $182,798,673
Cash 71,920
Interest receivable 2,117,977
Other assets 16,576
- ---------------------------------------------------------------------------------------------------------------
Total assets 185,005,146
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES
Floating rate note obligations 2,500,000
Investment advisory fee payable 40,797
Servicing agent fee payable 27,173
Dividends payable - preferred shareholders 13,842
Administration fee payable 3,884
Accrued expenses and other liabilities 82,250
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 2,667,946
- ---------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT REDEMPTION VALUE
$.001 par value per share; 2,778 Auction Market Preferred Shares authorized,
issued and outstanding at $25,000 per share liquidation preference 69,450,000
- ---------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shareholders $112,887,200
===============================================================================================================
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
Common stock, $.001 par value per share; unlimited number of shares authorized,
7,935,591 shares issued and outstanding $ 7,936
Additional paid-in capital 112,471,279
Net unrealized appreciation on investments and swaptions 1,529,778
Accumulated undistributed net investment income 717,564
Accumulated net realized loss on investments and swaptions (1,839,357)
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $112,887,200
===============================================================================================================
NET ASSET VALUE APPLICABLE TO COMMON SHAREHOLDERS (based on 7,935,591 common shares outstanding) $ 14.23
===============================================================================================================
See notes to financial statements.
SemiAnnual Report | January 31, 2008 | 13
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of OPERATIONS | FOR THE SIX MONTHS ENDED JANUARY 31, 2008 (unaudited)
INVESTMENT INCOME
Interest $ 4,653,666
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee $ 355,970
Servicing agent fee 237,314
Auction agent fees - preferred shares 95,696
Professional fees 54,328
Fund accounting 33,389
Administrative fee 25,100
Trustees' fees and expenses 20,495
Printing expenses 20,495
NYSE listing fee 10,672
Custodian fee 9,606
Transfer agent fee 9,548
Insurance 8,752
Line of credit fee 2,543
Other 12,218
Interest expense on floating rate note obligations 44,622
- ---------------------------------------------------------------------------------------------------------------
Total expenses 940,748
Investment advisory fees waived (116,375)
Servicing agent fees waived (77,583)
- ---------------------------------------------------------------------------------------------------------------
Net expenses 746,790
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,906,876
- ---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments 421,069
Swaptions -
Net change in unrealized appreciation (depreciation) on:
Investments (268,146)
Swaptions (139,503)
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and swaptions 13,420
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO AUCTION MARKET PREFERRED SHAREHOLDERS FROM
Net investment income (1,358,284)
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $ 2,562,012
===============================================================================================================
See notes to financial statements.
14 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of CHANGES IN NET ASSETS |
FOR THE
SIX MONTHS ENDED FOR THE
JANUARY 31, 2008 YEAR ENDED
(UNAUDITED) JULY 31, 2007
- -------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS:
Net investment income $ 3,906,876 $ 7,548,722
Net realized gain (loss) on investments and swaptions 421,069 269,281
Net change in unrealized appreciation (depreciation) on investments and swaptions (407,649) (975,445)
DISTRIBUTIONS TO AUCTION MARKET PREFERRED SHAREHOLDERS FROM NET INVESTMENT INCOME (1,358,284) (2,494,560)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to common shareholders resulting from operations 2,562,012 4,347,998
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM
Net investment income (2,452,098) (4,614,546)
- -------------------------------------------------------------------------------------------------------------------------
Total change in net assets applicable to common shareholders 109,914 (266,548)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 112,777,286 113,043,834
- -------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $717,564
and $621,070, respectively.) $112,887,200 $112,777,286
=========================================================================================================================
See notes to financial statements.
SemiAnnual Report | January 31, 2008 | 15
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Financial HIGHLIGHTS |
FOR THE PERIOD
FOR THE AUGUST 27,
SIX MONTHS ENDED FOR THE FOR THE FOR THE 2003*
PER SHARE OPERATING PERFORMANCE FOR ONE COMMON SHARE JANUARY 31, 2008 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
OUTSTANDING THROUGHOUT EACH PERIOD (UNAUDITED) JULY 31, 2007 JULY 31, 2006 JULY 31, 2005 JULY 31, 2004
====================================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.21 $ 14.25 $ 14.68 $ 13.83 $ 14.33**
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 0.49 0.95 0.90 0.92 0.78
Net realized and unrealized gain/(loss) on investments
and swaptions transactions 0.01 (0.10) (0.41) 0.87 (0.42)
Distributions to preferred shareholders from
net investment income (common share equivalent basis) (0.17) (0.31) (0.27) (0.16) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.33 0.54 0.22 1.63 0.28
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders from net investment income (0.31) (0.58) (0.65) (0.78) (0.63)
- ------------------------------------------------------------------------------------------------------------------------------------
Common share offering costs charged to paid-in-capital
in excess of par - - - - (0.03)
Preferred shares offering costs/underwriting discount charged to
paid-in-capital in excess of par - - - - (0.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital share transactions - - - - (0.15)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.23 $ 14.21 $ 14.25 $ 14.68 $ 13.83
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $ 12.73 $ 12.63 $ 12.29 $ 13.15 $ 13.11
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(A)
Net asset value 2.35% 3.80% 1.57% 12.03% 1.11%
Market value 3.31% 7.93% -1.60% 6.47% -8.62%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (thousands) $ 112,887 $ 112,777 $ 113,044 $116,511 $ 109,776
Ratio of expenses to average net assets
(excluding interest expense on floating rate note
obligations and net of fee waivers)(c) 1.25%(b) 1.28% 1.63% 1.53% 1.34%(b)
Ratio of expenses to average net assets
(excluding interest expense on floating rate note
obligations and excluding fee waivers)(c) 1.59%(b) 1.62% 1.89% 1.77% 1.56%(b)
Ratio of expenses to average net assets (including
interest expense on floating rate note obligations(d)
and net of fee waivers)(c) 1.33%(b) 1.44% 1.63% 1.53% 1.34%(b)
Ratio of expenses to average net assets (including
interest expense on floating rate note obligations(d)
and excluding fee waivers)(c) 1.67%(b) 1.78% 1.89% 1.77% 1.56%(b)
Ratio of net investment income to average net assets(c) 6.93%(b) 6.56% 6.21% 6.34% 5.85%(b)
Portfolio turnover 17% 4% 21% 15% 129%
Preferred shares, at redemption value ($25,000 per share
liquidation preference) (thousands) $ 69,450 $ 69,450 $ 69,450 $ 69,450 $ 69,450
Preferred shares asset coverage per share $ 65,636 $ 65,597 $ 65,693 $ 66,941 $ 64,516
Asset coverage per $1,000 of indebtedness(e) $ 73,935 $ 37,445 N/A N/A N/A
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $0.675 per share.
(a) Total investment return is calculated assuming a purchase of a common share
at the beginning of the period and a sale on the last day of the period
reported either at net asset value (NAV) or market price per share.
Dividends and distributions are assumed to be reinvested at NAV for returns
at NAV or in accordance with the Fund's dividend reinvestment plan for
returns at market value. Total investment return does not reflect brokerage
commissions. A return calculated for a period of less than one year is not
annualized.
(b) Annualized.
(c) Calculated on the basis of income and expenses applicable to both common
and preferred shares relative to average net assets of common shareholders.
(d) See Note 1 of the Notes to Financial Statements for more information on
floating rate note obligations.
(e) Calculated by subtracting the Fund's total liabilities (not including the
floating rate note obligations) from the Fund's total assets and dividing
by the total number of indebtedness units, where one unit equals $1,000 of
indebtedness.
See notes to financial statements.
16 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Notes to FINANCIAL STATEMENTS | JANUARY 31, 2008 (unaudited)
Note 1 - ORGANIZATION & ACCOUNTING POLICIES
The MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund (the
"Fund") was organized as a Delaware statutory trust on May 20, 2003. The Fund is
registered as a diversified, closed-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide its common shareholders with high current income exempt from regular
federal income tax while seeking to protect the value of the Fund's assets
during periods of interest rate volatility. Prior to commencing operations on
August 27, 2003, the Fund had no operations other than matters relating to its
organization and registration and the sale and issuance of 6,981 common shares
of beneficial interest to MBIA Capital Management Corp. The following is a
summary of significant accounting policies followed by the Fund.
SECURITIES VALUATION: The municipal bonds in which the Fund invests are traded
primarily in the over-the-counter markets. In determining net asset value, the
Fund uses the valuations of portfolio securities furnished by a pricing service
approved by the Board of Trustees. The pricing service typically values
portfolio securities at the bid price or the yield equivalent when quotations
are readily available. Municipal bonds for which quotations are not readily
available are valued at fair market value on a consistent basis as determined by
the pricing service using a matrix system to determine valuations. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general supervision of the Board of Trustees.
Positions in futures contracts, interest rate swaps and options on interest rate
swaps ("swaptions") are valued at closing prices for such contracts established
by the exchange or dealer market on which they are traded, or if market
quotations are not readily available, are valued at fair value on a consistent
basis using methods approved in good faith by the Board of Trustees.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. Realized gains and losses on investments are
determined on the identified cost basis. Interest income and expenses are
accrued daily. All discounts/premiums are accreted/amortized for financial
reporting purposes as required.
SWAPTIONS: The Fund may engage in options transactions on interest rate swap
agreements, commonly referred to as swaptions. A swaption is an agreement
between two parties where one party purchases the right from the other party to
enter into an interest rate swap at a specified date and for a specified "fixed
rate" yield (or "exercise" yield). In a pay-fixed swaption, the holder of the
swaption has the right to enter into an interest rate swap as a payer of fixed
rate interest and receiver of variable rate interest, while the writer of the
swaption has the obligation to enter into the other side of the interest rate
swap. In a receive-fixed swaption, the holder of the swaption has the right to
enter into an interest rate swap as a receiver of fixed rate interest and a
payer of variable rate interest, while the writer has the obligation to enter
into the opposite side of the interest rate swap. The Fund will enter into such
transactions to attempt to hedge some or all of its interest rate exposure in
its holdings of municipal bonds. The Fund generally purchases pay-fixed
swaptions. Upon the purchase of these pay-fixed swaptions by the Fund, the total
purchase price paid was recorded as an investment. The market valuation is
determined as set forth in the preceding securities valuation paragraph. When
the pay-fixed swaptions are exercised, the Fund has the right to enter into an
interest rate swap as a payer of fixed rate interest and receiver of variable
rate interest. When the pay-fixed swaptions reach their scheduled expiration
dates, the Fund will record a gain or loss depending on the difference between
the purchase price and the value of the swaptions on their exercise date.
DIVIDENDS AND DISTRIBUTIONS: The Fund declares on a quarterly basis and pays on
a monthly basis dividends from net investment income to common shareholders.
Distributions of net realized capital gains, if any, will be paid at least
annually. Dividends and distributions to shareholders are recorded on the
ex-dividend date. Dividends and distributions to preferred shareholders are
accrued and determined as described in Note 5.
INVERSE FLOATING RATE INVESTMENTS AND FLOATING RATE NOTE OBLIGATIONS: Inverse
floating rate instruments are notes whose coupon rate fluctuates inversely to a
predetermined interest rate index. These instruments typically involve greater
risks than a fixed rate municipal bond. In particular, the holder of these
inverse floating rate instruments retain all credit and interest rate risk
associated with the full underlying bond and not just the par value of the
inverse floating rate instrument. As such, these instruments should be viewed as
having inherent leverage and therefore involve many of the risks associated with
leverage. Leverage is a speculative technique that may expose the Fund to
greater risk and increased costs. Leverage may cause the Fund's net asset value
to be more volatile than if it had not been leveraged because leverage tends to
magnify the effect of any increases or decreases in the value of the Fund's
portfolio securities. The use of leverage may also cause the Fund to liquidate
portfolio positions when it may not be advantageous to do so in order to satisfy
its obligations with respect to inverse floating rate instruments.
The Fund may invest in inverse floating rate securities through either a direct
purchase or through the transfer of bonds to a dealer trust in exchange for cash
and/or residual interests in the dealer trust. For those inverse floating rate
securities purchased directly, the instrument is included in the Portfolio of
Investments with income recognized on an accrual basis.
For those inverse floating rate securities purchased through a transfer of a
fixed rate bond to a dealer trust in exchange for cash and/or residual interests
in the dealer trusts' assets and cash flows, FASB Statement No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities (FAS 140) calls for this transaction to be accounted for as a
financing by the dealer trust of the transferred fixed rate bond. In these
transactions, the dealer trusts fund the purchases of the fixed rate bonds by
issuing floating rate notes to third parties and allowing the Fund to retain
residual interests in the bonds. The residual interests held by the Fund (the
inverse floating rate investments) include the right of the Fund to cause the
holders of the floating rate notes to tender their notes at par at the next
interest rate reset date and to transfer the municipal bond from the dealer
trusts to the Fund, thereby collapsing the dealer trusts. The Fund accounts for
the transfer of bonds to the dealer trusts as secured borrowings, with the
securities transferred remaining in the Fund's Portfolio of Investments, and the
related floating rate notes reflected as a liability under the caption "Floating
rate note obligations" on the Statement of Assets and Liabilities. The Fund
records the interest income from the fixed rate bonds under the caption
"Interest" and records the expenses related to floating rate note obligations
and any administrative expenses of the dealer trusts under the caption "Interest
expense on floating rate note obligations" on the Fund's Statement of
Operations. The notes issued by the dealer trusts have interest rates that reset
weekly and the floating rate note holders have the option to tender their notes
to the dealer trusts for redemption at par at each reset date. At January 31,
2008, Fund investments with a par value of $5.0 million (market value of $4.8
million) are held by the dealer trusts and serve as collateral for the
$2,500,000 in floating rate notes outstanding at that date. Contractual
maturities of the floating rate notes and interest rates in effect at January
31, 2008 are presented on the Portfolio of Investments.
USE OF ESTIMATES: The preparation of financial statements in accordance with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
SemiAnnual Report | January 31, 2008 | 17
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
Note 2 - AGREEMENTS
Pursuant to an Investment Advisory Agreement (the "Advisory Agreement") between
MBIA Capital Management Corp. (the "Adviser") and the Fund, the Adviser is
responsible for the daily management of the Fund's portfolio, which includes
buying and selling securities for the Fund, as well as investment research,
subject to the direction of the Fund's Board of Trustees. The Adviser is a
subsidiary of MBIA Asset Management, LLC which, in turn, is a wholly-owned
subsidiary of MBIA, Inc. The Advisory Agreement provides that the Fund shall pay
to the Adviser a monthly fee for its services at the annual rate of 0.39% of the
sum of the Fund's average daily managed assets. ("Managed Assets" represent the
Fund's total assets including the assets attributable to the proceeds from any
financial leverage but excluding the assets attributable to floating rate note
obligations, minus liabilities, other than debt representing financial
leverage.) The Adviser contractually agreed to waive a portion of the management
fees it is entitled to receive from the Fund at the annual rate of 0.09% of the
Fund's average daily Managed Assets from the commencement of the Fund's
operations through September 1, 2008 and at the annual rate of 0.042% thereafter
through September 1, 2009. Effective June 16, 2006, the Adviser voluntarily
agreed to waive an additional 0.0375% of advisory fees. This waiver is voluntary
in nature and can be discontinued at the Adviser's discretion.
Pursuant to a Servicing Agreement, Claymore Securities, Inc. (the "Servicing
Agent") acts as servicing agent to the Fund. The Servicing Agent receives an
annual fee from the Fund, payable monthly in arrears, in an amount equal to
0.26% of the average daily value of the Fund's Managed Assets. The Servicing
Agent contractually agreed to waive a portion of the servicing fee it is
entitled to receive from the Fund at the annual rate of 0.06% of the average
daily value of the Fund's Managed Assets from the commencement of the Fund's
operations through September 1, 2008 and at the annual rate of 0.028% thereafter
through September 1, 2009. Effective June 16, 2006, the Servicing Agent
voluntarily agreed to waive an additional 0.025% of servicing fees. This waiver
is voluntary in nature and can be discontinued at the Servicing Agent's
discretion.
Under a separate Fund Administration agreement, Claymore Advisors, LLC provides
fund administration services to the Fund. Claymore Advisors, LLC receives a fund
administration fee payable monthly at the annual rate set forth below as a
percentage of the average daily managed assets of the Fund:
MANAGED ASSETS RATE
- -----------------------------------------------------------------
First $200,000,000 0.0275%
Next $300,000,000 0.0200%
Next $500,000,000 0.0150%
Over $1,000,000,000 0.0100%
- -----------------------------------------------------------------
For the period ended January 31, 2008, the Fund paid approximately, $25,000 in
fund administration fees.
The Bank of New York ("BNY") acts as the Fund's custodian, accounting agent and
transfer agent. As custodian, BNY is responsible for the custody of the Fund's
assets. As accounting agent, BNY is responsible for maintaining the books and
records of the Fund's securities and cash. As transfer agent, BNY is responsible
for performing transfer agency services for the Fund.
Certain officers and/or trustees of the Fund are officers and/or directors of
the Adviser and the Servicing Agent.
The Fund does not compensate its officers who are officers of the aforementioned
firms.
Note 3 - INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the period ended January 31, 2008, aggregated $30,152,885 and $31,165,357,
respectively.
Note 4 - FEDERAL INCOME TAXES
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing substantially all of its ordinary income and long-term
capital gains, if any, during each calendar year, the Fund intends not to be
subject to U.S. federal excise tax.
Information on the tax components of investments as of January 31, 2008 is as
follows:
COST OF NET TAX
INVESTMENTS GROSS TAX GROSS TAX UNREALIZED
FOR TAX UNREALIZED UNREALIZED APPRECIATION
PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- -------------------------------------------------------------------
$178,721,243 $8,120,733 ($6,543,303) $1,577,430
- -------------------------------------------------------------------
There is a $2,500,000 difference between book and tax basis cost of investments
due to the Generally Accepted Accounting Principles ("GAAP") presentation under
FAS 140 of inverse floater positions. The remaining difference between book and
tax basis cost of investments is due to book/tax differences on the recognition
of partnership/trust income.
As of July 31, 2007, the components of accumulated earnings/(losses) (excluding
paid-in capital) on a tax basis were as follows:
UNDISTRIBUTED ACCUMULATED UNREALIZED
TAX-EXEMPT CAPITAL AND APPRECIATION/
INCOME OTHER LOSSES (DEPRECIATION)
- -------------------------------------------------------------------
2007 $718,064 ($2,257,380) $1,886,029
- -------------------------------------------------------------------
The cumulative timing differences under tax basis accumulated capital loss for
the year ended July 31, 2007 is due to investments in partnerships/trusts.
As of July 31, 2007, for federal income tax purposes, the Fund utilized $240,211
of capital loss carryforward to offset capital gains. The Fund had a remaining
capital loss carryforward of $2,257,380 available to offset possible future
capital gains. The capital loss carryforward is set to expire as follows:
$1,631,920 on July 31, 2013 and $625,460 on July 31, 2014. Under the current tax
law, capital losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year.
Distributions paid to shareholders during the tax year ended July 31, 2007 were
characterized as follows for tax purposes:
TAX-EXEMPT ORDINARY LONG-TERM TOTAL
INCOME INCOME CAPITAL GAIN DISTRIBUTIONS
- -------------------------------------------------------------------
2007 $7,105,271 $3,835 $ - $7,109,106
- -------------------------------------------------------------------
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Management
has evaluated the implications of FIN 48 and has determined it does not have any
impact on the financial statements as of January 31, 2008.
Tax years for 2005, 2006 and 2007 are still subject to examination by major
jurisdictions.
18 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
Note 5 - CAPITAL
There are an unlimited number of $.001 par value common shares of beneficial
interest authorized and 7,935,591 common shares outstanding at January 31, 2008,
of which the Adviser owned 6,981 shares. There were no transactions in common
shares for the period ended January 31, 2008 or the year ended July 31, 2007,
respectively.
On October 27, 2003, the Fund issued 1,389 shares of Auction Market Preferred
Shares, Series M7 and 1,389 shares of Auction Market Preferred Shares, Series
W28. The preferred shares have a liquidation value of $25,000 per share plus any
accumulated unpaid dividends. As of January 31, 2008, the Fund had 1,389 shares
each of Auction Market Preferred Shares, Series M7 and W28, outstanding.
Dividends on the preferred shares are cumulative at a rate that is set by
auction procedures. The dividend rate range on the preferred shares of the Fund
for the period ended January 31, 2008, were as follows:
SERIES LOW HIGH AT 1/31/08 NEXT AUCTION DATE
- -----------------------------------------------------------------
M7 3.40% 4.75% 3.60% 2/04/08
W28 3.60% 4.50% 3.60% 2/27/08
- -----------------------------------------------------------------
The Fund is subject to certain limitations and restrictions while preferred
shares are outstanding. Failure to comply with these limitations and
restrictions could preclude the Fund from declaring any dividends or
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of preferred shares at their liquidation value
plus any accrued dividends. Preferred shares, which are entitled to one vote per
share, generally vote with the common shares but vote separately as a class to
elect two Trustees and on any matters affecting the rights of preferred shares.
Note 6 - BORROWINGS
The Fund has an uncommitted $2,000,000 line of credit with BNY. Interest on the
amount borrowed is based on the Federal Funds Rate plus a spread on outstanding
balances. At January 31, 2008 there was no outstanding balance in connection
with the Fund's uncommitted line of credit. The average daily amount of
borrowings during the period ended January 31, 2008 was $86,304 with a related
weighted average interest rate of 5.60%.
Note 7 - INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that contain a
variety of representations, which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown, as this would require
future claims that may be made against the Fund that have not yet occurred.
However, the Fund expects the risk of loss to be remote.
Note 8 - ACCOUNTING PRONOUNCEMENTS
In September, 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Valuation Measurements" ("FAS 157"). This standard clarifies the
definition of fair value for financial reporting, establishes a framework for
measuring fair value and requires additional disclosures about the use of fair
value measurements. FAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. As of January 31, 2008, the Fund does not believe the adoption of
FAS 157 will impact the amounts reported in the financial statements, however,
additional disclosure will be required about the inputs used to develop
measurements of fair value and the effect of certain of the measurements
reported in the statement of operations for a fiscal period.
Note 9 - SUBSEQUENT EVENTS
Dividend Declarations - Common Shareholders
The Fund has declared the following dividends to common shareholders:
RATE DECLARATION EX-DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE DATE DATE
- ----------------------------------------------------------------
$0.0525 1/02/08 2/06/08 2/08/08 2/15/08
$0.0525 1/02/08 3/05/08 3/07/08 3/17/08
- ----------------------------------------------------------------
AUCTION MARKET PREFERRED SHARES
The broad auction-rate preferred securities market has experienced some
disruption in the past few months, but those disruptions have increased
dramatically during the second half of February. The result has been an
increasing number of failed auctions on many, if not all, auction-rate preferred
shares, including the Fund's AMPS. Management believes this increase in failed
auctions is simply a liquidity issue and investors need to be aware that a
failed auction is not a default nor does it require the redemption of the Fund's
AMPS. Additionally, failed auctions do not impact the AAA credit rating assigned
to the Fund's AMPS.
Provisions in the AMPS offering documents establish a maximum rate in the event
of a failed auction. The AMPS reference rate is the higher of LIBOR or 90% of
the taxable equivalent of the short-term municipal bond rate, and the maximum
rate, for auctions for which the Fund has not given notice that the auction will
consist of net capital gains or other taxable income, is the higher of the
reference rate * 110% or the reference rate + 1.10%. The maximum rate for the
Fund's auctions taking place during the last week in February 2008 ranged from
4.91% to 5.06%, well above prior levels.
Management will continue to monitor events in the marketplace and continue to
evaluate the Fund's leverage as well as any alternatives that may be available.
SemiAnnual Report | January 31, 2008 | 19
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Supplemental INFORMATION | (UNAUDITED)
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Fund was held on December 11, 2007.
Holders of the Fund's common and preferred shares of beneficial interest voted
on the election of Trustees.
Voting results for the election of Trustees by common shareholders are set forth
below:
# OF SHARES IN FAVOR # OF SHARES WITHHELD
- -----------------------------------------------------------------------
Randall C. Barnes 6,184,717 621,713
Clifford D. Corso 6,185,117 621,313
Voting results for the election of Trustees by preferred shareholders are set
forth below:
# OF SHARES IN FAVOR # OF SHARES WITHHELD
- -----------------------------------------------------------------------
Ronald A. Nyberg 2,575 52
The terms of the following Trustees of the Fund did not expire in 2007: Nicholas
Dalmaso and Ronald E. Toupin.
TRUSTEES
The Trustees of the MBIA Capital/Claymore Managed Duration Investment Grade
Municipal Fund and their principal occupations during the past five years:
NAME, ADDRESS*, YEAR TERM OF OFFICE** PRINCIPAL OCCUPATION DURING NUMBER OF PORTFOLIOS
OF BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND IN FUND COMPLEX*** OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Randall C. Barnes Since 2006 Investor (2001-present). 48 None
Year of Birth: 1951 Formerly, Senior Vice President
Trustee & Treasurer (1993-1997),
President, Pizza Hut
International (1991-1993) and
Senior Vice President, Strategic
Planning and New Business
Development (1987-1990) of
PepsiCo, Inc. (1987-1997).
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Since 2003 Partner of Nyberg & Cassioppi, 51 None
Year of Birth: 1953 LLC, a law firm specializing in
Trustee corporate law, estate planning
and business transactions
(2000-present). Formerly,
Executive Vice President,
General Counsel and Corporate
Secretary of Van Kampen
Investments (1982-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald E. Toupin, Jr. Since 2003 Formerly, Vice President, 48 None
Year of Birth: 1958 Manager and Portfolio Manager of
Trustee Nuveen Asset Management
(1998-1999), Vice President of
Nuveen Investment Advisory Corp.
(1992-1999), Vice President and
Manager of Nuveen Unit
Investment Trusts (1991-1999),
and Assistant Vice President and
Portfolio Manager of Nuveen Unit
Investment Trusts (1988-1999),
each of John Nuveen & Co., Inc.
(1982-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford D. Corso+ Since 2003 President of MBIA Asset 1 None
113 King Street Management LLC & MBIA Capital
Armonk, NY 10504 Management Corp.; Chief
Year of Birth: 1961 Investment Officer, MBIA
Trustee and President Insurance Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso++ Since 2003 Senior Managing Director and 51 None
Year of Birth: 1965 Chief Administrative Officer of
Trustee, Claymore Advisors, LLC and
Chief Executive Officer Claymore Securities, Inc.
and Chief Legal Officer (2007-present). Formerly, Senior
Managing Director and General
Counsel of Claymore Group Inc.,
Claymore Advisors, LLC and
Claymore Securities, Inc.
(2001-2007). Assistant General
Counsel, John Nuveen and Co.,
Inc. (1999-2001). Former Vice
President and Associate General
Counsel of Van Kampen
Investments, Inc. (1992-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
* The business address of each Trustee unless otherwise noted is c/o MBIA
Capital/Claymore Managed Duration Investment Grade Municipal Fund, 2455
Corporate West Drive, Lisle, IL 60532.
** The Trustees of each class shall be elected at an annual meeting of
shareholders or special meeting in lieu thereof called for that purpose,
and each Trustee elected shall hold office until his or her successor shall
have been elected and shall have qualified. The term of office of a Trustee
shall terminate and a vacancy shall occur in the event of the death,
resignation, removal, bankruptcy, adjudicated incompetence or other
incapacity to perform the duties of the office, or removal, of a Trustee.
*** The Claymore Fund Complex consists of U.S. registered investment companies
advised or serviced by Claymore Advisors, LLC or Claymore Securities, Inc.
The Claymore Fund Complex is overseen by multiple Boards of Trustees.
+ Mr. Corso is an "interested person" (as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended) of the Fund because of his
position as an officer of MBIA Asset Management and MBIA Capital Management
Co., the Fund's Investment Adviser.
++ Mr. Dalmaso is an "interested person" (as defined in Section 2(a)(19) of
the Investment Company Act of 1940, as amended) of the Fund because of his
position as an officer of Claymore Securities, Inc., the Fund's Servicing
Agent.
20 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
SUPPLEMENTAL INFORMATION (unaudited) continued
OFFICERS
The Officers of the MBIA Capital/Claymore Managed Duration Investment Grade
Municipal Fund and their principal occupations during the past five years:
NAME, ADDRESS*, YEAR OF BIRTH AND TERM OF OFFICE** AND PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
POSITION(S) HELD WITH REGISTRANT LENGTH OF TIME SERVED AND OTHER AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Hill Since 2006 Senior Managing Director of Claymore Advisors, LLC and Claymore
Year of Birth: 1964 Securities, Inc. (2005-present). Chief Financial Officer of
Chief Financial Officer, Claymore Group Inc. (2005-2006). Managing Director of Claymore
Chief Accounting Officer Advisors, LLC and Claymore Securities, Inc. (2003-2005).
and Treasurer Treasurer of Henderson Global Funds and Operations Manager for
Henderson Global Investors (North America) Inc., (2002-2003);
Managing Director, FrontPoint Partners LLC (2001-2002);
Vice President, Nuveen Investments (1999-2001); Chief
Financial Officer, Skyline Asset Management LP, (1999); Vice
President, Van Kampen Investments and Assistant Treasurer,
Van Kampen mutual funds (1989-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
Jim Howley Since 2006 Vice President, Fund Administration of Claymore Securities,
Year of Birth: 1972 Inc. (2004-present). Previously, Manager, Mutual Fund
Assistant Treasurer Administration of Van Kampen Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Melissa J. Nguyen Since 2006 Vice President, Assistant General Counsel of Claymore Group
Year of Birth: 1978 Inc. (2005-present). Secretary of certain funds in the Fund
Secretary Complex. Previously, Associate, Vedder, Price, Kaufman &
Kammholz, P.C. (2003-2005).
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce Saxon Since 2006 Vice President - Fund Compliance Officer of Claymore
Year of Birth: 1957 Securities, Inc. (Feb 2006 - present). Previously, Chief
Chief Compliance Officer Compliance Officer/Assistant Secretary of Harris Investment
Management, Inc. (2003-2006). Director - Compliance of
Harrisdirect LLC (1999-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey S. MacDonald Since 2007 Director of Advisory Services Portfolio Management, MBIA
113 King Street Asset Management (2007-present). Formerly, Vice President
Armonk, NY 10504 and Portfolio Manager, Hartford Investment Management
Year of Birth: 1970 Company (2005-2007); Fixed Income Portfolio Analyst,
Vice President Wellington Management Company (2000-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
Leonard I. Chubinsky Since 2003 General Counsel and Secretary, MBIA Asset Management LLC &
113 King Street MBIA Capital Management Corp.; Deputy General Counsel, MBIA
Armonk, NY 10504 Insurance Corp.
Year of Birth: 1948
Assistant Secretary
and Assistant Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
Mark E. Mathiasen Since 2007 Assistant Vice President, Attorney of Claymore Advisors, LLC
Year of Birth: 1978 (2007-present). Secretary of certain funds in the Fund
Assistant Secretary Complex. Previoiusly, Law Clerk for the Idaho State Courts
(2003-2007).
- ------------------------------------------------------------------------------------------------------------------------------------
* The business address of each officer unless otherwise noted is c/o MBIA
Capital/Claymore Managed Duration Investment Grade Municipal Fund, 2455
Corporate West Drive, Lisle, IL 60532.
** Officers serve at the pleasure of the Board of Trustees and until his or her
successor is appointed and qualified or until his or her earlier resignation
or removal.
SemiAnnual Report | January 31, 2008 | 21
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Dividend Reinvestment PLAN | (unaudited)
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless
a shareholder is ineligible or elects otherwise, all dividend and capital gains
distributions are automatically reinvested by The Bank of New York
("Administrator"), as agent for shareholders in administering the Plan (the
"Plan Agent"), in additional common shares of the Fund. Shareholders whose
shares are held in the name of a broker or nominee should contact such broker or
nominee to confirm that they are eligible to participate in the Plan.
Shareholders who are ineligible or who elect not to participate in the Plan will
receive all dividends and distributions in cash paid by check mailed directly to
the shareholder of record (or, if the shares are held in street or other nominee
name, then to such nominee) by the Administrator, as dividend paying agent. Such
shareholders may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to the Administrator, as dividend paying agent, at the address set
forth below. Participation in the Plan is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if received
by the Plan Agent not less than ten days prior to any dividend record date;
otherwise, such termination will be effective with respect to any subsequently
declared dividend or capital gains distribution.
Whenever the Fund declares an ordinary income dividend or a capital gain
dividend (collectively referred to as "dividends") payable in cash,
nonparticipants in the Plan will receive cash, and participants in the Plan will
receive the equivalent in common shares. The shares are acquired by the Plan
Agent for the participant's account, depending upon the circumstances described
below, either (i) through receipt of additional unissued but authorized common
shares from the Fund ("newly issued shares") or (ii) by purchase of outstanding
common shares on the open market ("open-market purchases") on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, the market price per
common share plus estimated brokerage commissions is greater than the net asset
value per common share (such condition being referred to herein as "market
premium"), the Plan Agent will invest the dividend amount in newly issued shares
on behalf of the participant. The number of newly issued common shares to be
credited to the participant's account will be determined by dividing the dollar
amount of the dividend by the net asset value per share on the payment date,
provided that, if the net asset value per share is less than or equal to 95% of
the market price per share on the payment date, the dollar amount of the
dividend will be divided by 95% of the market price per share on the payment
date. If on the dividend payment date the net asset value per share is greater
than the market value plus estimated brokerage commissions (such condition being
referred to herein as "market discount"), the Plan Agent will invest the
dividend amount in shares acquired on behalf of the participant in open-market
purchases.
If, before the Plan Agent has completed its open-market purchases, the market
price of the common shares exceeds the net asset value per share, the average
per share purchase price paid by the Plan Agent may exceed the net asset value
of the Fund's shares, resulting in the acquisition of fewer shares than if the
dividend had been paid in newly issued shares on the dividend payment date.
Because of the foregoing difficulty with respect to open-market purchases, the
Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open-market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
may cease making open-market purchases and may invest the uninvested portion of
the dividend amount in newly issued shares at the net asset value per share at
the close of business on the last purchase date; provided that, if the net asset
value per share is less than 95% of the market price per share on the payment
date, the dollar amount of the dividend will be divided by 95% of the market
price per share on the payment date.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in the name of the participant, and
each shareholder's proxy will include those shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for shares held pursuant to the Plan
in accordance with the instructions of the participants.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends. The automatic
reinvestment of dividends and distributions will not relieve participants of any
Federal, state or local income tax that may be payable (or required to be
withheld) on such dividends.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants. All
questions and correspondence concerning the Plan should be directed to the Plan
Administrator, The Bank of New York, Attention: Stock Transfer Department, 101
Barclay 11E, New York, New York 10286, Phone Number: 866-488-3559.
22 | SemiAnnual Report | January 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Fund INFORMATION |
BOARD OF TRUSTEES
Randall C. Barnes
Clifford D. Corso*
Nicholas Dalmaso*
Ronald A. Nyberg
Ronald E. Toupin, Jr.
* Trustee is an "interested person" of the Fund as defined in the Investment
Company Act of 1940, as amended.
OFFICERS
Clifford D. Corso
President
Nicholas Dalmaso
Chief Executive Officer
and Chief Legal Officer
Steven M. Hill
Chief Financial Officer,
Chief Accounting Officer
and Treasurer
Jeffrey S. MacDonald
Vice President
Bruce Saxon
Chief Compliance Officer
Melissa J. Nguyen
Secretary
James Howley
Assistant Treasurer
Leonard Chubinsky
Assistant Secretary
and Assistant Vice President
Mark E. Mathiasen
Assistant Secretary
INVESTMENT ADVISER
MBIA Capital Management Corp.
Armonk, New York
SERVICING AGENT
Claymore Securities, Inc.
Lisle, Illinois
ADMINISTRATOR
Claymore Advisors, LLC
Lisle, Illinois
ACCOUNTING AGENT, CUSTODIAN,
TRANSFER AGENT AND AUCTION AGENT
The Bank of New York
New York, New York
LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
New York, New York
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
Chicago, Illinois
PRIVACY PRINCIPLES OF MBIA CAPITAL/CLAYMORE MANAGED DURATION INVESTMENT GRADE
MUNICIPAL FUND FOR SHAREHOLDERS
The privacy of your personal financial information is extremely important to us.
When you open an account with us, we collect a significant amount of information
from you in order to properly invest and administer your account. We take very
seriously the obligation to keep that information private and confidential, and
we want you to know how we protect that important information.
We collect nonpublic personal information about you from applications or other
forms you complete and from your transactions with us and our affiliates. We do
not disclose information about you, or our former clients, to our affiliates or
to service providers or third parties, except as permitted by law. We share only
the minimum information required to properly administer your accounts, which
enables us to send transaction confirmations, monthly or quarterly statements,
financial and tax forms. Even within MBIA and its affiliated entities, only a
limited number of people who actually service accounts will ever have access to
your personal financial information. Further, we do not share information about
our current or former clients with any outside marketing groups or sales
entities.
To ensure the highest degree of security and confidentiality, MBIA and its
affiliates maintain various physical, electronic and procedural safeguards to
protect your personal information. We also apply special measures for
authentication of information you request or submit to us on our website-
www.MBIA.com.
QUESTIONS CONCERNING YOUR SHARES OF MBIA CAPITAL/CLAYMORE MANAGED DURATION
INVESTMENT GRADE MUNICIPAL FUND:
o If your shares are held in a Brokerage Account, contact your Broker.
o If you have physical possession of your shares in certificate form, contact
the Fund's Accounting Agent, Custodian, Transfer Agent and Auction Agent:
The Bank of New York, 101 Barclay 11E, New York, New York 10286 (866)
488-3559
This report is sent to shareholders of MBIA Capital/Claymore Managed Duration
Investment Grade Municipal Fund for their information. It is not a Prospectus,
circular or representation intended for use in the purchase or sale of shares of
the Fund or of any securities mentioned in this report.
The Fund has adopted the Adviser's proxy voting policies and procedures related
to govern the voting of proxies relating to the voting securities of the Fund. A
description of the Adviser's proxy voting policies and information on how the
Fund voted proxies relating to portfolio securities during the 12-month period
ended June 30, 2007 are available on the U.S. Securities and Exchange
Commission's ("SEC") website at http://www.sec.gov and is available, without
charge, upon request by calling (866)-819-5301.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is
available on the SEC website at http://www.sec.gov. The Fund's Form N-Q may also
be viewed and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling (800) SEC-0330 or at www.claymore.com. To obtain information on Form N-Q
from the Fund, please call (800)-345-7999.
In December 2007, the Fund submitted a CEO annual certification to the NYSE in
which the Fund's principal executive officer certified that he was not aware, as
of the date of the certification, of any violation by the Fund of the NYSE's
Corporate Governance listing standards. In addition, as required by Section 302
of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund's principal
executive and principal financial officers have made quarterly certifications,
included in filings with the SEC on Forms N-CSR and N-Q, relating to, among
other things, the Fund's disclosure controls and procedures and internal control
over financial reporting.
NOTICE TO SHAREHOLDERS
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Fund may purchase at market prices
from time to time shares of its common stock in the open market.
SemiAnnual Report | January 31, 2008 | 23
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
About the FUND MANAGER |
MBIA CAPITAL MANAGEMENT CORP.
MBIA Capital Management Corp. ("MBIA Capital Management"), the Fund's Investment
Adviser, is based in Armonk, New York and was created in 1994 to provide
fixed-income asset management services. The firm specializes in the management
of fixed-income securities and provides expertise in investment-grade municipal
bond investing. MBIA Capital Management Corp. is owned by MBIA Asset Management
Group, a $67 billion dollar manager of fixed income products. The parent
company, MBIA, Inc., is listed on the New York Stock Exchange and is a component
stock of the S&P 500 Index.
INVESTMENT PHILOSOPHY
MBIA Capital Management's philosophy is anchored in the conviction that a high
quality municipal portfolio diversified among maturities will provide favorable
risk-adjusted performance over time and through a variety of market cycles. MBIA
Capital Management believes that security selection is enhanced by its large and
dedicated staff of credit analysts. Each analyst has a thorough understanding of
the broad market, but focuses research on a particular segment of the larger
market.
INVESTMENT PROCESS
Investment strategy, including credit quality, yield curve positioning and
duration targets, is set for portfolios at regular strategy meetings with the
firm's chief investment officer, portfolio managers and sector specialists.
Credit quality decisions are based on credit bands established for each of the
portfolios and the current relative value of securities within each of the
credit bands. Duration target decisions are based on duration bands which direct
the overall risk profile of portfolios relative to their benchmarks and the
consensus outlook on the term structure of interest rates. Duration management
is extended to each of the individual market sectors. Using the guidelines
established in the strategy meetings, the municipal portfolio managers work
closely with research analysts. MBIA's rigorous bottom-up process is rooted in
fundamental credit analysis and MBIA's proprietary research.
MBIA CAPITAL MANAGEMENT CORP.
113 King Street
Armonk, NY 10504
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
MZF
LISTED
NYSE
MZF-SAR-0108
ITEM 2. CODE OF ETHICS.
Not applicable for a semi-annual reporting period.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for a semi-annual reporting period.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable for a semi-annual reporting period.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT.
Not applicable for a semi-annual reporting period.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included as part of Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable for a semi-annual reporting period.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) A team of investment professionals at MBIA Capital Management Corp. (the
"Adviser") share primary responsibility for the day-to-day portfolio management
of the Fund. The following provides information regarding the members of the
team as of January 31, 2008.
------------------------------- ---------------- ----------------------------------------------------------------
NAME SINCE PROFESSIONAL EXPERIENCE
------------------------------- ---------------- ----------------------------------------------------------------
------------------------------- ---------------- ----------------------------------------------------------------
Clifford D. Corso 2003 President of MBIA Asset Management LLC & MBIA Capital
(Inception) Management Corp.; Chief Investment Officer, MBIA Insurance
Corp.
------------------------------- ---------------- ----------------------------------------------------------------
Jeffrey S. MacDonald 2007 Director, MBIA-CMC (2007-present); Director, Advisory Services
James B. DiChiaro 2007 Vice President, MBIA-CMC (1999-present); Portfolio Management
------------------------------- ---------------- ----------------------------------------------------------------
(a) (2) (i-iii) Other accounts managed. MBIA Capital Management Corp. does not
manage any performance based fee accounts. The following summarizes information
regarding each of the other accounts managed by the MBIA Capital Management
Corp. portfolio managers as of January 31, 2008:
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
-------------------------- ---------------------------- -----------------------------
# OF # OF # OF
NAME ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS
Clifford D. Corso 1 $ 95 million 13 $ 10.4 billion 212 $ 53.76 billion
Jeffrey S. MacDonald 1 $ 24 million 17 $ 10.9 billion 222 $ 9.51 billion
James B. DiChiaro 1 $ 25 million 13 $ 4.2 billion 4 $ 8.0 billion
(a) (2) (iv) Conflicts of Interest. MBIA Capital Management Corp. provides
advisory services to other clients which invest in securities of the same type
that the Fund invests in (i.e. municipal obligations). These include certain
managed accounts which are affiliates of MBIA Capital Management Corp. The
Adviser is aware of its obligation to ensure that when orders for the same
securities are entered on behalf of the Fund and other accounts, that the Fund
receives fair and equitable allocation of these orders, particularly where
affiliated accounts may participate. As of January 31, 2008, the Fund has dealt
with this conflict of interest by adopting policies and procedures regarding
trade execution, brokerage allocation and order aggregation which provide a
methodology for ensuring fair treatment for all clients in situations where
orders can not be completely filled or filled at different prices.
(a) (3) Compensation. As of January 31, 2008, MBIA Capital Management Corp., as
Adviser to the Fund, compensates the Fund's portfolio managers for their
management of the Fund. Compensation is comprised of a fixed base salary and
discretionary performance bonus that is based on the overall success of the
Adviser, and the individual's responsibility and his/her performance versus
expectations, which are reviewed annually. That evaluation includes the
professionals' own self-assessment of their years' work relative to their
responsibilities and also includes supervisor evaluation. The Adviser's
compensation strategy is to provide reasonable base salaries commensurate with
an individual's responsibility and provide performance bonus awards.
Additionally, there is a long-term incentive plan, which is eligible for
participation by employees at the Vice President level and above. Total
compensation of the Fund's portfolio managers is not related to Fund
performance.
(a) (4) Securities ownership. The following table discloses the dollar range of
equity securities of the Fund beneficially owned by the each of the MBIA Capital
Management Corp. portfolio managers as of January 31, 2008:
DOLLAR RANGE OF
EQUITY
SECURITIES IN
FUND
NAME OF PORTFOLIO MANAGER
Clifford D. Corso None
Jeffrey S. MacDonald None
James B. DiChiaro None
(b) Change in Portfolio Manager. Jeffrey S. MacDonald and James B. DiChiaro
joined the team of investment professionals who share the primary responsibility
for the day-to-day management of the Fund's portfolio.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant has not made any material changes to the procedures by which
shareholders may recommend nominees to the registrant's Board of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures (as defined
in Rule 30a3(c) under the Investment Company Act of 1940) as of a date within 90
days of this filing and have concluded based on such evaluation, that the
registrant's disclosure controls and procedures were effective, as of that date,
in ensuring that information required to be disclosed by the registrant in this
Form N-CSR was recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the registrant's last fiscal quarter of the period covered
by this report that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2 of the Investment Company Act of 1940.
(a)(3) Not Applicable.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(b) of the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MBIA Capital /Claymore Managed Duration Investment Grade Municipal
Fund
By: /s/ Nicholas Dalmaso
--------------------------------------
Nicholas Dalmaso,
Chief Executive Officer and Chief Legal Officer
Date: April 4, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Nicholas Dalmaso
--------------------------------------
Nicholas Dalmaso,
Chief Executive Officer and Chief Legal Officer
Date: April 4, 2008
By: /s/ Steven M. Hill
--------------------------------------
Steven M. Hill
Chief Financial Officer, Chief Accounting Officer and Treasurer
Date: April 4, 2008