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
(Exact name of registrant as specified in charter)
2455 Corporate West Drive, Lisle, IL 60532
(Address of principal executive offices) (Zip code)
J. Thomas Futrell
2455 Corporate West Drive, Lisle, IL 60532
(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: July 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 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:
ANNUAL
REPORT
July 31, 2008
MBIA CAPITAL/CLAYMORE MANAGED DURATION | MZF
INVESTMENT GRADE MUNICIPAL FUND
MBIA
ASSET MANAGEMENT
LOGO: Claymore
WWW.MBIACLAYMORE.COM
... YOUR STREAM TO THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
MBIA CAPITAL/CLAYMORE MANAGED DURATION
INVESTMENT GRADE MUNICIPAL FUND
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 and 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 | Annual Report | July 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 Fund's fiscal year ended July 31, 2008.
As you may know, the Fund's investment objective is to provide 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. We
regard recent bond market conditions as unusual, with greater than normal
differences in yields between bonds with the highest credit ratings and bonds
with slightly lower ratings. Accordingly, in order to increase income and
potentially improve total returns in the future, we have increased the Fund's
allocation to lower rated securities. As of July 31, 2008, 20.7% of long-term
investments were rated BBB, the lowest category of investment-grade securities,
and 3.1% of long-term investments were rated below BBB.
The Fund's Investment Adviser, MBIA Capital Management Corp. ("MBIA"), is owned
by MBIA Asset Management Group, which manages fixed-income products with a total
value of approximately $60 billion as of June 30, 2008. Its 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 provide supervision, management, servicing or
distribution on more than $18.4 billion in assets as of June 30, 2008. Claymore
Securities, Inc. currently offers closed-end funds, unit investment trusts and
exchange-traded funds.
All Fund returns cited - whether based on net asset value ("NAV") or market
price - assume the reinvestment of all distributions. For the 12-month period
ended July 31, 2008, the Fund returned -3.07% on an NAV basis. This represents a
change in NAV to $13.17 on July 31, 2008, compared with $14.21 on July 31, 2007.
For the same period, the Fund provided a total return of -2.29% based on market
price. This represents a closing market price of $11.73 on July 31, 2008, versus
$12.63 on July 31, 2007. Past performance is not a guarantee of future results.
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. We believe that, over the long term, the
progress of the NAV will be reflected in the market price return to
shareholders. We believe that the current discount represents a good opportunity
for investors, as common shares of the Fund are now available in the market at
prices significantly below the value of the securities in the underlying
portfolio.
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 24 of the Fund's 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
Annual Report | July 31, 2008 | 3
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
DEAR SHAREHOLDER continued
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 for the months of October 2007
through July 2008. On August 1, 2008, the Fund announced a change to the timing
of the monthly dividend payout as well as an increase to the monthly dividend.
Dividends will now be paid at the end of the month as opposed to the middle of
the month. The monthly dividend was increased to $0.056, however the August
dividend was increased to $0.084 to take into consideration the half month delay
in payment. The monthly dividend of $0.056 represents a distribution rate of
5.73% based on the closing market price of $11.73 on July 31, 2008.
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 impacted the performance of the
Fund during the 12 months ended July 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
4 | Annual Report | July 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 $60 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").
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.
JAMES B. DICHIARO
PORTFOLIO MANAGER
Mr. DiChiaro joined MBIA in 1999 and is a Vice President. He works on managing
the firm's tax-exempt assets and has extensive experience managing short-term
taxable assets. Mr. DiChiaro also has years of experience working in the conduit
group structuring medium-term notes for Meridian Funding Company as well as
issuing commercial paper for Triple-A One Funding Corporation. Prior to joining
MBIA, Mr. DiChiaro worked for Merrill Lynch in a trade support role for their
ABS desk. He received his Bachelor's Degree from Fordham University in 1998 and
his MBA from Pace University in 2004.
In the following interview Portfolio Managers Clifford D. Corso, Jeffrey S.
MacDonald and James B. DiChiaro discuss the market environment and the
performance of the MBIA Capital/Claymore Managed Duration Investment Grade
Municipal Fund (the "Fund") for the Fund's fiscal year ended July 31, 2008.
- --------------------------------------------------------------------------------
WILL YOU PLEASE PROVIDE AN OVERVIEW OF THE MUNICIPAL MARKET DURING THE 12-MONTH
PERIOD ENDED JULY 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 of 2007, 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.
As concerns about the possibility of a recession and illiquid financial markets
developed, the Federal Reserve Board (the "Fed") repeatedly reduced interest
rates. Between September 18, 2007, and April 30, 2008, the Fed lowered its
target for the federal funds rate seven times for a total of 325 basis points,
from 5.25% in early September 2007 to 2.00% at the end of April 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 1.66% at July 31, 2008. Rates on long-term
treasury securities fell much less, from 4.90% to 4.57% over the same period,
producing a much steeper yield curve.(1)
The major theme throughout the bond market over the past year has been that
bonds with the highest credit ratings, especially U.S. Treasury bonds, which are
assumed to carry no credit risk, have outperformed lower-rated bonds. Although
municipal bonds have throughout their existence been regarded as a high quality
fixed-income asset class with a low default rate, investors became wary of even
the highest rated municipal bonds. The result was a significant increase in the
ratio of yields on municipal securities to the yields on U.S. Treasury
securities.
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 which insure municipal bonds, and which suffered losses from insuring
structured products, such as securities backed by residential mortgages.
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.(2)
(1) The yield curve is a graph with a left-to-right line that depicts bond
yields 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.
(2) 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.
Annual Report | July 31, 2008 | 5
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
As the rating agencies began to downgrade the credit ratings of monoline
insurers, investors continued to re-evaluate risk, and insured municipal bonds
generally traded on their own underlying credit ratings; in some cases, bonds
seemed to be penalized for being insured because investors did not want the
association with the downgraded insurers. Financial problems experienced by the
major broker/dealers, which limited their ability to support the municipal
market, placed further pressure on the municipal market. The result was a
bifurcated market, with increasingly wide differences between returns of
municipal bonds of the highest and lowest investment grade ratings. For the 12
months ended July 31, 2008, the Lehman Municipal Bond Index (the "Lehman Muni
Index"), a widely used measure of the municipal bond market as a whole, provided
a total return of 2.83%. Lehman Brothers reports that of the bonds included in
the Lehman Muni Index, the average return was 3.50% for AAA-rated bonds, 3.84%
for AA-rated bonds, 1.69% for A-rated bonds, and -6.06% for BBB-rated bonds.
Conditions in the municipal bond market were further complicated beginning in
February 2008 by failures in the market for Auction-Rate Securities ("ARS"), and
more specifically the market for Auction Market Preferred Shares ("AMPS"), which
many types of issuers use as a source of funding. The interest rates on ARS are
re-set in periodic auctions, which typically take place every seven to 28 days.
Beginning in early 2008, many of these auctions failed, which means that that
there were fewer bids than sell orders. When auctions for ARS fail, provisions
in the terms of the securities provide for a re-set of the interest rate at a
specified maximum level to compensate preferred shareholders for the illiquidity
of the securities.
The unraveling of the ARS market in February put pressure on all maturities
within the tax-exempt yield curve. Rising yields on municipal securities
relative to U.S. Treasury securities resulted in unusually high demand among
institutional investors in municipal securities. A further effect of the failed
auctions is that the municipal bond market has indicated apprehension regarding
an expected large supply of bonds, as issuers refinance their ARS into
longer-term bonds. Additionally, as municipal bonds became cheaper relative to
U.S. Treasury Securities and the London Interbank Offered Rate ("LIBOR")(3),
institutional investors who used hedging techniques were forced to unwind their
hedges and sell into an already weak market.
- --------------------------------------------------------------------------------
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 12-month period
ended July 31, 2008, the Fund provided a total return based on market price of
- -2.29% and a total return of -3.07% based on NAV. As of July 31, 2008, the
Fund's market price of $11.73 represented a discount of 10.93% to NAV of $13.17.
Past performance is not a guarantee of future results.
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 the NAV will be reflected in the market
price return to shareholders.
In August and September 2007, the Fund paid monthly dividends of $0.0495 per
share. The monthly dividend was raised to $0.0525 for the months of October 2007
through July 2008. On August 1, 2008, the Fund announced a change to the timing
of the monthly dividend payment as well as an increase to the monthly dividend.
Dividends will now be paid at the end of the month as opposed to the middle of
the month. The monthly dividend was increased to $0.056, however the August
dividend was increased to $0.084 to take into consideration the half month delay
in payment. The monthly dividend of $0.056 represents a distribution rate of
5.73% based on the closing market price of $11.73 on July 31, 2008.
Since the Fund's inception on August 27, 2003, through July 31, 2008, the Fund
generated an average annual total return, including reinvestment of dividends,
of 2.96% based on NAV and 0.11% based on market price.
- --------------------------------------------------------------------------------
HOW HAVE YOU STRUCTURED THE PORTFOLIO DURING THIS CHALLENGING PERIOD?
We maintain a high quality portfolio that is diversified across issuers, sectors
and states. 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 a
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.
In the first few months of the Fund's fiscal year ended July 31, 2008, the focus
was solidly on very high quality bonds: as of July 31, 2007, the Fund's average
credit quality was Aa3/AA- (as rated by Moody's Investors Service and Standard &
Poor's, the major rating agencies for municipal bonds). During this period, we
maintained a cautious approach to the market, anticipating that opportunities
would arise later to invest in somewhat lower rated securities that would
provide higher income to shareholders.
As discussed above, in recent months there has been a significant widening in
spreads between bonds of the highest credit quality and bonds with lower credit
ratings. With high absolute yields at the long end of the municipal bond yield
curve, coupled with high spreads on lower rated bonds, the market witnessed
attractive absolute yields on these lower rated credits. As of June 30, 2008,
the yield spreads between AAA rated securities and single A through BBB rated
securities (the lowest investment grade) at their widest in 10 years.
(3) LIBOR is the interest rate that banks charge one another in the short-term
international interbank market.
6 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
Despite both the negative and positive current and potential influences on the
market, we believe that this cheapening of the municipal market represents a
compelling entry point. Negative influences on the municipal market include
falling tax receipts, an expected increase in primary market supply, and
questionable market support from institutional investors. Positive influences
include low default probabilities, municipal credit ratings calibrated to a
global ratings scale and the current positive relative valuation of municipals
versus other fixed income alternatives.
Accordingly, beginning in January 2008, we made the decision to gradually begin
to increase the Fund's investment allocation to securities with slightly lower
ratings, which we believe offered very good value. We believe that the market
will eventually revert to more normal long-term trends, with tighter spreads and
ratios closer to their long-term average. If this happens, we believe that lower
rated securities should outperform the general market. Aside from the potential
total return performance on these lower rated securities, we also view these
securities as an effective way to add yield to the portfolio. We funded these
investments primarily by selling AA or AAA rated or pre-refunded bonds, for
which the market was more liquid than for lower-rated bonds.(4) The completion
of these trades added approximately 25 basis points to the portfolio's yield.(5)
As of July 31, 2008, securities rated BBB or lower represented 23.8% of the
long-term bonds and preferred shares in the portfolio, compared with 16.7% as of
January 31, 2008, and 10.7% as of July 31, 2007.
Over this period the municipal bond yield curve steepened dramatically, as
several cuts by the Fed led to much lower short-term interest rates. The sale of
pre-refunded bonds, which have relatively short durations, and subsequent
purchase of longer-duration bonds extended the average duration of the
portfolio.(6) In addition to increasing current income, we believe that this
positioning will contribute to the Fund's long-term performance by locking in
the higher yields. In many cases, the Fund realized significant gains on the
sales of pre-refunded bonds.
- --------------------------------------------------------------------------------
WHICH TRENDS OR INVESTMENT DECISIONS MOST HELPED THE FUND'S PERFORMANCE AND WHY?
The Fund's position in higher rated securities was beneficial to performance for
the majority of the year, a period when investors became increasingly
uncomfortable with risk. During the first half of the year, the Fund was
generally invested in securities rated A or above, which represented 83.3% of
long-term bonds and preferred shares as of January 31, 2008, and 89.3% of
long-term bonds and preferred shares as of July 31, 2007.
The Fund's highest sector exposure over the course of the year was to
pre-refunded bonds, which was a top performing bond class in the Lehman Muni
Index, with a return of 6.34%, 350 basis points above the return of the index.
Also positive was the Fund's position in education bonds, which also
outperformed the Lehman Muni Index.
- --------------------------------------------------------------------------------
WHICH AREAS OF THE FUND HURT PERFORMANCE DURING THE PERIOD?
Many securities perceived as having any credit risk dropped in market value
during this period, and that includes some of the bonds rated BBB or lower in
this portfolio. Accordingly, some of the lower quality bonds purchased early in
our program (as described above) detracted from performance over this period.
However, we believe that this decision will contribute to the Fund's long-term
total return, and it has also increased current yield. We are comfortable with
the credit quality of all the bonds in the portfolio.
- --------------------------------------------------------------------------------
PLEASE TELL US ABOUT THE FUND'S HEDGING ACTIVITIES.
Over the life of the Fund, we have employed a combination of strategies to
manage duration and help protect the value of the Fund's assets during periods
of interest rate volatility. At times we have employed a hedging strategy to
shorten the Fund's duration during periods of rising interest rates.
In March 2008, we eliminated the Fund's hedge, believing that we could manage
duration at a lower cost through managing the interest rate risk inherent in
individual securities within the Fund's portfolio, without using derivatives. We
believe that interest rates are likely to remain in a fairly narrow range over
the next few months, and that the risk of an aggressive sell-off in rates is
relatively low. We feel that the current steepness of the municipal yield curve
favors slight portfolio extension to capture yield. Given this outlook, we feel
that the cost of a pay-fixed duration reduction strategy outweighs the benefit
in the near term. Should this outlook change, there are a number of hedging
strategies that we could employ to adjust portfolio's duration. Regardless of
which instrument is chosen, the ultimate goal of any hedging strategy is to
protect the assets of the Fund given our outlook for the market. We consider our
management of duration in the Fund's portfolio to be an active strategy, whether
done through cash investments or through derivatives.
(4) 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.
(5) A basis point is 1/100 of a percentage point; i.e. 100 basis points equals
one percentage point.
(6) 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.
Annual Report | July 31, 2008 | 7
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
- --------------------------------------------------------------------------------
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 Fund's leverage is achieved through the issuance of
Auction Market Preferred Shares ("AMPS"). AMPS holders receive a dividend that
is reset every seven or 28 days, depending on the tranche.(7) 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. However, when leveraged investments
fall in price, leverage reduces overall return, and this was generally the case
during the last 12 months.
As discussed earlier, the broad auction-rate securities market has experienced
considerable disruption in the past few months, and the Fund was not immune to
this disruption. The result has been an increase in the number of failed
auctions on auction-rate preferred shares, including the AMPS issued by the
Fund. We believe that this increase in failed actions is 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.
The Fund has two series of AMPS, one series that auctions every seven days and
one series that auctions every 28 days. The most recent auctions for these
series have failed, as have auctions of most AMPS issued by closed-end funds.
The maximum interest rates established in failed auctions for the Fund's AMPS
conducted in February through July 2008 were approximately 3.5% to 4.5%. These
maximum rates are not significantly different from past successful auctions. We
will continue to evaluate the benefits and impacts of leverage on the Fund, as
well as exploring other methods of utilizing leverage.
- --------------------------------------------------------------------------------
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET IN THE COMING MONTHS?
Despite wide spreads and investor concerns, we have great confidence in the
municipal bond market, especially in the high-quality segment of the market
where the Fund's investments are concentrated. Defaults on municipal bonds are
rare, and we are comfortable with the underlying credit quality of all the bonds
in the Fund's portfolio.
We believe that the Fund is well positioned given the current environment. We
have taken advantage of the wide spreads to increase the Fund's exposure to good
quality BBB credits and a few securities with slightly lower ratings. We have
also taken advantage of the steep yield curve by selling some of the Fund's
pre-refunded bonds and extending maturities to pick up additional yield.
We believe that the market has over-reacted to credit problems in certain
sectors, dumping securities perceived as having any risk, regardless of the
underlying fundamentals. When such imbalances occur, opportunities may be
created. Although we believe that there may be further problems in the credit
markets, we selectively look for opportunities to purchase bonds of reasonable
quality that are 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 are 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.
(7) The term tranche is used to describe a specific series of AMPS. The Fund
has issued two tranches of AMPS.
8 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Fund SUMMARY | AS OF JULY 31, 2008 (unaudited)
FUND INFORMATION
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: MZF
Initial Offering Date: August 27, 2003
Closing Market Price as of 07/31/08: $11.73
Net Asset Value as of 07/31/08: $13.17
Yield on Closing Market Price as of 07/31/08: 5.73%(4)
Taxable Equivalent Yield on Closing Market Price as of 07/31/08(1): 8.81%(4)
July Monthly Distribution Per Common Share(2): $0.0525
Leverage as of 07/31/08(3): 40%
Percentage of total investments subject to alternative minimum tax 24.4%
- --------------------------------------------------------------------------------
(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.
(4) Based upon the increased monthly distribution of $0.056 per share announced
in August 2008.
TOTAL RETURNS
- --------------------------------------------------------------------------------
(Inception 8/27/03) Market NAV
- --------------------------------------------------------------------------------
One Year -2.29% -3.07%
Three Year - average annual 1.31% 0.73%
Since Inception - average annual 0.11% 2.96%
- --------------------------------------------------------------------------------
Pie Charts:
SECTOR CONCENTRATION*
Prerefunded 19.1%
IDR/IRB 12.7%
Housing 12.3%
Health Care 11.5%
Transportation 6.7%
Miscellaneous Revenue 6.3%
Higher Education 5.6%
General Obligation 4.9%
Secondary Education 4.9%
Power 4.4%
Tobacco 4.0%
Lease Backed Rev Bond 2.9%
Enhanced Tobacco 2.4%
Airport 2.3%
*As a percentage of long-term investments.
STATE/TERRITORY ALLOCATION*
California 14.5%
New York 12.5%
Florida 9.4%
Texas 7.6%
Ohio 6.2%
Colorado 4.5%
Illinois 4.0%
Missouri 3.8%
Louisiana 3.8%
South Dakota 3.3%
All other states 30.4%
*As a percentage of long-term municipal bonds and notes.
CREDIT QUALITY*
AAA 15.2%
AA 30.6%
A 30.4%
BBB 20.7%
BB 2.3%
B 0.8%
*As a percentage of long-term investments. Based on Standard & Poor's or other
equivalent ratings.
MATURITY BREAKDOWN*
0-5 Years 19.1%
6-10 Years 4.5%
11-15 Years 22.9%
16-20 Years 12.8%
21-25 Years 15.9%
26-30 Years 19.7%
30 + Years 5.1%
*As a percentage of long-term invstments.
Line Chart:
SHARE PRICE & NAV PERFORMANCE
DATE: SHARE PRICE NAV
7/31/07 12.63 14.21
8/1/07 12.62 14.22
8/2/07 12.61 14.19
8/3/07 12.67 14.19
8/6/07 12.58 14.09
8/7/07 12.53 14.06
8/8/07 12.52 13.97
8/9/07 12.5 13.99
8/10/07 12.57 13.99
8/13/07 12.61 13.99
8/14/07 12.55 13.95
8/15/07 12.3 13.89
8/16/07 12.26 13.77
8/17/07 12.51 13.73
8/20/07 12.62 13.72
8/21/07 12.59 13.71
8/22/07 12.56 13.68
8/23/07 12.54 13.67
8/24/07 12.45 13.64
8/27/07 12.39 13.67
8/28/07 12.4 13.73
8/29/07 12.48 13.83
8/30/07 12.53 13.91
8/31/07 12.5 13.93
9/4/07 12.65 13.93
9/5/07 12.63 13.97
9/6/07 12.56 14.07
9/7/07 12.69 14.24
9/10/07 12.84 14.31
9/11/07 12.91 14.29
9/12/07 12.71 14.28
9/13/07 12.6 14.22
9/14/07 12.63 14.23
9/17/07 12.66 14.23
9/18/07 12.8 14.2
9/19/07 12.64 14.18
9/20/07 12.64 14.08
9/21/07 12.52 14.09
9/24/07 12.48 14.09
9/25/07 12.59 14.15
9/26/07 12.66 14.14
9/27/07 12.67 14.18
9/28/07 12.74 14.19
10/1/07 12.79 14.21
10/2/07 12.68 14.25
10/3/07 12.65 14.19
10/4/07 12.61 14.21
10/5/07 12.57 14.15
10/8/07 12.53 14.15
10/9/07 12.55 14.14
10/10/07 12.55 14.14
10/11/07 12.57 14.12
10/12/07 12.6 14.12
10/15/07 12.54 14.12
10/16/07 12.5 14.15
10/17/07 12.5 14.21
10/18/07 12.51 14.25
10/19/07 12.55 14.33
10/22/07 12.6 14.33
10/23/07 12.56 14.32
10/24/07 12.55 14.35
10/25/07 12.56 14.33
10/26/07 12.61 14.3
10/29/07 12.69 14.3
10/30/07 12.54 14.25
10/31/07 12.44 14.19
11/1/07 12.5 14.22
11/2/07 12.42 14.23
11/5/07 12.56 14.2
11/6/07 12.42 14.05
11/7/07 12.41 14
11/8/07 12.35 13.96
11/9/07 12.2 13.96
11/12/07 12.09 13.96
11/13/07 12.05 13.95
11/14/07 11.77 13.94
11/15/07 11.79 13.99
11/16/07 11.96 14.02
11/19/07 12 14.06
11/20/07 12.03 14.07
11/21/07 12.09 14.1
11/23/07 12.04 14.11
11/26/07 12.13 14.18
11/27/07 12.16 14.13
11/28/07 12.17 14.12
11/29/07 12.19 14.17
11/30/07 12.3 14.17
12/3/07 12.32 14.19
12/4/07 12.34 14.21
12/5/07 12.42 14.14
12/6/07 12.36 14.11
12/7/07 12.36 14.01
12/10/07 12.49 13.99
12/11/07 12.39 14.07
12/12/07 12.33 14.02
12/13/07 12.3 14.05
12/14/07 12.21 14.02
12/17/07 12.22 14.02
12/18/07 12.24 14.07
12/19/07 12.25 14.11
12/20/07 12.2 14.12
12/21/07 12.11 14.04
12/24/07 12.07 14.01
12/26/07 12.05 13.98
12/27/07 12.14 14
12/28/07 12.22 14.06
12/31/07 12.42 14.09
1/2/08 12.48 14.2
1/3/08 12.6 14.21
1/4/08 12.67 14.25
1/7/08 12.78 14.27
1/8/08 12.76 14.29
1/9/08 12.76 14.37
1/10/08 12.79 14.36
1/11/08 12.93 14.39
1/14/08 12.93 14.41
1/15/08 12.93 14.48
1/16/08 12.94 14.49
1/17/08 12.93 14.52
1/18/08 12.66 14.51
1/22/08 12.86 14.58
1/23/08 12.95 14.61
1/24/08 12.92 14.41
1/25/08 12.82 14.38
1/28/08 12.84 14.33
1/29/08 12.83 14.24
1/30/08 12.77 14.19
1/31/08 12.73 14.23
2/1/08 12.79 14.29
2/4/08 12.81 14.27
2/5/08 12.77 14.34
2/6/08 12.74 14.29
2/7/08 12.74 14.22
2/8/08 12.7 14.25
2/11/08 12.76 14.27
2/12/08 12.77 14.22
2/13/08 12.66 14.17
2/14/08 12.3 14.04
2/15/08 12.23 13.97
2/19/08 12.33 13.88
2/20/08 12.25 13.83
2/21/08 12.23 13.8
2/22/08 12.1 13.73
2/25/08 12.19 13.59
2/26/08 12.08 13.48
2/27/08 12.05 13.28
2/28/08 11.8 13.01
2/29/08 11.54 12.81
3/3/08 11.7 12.85
3/4/08 11.72 13.15
3/5/08 11.77 13.22
3/6/08 11.79 13.38
3/7/08 11.85 13.48
3/10/08 11.81 13.5
3/11/08 11.82 13.39
3/12/08 11.77 13.4
3/13/08 11.73 13.37
3/14/08 11.73 13.4
3/17/08 11.46 13.43
3/18/08 11.64 13.39
3/19/08 11.57 13.4
3/20/08 11.52 13.4
3/24/08 11.64 13.3
3/25/08 11.74 13.29
3/26/08 11.75 13.32
3/27/08 11.71 13.27
3/28/08 11.77 13.34
3/31/08 11.83 13.4
4/1/08 11.89 13.3
4/2/08 11.7 13.32
4/3/08 11.87 13.39
4/4/08 11.87 13.47
4/7/08 12.01 13.46
4/8/08 11.86 13.55
4/9/08 11.93 13.71
4/10/08 12.17 13.73
4/11/08 12.13 13.84
4/14/08 12.21 13.85
4/15/08 12.15 13.82
4/16/08 12.21 13.78
4/17/08 12.22 13.76
4/18/08 12.29 13.73
4/21/08 12.28 13.74
4/22/08 12.29 13.75
4/23/08 12.33 13.72
4/24/08 12.3 13.63
4/25/08 12.25 13.6
4/28/08 12.26 13.6
4/29/08 12.25 13.64
4/30/08 12.2 13.66
5/1/08 12.25 13.69
5/2/08 12.21 13.63
5/5/08 12.17 13.64
5/6/08 12.14 13.58
5/7/08 12.17 13.59
5/8/08 12.21 13.65
5/9/08 12.21 13.74
5/12/08 12.26 13.77
5/13/08 12.3 13.72
5/14/08 12.38 13.73
5/15/08 12.29 13.82
5/16/08 12.29 13.85
5/19/08 12.31 13.86
5/20/08 12.34 13.91
5/21/08 12.29 13.92
5/22/08 12.32 13.84
5/23/08 12.3 13.89
5/27/08 12.27 13.84
5/28/08 12.38 13.78
5/29/08 12.42 13.68
5/30/08 12.3 13.76
6/2/08 12.4 13.8
6/3/08 12.46 13.85
6/4/08 12.33 13.82
6/5/08 12.32 13.71
6/6/08 12.37 13.77
6/9/08 12.35 13.76
6/10/08 12.34 13.66
6/11/08 12.3 13.65
6/12/08 12.18 13.5
6/13/08 12.15 13.48
6/16/08 12.2 13.49
6/17/08 12.19 13.48
6/18/08 12.13 13.46
6/19/08 12.08 13.38
6/20/08 11.98 13.26
6/23/08 11.83 13.21
6/24/08 11.88 13.18
6/25/08 11.95 13.17
6/26/08 11.86 13.21
6/27/08 11.87 13.3
6/30/08 11.88 13.34
7/1/08 11.9 13.41
7/2/08 12 13.48
7/3/08 11.99 13.44
7/7/08 12.05 13.47
7/8/08 12.05 13.51
7/9/08 12.12 13.56
7/10/08 12.07 13.59
7/11/08 12.04 13.56
7/14/08 11.92 13.56
7/15/08 11.75 13.59
7/16/08 11.79 13.52
7/17/08 11.76 13.38
7/18/08 11.77 13.28
7/21/08 11.84 13.26
7/22/08 11.82 13.15
7/23/08 11.74 13.02
7/24/08 11.63 13.13
7/25/08 11.66 13.12
7/28/08 11.68 13.15
7/29/08 11.76 13.12
7/30/08 11.74 13.12
7/31/08 11.73 13.17
INSURED SECURITIES BREAKDOWN*
- --------------------------------------------------------------------------------
FGIC 7.5%
AMBAC 7.4%
FSA 3.2%
CIFG 1.1%
- --------------------------------------------------------------------------------
* As a percentage of long-term investments.
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.
Annual Report | July 31, 2008 | 9
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Portfolio of INVESTMENTS | JULY 31, 2008
PRINCIPAL
RATING AMOUNT OPTIONAL
(S&P)* (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES - 162.1%
ALABAMA - 2.4%
BBB $ 845 Courtland, AL Ind Dev Brd
Environ Imp Rev, AMT, Ser B,
6.25%, 08/01/25 08/01/13 @ 100 $ 797,350
Baa3 1,890 Courtland, AL Ind Dev Brd
Solid Waste Disp Rev, AMT,
6.00%, 08/01/29 08/01/09 @ 101 1,700,339
- ----------------------------------------------------------------------------------------
2,497,689
- ----------------------------------------------------------------------------------------
CALIFORNIA - 23.5%
A 5,000 California Public Works Brd
Dept Mental Health Lease Rev, Ser A,
5.00%, 06/01/24 06/01/14 @ 100 4,967,250
A+ 6,000 California Various Purpose Gen Oblig,
5.125%, 11/01/24 11/01/13 @ 100 6,127,920
A- 2,500 Chula Vista, CA Ind Dev Rev, Ser B
AMT, 5.50% 12/01/21 06/02/14 @ 102 2,514,000
BBB 2,065 Golden State Tobacco Securitization
Rev, Ser A-1, 5.00%, 06/01/33 06/01/17 @ 100 1,608,470
AAA 2,750 Golden State Tobacco Settlement
Rev, Ser B, 5.375%, 06/01/28
(Prerefunded @ 06/01/10)+ 06/01/10 @ 100 2,880,845
A+ 4,000 Port of Oakland, CA Rev, AMT,
Ser L, 5.00%, 11/01/22 (FGIC) 11/01/12 @ 100 3,758,320
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 2,700,150
- ----------------------------------------------------------------------------------------
24,556,955
- ----------------------------------------------------------------------------------------
COLORADO - 7.2%
AA 4,500 Colorado Health Facs Auth Rev,
5.25%, 09/01/21
(Prerefunded @ 09/01/11)+ 09/01/11 @ 100 4,793,580
BBB 2,000 Colorado Health Facs Auth Rev,
5.25%, 05/15/42 05/15/17 @ 100 1,736,060
A+ 1,000 Denver, CO City & Cnty Arpt Rev, AMT
Ser A, 5.50%, 11/15/16 (FGIC) 11/15/11 @ 100 1,003,170
- ----------------------------------------------------------------------------------------
7,532,810
- ----------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 3.0%
BBB 1,550 District of Columbia Ballpark Rev,
Ser B-1, 5.00%, 02/01/35 (FGIC) 02/01/16 @ 100 1,379,717
Aaa 2,000 District of Columbia FHA Multi Family
Henson Ridge-Rmkt, AMT,
5.10%, 06/01/37 (FHA) 06/01/15 @ 102 1,777,800
- ----------------------------------------------------------------------------------------
3,157,517
- ----------------------------------------------------------------------------------------
FLORIDA - 15.2%
A1 2,500 Highlands Co., FL Health Facs
Auth Rev, Ser B, 5.25%, 11/15/23
(Prerefunded @ 11/15/12)+ 11/15/12 @ 100 2,726,225
PRINCIPAL
RATING AMOUNT OPTIONAL
(S&P)* (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
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 $ 3,345,060
A- 2,200 Miami-Dade Co., FL Aviation Rev, AMT,
5.00%, 10/01/38 (CIFG) 10/01/15 @ 100 1,928,102
A 4,275 Miami-Dade Co., FL School Brd, Ser B,
5.00%, 05/01/32 (FGIC) 05/01/17 @ 100 3,993,149
BBB 1,000 Seminole Indian Tribe FL Rev, Ser A,
144A, 5.25%, 10/01/27 10/01/17 @ 100 918,400
Aa3 2,750 South Broward Co., FL Hosp Dist
Rev, 5.60%, 05/01/27
(Prerefunded @ 05/01/12)+ 05/01/12 @ 101 3,029,675
- ----------------------------------------------------------------------------------------
15,940,611
- ----------------------------------------------------------------------------------------
ILLINOIS - 6.5%
A+ 3,000 Illinois Dev Fin Auth Hosp Rev,
5.65%, 11/15/24
(Prerefunded @ 11/15/09)+ 11/15/09 @ 101 3,168,960
Baa1 2,000 Illinois Fin Auth, Roosevelt Univ Rev,
5.50%, 04/01/37 04/01/17 @ 100 1,849,800
AA 2,000 Illinois Hsg Dev Auth Homeowner Mtg,
AMT, Ser A-2, 5.00%, 08/01/36 02/01/16 @ 100 1,734,620
- ----------------------------------------------------------------------------------------
6,753,380
- ----------------------------------------------------------------------------------------
IOWA - 1.6%
BBB 2,000 Iowa Tobacco Settlement Auth,
Cap Apprec Asset Bkd, Ser B,
5.60%, 06/01/34 06/01/17 @ 100 1,692,700
- ----------------------------------------------------------------------------------------
LOUISIANA - 6.1%
BBB 1,000 De Soto Parish, LA Environ Imp
Rev, AMT, Ser A, 5.85%, 11/01/27 11/01/13 @ 100 889,100
BB+ 3,000 Louisiana Govt, Environ Facs & Comnty
Dev Auth Rev, 6.75%, 11/01/32 11/01/17 @ 100 2,940,030
BBB+ 3,000 St. John Baptist Parish, LA
Marathon Oil Corp., Ser A,
5.125%, 06/01/37 06/01/17 @ 100 2,590,650
- ----------------------------------------------------------------------------------------
6,419,780
- ----------------------------------------------------------------------------------------
MARYLAND - 0.9%
BBB- 1,000 Maryland Health & Hgr Ed Facs Auth Rev,
5.75%, 01/01/38 01/01/18 @ 100 957,620
- ----------------------------------------------------------------------------------------
MASSACHUSETTS - 1.7%
AA- 1,000 Massachusetts Housing Fin Agency,
AMT, 5.10%, 12/01/27 06/01/17 @ 100 894,680
AA 1,000 Massachusetts Housing Fin Agency,
AMT, Ser 134, 5.60%, 12/01/38 06/01/18 @ 100 932,490
- ----------------------------------------------------------------------------------------
1,827,170
- ----------------------------------------------------------------------------------------
MICHIGAN - 1.8%
A- 2,000 Michigan Strategic Fund Ltd Oblig
Rev Ref, Ser C, 5.45%, 09/01/29 09/01/11 @ 100 1,880,040
- ----------------------------------------------------------------------------------------
See notes to financial statements.
l0 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
PORTFOLIO OF INVESTMENTS continued
PRINCIPAL
RATING AMOUNT OPTIONAL
(S&P)* (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
MISSOURI - 6.2%
AA $ 6,000 Missouri Health & Educ Facs Auth
Rev, Ser A, 5.25%, 06/01/28
(Prerefunded @ 06/01/11) (AMBAC)+ 06/01/11 @ 101 $ 6,449,760
- ----------------------------------------------------------------------------------------
NEBRASKA - 2.7%
AA 3,000 Public Power Generation Agency,
Whelan Energy Ctr Unit 2, 5.00%,
01/01/41 (AMBAC) 01/01/17 @ 100 2,830,260
- ----------------------------------------------------------------------------------------
NEVADA - 5.2%
A 5,410 Henderson, NV Health Care Fac Rev,
Ser A, 5.625%, 07/01/24 07/01/14 @ 100 5,443,380
- ----------------------------------------------------------------------------------------
NEW YORK - 20.3%
A- 2,750 Long Island, NY Power Auth Rev, Ser A,
5.10%, 09/01/29 09/01/14 @ 100 2,761,275
AA- 4,000 Metropolitan Trans Auth Rev, Ser A,
5.125%, 01/01/24 07/01/12 @ 100 4,071,240
B- 500 New York City Indl Dev Rev, AA JFK
Intl Arpt, AMT, 7.50%, 08/01/16 N/A 451,370
BB 1,000 New York Dorm Auth Rev, NYU Hosp Ctr,
Ser B, 5.25%, 07/01/24 07/01/17 @ 100 971,600
AA 2,250 New York, NY Gen Oblig, Ser J,
5.00%, 05/15/23 05/15/14 @ 100 2,292,772
A+ 1,750 New York Muni Bond Bank Agy Special
School Purpose Rev, Ser C,
5.25%, 12/01/22 06/01/13 @ 100 1,810,043
AA- 4,000 New York Tobacco Settlement Funding
Corp, Ser A1, 5.50%, 06/01/19 06/01/13 @ 100 4,206,800
A- 5,000 Suffolk Co, NY Ind Dev Agy Rev, AMT,
5.25%, 06/01/27 06/01/13 @ 100 4,676,000
- ----------------------------------------------------------------------------------------
21,241,100
- ----------------------------------------------------------------------------------------
NORTH CAROLINA - 3.5%
BBB 1,000 North Carolina Eastern Muni Power Agy
Sys Rev Ref, Ser D, 5.125%, 01/01/23 01/01/13 @ 100 975,590
BBB 1,000 North Carolina Eastern Muni Power Agy
Sys Rev Ref, Ser D, 5.125%, 01/01/26 01/01/13 @ 100 952,900
AA 1,775 North Carolina Housing Fin Agy Rev, AMT,
Ser 14A, 5.35%, 01/01/22 (AMBAC) 07/01/11 @ 100 1,776,420
- ----------------------------------------------------------------------------------------
3,704,910
- ----------------------------------------------------------------------------------------
OHIO - 10.1%
BBB 1,150 Buckeye OH, Tobacco Settlement Turbo Rev,
Ser A-2, 5.875%, 06/01/30 06/01/17 @ 100 992,289
BBB 2,000 Buckeye OH, Tobacco Settlement Turbo Rev,
Ser A-2, 5.75%, 06/01/34 06/01/17 @ 100 1,663,960
AA- 3,000 Cuyahoga Co., OH Rev Ref, Ser A,
6.00%, 01/01/20 07/01/13 @ 100 3,172,980
AA- 5,000 Lorain Co., OH Hosp Rev Ref, Ser A,
5.25%, 10/01/33 10/01/11 @ 101 4,726,350
- ----------------------------------------------------------------------------------------
10,555,579
- ----------------------------------------------------------------------------------------
PRINCIPAL
RATING AMOUNT OPTIONAL
(S&P)* (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
OKLAHOMA - 4.1%
AA- $ 3,525 Oklahoma Dev Fin Auth Rev,
5.00%, 02/15/42 02/15/17 @ 100 $ 3,266,900
B- 1,000 Tulsa, OK Muni Arpt Rev, AA,
Ser B, AMT, 6.00%, 06/01/35 (1) 12/01/08 @ 100 992,890
- ----------------------------------------------------------------------------------------
4,259,790
- ----------------------------------------------------------------------------------------
PENNSYLVANIA - 4.8%
BBB 2,340 Pennsylvania Higher Education Facs Auth
Rev, 5.25%, 05/01/23 05/01/13 @ 100 2,309,112
BBB+ 2,000 Pennsylvania State Higher Education,
5.00%, 07/15/39 07/15/15 @ 100 1,773,220
BBB 1,000 Pennsylvania State Higher Education,
5.00%, 05/01/37 11/01/17 @ 100 887,910
- ----------------------------------------------------------------------------------------
4,970,242
- ----------------------------------------------------------------------------------------
PUERTO RICO - 3.5%
BBB- 3,300 Puerto Rico Public Bldgs Auth Rev,
Ser I, 5.50%, 07/01/25
(Prerefunded @ 07/01/14)+ 07/01/14 @ 100 3,612,411
- ----------------------------------------------------------------------------------------
RHODE ISLAND - 0.9%
BBB 1,000 Rhode Island Tobacco Settlement Financing
Corp, Ser A, 6.25%, 06/01/42 06/01/12 @ 100 901,350
- ----------------------------------------------------------------------------------------
SOUTH CAROLINA - 3.2%
AAA 2,500 Florence Co., SC Hosp Rev, Ser A,
5.25%, 11/01/27 (FSA) 11/01/14 @ 100 2,527,600
BBB 1,000 Georgetown Co., SC Environ Imp Rev,
AMT, Ser A, 5.30%, 03/01/28 03/01/14 @ 100 820,190
- ----------------------------------------------------------------------------------------
3,347,790
- ----------------------------------------------------------------------------------------
SOUTH DAKOTA - 5.3%
AAA 5,000 South Dakota Hsg Dev Auth, Ser K, AMT,
5.05%, 05/01/36 11/01/15 @ 100 4,407,100
AA- 1,200 South Dakota St Hlth & Edl Fac, Ser A
5.25%, 11/01/34 11/01/14 @ 100 1,153,656
- ----------------------------------------------------------------------------------------
5,560,756
- ----------------------------------------------------------------------------------------
TEXAS - 12.4%
Aaa 2,000 Bexar Co., TX Hsg Fin, AMT,
5.20%, 10/20/34 (GNMA/FHA) 10/20/14 @ 100 1,794,220
AAA 205 Eagle Mtn & Saginaw, TX Indep School
Dist, Ser A, 5.25%, 08/15/23 (PSF) 08/15/13 @ 100 212,780
AAA 3,000 Houston Utility System,
(Underlying Obligor: Houston, TX Utility System
First Lien Revenue Refunding Bonds)
7.12%, 11/15/33 (FSA) (2) 11/15/17 @ 100 3,034,980
AA 1,885 Matagorda Co., TX Nav Dist No.1 Rev, AMT,
5.125%, 11/01/28 (AMBAC) (1) N/A 1,674,766
A- 2,000 North TX, Tollway Auth Rev, Ser A,
5.625%, 01/01/33 01/01/18 @ 100 1,995,940
AAA 2,325 Pampa, TX Indep School
Dist, 5.00%, 08/15/36 (PSF) 08/15/17 @ 100 2,331,672
See notes to financial statements.
Annual Report | July 31, 2008 | 11
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
PORTFOLIO OF INVESTMENTS continued
PRINCIPAL
RATING AMOUNT OPTIONAL
(S&P)* (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
TEXAS (CONTINUED)
BBB+ $ 2,100 San Leanna Ed Facs Corp Higher Ed Rev,
5.125%, 06/01/36 06/01/17 @ 100 $ 1,893,318
- ----------------------------------------------------------------------------------------
12,937,676
- ----------------------------------------------------------------------------------------
WEST VIRGINIA - 4.8%
AAA 5,000 West Virginia Housing Dev Fund Rev,
Ser D, 5.20%, 11/01/21 05/01/11 @ 100 5,003,350
- ----------------------------------------------------------------------------------------
WYOMING - 5.2%
BBB 3,000 Sweetwater Co., WY Solid Waste Disp Rev,
AMT, 5.60%, 12/01/35 12/01/15 @ 100 2,667,120
AA+ 3,100 Wyoming Cmnty Dev Auth Hsg Rev,
Ser 7, AMT, 5.10%, 12/01/38 12/01/16 @ 100 2,755,125
- ----------------------------------------------------------------------------------------
5,422,245
- ----------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS & NOTES - 162.1%
(Cost $171,938,853) 169,456,871
- ----------------------------------------------------------------------------------------
RATING REDEMPTION
(S&P)* VALUE (000) DESCRIPTION VALUE
- ----------------------------------------------------------------------------------------
PREFERRED SHARES - 2.0%
Aaa $ 2,000 Centerline Equity Issuer Trust, AMT, Ser A-4-1,
5.75%, 04/30/15 (remarketing), 144A
(Cost $2,000,000) 2,102,220
- ----------------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS - 164.1%
(Cost $173,938,853) 171,559,091
- ----------------------------------------------------------------------------------------
NUMBER OF
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.5%
MONEY MARKET FUND - 0.5%
557,482 JP Morgan Tax Free Money Market
(Cost $557,482) $ 557,482
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 164.6%
(Cost $174,496,335) 172,116,573
Other assets in excess of liabilities - 1.8% 1,859,579
Preferred Shares, at redemption value -
(-66.4% of Net Assets Applicable to Common
Shareholders or -40.4% of Total Net Investments) (69,450,000)
- ----------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS - 100.0% (3) $104,526,152
========================================================================================
* For securities not rated by Standard & Poor's Rating Group, the rating by
Moody's Investor Services, Inc. or Fitch Ratings is provided. (Unaudited)
** 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) Floating rate notes. The interest rate shown reflects the rate in effect on
July 31, 2008.
(2) Inverse floating rate investment. Interest rate shown is that in effect at
July 31, 2008. See Note 1 of the financial statements.
(3) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
Glossary:
AMBAC - Insured by Ambac Assurance Corporation
AMT - Alternative Minimum Tax
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
PSF - Guaranteed by Texas Permanent School Fund
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 July 31, 2008 these securities amounted to $3,020,620 which
represents 2.9% of net assets applicable to common shareholders.
See notes to financial statements.
12 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of ASSETS AND LIABILITIES | JULY 31, 2008
ASSETS
Investments, at value (cost $174,496,335) $172,116,573
Interest receivable 2,098,478
Other assets 21,516
- ----------------------------------------------------------------------------------------------------------------
Total assets 174,236,567
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES
Custodian Bank 900
Dividends payable - preferred shareholders 62,474
Investment advisory fee payable 39,043
Servicing agent fee payable 26,003
Administration fee payable 3,701
Accrued expenses and other liabilities 128,294
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 260,415
- ----------------------------------------------------------------------------------------------------------------
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 $104,526,152
================================================================================================================
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 depreciation on investments (2,379,762)
Accumulated undistributed net investment income 903,945
Accumulated net realized loss on investments and swaptions (6,477,246)
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $104,526,152
================================================================================================================
NET ASSET VALUE APPLICABLE TO COMMON SHAREHOLDERS (based on 7,935,591 common shares outstanding) $ 13.17
================================================================================================================
See notes to financial statements.
Annual Report | July 31, 2008 | 13
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of OPERATIONS | FOR THE YEAR ENDED JULY 31, 2008
INVESTMENT INCOME
Interest $ 9,316,896
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee $ 699,756
Servicing agent fee 466,504
Auction agent fees - preferred shares 190,368
Professional fees 120,652
Fund accounting 66,142
Administrative fee 49,342
Printing expenses 39,319
Trustees' fees and expenses 37,547
NYSE listing fee 21,228
Custodian fee 19,028
Transfer agent fee 18,559
Insurance 15,145
Line of credit fee 3,008
Other 27,946
Interest expense on floating rate note obligations 57,700
- ---------------------------------------------------------------------------------------------------------------
Total expenses 1,832,244
Investment advisory fees waived (228,766)
Servicing agent fees waived (152,511)
- ---------------------------------------------------------------------------------------------------------------
Net expenses 1,450,967
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 7,865,929
- ---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on:
Investments 1,216,680
Swaptions (5,333,500)
Net change in unrealized appreciation (depreciation) on:
Investments (9,547,429)
Swaptions 5,230,240
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and swaptions (8,434,009)
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO AUCTION MARKET PREFERRED SHAREHOLDERS FROM
Net investment income (2,731,245)
- ---------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $(3,299,325)
===============================================================================================================
See notes to financial statements.
14 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of CHANGES IN NET ASSETS |
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JULY 31, 2008 JULY 31, 2007
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS:
Net investment income $ 7,865,929 $ 7,548,722
Net realized gain (loss) on investments and swaptions (4,116,820) 269,281
Net change in unrealized appreciation (depreciation) on investments and swaptions (4,317,189) (975,445)
DISTRIBUTIONS TO AUCTION MARKET PREFERRED SHAREHOLDERS FROM NET INVESTMENT INCOME (2,731,245) (2,494,560)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets applicable to common shareholders resulting from operations (3,299,325) 4,347,998
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM
Net investment income (4,951,809) (4,614,546)
- ------------------------------------------------------------------------------------------------------------------------------------
Total change in net assets applicable to common shareholders (8,251,134) (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 $903,945
and $621,070, respectively.) $104,526,152 $112,777,286
====================================================================================================================================
See notes to financial statements.
Annual Report | July 31, 2008 15
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Financial HIGHLIGHTS |
AUGUST 27,
FOR THE FOR THE FOR THE FOR THE 2003*
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
PER SHARE OPERATING PERFORMANCE FOR ONE COMMON SHARE JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
ENDED YEAR ENDED THROUGH OUTSTANDING THROUGHOUT EACH PERIOD 2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.21 $ 14.25 $ 14.68 $ 13.83 $ 14.33**
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 0.99 0.95 0.90 0.92 0.78
Net realized and unrealized gain/(loss) on investments
and swaptions transactions (1.06) (0.10) (0.41) 0.87 (0.42)
Distributions to preferred shareholders from net investment income
(common share equivalent basis) (0.35) (0.31) (0.27) (0.16) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.42) 0.54 0.22 1.63 0.28
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM NET INVESTMENT INCOME (0.62) (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 $ 13.17 $ 14.21 $ 14.25 $ 14.68 $ 13.83
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $ 11.73 $ 12.63 $ 12.29 $ 13.15 $ 13.11
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN (A)
Net asset value -3.07% 3.80% 1.57% 12.03% 1.11%
Market value -2.29% 7.93% -1.60% 6.47% -8.62%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (thousands) $ 104,526 $ 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) 1.27% 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) 1.61% 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) 1.32% 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) 1.66% 1.78% 1.89% 1.77% 1.56%(b)
Ratio of net investment income to average net assets (c) 7.15% 6.56% 6.21% 6.34% 5.85%(b)
Portfolio turnover 29% 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 $ 62,626 $ 65,597 $ 65,693 $ 66,941 $ 64,516
Asset coverage per $1,000 of indebtedness (e) N/A $ 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.
N/A Not applicable.
(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 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Notes to FINANCIAL STATEMENTS | JULY 31, 2008
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 and preferred shares 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. Securities 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 over the life of each security.
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 July 31, 2008,
the Fund had no outstanding investments in floating rate notes purchased through
a transfer of a fixed rate bond to a dealer trust.
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.
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,
Annual Report | July 31, 2008 | 17
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
NOTES TO FINANCIAL STATEMENTS continued
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 and has since agreed to forego the scheduled step down in the contractual
waiver scheduled for September 1, 2008. These waivers are voluntary in nature
and can be discontinued or increased 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 and has since
agreed to forego the scheduled step down in the contractual waiver scheduled for
September 1, 2008. These waivers are voluntary in nature and can be discontinued
or increased 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 year ended July 31, 2008, the Fund paid approximately, $49,000 in fund
administration fees.
The Bank of New York Mellon ("BNY") acts as the Fund's custodian, accounting
agent, auction 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 auction
agent, BNY is responsible for conducting the auction of the preferred shares. 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 year ended July 31, 2008, aggregated $51,308,270 and $56,288,299,
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 July 31, 2008 is as
follows:
COST OF
INVESTMENTS GROSS TAX GROSS TAX NET TAX UNREALIZED
FOR TAX UNREALIZED UNREALIZED DEPRECIATION ON
PURPOSES APPRECIATION DEPRECIATION INVESTMENTS
- --------------------------------------------------------------------------------
$174,529,545 $3,518,220 ($5,931,192) ($2,412,972)
- --------------------------------------------------------------------------------
The 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, 2008, the components of accumulated earnings/(losses) (excluding
paid-in capital) on a tax basis were as follows:
ACCUMULATED UNREALIZED
UNDISTRIBUTED UNDISTRIBUTED CAPITAL AND APPRECIATION/
TAX-EXEMPT INCOME ORDINARY INCOME OTHER LOSSES (DEPRECIATION)
- --------------------------------------------------------------------------------
2008 $867,705 $84,592 ($6,492,388) ($2,412,972)
- --------------------------------------------------------------------------------
The cumulative timing differences under tax basis accumulated capital loss for
the year ended July 31, 2008 is due to investments in partnerships/trusts.
As of July 31, 2008, for federal income tax purposes, the Fund utilized $246,745
of capital loss carryforward to offset capital gains. The Fund had a remaining
capital loss carryforward of $2,009,787 available to offset possible future
capital gains. The capital loss carryforward is set to expire as follows:
$1,384,327 on July 31, 2013 and $625,460 on July 31, 2014.
Distributions paid to shareholders during the tax years ended July 31, 2008 and
2007 were characterized as follows for tax purposes:
TAX-EXEMPT ORDINARY LONG-TERM TOTAL
INCOME INCOME CAPITAL GAIN DISTRIBUTIONS
- --------------------------------------------------------------------------------
2008 $7,666,751 $16,303 $ - $7,683,054
2007 $7,105,271 $ 3,835 $ - $7,109,106
- --------------------------------------------------------------------------------
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. For the year ended July 31, 2008, the Fund incurred and will elect
to defer $4,482,601 as post-October losses.
At July 31, 2008, the following reclassifications were made to the capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations, which are primarily
due to the differences between book and tax treatment of investments in
partnerships. Net investment income, net realized loss and net assets were not
affected by these changes.
UNDISTRIBUTED NET ACCUMULATED
INVESTMENT INCOME NET REALIZED LOSS
- --------------------------------------------------------------------------------
$100,000 ($100,000)
- --------------------------------------------------------------------------------
18 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
NOTES TO FINANCIAL STATEMENTS continued
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 July 31, 2008. There is no tax
liability resulting from unrecognized tax benefits relating to uncertain income
tax positions taken or expected to be taken on the tax return for the fiscal
year-end July 31, 2008. Also, the Fund is not aware of any tax positions for
which it is reasonably possible that the total amount of unrecognized tax
benefits will significantly change in twelve months.
Tax years for 2004, 2005, 2006 and 2007 are still subject to examination by
major jurisdictions.
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 July 31, 2008, of
which the Adviser owned 6,981 shares. There were no transactions in common
shares for the year ended July 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 ("AMPS"), 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 July 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. Distributions of net realized capital gains, if any, are
made annually.
The broad auction-rate preferred securities market, including the Fund's AMPS,
has experienced considerable disruption since mid-February, 2008. The result has
been failed auctions on nearly all auction-rate preferred shares, including the
Fund's AMPS. A failed auction is not a default, nor does it require the
redemption of 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. 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 times 110% or the reference rate plus 1.10%.
Management will continue to monitor events in the marketplace and continue to
evaluate the Fund's leverage as well as any alternative that may be available.
The range of dividend rates on the Fund's AMPs for the year ended July 31, 2008,
were as follows:
SERIES LOW HIGH AT 7/31/08 NEXT AUCTION DATE
- --------------------------------------------------------------------------------
M7 3.300% 5.198% 4.354% 8/04/08
W28 3.454% 5.060% 3.495% 8/13/08
- --------------------------------------------------------------------------------
The Fund is subject to certain limitations and restrictions while the AMPs 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 the AMPs at their liquidation value plus any accrued dividends.
The AMPs, 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 the AMPs.
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 July 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 year ended July 31, 2008 was $59,675 with a related weighted average
interest rate of 5.04%.
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 released 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 July 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.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"). This standard is intended to enhance financial statement disclosures for
derivative instruments and hedging activities and enable investors to
understand: a) how and why a fund uses derivative instruments, b) how
derivatives instruments and related hedge fund items are accounted for, and c)
how derivative instruments and related hedge items affect a fund's financial
position, results of operations and cash flows. FAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. As of July 31, 2008, management does not believe the adoption
of FAS 161 will impact the financial statement amounts; however, additional
footnote disclosures may be required about the use of derivative instruments and
hedging items.
Note 9 - SUBSEQUENT EVENTS:
Dividend Declarations - Common Shareholders
The Fund has declared the following dividends to common shareholders:
RATE PER DECLARATION EX-DIVIDEND RECORD PAYABLE
SHARE DATE DATE DATE DATE
- --------------------------------------------------------------------------------
$0.084* 8/01/08 8/13/08 8/15/08 8/29/08
$0.056 9/02/08 9/11/08 9/15/08 9/30/08
- --------------------------------------------------------------------------------
* Takes into consideration the half month delay in payment due to a change in
the timing of the monthly dividend payment.
Subsequent to the Fund's fiscal year end, MBIA Insurance Corporation, an
affiliate of the Adviser, announced that it had entered into an agreement with
Financial Guaranty Insurance Company ("FGIC") to provide "cut through"
reinsurance for the majority of FGIC's US public finance portfolio. This "cut
through" reinsurance allows bondholders the ability to file claims directly with
either MBIA Insurance Corp. or FGIC. This transaction is expected to close prior
to the end of September 2008.
Annual Report | July 31, 2008 | 19
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MBIA CAPITAL/CLAYMORE MANAGED DURATION INVESTMENT GRADE MUNICIPAL FUND
We have audited the accompanying statement of assets and liabilities of
MBIA/Claymore Managed Duration Investment Grade Municipal Fund (the "Fund"),
including the portfolio of investments, as of July 31, 2008, and the related
statement of operations for the year then ended, and the statements of changes
in net assets for each of the two years in the period then ended, and financial
highlights for each of the three years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights of the Fund for the periods ended on or before July 31, 2005, were
audited by other auditors whose report dated September 27, 2005, expressed an
unqualified opinion on those financial statements.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of July 31, 2008, by correspondence with the custodian. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MBIA
Capital/Claymore Managed Duration Investment Grade Municipal Fund at July 31,
2008, the results of its operations for the year then ended, and the changes in
its net assets for each of the two years in the period then ended, and financial
highlights for each of the three years in the period then ended in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
September 19, 2008
20 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Supplemental INFORMATION | (unaudited)
FEDERAL INCOME TAX INFORMATION
Subchapter M of the Internal Revenue Code of 1986, as amended, requires the Fund
to advise shareholders within 60 days of the Fund's tax year end (July 31, 2008)
as to the federal tax status of dividends and distributions received by
shareholders during such tax period. Accordingly, please note that the majority
of dividends paid from net investment income from the Fund during the tax period
ended July 31, 2008 was federally exempt interest dividends. The Fund has
invested in municipal bonds containing market discount, whose accretion is
taxable and accordingly, 0.23% of the dividends paid from net investment income
during the tax period are attributable to this taxable income. Therefore the
Fund designated $7,666,751 as tax-exempt income.
Since the Fund's fiscal year is not the calendar year, another notification will
be sent with respect to calendar year 2008. In January 2009, you will be advised
on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the
dividends and distributions received during calendar year 2008. The amount that
will be reported will be the amount to use on your 2008 federal income tax
return and may differ from the amount which must be reported in connection with
the Fund's tax year ended July 31, 2008. Shareholders are advised to consult
with their tax advisers as to the federal, state and local tax status of the
income received from the Funds. In January 2009, an allocation of interest by
state will be provided which may be of value in reducing a shareholder's state
or local tax liability, if any.
TRUSTEES
The Trustees of the MBIA Capital/Claymore Managed Duration Investment Grade
Municipal Fund and their principal occupations during the past five years:
NUMBER OF
PORTFOLIOS
IN THE
NAME, ADDRESS,* YEAR OF TERM OF OFFICE** PRINCIPAL OCCUPATION DURING FUND COMPLEX***
BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND OVERSEEN OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Randall C. Barnes Since 2006 Investor (2001-present). Formerly, Senior Vice 42 None
Year of Birth: 1951 President & Treasurer, PepsiCo., Inc. (1993-1997),
Trustee 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, LLC, a law firm 45 None
Year of Birth: 1953 specializing in corporate law, estate planning and
Trustee 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 Retired. Formerly, Vice President, Manager and 42 None
Year of Birth: 1958 Portfolio Manager of Nuveen Asset Management
Trustee (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 Management LLC & MBIA 1 None
113 King Street Capital Management Corp.; Chief Investment
Armonk, NY 10504 Officer, MBIA Insurance Corp.
Year of Birth: 1961
Trustee and President
- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso++ Since 2003 Attorney. Formerly, Senior Managing Director and 45 None
Year of Birth: 1965 Chief Administrative Officer (2007-2008) and
Trustee General Counsel (2001-2007) of Claymore Advisors,
LLC and Claymore Securities, Inc. (2001-2008).
Formerly, Assistant General Counsel, John Nuveen
and Company, Inc. (1999-2000). Formerly, 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
Corp., the Fund's Investment Adviser.
++ Mr. Dalmaso is an "interested person" (as defined in section 2(a)(19) of
the 1940 Act) of the Fund because of his former position as an officer of,
and his equity ownership in, Claymore Securities, Inc., the Fund's
Servicing Agent and certain of its affiliates.
Annual Report | July 31, 2008 | 21
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:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell Since 2008 Senior Managing Director and Chief Investment Officer of Claymore
Year of birth: 1955 Advisors, LLC and Claymore Securities, Inc. (2008-present). Chief
Chief Executive Officer Executive Officer of certain other funds in the Fund Complex.
Formerly, Managing Director of Research, Nuveen Asset Management
(2000-2007).
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Robinson Since 2008 Senior Managing Director and General Counsel of Claymore Advisors,
Year of birth: 1959 LLC, Claymore Securities, Inc. and Claymore Group Inc. (2007-present).
Chief Legal Officer Chief Legal Officer of certain other funds in the Fund Complex.
Formerly, Associate General Counsel and Assistant Corporate Secretary
of NYSE Euronext, Inc. (2000-2007).
- ------------------------------------------------------------------------------------------------------------------------------------
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 Claymore
Chief Financial Officer, Chief Group Inc. (2005-2006). Managing Director of Claymore Advisors, LLC
Accounting Officer and Treasurer and Claymore Securities, Inc. (2003-2005). 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).
- ------------------------------------------------------------------------------------------------------------------------------------
Melissa J. Nguyen Since 2006 Vice President, Assistant General Counsel of Claymore Group Inc.
Year of Birth: 1978 (2005-present). Secretary of certain funds in the Fund Complex.
Secretary Previously, Associate, Vedder, Price, Kaufman & Kammholz, P.C.
(2003-2005).
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce Saxon Since 2006 Vice President - Fund Compliance Officer of Claymore Group, Inc. (Feb
Year of Birth: 1957 2006 - present). Previously, Chief Compliance Officer/Assistant
Chief Compliance Officer 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 Asset
113 King Street Management (2007-present). Formerly, Vice President and Portfolio
Armonk, NY 10504 Manager, Hartford Investment Management Company (2005-2007); Fixed
Year of Birth: 1970 Income Portfolio Analyst, Wellington Management Company (2000-2004).
Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
Leonard I. Chubinsky Since 2003 General Counsel and Secretary, MBIA Asset Management LLC & MBIA
113 King Street Capital Management Corp.; Deputy General Counsel, MBIA Insurance Corp.
Armonk, NY 10504
Year of Birth: 1948
Assistant Secretary and
Assistant Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
* 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.
22 | Annual Report | July 31, 2008
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
2008 Investment Management Agreement CONTRACT RE-APPROVAL | (unaudited)
On April 23, 2008, the Board of Trustees, including the Independent Trustees
(those trustees who are not "interested persons" as defined by the Investment
Company Act of 1940, as amended), of the Board of Trustees of MBIA
Capital/Claymore Managed Duration Investment Grade Municipal Fund (the "Fund")
met to consider the renewal of the investment advisory agreement (the "Advisory
Agreement") between the Fund and MBIA Capital Management Corp. (the "Adviser").
As part of their review process, the Independent Trustees were represented by
independent legal counsel. The Board of Trustees reviewed materials received
from the Adviser, Claymore Securities, Inc. ("Claymore Securities"), the
servicing agent of the Fund, Claymore Advisors, LLC ("Claymore Advisors" and,
together with Claymore Securities, "Claymore"), the administrator of the Fund,
the Fund and independent legal counsel with respect to contract renewal.
In preparation for their review, the Independent Trustees communicated with
independent legal counsel regarding the nature of information to be provided,
and independent legal counsel, on behalf of the Independent Trustees, sent a
formal request for information to the Adviser and Claymore. The Adviser and
Claymore provided extensive information in response to the request. Among other
information, the Adviser provided general information to assist the Independent
Trustees in assessing the nature and quality of services provided by the
Adviser; information comparing the investment performance, advisory fees and
total expenses of the Fund to a peer group of closed-end funds selected by the
Adviser and Claymore with investment objectives similar to those of the Fund
(the "Adviser Peer Group") and to a group of funds consisting of the Fund and
all leveraged closed-end general municipal debt (leveraged) funds, regardless of
asset size or primary channel of distribution (the "Lipper Peer Group") selected
by Lipper, Inc. ("Lipper"), an independent provider of investment company data;
and information about the Adviser's profitability and the effectiveness of the
compliance program adopted by the Adviser. On April 10, 2008, the Independent
Trustees met to discuss the information provided by the Adviser and Claymore.
Based upon its review, the Board of Trustees unanimously concluded that it was
in the best interest of the Fund and its shareholders to renew the Advisory
Agreement. In deciding to recommend the renewal of the Advisory Agreement, the
Board of Trustees did not identify any single factor or particular information
that, in isolation, was controlling. This summary describes the most important,
but not all, of the factors considered by the Board of Trustees.
With respect to the nature, extent and quality of the services provided by the
Adviser, the Board of Trustees considered the Adviser's response to various
inquiries, including regulatory and legal issues, the Adviser's Form ADV,
financial information regarding the Adviser and the financial support provided
to the Fund in the form of a fee waiver. The Board of Trustees also considered
the key personnel available to manage the portfolio. The Board of Trustees
considered the Adviser's ability to achieve the Fund's investment objective of
providing 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, and noted the Fund's distribution
yield of 4.95% as of January 31, 2008 (or 7.61% taxable equivalent yield for
taxpayers in the 35% tax bracket). The Board of Trustees also noted that the
Fund's monthly distribution rate has been increased twice since December 2006,
from $0.0470 to $0.0525, a total increase of 12%.
In considering investment performance, the Board of Trustees reviewed the Fund's
performance relative to the Lehman Municipal Index and the Lehman 15 Year
Municipal Index ("Lehman Indices"), the Adviser Peer Group and the Lipper Peer
Group. The Board of Trustees reviewed the Fund's total return on a net asset
value basis for the six months ended January 31, 2008 and the one-year,
three-year and since inception periods ended July 31, 2007. It was noted that
the Fund outperformed the Lehman Indices for the three-year period ended July
31, 2007 and was within a reasonable range of the Lehman Indices for the other
periods. The Trustees also noted that the Fund had outperformed on a net asset
value basis the Adviser Peer Group for the six-month period ended January 31,
2008 but underperformed the Adviser Peer Group for the one-year, three-year and
since inception periods ended July 31, 2007. In addition, the Board of Trustees
reviewed the Lipper information and noted that the Fund's performance on a net
asset value basis ranked in the third quintile among the Lipper Peer Group for
the one-year period ended February 29, 2008. They noted that the Lipper Peer
Group did not account for differences in leverage strategy, credit quality
and/or maturity, which made meaningful comparisons difficult.
They considered the Adviser's statement that the Fund's portfolio composition is
defensive in nature and that pursuant to the Fund's prospectus, the Fund holds
an investment grade portfolio and has used a hedging strategy to help protect
the portfolio against significant rises in interest rates (the "Hedging
Strategy"). With respect to the Hedging Strategy, the Trustees considered the
Adviser's statement that the Hedging Strategy had not benefited the Fund as
anticipated due to the interest rate environment since the Fund's inception.
They also noted that the Adviser had terminated the Fund's position in swaptions
in March 2008 and does not currently anticipate resuming the Hedging Strategy,
although it retains the flexibility to do so.
The Board of Trustees then considered the Fund's fees and expenses. In reviewing
the Fund's advisory fees, the Trustees factored in the servicing fee paid to
Claymore Securities since that function was typically included in the advisory
fees of the Adviser Peer Group. It was noted that the Adviser and Claymore
Securities were waiving a portion of their contractual fees until September 1,
2009 and the additional voluntary fee waivers by the Adviser and Claymore
Securities that became effective June 16, 2006. After giving effect to these
waivers, the Trustees noted that the combined advisory and servicing fee was
marginally above the average advisory fee (net of waivers) of the Adviser Peer
Group. In addition, the Trustees considered information and analyses prepared by
Lipper ("Lipper Expense Information") comparing the Fund's advisory fee and
overall expenses with those of funds in an expense group ("Lipper Expense
Group") selected and provided by Lipper for the one-year period ended February
29, 2008. The Lipper Expense Group consisted of the Fund and 11 other general
municipal debt (leveraged) funds, as classified by Lipper. The 12 funds in the
Lipper Expense Group had assets ranging from $87.6 million to $219.6 million.
The Lipper Expense Information showed that while the Fund's advisory fee on a
contractual basis was among the lowest, ranking in the first quintile among the
Lipper Expense Group, the Fund's actual total expenses as a percentage of the
Fund's common assets ranked in the fourth quintile and the Fund's actual total
expenses as a percentage of both the common and leveraged assets ranked in the
third quintile.
With respect to the profits realized by the Adviser from its relationship with
the Fund, the Board of Trustees reviewed information regarding the revenues the
Adviser received under the Advisory Agreement as well as the direct and
estimated indirect costs the Adviser incurred in providing the services to the
Fund.
With respect to potential economies of scale, the Trustees noted that, as a
closed-end fund, the Fund was not expected to materially increase in size.
Therefore the Board of Trustees did not consider economies of scale as a
principal factor in assessing the fee rates payable under the Agreement.
OVERALL CONCLUSIONS
Based upon all of the information considered and the conclusions reached, the
Board of Trustees determined that the terms of the Advisory Agreement continue
to be fair and reasonable and that the continuation of the Advisory Agreement is
in the best interests of the Fund and its shareholders.
Annual Report | July 31, 2008 | 23
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 Mellon
("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 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 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 Mellon, Attention: Stock Transfer
Department, 101 Barclay 11E, New York, New York 10286, Phone Number:
866-488-3559.
24 | Annual Report | July 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.
** Trustee is an "interested person" of the Fund as defined in the Investment
Company Act of 1940, as amended, as a result of his former position as an
officer of, and his equity ownership in, Claymore Securities, Inc., the
Fund's Servicing Agent and certain of its affiliates.
OFFICERS
Clifford D. Corso*
President
J. Thomas Futrell
Chief Executive Officer
Kevin M. Robinson
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
Leonard I. Chubinsky
Assistant Secretary and Assistant Vice President
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 Mellon
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 Mellon, 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 procedures related to
portfolio securities is available without charge, upon request, by calling the
Fund at (866) 819-5301.
Information regarding how the Fund voted proxies for portfolio securities, if
applicable, during the most recent 12-month period ended June 30, is also
available, without charge and upon request by calling (866) 819-5301 or by
accessing the Fund's Form N-PX on the U.S. Securities and Exchange Commission's
("SEC") website at www.sec.gov or www.claymore.com.
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 www.sec.gov or www.claymore.com . 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.sec.gov.
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.
Annual Report | July 31, 2008 | 25
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 $60 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.
26 | Annual Report | July 31, 2008
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MBIA CAPITAL MANAGEMENT CORP.
113 King Street
Armonk, NY 10504
MZF
LISTED
NYSE
MZF-AR-0708
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions.
(b) No information need be disclosed pursuant to this paragraph.
(c) During the registrant's fiscal year ended July 31, 2008, the Code of
Ethics was not amended.
(d) The registrant has not granted a waiver or an implicit waiver to its
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions from a provision of its Code of Ethics during the period
covered by this report.
(e) Not applicable.
(f) (1) The registrant's Code of Ethics is attached hereto as an exhibit.
(2) Not applicable.
(3) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that it has at least one audit
committee financial expert serving on its audit committee (the "Audit
Committee"), Randall C. Barnes. Mr. Barnes is an independent Trustee for
purposes of this Item 3 of Form N-CSR. Mr. Barnes qualifies as an audit
committee financial expert by virtue of his experience obtained as President of
Pizza Hut International and Senior Vice President of Strategic Planning for
PepsiCo. In his role as President, he supervised the CFO and Controller of Pizza
Hut International. In Mr. Barnes' role as Senior Vice President of Strategic
Planning, he presented monthly earnings estimates to the CEO while working
closely with the corporate controller.
(Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for purposes of Section 11 of the Securities Act of
1933, as amended, as a result of being designated or identified as an audit
committee financial expert. The designation or identification of a person as an
audit committee financial expert does not impose on such person any duties,
obligations, or liabilities that are greater than the duties, obligations, and
liabilities imposed on such person as a member of the Audit Committee and Board
of Trustees in the absence of such designation or identification. The
designation or identification of a person as an audit committee financial expert
does not affect the duties, obligations or liability of any other member of the
Audit Committee or Board of Trustees.)
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees: the aggregate fees billed for professional services rendered by
the principal accountant for the audit of the registrant's annual financial
statements or services that are normally
provided by the accountant in connection with statutory and regulatory filings
or engagements were $34,000 and $33,000 for the fiscal years ending July 31,
2008 and July 31, 2007, respectively.
(b) Audit-Related Fees: the aggregate fees billed for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item, include agreed upon procedures
reports performed for rating agencies were $6,300 and $5,500 for the fiscal
years ending July 31, 2008 and July 31, 2007, respectively.
(c) Tax Fees: the aggregate fees billed for professional services rendered by
the principal accountant for tax compliance, tax advice and tax planning,
including federal, state and local income tax return preparation and related
advice and determination of taxable income and miscellaneous tax advice were
$6,000 and $8,000 for the fiscal years ending July 31, 2008 and July 31, 2007,
respectively.
(d) All Other Fees: the aggregate fees billed for products and services provided
by the principal accountant, other than the services reported in paragraphs 4(a)
and 4(c) were $0 and $0 for the fiscal years ending July 31, 2008 and July 31,
2007, respectively.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
(e) Audit Committee Pre-Approval Policies and Procedures:
(i) The Audit Committee reviews, and in its sole discretion,
pre-approves, pursuant to written pre-approval procedures (A) all engagements
for audit and non-audit services to be provided by the principal accountant to
the registrant and (B) all engagements for non-audit services to be provided by
the principal accountant (1) to the registrant's investment adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and (2) to any entity
controlling, controlled by or under common control with the registrant's
investment adviser that provides ongoing services to the registrant; but in the
case of the services described in subsection (B)(1) or (2), only if the
engagement relates directly to the operations and financial reporting of the
registrant; provided that such pre-approval need not be obtained in
circumstances in which the pre-approval requirement is waived under rules
promulgated by the Securities and Exchange Commission or New York Stock Exchange
listing standards. Sections IV.C.2 and IV.C.3 of the Audit Committee's revised
Audit Committee Charter contain the Audit Committee's Pre-Approval Policies and
Procedures and such sections are included below.
IV.C.2 Pre-approve any engagement of the independent auditors to
provide any non-prohibited services to the Trust, including
the fees and other compensation to be paid to the independent
auditors (unless an exception is available under Rule 2-01 of
Regulation S-X).
(a) The Chairman or any member of the Audit Committee may
grant the pre-approval of services to the Fund for
non-prohibited services up to $10,000. All such
delegated pre-approvals shall be presented to the
Audit Committee no later than the next Audit
Committee meeting.
IV.C.3 Pre-approve any engagement of the independent auditors,
including the fees and other compensation to be paid to the
independent auditors, to provide any non-audit services to
the Adviser (or any "control affiliate" of the Adviser
providing ongoing services to the Trust), if the engagement
relates directly to the operations and financial reporting of
the Trust (unless an exception is available under Rule 2-01 of
Regulation S-X).
(a) The Chairman or any member of the Audit Committee may
grant the pre-approval for non-prohibited services to
the Adviser up to $10,000. All such delegated
pre-approvals shall be presented to the Audit
Committee no later than the next Audit Committee
meeting.
(ii) None of the services described in each of Items 4(b) through (d)
were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X.
(f) The percentage of hours expended on the principal accountant's
engagement to audit the Fund's financial statements for the most recent
fiscal year attributable to work performed by persons other than the
principal accountant's full-time, permanent employees was 0%.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, the registrant's investment
adviser and/or any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the
registrant (not including a sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) that directly related to the operations and
financial reporting of the registrant were $12,300 and $13,500 for the
fiscal years ending July 31, 2008 and July 31, 2007, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT.
(a) The Audit Committee was established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The
Audit Committee of the Registrant is comprised of Ronald A. Nyberg,
Ronald E. Toupin, Jr., and Randall C. Barnes.
(b) Not applicable.
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.
The Registrant has delegated the voting of proxies relating to its voting
securities to its investment adviser, MBIA Capital Management Corp.(the
"Adviser"). The Proxy Voting Policies and Procedures of the Adviser (the "Proxy
Voting Policies") are included as an exhibit hereto.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) A team of investment professionals at MBIA Capital Management Corp.
shares primary responsibility for the day-to-day portfolio management of the
Fund. The following provides information regarding the members of the team.
------------------------------- ---------------- ----------------------------------------------------------------
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 of Advisory Services Portfolio Management, MBIA Asset
Management (2007-present). Formerly, Vice President and
Portfolio Manager, Hartford Investment Management Co.
(2005-2007); Fixed Income Portfolio Analyst, Wellington
Management Co. (2000-2004).
James B. DiChiaro 2007 Vice President and Portfolio Manager, MBIA Asset Management
(1999-present).
(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 July 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 3 $ 292 million - - 40 $37.2 billion
Jeffrey S. MacDonald 2 $ 200 million - - 33 $ 2.8 billion
James B. DiChiaro 2 $ 200 million - - 1 $ 0.1 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 July 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 cannot be completely filled or filled at different prices.
(a) (3) Compensation. As of July 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
firm, 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 July 31, 2008:
DOLLAR RANGE OF
EQUITY
SECURITIES IN
NAME OF PORTFOLIO MANAGER FUND
- -----------------------------------------------------------------------------
Clifford D. Corso None
Jeffrey S. MacDonald None
James B. DiChiaro None
(b) Not applicable.
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 30a-3(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 as required
by Rule 30a-3(b) under the Investment Company Act of 1940, 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) 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) Code of Ethics for Chief Executive and Senior Officers.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(a) of the Investment Company Act.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(b) of the Investment Company Act.
(c) Proxy Voting Policies and Procedures.
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/ J. Thomas Futrell
---------------------------------------------------
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: October 6, 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/ J. Thomas Futrell
---------------------------------------------------
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: October 6, 2008
By: /s/ Steven M. Hill
---------------------------------------------------
Name: Steven M. Hill
Title: Treasurer and Chief Financial Officer
Date: October 6, 2008