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, 2009
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, 2009
MBIA CAPITAL/CLAYMORE MANAGED DURATION |
INVESTMENT GRADE MUNICIPAL FUND | MZF
[PHOTO OF A LAKE]
[LOGO MBIA] [LOGO]
ASSET MANAGEMENT(SM) CLAYMORE(SM)
WWW.CLAYMORE.COM/MZF
... YOUR STREAM TO THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
MBIA CAPITAL/CLAYMORE MANAGED DURATION
INVESTMENT GRADE MUNICIPAL FUND
[PHOTO OF A LAKE]
MZF | MBIA CAPITAL/CLAYMORE
LISTED | MANAGED DURATION
NYSE | INVESTMENT GRADE
MUNICIPAL FUND
[LOGO MBIA] [LOGO]
ASSET MANAGEMENT(SM) CLAYMORE (SM)
There can be no assurence the fund will achieve its investment objective.
The value of the fund will fluctuate with the value of the underlying securites.
Historically, closed-end funds often trade at a discount to their net
asset value.
NOT FDIC-INSURED o NOT BANK-GUARANTEED o MAY LOSE VALUE
The shareholder report you are reading right now is just the beginning of the
story. Online at WWW.CLAYMORE.COM/MZF, 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, 2009
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, 2009.
The Fund's investment objective is to provide common shareholders with high
current income exempt from regular Federal income tax while seeking to protect
the value of the Fund's assets during periods of interest rate volatility. Under
normal market conditions, the Fund seeks to achieve these objectives by
investing at least 80% of its total assets in municipal bonds of
investment-grade quality and normally investing substantially all of its total
assets in securities of investment-grade quality.
The Fund's Investment Adviser, MBIA Capital Management Corp. ("MBIA"), is owned
by MBIA Asset Management Group, which manages fixed-income products with a total
value of approximately $43 billion as of June 30, 2009. 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. In total, Claymore entities have provided supervision, management, and/or
servicing on approximately $11.3 billion in assets as of June 30, 2009. Claymore
Securities, Inc. is an innovator in closed-end funds, unit investment trusts and
exchange-traded funds.
On July 17, 2009, Claymore Group Inc., parent of Claymore Securities, Inc.,
entered into an Agreement and Plan of Merger between and among Claymore Group
Inc., Claymore Holdings, LLC and GuggClay Acquisition, Inc., (with the latter
two entities being wholly-owned, indirect subsidiaries of Guggenheim Partners,
LLC ("Guggenheim")) whereby GuggClay Acquisition, Inc. will merge into Claymore
Group Inc. which will be the surviving entity ("Guggenheim Transaction"). The
parties intend that the completed merger will result in a change-of-control
whereby Claymore Group Inc. and its subsidiaries, including Claymore Securities,
Inc., will become indirect, wholly-owned subsidiaries of Guggenheim. The
transaction is not expected to affect the daily operations of the Fund or the
investment management activities of MBIA.
Claymore Advisors LLC serves as Administrator for the Fund. While the
administration agreement does not terminate automatically as a result of the
Guggenheim Transaction, the Fund's Board of Trustees will continue to monitor
the services received under the agreement to ensure that the continuation of
this agreement remains in the best interests of shareholders. The servicing
agreement between the Fund and Claymore Securities, Inc. will automatically
terminate as a result of the Guggenheim Transaction. The Fund's Boards of
Trustees is expected to consider a new servicing agreement for the Fund;
however, shareholder approval of a new servicing agreement is not required.
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, 2009, the Fund returned 2.83% on an NAV basis. This represents a
change in NAV to $12.73 on July 31, 2009, compared with $13.17 on July 31, 2008.
For the same period, the Fund provided a total return of 8.65% based on market
price. This represents a closing market price of $11.87 on July 31, 2009 versus
$11.73 on July 31, 2008. Past performance is not a guarantee of future results.
While the Fund's investment performance is one of the primary factors in
determining the
Annual Report | July 31, 2009 | 3
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
DEAR SHAREHOLDER continued
NAV, the market price is determined by market forces, and it may be higher or
lower than the NAV at any particular time. Over the long term, we believe that
the Fund's investment performance will be reflected in the market price.
On August 1, 2008, the Fund announced an increase in the monthly dividend from
$0.0525 to $0.056 per share. At the same time, the Fund announced an amendment
to the dividend schedule so that the dividend is declared on the first business
day of each month and payable on the last business day of the month. In order to
facilitate this change, the August distribution represented one and a half
month's worth of dividends. Accordingly, the August distribution was $0.0840 per
share. Dividends of $0.056 per share were paid in each month from September 2008
through January 2009. On February 2, 2009, the Fund announced a dividend
increase to $0.061 per month, beginning with the February 2009 distribution.
Dividends of $0.061 per share were paid in each month from February 2009 through
July 2009. On August 3, 2009, the Fund announced a dividend increase of to
$0.075 per month, beginning with the August 2009 distribution. The increased
dividend represents an annualized distribution rate of 7.58% based on the
closing market price of $11.87 on July 31, 2009.
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 25 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.
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, 2009 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.claymore.com/mzf.
Sincerely,
/s/ Clifford D. Corso
Clifford D. Corso
President
MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
4 | Annual Report | July 31, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
QUESTIONS & ANSWERS |
CLIFFORD D. CORSO
PORTFOLIO MANAGER
Clifford D. Corso is Executive Vice President and Chief Investment Officer of
MBIA Inc. and President of MBIA Asset Management ("MBIA"). His responsibilities
include oversight and direction of MBIA Inc. and its subsidiaries' investments.
He manages the company's fixed-income asset management platform, directs the
investment of all fixed income assets under management and oversees the
portfolios of MBIA Insurance Corp. and its affiliates. In addition, 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. Mr. Corso is also an active member of the Board of
Directors for the MBIA Foundation, Inc. Before joining MBIA in 1994, he was the
co-head of fixed income at a subsidiary of Alliance Capital Management.
Throughout his 25-year career, Mr. Corso has managed a wide array of fixed
income products, including corporate, asset-backed, government, mortgage and
derivative products. Mr. Corso has a bachelor's degree from Yale University and
a master's degree from Columbia University. He holds his Series 7, 24, and 63
licenses from the Financial Industry Regulatory Authority (FINRA).
JEFFREY S. MACDONALD, CFA
PORTFOLIO MANAGER
Mr. MacDonald, who joined MBIA in 2007, is a Director of MBIA and 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 of MBIA. He currently
manages the company's municipal bond portfolios (taxable and tax-exempt) and has
extensive experience managing taxable money-market portfolios. Mr. DiChiaro
began his career at MBIA working with the Conduit group structuring medium-term
notes for Meridian Funding Company and performing the treasury role for an MBIA
sponsored asset-backed commercial paper conduit, Triple-A One Funding
Corporation. Prior to joining MBIA he worked for Merrill Lynch supporting their
asset-backed securities trading desk. Mr. DiChiaro has a bachelor's degree from
Fordham University and a master's degree from Pace University.
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 fiscal year ended July 31, 2009.
- --------------------------------------------------------------------------------
PLEASE PROVIDE AN OVERVIEW OF THE MUNICIPAL MARKET DURING THE 12-MONTH PERIOD
ENDED JULY 31, 2009.
In the semi-annual report for this Fund, published six months ago, economic and
market conditions were described as extremely challenging. Ongoing problems in
the real estate market and the limited availability of credit placed tremendous
pressure on asset prices, adding stress to the slowing economy. After the
September 2008 failure of Lehman Brothers, the credit markets became so
intolerant of risk that they were essentially frozen. As fearful investors
sought the protection of U.S. Treasury securities, spreads between Treasury
securities and bonds with any degree of credit risk widened dramatically, and
there were pronounced declines in the market values of many asset classes.
The economy continued to contract, but has recently shown signs of
stabilization. There has been negative growth in real gross domestic product
("GDP"), a broad measure of economic activity, for four consecutive quarters,
but the rate of decline appears to be moderating. After declining by 5.4% in the
fourth quarter of 2008 and 6.4% in the first quarter of 2009, the initial report
is that GDP declined by 1.0% in the second quarter of 2009 and most economists
are now forecasting that growth may resume before the end of 2009.
The credit crisis had a negative effect on the tax-exempt bond market, which
performed poorly during the last few months of 2008. The illiquid conditions
brought the primary market to a standstill in the late third quarter, while
abundant secondary market offerings sparked little institutional interest,
causing tax-exempt yields to rise. With an ongoing real estate slump and a
weakening economy, investors grew worrisome that the tax revenues of many state
and local governments would fall, creating additional budget deficits. A heavy
new issue calendar and selling from leveraged investors, mutual funds, and
insurance companies pressured the liquidity-strained market.
On December 16, 2008, the Federal Reserve Board (the "Fed") reduced the target
rate for federal funds to a range of 0 to 0.25%, which spurred buying of
longer-term municipal bonds as investors reached for yield. Also in December
2008, the Fed announced plans for a repurchase of up to $300 billion of U.S.
Treasury securities. That announcement created concern that rates on U.S.
Treasury securities could head towards zero, an unease that carried into the
market for tax-exempt bonds, which were trading at record yields versus U.S.
Treasuries. A rally in the tax-exempt market ensued which continued into early
2009, as
Annual Report | July 31, 2009 | 5
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
portfolio managers looked to reinvest coupon payments and found little supply
from the primary markets. In March, Fed Chairman Ben Bernanke appeared on "60
Minutes" and mentioned that he saw "green shoots" in the economy. An economy
that was still deteriorating, but at a decelerating pace, provided an impetus to
break the negative sentiment among investors and helped the capital markets to
improve.
Spreads in the tax-exempt and taxable markets reached their peaks in the first
quarter of 2009, and have narrowed somewhat since.(1) At their widest, spreads
indicated an economy that was in free-fall, and despite a significant narrowing,
spreads remain wide relative to historical averages, even in comparison to
previous recessions. This could indicate that municipal bonds are still
attractive relative to U.S. Treasury securities.
For the 12-month period ended July 31, 2009, the return of the Barclays
Municipal Bond Index, a widely used measure of the municipal bond market as a
whole, was 5.11%.
- --------------------------------------------------------------------------------
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, 2009, the Fund provided a total return based on market price of
8.65% and a total return of 2.83% based on NAV. As of July 31, 2009, the Fund's
market price of $11.87 represented a discount of 6.76% to NAV of $12.73. As of
July, 31, 2008 the Fund's market price of $11.73 represented a discount of
10.93% to NAV of $13.17. While the Fund's investment performance is one of the
primary factors in determining the NAV, the market price is determined by market
forces, and it may be higher or lower than the NAV at any particular time. Over
the long term, we believe that the Fund's investment performance will be
reflected in the market price. Past performance is not a guarantee of future
results.
The Fund's NAV return was less than the return of the Barclays Municipal Bond
Index largely because it is overweight relative to the index in bonds rated
single A and below, including the more credit sensitive sectors of the market
such as health care, development, and tobacco. Although these securities have
performed very well in recent months, they performed poorly in the difficult
market conditions of late 2008, which are discussed above. While market
conditions have improved, spreads have not yet returned to the levels that
prevailed before the September 2008 failure of Lehman Brothers, and these more
credit-sensitive bonds underperformed higher rated bonds for the 12-month period
ended July 31, 2009.
The market value of the Fund's shares fluctuates and it may be higher or lower
than the Fund's NAV at a given point in time. The current discount to NAV
provides an opportunity for investors to purchase shares of the Fund below the
market value of the securities in the underlying portfolio. MBIA believes that,
over the long term, the Fund's investment performance will be reflected in the
market price.
- --------------------------------------------------------------------------------
PLEASE DISCUSS THE FUND'S DIVIDENDS OVER THE LAST YEAR.
The Fund pays monthly dividends, and the monthly dividend was increased twice
during the fiscal year that ended July 31, 2009, and again after the end of the
fiscal year. On August 1, 2008, the Fund announced a 6.67% increase in the
monthly dividend to $0.056 per share. At the same time, the Fund announced an
amendment to the dividend schedule so that the dividend is declared on the first
business day of each month and payable on the last business day of the month. In
order to facilitate this change, the August 2008 distribution represented one
and a half month's worth of dividends. Accordingly, the total August 2008
distribution was $0.0840 per share. Dividends of $0.056 per share were paid in
each month from September 2008 through January 2009.
On February 2, 2009, the Fund announced a dividend increase to $0.061 per month,
beginning with the February 2009 distribution. On August 3, 2009, the Fund
announced a dividend increase to $0.075 per month, beginning with the August
2009 distribution. The increased dividend represents an annualized distribution
rate of 7.58% based on the closing market price of $11.87 on July 31, 2009.
- --------------------------------------------------------------------------------
HOW IS THE PORTFOLIO STRUCTURED, AND WHAT HAS THAT STRUCTURE MEANT FOR
PERFORMANCE?
The Fund has a high quality portfolio that is diversified across issuers,
sectors and states. In selecting securities for the portfolio, ratings provided
by rating agencies are considered, and a team of credit analysts at MBIA
evaluates the credit quality of sectors and individual issuers. Thorough credit
analysis by MBIA's team of analysts helps ensure that the desired level of
quality is maintained in the Fund's portfolio while yield is added, as
appropriate, by buying high quality bonds at what are considered to be
attractive prices.
For the majority of the fiscal year, the duration of the portfolio has been
maintained at approximately eight years; as of July 31, 2009 the portfolio's
average duration was 8.12 years, compared to 8.33 years at the end of the prior
fiscal year.(2) In late 2008, municipal bond prices fell, reflecting the excess
supply in the market, which caused interest rates to rise. In response to rising
tax-exempt interest rates, the portfolio's duration was shortened slightly by
selling longer-duration securities. As of January 31, 2009, the average duration
of the Fund's portfolio was 7.62 years.
(1) Spread refers to the difference between the interest rate on Treasury
securities and non-Treasury securities that are similar in all respects
except credit quality.
(2) Duration is a measure of the interest rate sensitivity of a bond or
fixed-income portfolio which incorporates time to maturity and coupon
amount. The longer the duration, the greater the interest rate risk.
6 | Annual Report | July 31, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
Over the 12 months ended July 31, 2009, the Fund's position in pre-refunded
bonds has been gradually reduced, with a corresponding increased allocation to
securities with slightly lower ratings and higher yields.(3) The purpose of this
undertaking is to take advantage of the massive widening in credit spreads in an
effort to add yield to the portfolio. As of July 31, 2009, the average credit
rating of bonds in the portfolio was A2/A (as rated by Moody's Investors Service
and Standard & Poor's, the major rating agencies for municipal bonds), compared
with A1/A+ as of January 31, 2009, and A2/A as of July 31, 2008.
The profile of the Fund's credit ratings can be somewhat misleading with regard
to the strategy of moving the portfolio toward lower-rated, higher-yielding
bonds. A year ago, bonds rated AAA represented 15.2% of long term investments;
as of July 31, 2009, AAA-rated bonds represent 18.9%. The focus of new
investments has been on single-A and BBB-rated bonds; however, some of the bonds
purchased have been insured by entities with AAA ratings. In evaluating the
securities, MBIA's focus is on the quality of the underlying credit, and the
yield on these bonds is primarily reflective of the quality of underlying
credit, rather than the insurance feature. Most of the high quality bonds that
have been sold are AA-rated pre-refunded bonds; this accounts for the apparent
increase in AAA-rated bonds and reduction in AA-rated bonds. There was an
increase in the Fund's holdings of single-A and BBB-rated securities. Some
municipal securities held in the Fund are insured as to timely payment of
principal and interest when due, by a private insurance company. This insurance
does not, however, guarantee the prices of these securities whose value will
fluctuate with changes in interest rates and market conditions.
Examination of the sector breakdown of the portfolio is perhaps more instructive
than looking at credit ratings. As of July 31, 2008, pre-refunded bonds
constituted 19.1% of the portfolio, representing the largest sector. At the end
of July 2009, pre-refunded bonds represented just 10.1% of the portfolio. This
reduction reflects the shift away from these pre-refunded securities, which are
considered to carry no credit risk, into sectors where spreads have experienced
excessive widening. The sector that has increased the most is the medical or
health care sector, which jumped from 11.5% to 18.4%. This shift has had a
positive impact on performance and has added incremental yield to the portfolio.
Other sectors with notable increases are general obligation, power and
water/sewer. In the current stressful environment, MBIA has increased the Fund's
exposure to bonds backed by essential services, which also added to return, and
provided increased yield. MBIA has also increased the diversification of the
portfolio among issuers and sectors to help balance the credit risks. The higher
yield created by these trades made it possible to raise the dividend several
times over past year, as discussed above.
The Fund's position in tobacco bonds, 5.8% of total investments (including
enhanced tobacco) as of July 31, 2009, detracted from performance, as these
bonds underperformed. There are several possible reasons for underperformance of
tobacco bonds, including reduced demand for tobacco in a poor economic
environment, higher state taxes on tobacco, and potential anti-tobacco
legislation. Also negative for total return, though positive for book yield, was
the Fund's position in development bonds (IDR/IRB), 13.7% of total investments
as of July 31, 2009. Most of these bonds are backed by corporations in cyclical
industries that typically exhibit poor performance during economic downturns.
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PLEASE EXPLAIN THE FUND'S LEVERAGE STRATEGY AND ITS EFFECT ON
FUND RETURNS.
The Fund, like many closed-end funds, utilizes leverage (borrowing) as part of
its investment strategy. The purpose of leverage is to finance the purchase of
additional securities that provide increased income and potentially greater
appreciation potential to common shareholders than could be achieved from a
portfolio that is not leveraged. However, when leveraged investments fall in
price, the leverage magnifies the reduction in overall return. There is no
guarantee that the Fund's leverage strategy will be successful and the Fund's
use of leverage may cause the Fund's NAV and market price of common shares to be
more volatile. Leverage adds value only when the return on securities purchased
exceeds the cost of leverage.
As of July 31, 2009, the Fund had $69.45 million of leverage outstanding in the
form of Auction Market Preferred Shares ("AMPS"). AMPS holders receive a
dividend that is reset every seven or 28 days, depending on the tranche. The
term tranche is used to describe a specific series of AMPS. The Fund has two
series of AMPS, one that auctions each week and one that auctions every 28 days.
The broad auction-rate preferred securities market remains essentially frozen,
as it has been since February 2008. The auctions for nearly all auction-rate
preferred shares, including those issued by the Fund, continue to fail.
Investors need to be aware that a failed auction is not a default, nor does it
require the redemption of a fund's auction-rate preferred shares.
Provisions in the offering documents of the Fund's AMPS provide a mechanism to
set a maximum rate in the event of a failed auction, and thus, investors will
continue to be entitled to receive payment for holding these AMPS. This maximum
rate is based on a short-term tax-exempt index. During the 12-month period ended
July 31, 2009, the cost of leverage was generally in the range of 1.25% to
1.50%, significantly lower than the book yield(4) on the Fund's portfolio, which
was approximately 5.60%. For the 12 months ended July 31, 2009, the impact of
leverage was positive. MBIA will continue to evaluate the benefits and impacts
of leverage on the Fund as well as explore other methods of utilizing leverage.
(3) 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.
(4) The book yield is the annual income on the portfolio divided by the cost of
the securities held in the portfolio.
Annual Report | July 31, 2009 | 7
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
QUESTIONS & ANSWERS continued
- --------------------------------------------------------------------------------
HOW ARE CONDITIONS IN THE MUNICIPAL MARKET NOW, AND WHAT IS THE OUTLOOK FOR THE
MONTHS AHEAD?
In describing conditions in the municipal market, it helps to look at both the
fundamental and technical factors influencing the market. The fundamentals of
the market remain challenging. Tax receipts, whether personal income tax,
property tax, or corporate taxes, are falling and unemployment is on the rise.
Reduced tax receipts can stress already pressured budgets and erode the credit
quality of certain bonds. To counter these forces, many states and local
governments have been forced to raise taxes and reduce spending. In California,
a state that is a large issuer of municipal bonds, the struggle to balance the
budget has led to rather dramatic cuts in areas such as education. Many
observers believe that other states will find it necessary to take similar
measures.
In contrast, the technical aspects of the municipal market have improved through
the first half of calendar year 2009 and remain very positive. There have been
substantial flows into tax-exempt mutual funds during the first six months of
2009, perhaps because higher tax rates increase the attractiveness of tax-exempt
income and this means greater demand for municipal bonds thus pushing the prices
up.
A more important technical factor is an element of the Obama administration's
American Recovery and Reinvestment Act, Build America Bonds, which are
essentially taxable municipal bonds with a 35% tax credit offered to the issuer,
from the U.S. Treasury, for each coupon payment. These bonds represent the same
credits as tax-exempt bonds and enable traditional tax-exempt issuers to tap
into a deeper and more liquid taxable investor base. This taxable alternative
provides a significant savings to the issuer. It has been estimated that Build
America Bonds may absorb approximately 15% to 20% of the supply from the
tax-exempt market. So the market's earlier fear of overwhelming supply, as
states issue bonds to fill budget gaps, was somewhat alleviated, because states
have the option of issuing Build America Bonds.
Another technical aspect is that tax-exempt rates, though higher than some
historical averages, are relatively low, and have maintained a downward trend in
2009. This enables certain issuers who were once closed out of the market due to
high rates to begin issuing again.
Despite a weakening employment picture, it seems reasonable to believe that the
economy will improve gradually, with corresponding benefits for states and other
issuers. MBIA believes that the Fund is well positioned for the current
environment, with a portfolio of high quality securities that is well
diversified across issuers, sectors and states.
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INDEX DEFINITIONS
All indices are unmanaged and are not investable.
The Barclays Municipal Bond Index is a rules-based, market-value-weighted index
engineered for the long-term tax-exempt bond market. To be included in the
index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least
two of the following ratings agencies: Moody's, S&P, Fitch.
- --------------------------------------------------------------------------------
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.
Leverage creates certain risks for common shareholders, including higher
volatility of both the net asset value and the market value of the common
shares, because common shareholders bear the effects of changes in the value of
the Fund's investments. Leverage also creates the risk that the investment
return on the Fund's common shares will be reduced to the extent the dividends
paid on preferred shares and other expenses of the preferred shares exceed the
income earned by the Fund on its investments. If the Fund is liquidated,
preferred shareholders will be entitled to receive liquidating distributions
before any distribution is made to common shareholders. When the Fund uses
leverage, the fees paid to MBIA-CMC and the Servicing Agent will be higher than
if leverage was not used.
There also risks associated with investing in Auction Market Preferred Shares or
AMPS. The AMPS are redeemable, in whole or in part, at the option of the Fund on
any dividend payment date for the AMPS, and will be subject to mandatory
redemption in certain circumstances. The AMPS will not be listed on an exchange.
You may only buy or sell AMPS through an order placed at an auction with or
through a broker-dealer that has entered into an agreement with the auction
agent and the Fund or in a secondary market maintained by certain
broker-dealers. These broker-dealers are not required to maintain this market,
and it may not provide you with liquidity.
8 | Annual Report | July 31, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Fund SUMMARY | AS OF JULY 31, 2009 (unaudited)
FUND INFORMATION
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: MZF
Initial Offering Date: August 27, 2003
Closing Market Price as of 07/31/09: $11.87
Net Asset Value as of 07/31/09: $12.73
Yield on Closing Market Price as of 07/31/09: 7.58%(4)
Taxable Equivalent Yield on Closing Market Price as of 07/31/09(1): 11.66%(4)
July Monthly Distribution Per Common Share(2): $0.0610
Leverage as of 07/31/09(3): 41%
Percentage of total investments subject to alternative minimum tax: 22.8%
- --------------------------------------------------------------------------------
(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 $0.075 per share announced
in August 2009.
TOTAL RETURNS
- --------------------------------------------------------------------------------
(INCEPTION 8/27/03) MARKET NAV
- --------------------------------------------------------------------------------
One Year 8.65% 2.83%
Three Year - average annual 4.64% 1.14%
Five Year - average annual 3.81% 3.32%
Since Inception - average annual 1.50% 2.94%
- --------------------------------------------------------------------------------
Pie Chart:
SECTOR CONCENTRATION*
Health Care 18.4%
IDR/IRB 13.7%
Housing 11.5%
Prerefunded 10.1%
General Obligation 6.0%
Power 5.7%
Higher Education 5.5%
Transportation 4.2%
Utility 3.8%
Water and Sewer 3.7%
Lease Backed Rev Bond 3.3%
Tobacco 3.3%
Enhanced Tobacco 2.5%
Airport 2.4%
School District 2.3%
Special Purpose 1.2%
Education 1.1%
Facilities 0.8%
Gaming 0.5%
*As a percentage of long-term investments.
Pie Chart:
STATE/TERRITORY ALLOCATION*
New York 12.7%
California 10.4%
Texas 9.8%
Ohio 7.1%
Florida 6.8%
Illinois 5.2%
Pennsylvania 4.1%
Louisiana 4.1%
Colorado 3.9%
Wyoming 3.6%
All other states 32.3%
*As a percentage of long-term municipal bonds and notes.
Line Chart:
SHARE PRICE & NAV PERFORMANCE
Share Price NAV
7/31/2008 11.73 13.17
11.73 13.18
11.74 13.18
11.76 13.13
11.66 13.08
11.70 13.17
11.78 13.21
11.72 13.19
11.75 13.26
11.72 13.23
11.78 13.30
11.72 13.35
11.86 13.37
11.85 13.35
11.89 13.36
11.89 13.33
11.90 13.31
11.97 13.34
12.03 13.34
12.07 13.30
12.00 13.30
12.03 13.28
12.05 13.28
12.05 13.32
12.18 13.38
12.17 13.43
12.15 13.42
12.10 13.50
12.13 13.50
12.08 13.44
12.10 13.38
11.79 13.27
11.62 13.02
11.30 12.85
10.62 12.45
11.16 12.60
10.73 12.52
10.66 12.41
10.68 12.30
10.44 12.20
10.31 12.14
9.60 12.07
9.97 11.84
10.03 11.78
9.93 11.77
9.91 11.88
9.10 11.88
8.95 11.78
8.70 11.53
8.10 11.38
7.34 10.75
7.99 10.74
8.24 10.34
7.88 10.12
7.96 10.06
8.09 10.09
8.58 10.08
8.74 10.35
8.93 10.73
9.29 10.98
9.13 11.09
9.12 11.09
9.09 10.88
9.10 10.84
9.15 10.79
9.22 10.81
9.20 10.83
9.20 10.92
9.46 10.95
9.47 11.01
9.66 10.99
9.61 11.00
9.41 11.00
9.04 11.00
8.83 11.02
8.90 11.02
9.00 10.98
8.69 11.02
8.26 11.03
8.28 10.97
8.25 10.84
8.35 10.67
8.72 10.51
8.57 10.49
8.57 10.49
8.64 10.48
8.29 10.38
8.32 10.25
8.14 10.17
7.89 10.05
7.61 9.85
7.39 9.81
7.34 9.72
7.28 9.57
7.31 9.57
6.96 9.53
6.79 9.58
7.16 9.72
7.46 9.90
7.86 10.02
8.00 10.07
8.12 10.13
8.25 10.16
8.24 10.17
8.31 10.22
8.42 10.27
8.50 10.32
8.74 10.34
8.77 10.40
9.11 10.49
9.03 10.67
9.13 10.85
9.31 11.01
9.56 11.09
9.66 11.19
9.43 11.32
9.51 11.33
9.73 11.32
9.72 11.23
9.78 11.12
9.82 11.05
9.86 11.03
9.90 11.01
9.85 11.14
9.97 11.19
10.03 11.24
1/31/2009 10.05 11.30
9.98 11.36
10.02 11.45
10.15 11.50
10.23 11.56
10.32 11.58
10.57 11.61
10.67 11.65
10.48 11.66
10.50 11.69
10.30 11.67
10.14 11.69
10.13 11.67
9.97 11.61
9.50 11.59
9.34 11.58
9.50 11.61
9.70 11.60
9.69 11.60
9.63 11.58
9.63 11.57
9.58 11.53
9.61 11.49
9.52 11.52
9.51 11.52
9.43 11.52
9.60 11.52
9.51 11.45
9.65 11.45
9.60 11.45
9.68 11.45
9.90 11.33
9.98 11.39
9.85 11.53
9.86 11.54
9.84 11.52
9.83 11.49
9.78 11.47
9.77 11.47
9.90 11.46
9.84 11.50
9.97 11.54
10.00 11.58
10.20 11.56
10.12 11.55
10.09 11.55
10.13 11.54
10.07 11.59
10.16 11.61
9.99 11.55
9.98 11.59
10.06 11.63
10.21 11.74
10.16 11.80
9.98 11.87
10.07 11.97
10.19 12.02
10.25 12.01
10.27 11.99
10.36 12.01
10.32 12.07
10.59 12.08
10.69 12.11
10.79 12.12
10.83 12.13
10.78 12.14
10.85 12.26
10.93 12.34
10.89 12.39
10.86 12.46
11.02 12.49
10.97 12.50
11.04 12.52
11.11 12.56
11.20 12.59
11.18 12.66
11.20 12.74
11.23 12.75
11.20 12.77
11.17 12.75
11.25 12.70
11.30 12.64
11.23 12.64
11.12 12.58
11.20 12.56
11.13 12.58
11.23 12.58
11.09 12.57
11.09 12.52
11.13 12.45
10.92 12.39
10.86 12.32
10.80 12.36
10.81 12.39
10.82 12.41
10.85 12.43
10.80 12.38
10.88 12.38
10.86 12.39
10.92 12.39
10.94 12.38
10.95 12.38
10.90 12.39
10.93 12.39
11.00 12.41
11.04 12.42
11.00 12.43
10.95 12.45
11.01 12.50
11.13 12.56
11.18 12.59
11.18 12.66
11.24 12.62
11.26 12.62
11.21 12.59
11.19 12.59
11.24 12.58
11.27 12.56
11.41 12.57
11.43 12.62
11.49 12.62
11.59 12.60
11.71 12.60
11.78 12.60
11.76 12.66
11.81 12.68
7/31/2009 11.87 12.73
Pie Chart:
CREDIT QUALITY*
AAA 18.9%
AA 24.1%
A 29.6%
BBB 23.1%
BB 2.0%
B 0.7%
NR 1.6%
*As a percentage of long-term investments. Based on Standard & Poor's ~or other
equivalent ratings.
Pie Chart:
MATURITY BREAKDOWN*
0-5 Years 12.9%
6-10 Years 6.5%
11-15 Years 21.2%
16-20 Years 19.8%
21-25 Years 14.8%
26-30 Years 20.0%
30 + Years 4.8%
*As a percentage of long-term investments.
INSURED SECURITIES BREAKDOWN*
- --------------------------------------------------------------------------------
FSA 5.0%
AMBAC 3.6%
Assured Gty 3.0%
PSF 1.4%
GNMA 1.1%
FHA 1.1%
CIFG 1.0%
- --------------------------------------------------------------------------------
* 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/mzf. The above summaries are provided for informational
purposes only and should not be viewed as recommendations.
Annual Report | July 31, 2009 | 9
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Portfolio of INVESTMENTS | JULY 31, 2009
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES - 165.8%
ALASKA - 0.8%
A+ $ 750 Alaska Muni Bond Bank Auth,
Ser 1, 5.75%, 09/01/33 09/01/18 @ 100 $ 758,948
- ----------------------------------------------------------------------------------------
ALABAMA - 2.3%
BBB 845 Courtland, AL Ind Dev Brd
Environ Imp Rev, AMT, Ser B,
6.25%, 08/01/25 08/01/13 @ 100 743,921
Baa3 1,890 Courtland, AL Ind Dev Brd
Solid Waste Disp Rev, AMT,
6.00%, 08/01/29 09/08/09 @ 101 1,541,503
- ----------------------------------------------------------------------------------------
2,285,424
- ----------------------------------------------------------------------------------------
CALIFORNIA - 17.2%
A- 5,000 California Public Works Brd
Dept Mental Health Lease Rev, Ser A,
5.00%, 06/01/24 06/01/14 @ 100 4,612,050
A 6,000 California Various Purpose Gen Oblig,
5.125%, 11/01/24 11/01/13 @ 100 6,062,100
A- 2,500 Chula Vista, CA Ind Dev Rev, Ser B
AMT, 5.50% 12/01/21 06/02/14 @ 102 2,445,125
BBB 2,065 Golden State Tobacco Securitization
Rev, Ser A-1, 5.00%, 06/01/33 06/01/17 @ 100 1,375,125
AAA 2,750 Golden State Tobacco Settlement
Rev, Ser B, 5.375%, 06/01/28
(Prerefunded @ 06/01/10)+ 06/01/10 @ 100 2,862,640
- ----------------------------------------------------------------------------------------
17,357,040
- ----------------------------------------------------------------------------------------
COLORADO - 6.5%
AA 4,500 Colorado Health Facs Auth Rev,
5.25%, 09/01/21
(Prerefunded @ 09/01/11)+ 09/01/11 @ 100 4,921,470
BBB 2,000 Colorado Health Facs Auth Rev,
5.25%, 05/15/42 05/15/17 @ 100 1,603,580
- ----------------------------------------------------------------------------------------
6,525,050
- ----------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 1.8%
Aaa 2,000 District of Columbia FHA Multi Family
Henson Ridge-Rmkt, AMT,
5.10%, 06/01/37 (FHA) 06/01/15 @ 102 1,782,660
- ----------------------------------------------------------------------------------------
FLORIDA - 11.3%
AA- 1,000 Clearwater, FL Wtr & Swr Rev, Ser A,
5.25%, 12/01/39 12/01/19 @ 100 968,970
NR 2,500 Highlands Co., FL Health Facs
Auth Rev, Ser B, 5.25%, 11/15/23
(Prerefunded @ 11/15/12)+ 11/15/12 @ 100 2,808,100
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 3,509,160
A- 2,200 Miami-Dade Co., FL Aviation Rev, AMT,
5.00%, 10/01/38 (CIFG) 10/01/15 @ 100 1,766,380
AAA 1,500 Miami-Dade Co., FL Sch Brd, Ser A,
5.375%, 02/01/34 (Assured Gty) 02/01/19 @ 100 1,513,860
BBB 1,000 Seminole Indian Tribe FL Rev, Ser A,
144A, 5.25%, 10/01/27 10/01/17 @ 100 853,580
- ----------------------------------------------------------------------------------------
11,420,050
- ----------------------------------------------------------------------------------------
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
ILLINOIS - 8.7%
AAA $ 1,115 Chicago O'Hare Intl Arpt Rev 3rd Lien,
Ser A-2, AMT, 5.50%, 01/01/16 (FSA) 01/01/14 @ 100 $ 1,156,355
A+ 3,000 Illinois Dev Fin Auth Hosp Rev,
5.65%, 11/15/24
(Prerefunded @ 11/15/09)+ 11/15/09 @ 101 3,073,200
Baa1 2,000 Illinois Fin Auth, Roosevelt Univ Rev,
5.50%, 04/01/37 04/01/17 @ 100 1,840,440
A- 1,000 Illinois Fin Auth, Rush
Univ Med Ctr Rev,
Ser C, 6.375%, 11/01/29 05/01/19 @ 100 1,000,230
AA 1,965 Illinois Hsg Dev Auth Homeowner Mtg,
AMT, Ser A-2, 5.00%, 08/01/36 02/01/16 @ 100 1,714,600
- ----------------------------------------------------------------------------------------
8,784,825
- ----------------------------------------------------------------------------------------
INDIANA - 2.0%
AA- 2,000 Indianapolis, IN Pub Impt Bond
Bank Wtrwks,
Ser A, 5.50%, 01/01/29 01/01/19 @ 100 1,981,060
- ----------------------------------------------------------------------------------------
IOWA - 1.4%
BBB 2,000 Iowa Tobacco Settlement Auth,
Cap Apprec Asset Bkd, Ser B, 5.60%,
06/01/34 06/01/17 @ 100 1,371,640
- ----------------------------------------------------------------------------------------
KENTUCKY - 1.0%
Aa3 1,000 Kentucky Eco Dev Fin Auth Hosp Fac Rev,
Baptist Hlthcr Sys, Ser A,
5.625%, 08/15/27 08/15/18 @ 100 1,040,800
- ----------------------------------------------------------------------------------------
LOUISIANA - 6.8%
BBB 1,000 De Soto Parish, LA Environ Imp
Rev, AMT, Ser A, 5.85%, 11/01/27 11/01/13 @ 100 817,480
AA- 1,000 East Baton Rouge Parish, LA Swr Commn
Rev, Ser A, 5.25%, 02/01/34 02/01/19 @ 100 1,007,420
BB 3,000 Louisiana Govt, Environ Facs & Comnty
Dev Auth Rev, 6.75%, 11/01/32 11/01/17 @ 100 2,499,900
BBB+ 3,000 St. John Baptist Parish, LA
Marathon Oil Corp., Ser A,
5.125%, 06/01/37 06/01/17 @ 100 2,536,380
- ----------------------------------------------------------------------------------------
6,861,180
- ----------------------------------------------------------------------------------------
MARYLAND - 0.9%
BBB- 1,000 Maryland Health & Hgr Ed
Facs Auth Rev,
5.75%, 01/01/38 01/01/18 @ 100 875,390
- ----------------------------------------------------------------------------------------
MASSACHUSETTS - 1.9%
AA- 1,000 Massachusetts Housing Fin Agency,
AMT, 5.10%, 12/01/27 06/01/17 @ 100 982,410
AA 1,000 Massachusetts Housing Fin Agency,
AMT, Ser 134, 5.60%, 12/01/38 06/01/18 @ 100 967,770
- ----------------------------------------------------------------------------------------
1,950,180
- ----------------------------------------------------------------------------------------
MICHIGAN - 5.2%
AAA 1,000 Detroit, MI Sewer Disp Rev,
Sr Lien, Ser B, 7.50%, 07/01/33 (FSA) 07/01/19 @ 100 1,161,080
AAA 1,000 Detroit, MI Wtr Supply Sys Rev,
2nd Lien, Ser B,
7.00%, 07/01/36 (FSA) 07/01/19 @ 100 1,109,280
BBB 1,000 Michigan Strategic Fund Ltd
Oblig Rev Adj Ref,
Dow Chemical, Ser B-1, 6.25%, 06/01/14 N/A 1,030,870
A- 2,000 Michigan Strategic Fund Ltd Oblig
Rev Ref, Ser C, 5.45%, 09/01/29 09/01/11 @ 100 1,975,880
- ----------------------------------------------------------------------------------------
5,277,110
- ----------------------------------------------------------------------------------------
See notes to financial statements.
10 | Annual Report | July 31, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
PORTFOLIO OF INVESTMENTS continued
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
MISSISSIPPI - 0.9%
BBB $ 1,000 Warren County, MS Gulf Opp Zone,
Intl Paper Co., Ser A,
6.50%, 09/01/32 09/01/18 @ 100 $ 928,970
- ----------------------------------------------------------------------------------------
NEBRASKA - 2.7%
A- 3,000 Public Power Generation Agency,
Whelan Energy Ctr Unit 2, 5.00%,
01/01/41 (AMBAC) 01/01/17 @ 100 2,744,130
- ----------------------------------------------------------------------------------------
NEVADA - 5.4%
A 5,410 Henderson, NV Health Care Fac Rev,
Ser A, 5.625%, 07/01/24 07/01/14 @ 100 5,410,811
- ----------------------------------------------------------------------------------------
NEW YORK - 21.1%
A- 2,750 Long Island, NY Power Auth Rev, Ser A,
5.10%, 09/01/29 09/01/14 @ 100 2,719,255
AA- 4,000 Metropolitan Trans Auth Rev, Ser A,
5.125%, 01/01/24 07/01/12 @ 100 4,103,360
B- 750 New York City Indl Dev Rev, JFK
Intl Arpt, Ser A, AMT, 8.00%, 08/01/12 N/A 723,503
B- 500 New York City Indl Dev Rev,
American Airlines
JFK Intl Arpt, AMT, 7.50%, 08/01/16 N/A 425,415
BB+ 1,000 New York Dorm Auth Rev, NYU Hosp Ctr,
Ser B, 5.25%, 07/01/24 07/01/17 @ 100 930,450
AA 2,250 New York, NY Gen Oblig, Ser J,
5.00%, 05/15/23 05/15/14 @ 100 2,298,690
A+ 1,750 New York Muni Bond Bank Agy Special
School Purpose Rev, Ser C,
5.25%, 12/01/22 06/01/13 @ 100 1,800,452
AA- 4,000 New York Tobacco Settlement Funding
Corp, Ser A1, 5.50%, 06/01/19 06/01/13 @ 100 4,181,600
A- 5,000 Suffolk Co, NY Ind Dev Agy Rev, AMT,
5.25%, 06/01/27 06/01/13 @ 100 4,094,250
- ----------------------------------------------------------------------------------------
21,276,975
- ----------------------------------------------------------------------------------------
NORTH CAROLINA - 3.7%
BBB+ 1,000 North Carolina Eastern Muni Power Agy
Sys Rev Ref, Ser D, 5.125%, 01/01/23 01/01/13 @ 100 1,006,930
BBB+ 1,000 North Carolina Eastern Muni Power Agy
Sys Rev Ref, Ser D, 5.125%, 01/01/26 01/01/13 @ 100 991,740
AA 1,775 North Carolina Housing
Fin Agy Rev, AMT,
Ser 14A, 5.35%, 01/01/22 (AMBAC) 07/01/11 @ 100 1,785,437
- ----------------------------------------------------------------------------------------
3,784,107
- ----------------------------------------------------------------------------------------
OHIO - 11.7%
BBB 1,150 Buckeye OH, Tobacco Settlement
Turbo Rev, Ser A-2,
5.875%, 06/01/30 06/01/17 @ 100 800,665
BBB 2,000 Buckeye OH, Tobacco Settlement
Turbo Rev, Ser A-2,
5.75%, 06/01/34 06/01/17 @ 100 1,279,920
AA- 3,000 Cuyahoga Co., OH Rev Ref, Ser A,
6.00%, 01/01/20 07/01/13 @ 100 3,167,070
AA- 5,000 Lorain Co., OH Hosp Rev Ref, Ser A,
5.25%, 10/01/33 10/01/11 @ 101 4,555,550
BBB 1,000 Ohio Air Quality Dev Auth Rev Ref,
5.70%, 02/01/14 N/A 1,038,810
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
OHIO (CONTINUED)
BBB $ 1,000 Ohio Air Quality Dev Auth Rev Ref,
5.625%, 06/01/18 N/A $ 1,013,440
- ----------------------------------------------------------------------------------------
11,855,455
- ----------------------------------------------------------------------------------------
OKLAHOMA - 2.9%
A 3,525 Oklahoma Dev Fin Auth Rev,
5.00%, 02/15/42 02/15/17 @ 100 2,976,580
- ----------------------------------------------------------------------------------------
OREGON - 1.0%
BBB 1,000 Gilliam Cnty, OR Solid Waste Disp Rev,
AMT, 6.00%, 08/01/25 (1) N/A 1,014,910
- ----------------------------------------------------------------------------------------
PENNSYLVANIA - 6.8%
BBB 2,340 Pennsylvania Higher Education
Facs Auth Rev,
5.25%, 05/01/23 05/01/13 @ 100 2,197,939
BBB+ 2,000 Pennsylvania State Higher Education,
5.00%, 07/15/39 07/15/15 @ 100 1,653,960
BBB 1,000 Pennsylvania State Higher Education,
5.00%, 05/01/37 11/01/17 @ 100 828,220
AA- 1,000 Pennsylvania State Higher Education,
U of PA Health Sys, Ser B,
6.00%, 08/15/26 08/15/18 @ 100 1,088,590
AAA 1,110 Philadelphia, PA Gen Oblig Ref, Ser A,
5.375%, 08/01/30 (Assured Gty) 08/01/19 @ 100 1,103,773
- ----------------------------------------------------------------------------------------
6,872,482
- ----------------------------------------------------------------------------------------
RHODE ISLAND - 2.0%
AAA 1,300 Rhode Island Convention Ctr Auth
Rev Ref, Ser A, 5.50%, 05/15/27
(Assured GTY) 05/15/19 @ 100 1,332,487
BBB 1,000 Rhode Island Tobacco Settlement
Financing Corp, Ser A,
6.25%, 06/01/42 06/01/12 @ 100 730,070
- ----------------------------------------------------------------------------------------
2,062,557
- ----------------------------------------------------------------------------------------
SOUTH CAROLINA - 3.3%
AAA 2,500 Florence Co., SC Hosp Rev, Ser A,
5.25%, 11/01/27 (FSA) 11/01/14 @ 100 2,554,850
BBB 1,000 Georgetown Co., SC Environ Imp Rev,
AMT, Ser A, 5.30%, 03/01/28 03/01/14 @ 100 791,850
- ----------------------------------------------------------------------------------------
3,346,700
- ----------------------------------------------------------------------------------------
SOUTH DAKOTA - 5.5%
AAA 5,000 South Dakota Hsg Dev Auth, Ser K, AMT,
5.05%, 05/01/36 11/01/15 @ 100 4,423,900
AA- 1,200 South Dakota St Hlth & Edl Fac, Ser A
5.25%, 11/01/34 11/01/14 @ 100 1,111,476
- ----------------------------------------------------------------------------------------
5,535,376
- ----------------------------------------------------------------------------------------
TENNESSEE - 2.2%
BBB+ 2,500 Knox Co., TN Health Edl & Hsg
Facs Brd Rev 5.25%, 04/01/27 04/01/17 @ 100 2,244,600
- ----------------------------------------------------------------------------------------
TEXAS - 16.2%
Aaa 2,000 Bexar Co., TX Hsg Fin, AMT,
5.20%, 10/20/34 (GNMA/FHA) 10/20/14 @ 100 1,905,440
AAA 2,500 Houston, TX Utility System,
First Lien Rev Ref, Ser A,
5.00%, 11/15/33 (FSA) 11/15/17 @ 100 2,511,600
A 2,000 Lower Colorado River Auth
Tex Rev, Ser A,
6.25%, 05/15/28 05/15/18 @ 100 2,162,400
See notes to financial statements.
Annual Report | July 31, 2009 | 11
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
PORTFOLIO OF INVESTMENTS continued
RATING PRINCIPAL OPTIONAL
(S&P)* AMOUNT (000) DESCRIPTION CALL PROVISIONS** VALUE
- ----------------------------------------------------------------------------------------
TEXAS (CONTINUED)
BBB+ $ 1,885 Matagorda Co., TX Nav Dist No.1
Rev, AMT,
5.125%, 11/01/28 (AMBAC) (1) N/A $ 1,534,824
A- 2,000 North TX, Tollway Auth Rev, Ser A,
5.625%, 01/01/33 01/01/18 @ 100 1,965,420
A- 1,000 North TX, Tollway Auth Rev, Ser L-2,
6.00%, 01/01/38 (1) 01/01/13 @ 100 1,049,080
AAA 2,325 Pampa, TX Indep School
Dist, 5.00%, 08/15/36 (PSF) 08/15/17 @ 100 2,357,178
BBB+ 2,100 San Leanna Ed Facs Corp Higher
Ed Rev, 5.125%, 06/01/36 06/01/17 @ 100 1,838,634
AAA 1,000 Tarrant Cnty, TX Cult Ed Facs Rev,
Ser A, 5.75%, 07/01/18 (Assured Gty) N/A 1,083,210
- ----------------------------------------------------------------------------------------
16,407,786
- ----------------------------------------------------------------------------------------
VIRGINIA - 1.3%
BBB+ 1,250 Washington Co., VA Indl Dev Auth
Hosp Fac Rev,
Ser C, 7.50%, 07/01/29 01/01/19 @ 100 1,327,787
- ----------------------------------------------------------------------------------------
WASHINGTON - 1.0%
AA+ 1,000 Tes Properties, WA Rev,
5.625%, 12/01/38 06/01/19 @ 100 997,770
- ----------------------------------------------------------------------------------------
WEST VIRGINIA - 3.2%
AAA 3,205 West Virginia Housing Dev Fund Rev,
Ser D, 5.20%, 11/01/21 05/01/11 @ 100 3,227,435
- ----------------------------------------------------------------------------------------
WISCONSIN - 1.2%
AA 1,250 Wisconsin State Health & Ed Facs Rev,
Ser A, 5.00%, 11/15/36 11/15/16 @ 100 1,185,612
- ----------------------------------------------------------------------------------------
WYOMING - 5.9%
BBB 4,000 Sweetwater Co., WY Solid
Waste Disp Rev,
AMT, 5.60%, 12/01/35 12/01/15 @ 100 3,272,920
AA+ 3,100 Wyoming Cmnty Dev Auth Hsg Rev,
Ser 7, AMT, 5.10%, 12/01/38 12/01/16 @ 100 2,733,146
- ----------------------------------------------------------------------------------------
6,006,066
- ----------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS & NOTES - 165.8%
(Cost $173,051,407) 167,477,466
- ----------------------------------------------------------------------------------------
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%, 05/15/15 (remarketing), 144A
(Cost $2,000,000) 1,982,460
- ----------------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS - 167.8%
(Cost $175,051,407) 169,459,926
- ----------------------------------------------------------------------------------------
NUMBER OF
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------------------
Short-Term Investments - 0.1%
Money Market Fund - 0.1%
150,111 JP Morgan Tax Free Money Market
(Cost $150,111) $ 150,111
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 167.9%
(Cost $175,201,518) 169,610,037
Other assets in excess of liabilities - 0.8% 855,790
Preferred Shares, at redemption value -
(-68.7% of Net Assets Applicable to Common
Shareholders or -40.9% of Total Investments) (69,450,000)
- ----------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS - 100.0% (2) $101,015,827
========================================================================================
* 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) Step-up security. Security is a step-up bond where the coupon increases or
steps up at a predetermined date. Rate shown reflects the rate in effect on
July 31, 2009.
(2) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
Glossary:
AMBAC - Insured by Ambac Assurance Corporation
AMT - Alternative Minimum Tax
Assured Gty - Insured by Assured Guaranty
CIFG - Insured by CIFG Assurance NA
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, 2009 these securities amounted to $2,836,040 which represents
2.8% of net assets applicable to common shareholders.
See notes to financial statements.
12 | Annual Report | July 31, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of ASSETS AND LIABILITIES | JULY 31, 2009
ASSETS
Investments, at value (cost $175,201,518) $169,610,037
Interest receivable 2,150,878
Receivable for securities sold 1,991,292
Other assets 25,891
- --------------------------------------------------------------------------------------------------------------
Total assets 173,778,098
- --------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased 3,052,923
Investment advisory fee payable 37,705
Dividends payable - preferred shareholders 29,122
Servicing agent fee payable 25,137
Custodian bank 9,675
Administration fee payable 3,562
Accrued expenses and other liabilities 154,147
- --------------------------------------------------------------------------------------------------------------
Total liabilities 3,312,271
- --------------------------------------------------------------------------------------------------------------
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 $101,015,827
==============================================================================================================
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 (5,591,481)
Accumulated undistributed net investment income 1,269,194
Accumulated net realized loss on investments (7,141,101)
- --------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $101,015,827
==============================================================================================================
NET ASSET VALUE APPLICABLE TO COMMON SHAREHOLDERS (based on 7,935,591 common shares outstanding) $ 12.73
==============================================================================================================
See notes to financial statements.
Annual Report | July 31, 2009 | 13
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Statement of OPERATIONS | FOR THE YEAR ENDED JULY 31, 2009
INVESTMENT INCOME
Interest $ 9,520,961
- --------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee $ 635,284
Servicing agent fee 423,522
Professional fees 248,000
Auction agent fees - preferred shares 189,848
Fund accounting 60,046
Trustees' fees and expenses 48,925
Administrative fee 44,795
Printing expenses 35,421
NYSE listing fee 21,170
Transfer agent fee 18,807
Custodian fee 18,108
Insurance 15,643
Line of credit fee 488
Other 28,767
- --------------------------------------------------------------------------------------------------------------
Total expenses 1,788,824
Investment advisory fees waived (207,689)
Servicing agent fees waived (138,459)
- --------------------------------------------------------------------------------------------------------------
Net expenses 1,442,676
- --------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,078,285
- --------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments (663,855)
Net change in unrealized appreciation (depreciation) on:
Investments (3,211,719)
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (3,875,574)
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO AUCTION MARKET PREFERRED SHAREHOLDERS FROM
Net investment income (1,920,054)
- --------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $ 2,282,657
==============================================================================================================
See notes to financial statements.
14 | Annual Report | July 31, 2009
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, 2009 JULY 31, 2008
- --------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS:
Net investment income $ 8,078,285 $ 7,865,929
Net realized gain (loss) on investments and swaptions (663,855) (4,116,820)
Net change in unrealized appreciation (depreciation) on
investments and swaptions (3,211,719) (4,317,189)
DISTRIBUTIONS TO AUCTION MARKET PREFERRED SHAREHOLDERS FROM
NET INVESTMENT INCOME (1,920,054) (2,731,245)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to common shareholders
resulting from operations 2,282,657 (3,299,325)
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM
Net investment income (5,792,982) (4,951,809)
- --------------------------------------------------------------------------------------------------------------
Total change in net assets applicable to common shareholders (3,510,325) (8,251,134)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 104,526,152 112,777,286
- --------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$1,269,194 and $903,945, respectively.) $101,015,827 $104,526,152
==============================================================================================================
See notes to financial statements.
Annual Report | July 31, 2009 | 15
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Financial HIGHLIGHTS |
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
PER SHARE OPERATING PERFORMANCE FOR ONE COMMON SHARE JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
OUTSTANDING THROUGHOUT EACH PERIOD 2009 2008 2007 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.17 $ 14.21 $ 14.25 $ 14.68 $ 13.83
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 1.02 0.99 0.95 0.90 0.92
Net realized and unrealized gain/(loss) on investments
and swaptions transactions (0.49) (1.06) (0.10) (0.41) 0.87
Distributions to preferred shareholders from net investment income
(common share equivalent basis) (0.24) (0.35) (0.31) (0.27) (0.16)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.29 (0.42) 0.54 0.22 1.63
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM NET INVESTMENT INCOME (0.73) (0.62) (0.58) (0.65) (0.78)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.73 $ 13.17 $ 14.21 $ 14.25 $ 14.68
================================================================================================================================
MARKET VALUE, END OF PERIOD $ 11.87 $ 11.73 $ 12.63 $ 12.29 $ 13.15
================================================================================================================================
TOTAL INVESTMENT RETURN (a)
Net asset value 2.83% -3.07% 3.80% 1.57% 12.03%
Market value 8.65% -2.29% 7.93% -1.60% 6.47%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (thousands) $101,016 $104,526 $112,777 $113,044 $116,511
Ratio of expenses to average net assets (excluding interest
expense on floating rate note obligations and
net of fee waivers) (b) 1.54% 1.27% 1.28% 1.63% 1.53%
Ratio of expenses to average net assets (excluding interest
expense on floating rate note obligations and excluding
fee waivers) (b) 1.91% 1.61% 1.62% 1.89% 1.77%
Ratio of expenses to average net assets (including interest
expense on floating rate note obligations(c) and net of
fee waivers) (b) 1.54% 1.32% 1.44% 1.63% 1.53%
Ratio of expenses to average net assets (including interest
expense on floating rate note obligations(c) and excluding
fee waivers) (b) 1.91% 1.66% 1.78% 1.89% 1.77%
Ratio of net investment income to average net assets (b) 8.65% 7.15% 6.56% 6.21% 6.34%
Portfolio turnover 21% 29% 4% 21% 15%
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 $61,363 $62,626 $65,597 $ 65,693 $ 66,941
Asset coverage per $1,000 of indebtedness (d) N/A N/A $37,445 N/A N/A
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) Calculated on the basis of income and expenses applicable to both common
and preferred shares relative to average net assets of common shareholders.
(c) See Note 1 of the Notes to Financial Statements for more information on
floating rate note obligations.
(d) 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, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Notes to FINANCIAL STATEMENTS | JULY 31, 2009
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.
For those securities whose quotations or prices are not available via the
pricing service, the valuations are determined in accordance with procedures
established in good faith by the Board of Trustees. Valuations in accordance
with these procedures are intended to reflect each security's (or asset's) "fair
value". Such "fair value" is the amount that the Fund might reasonably expect to
receive for the security (or asset) upon its current sale. Each such
determination should be based on a consideration of all relevant factors, which
are likely to vary from one pricing context to another. Examples of such factors
may include, but are not limited to: (i) the type of security, (ii) the initial
cost of the security, (iii) the existence of any contractual restrictions on the
security's disposition, (iv) the price and extent of public trading in similar
securities of the issuer or of comparable companies, (v) quotations or evaluated
prices from broker-dealers and/or pricing services, (vi) information obtained
from the issuer, analysts, and/or the appropriate stock exchange (for exchange
traded securities), (vii) an analysis of the issuer's financial statements, and
(viii) an evaluation of the forces that influence the issuer and the market(s)
in which the security is purchased and sold (e.g. the existence of pending
merger activity, public offerings or tender offers that might affect the value
of the security).
In September, 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 157, "Fair Valuation
Measurements" ("FAS 157"). The Fund adopted FAS 157 effective on August 1, 2008.
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 establishes three
different categories for valuations. Level 1 valuations are those based upon
quoted prices in active markets. Level 2 valuations are those based upon quoted
prices in inactive markets or based upon significant observable inputs (e.g.
yield curves; benchmark interest rates; indices). Level 3 valuations are those
based upon unobservable inputs (e.g. discounted cash flow analysis; non-market
based methods used to determine fair valuation). In April 2009, the FASB issued
FSP FAS 157-4, "Determining Fair Value When Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly" (FSP 157-4). FSP 157-4 provides guidance on how to
determine the fair value of assets and liabilities when the volume and level of
activity for the asset/liability has significantly decreased. The Fund adopted
FSP 157-4 effective on July 31, 2009. The following table represents the Funds'
investments carried on the Statement of Assets and Liabilities by caption and by
level within the fair value hierarchy as of July 31, 2009:
VALUATIONS (IN $000S) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
- --------------------------------------------------------------------------------
DESCRIPTION
Assets:
Preferred Shares $ - $ 1,982 $ - $ 1,982
Municipal Bonds - 167,478 - 167,478
Money Market Funds 150 - - 150
- --------------------------------------------------------------------------------
Total $150 $169,460 $ - $169,610
- --------------------------------------------------------------------------------
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.
DIVIDENDS AND DISTRIBUTIONS: The Fund declares 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 6.
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
Annual Report | July 31, 2009 | 17
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
NOTES TO FINANCIAL STATEMENTS continued
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, 2009, 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.
SUBSEQUENT EVENTS: Effective July 31, 2009, the Fund adopted Statement of
Financial Accounting Standards No. 165 ("SFAS No. 165"), "Subsequent Events".
SFAS No. 165 requires an entity to recognize in the financial statements the
effects of all subsequent events that provide additional evidence about
conditions that existed at the date of the statement of assets and liabilities.
SFAS No. 165 is intended to establish general standards of accounting and for
disclosure of events that occur after the statement of assets and liabilities
date but before the financial statements are issued or are available to be
issued. The Fund has performed an evaluation of subsequent events through
September 21, 2009, which is the date the financial statements were issued.
Note 2 - AGREEMENTS:
Pursuant to an Investment Advisory Agreement (the "Advisory Agreement") between
MBIA Capital Management Corp. (the "Adviser") and the Fund, the Adviser is
responsible for the daily management of the Fund's portfolio, which includes
buying and selling securities for the Fund, as well as investment research,
subject to the direction of the Fund's Board of Trustees. The Adviser is a
subsidiary of MBIA Asset Management, LLC which, in turn, is a wholly-owned
subsidiary of MBIA, Inc. The Advisory Agreement provides that the Fund shall pay
to the Adviser a monthly fee for its services at the annual rate of 0.39% of the
sum of the Fund's average daily managed assets. ("Managed Assets" represent the
Fund's total assets including the assets attributable to the proceeds from any
financial leverage but excluding the assets attributable to floating rate note
obligations, minus liabilities, other than debt representing financial
leverage.) The Adviser contractually agreed to waive a portion of the management
fees it is entitled to receive from the Fund at the annual rate of 0.09% of the
Fund's average daily Managed Assets from the commencement of the Fund's
operations through September 1, 2008 and at the annual rate of 0.042% thereafter
through September 1, 2009. Effective June 16, 2006, the Adviser voluntarily
agreed to waive an additional 0.0375% of advisory fees and has since agreed to
forego the scheduled step down in the contractual waiver scheduled for September
1, 2008 and September 1, 2009. 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 and September 1, 2009. 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, an
affiliate of the Servicing Agent, 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, 2009, the Fund incurred approximately $45,000 in
fund administration fees.
On July 17, 2009, Claymore Group Inc., the parent of the Servicing Agent,
entered into an Agreement and Plan of Merger between and among Claymore Group
Inc., Claymore Holdings, LLC and GuggClay Acquisition, Inc., (with the latter
two entities being wholly-owned, indirect subsidiaries of Guggenheim Partners,
LLC ("Guggenheim")) whereby GuggClay Acquisition, Inc. will merge into Claymore
Group Inc. which will be the surviving entity. The parties intend that the
completed merger will result in a change-of-control whereby Claymore Group Inc.
and its subsidiaries, including the Servicing Agent, will become indirect,
wholly-owned subsidiaries of Guggenheim. The transaction is not expected to
affect the daily operations of the Fund or the investment management activities
of the Adviser.
Consummation of this transaction will result in the automatic termination of the
Servicing Agent Agreement. Accordingly, prior to such consummation, the Fund
expects to enter into a new servicing agent agreement with the Servicing Agent,
to become effective upon the consummation of the transaction. This new servicing
agent agreement will be subject to the approval of the Board of Trustees.
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, 2009, aggregated $35,951,982 and $34,206,517,
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.
18 | Annual Report | July 31, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
NOTES TO FINANCIAL STATEMENTS continued
Information on the tax components of investments as of July 31, 2009 is as
follows:
COST OF
INVESTMENTS GROSS TAX GROSS TAX NET TAX UNREALIZED
FOR TAX UNREALIZED UNREALIZED DEPRECIATION ON
PURPOSES APPRECIATION DEPRECIATION INVESTMENTS
- --------------------------------------------------------------------------------
$175,234,728 $4,017,646 ($9,642,337) ($5,624,691)
- --------------------------------------------------------------------------------
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, 2009, 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)
- --------------------------------------------------------------------------------
2009 $1,317,546 $- ($7,156,243) ($5,624,691)
- --------------------------------------------------------------------------------
The cumulative timing differences under tax basis accumulated capital and other
losses as of July 31, 2009 are due to investments in partnerships/trusts.
As of July 31, 2009, for federal income tax purposes, the Fund had a capital
loss carryforward of $6,782,056 available to offset possible future capital
gains. The capital loss carryforward is set to expire as follows: $1,384,327 on
July 31, 2013, $625,460 on July 31, 2014 and $4,772,269 on July 31, 2017.
Distributions paid to shareholders during the tax years ended July 31, 2009 and
2008 were characterized as follows for tax purposes:
TAX EXEMPT ORDINARY LONG-TERM TOTAL
INCOME INCOME CAPITAL GAIN DISTRIBUTIONS
- --------------------------------------------------------------------------------
2009 $7,577,820 $135,216 $ - $7,713,036
2008 $7,666,751 $ 16,303 $ - $7,683,054
- --------------------------------------------------------------------------------
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, 2009, the Fund incurred and will elect
to defer $374,187 as post-October losses.
For all open tax years and all major jurisdictions, management of the Fund has
concluded that there are no significant uncertain tax positions that would
require recognition in the financial statements. Open tax years are those that
are open for examination by taxing authorities (i.e. generally the last four tax
year ends and the interim tax period since then). Furthermore, management of the
Fund is also not aware of any tax positions for which it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly change in
the next twelve months.
Note 5 - DERIVATIVES:
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161 ("SFAS No. 161"), "Disclosures about Derivative Instruments and Hedging
Activities." 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. The Fund adopted SFAS No. 161
effective January 31, 2009.
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 section. 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. At
July 31, 2009, the Fund had no swaptions outstanding.
The adoption of SFAS No. 161 had no impact to the financial statements as the
Fund did not hold derivative instruments during the year ended July 31, 2009.
Note 6 - 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, 2009, of
which the Adviser owned 6,981 shares. There were no transactions in common
shares for the years ended July 31, 2009 or 2008.
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, 2009, 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, 2009,
were as follows:
SERIES LOW HIGH AT 7/31/09 NEXT AUCTION DATE
- --------------------------------------------------------------------------------
M7 1.488% 10.377% 1.571% 8/03/09
W28 1.515% 7.912% 1.515% 8/12/09
- --------------------------------------------------------------------------------
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
Annual Report | July 31, 2009 | 19
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
NOTES TO FINANCIAL STATEMENTS continued
shares and/or could trigger the mandatory redemption of 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 7 - 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, 2009 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, 2009 was $45,263 with a related weighted average
interest rate of 1.08%.
Note 8 - 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 9 - RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2009, the FASB issued Statement of Financial Accounting Standards No.
168, "The FASB Accounting Standards Codification TM and the Hierarchy of
Generally Accepted Accounting Principles - a replacement of FASB Statement No
162" ("SFAS 168"). SFAS 168 replaces SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles" and establishes the "FASB Accounting Standards
Codification TM" ("Codification") as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with U.S. GAAP. All
guidance contained in the Codification carries an equal level of authority. On
the effective date of SFAS 168, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
nongrandfathered non-SEC accounting literature not included in the Codification
will become nonauthoritative. SFAS 168 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The Fund
evaluated this new statement, and has determined that it will not have a
significant impact on the determination or reporting of the Fund's financial
statements.
Note 10 - 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
- --------------------------------------------------------------------------------
$ 0.075 8/03/09 8/12/09 8/14/09 8/31/09
$ 0.075 9/01/09 9/11/09 9/15/09 9/30/09
- --------------------------------------------------------------------------------
20 | Annual Report | July 31, 2009
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
Capital/Claymore Managed Duration Investment Grade Municipal Fund (the "Fund"),
including the portfolio of investments, as of July 31, 2009, 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 four 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 year ended July 31, 2005, were audited by other
auditors whose report dated September 27, 2005, expressed an unqualified opinion
on those financial highlights.
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, 2009, by correspondence with the custodian and
brokers. 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,
2009, 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 four years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
September 21, 2009
Annual Report | July 31, 2009 | 21
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, 2009)
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, 2009 was federally exempt interest dividends. The Fund has
invested in municipal bonds containing market discount, whose accretion is
taxable and accordingly, 1.98% of the dividends paid from net investment income
during the tax period are attributable to this taxable income. Therefore the
Fund designated $7,577,820 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 2009. In January 2010, 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 2009. The amount that
will be reported will be the amount to use on your 2009 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, 2009. 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 2010, 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
NAME, ADDRESS*, YEAR OF TERM OF OFFICE** PRINCIPAL OCCUPATION DURING PORTFOLIOS IN THE
BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND FUND COMPLEX*** OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Randall C. Barnes Since 2006 Private Investor (2001-present). 43 None
Year of Birth: 1951 Formerly, Senior Vice President &
Trustee Treasurer, PepsiCo., Inc.
(1993-1997), President, Pizza Hut
International (1991-1993) and
Senior Vice President, Strategic
Planning and New Business
Development (1987-1990) of PepsiCo,
Inc. (1987-1997).
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Since 2003 Partner of Nyberg & Cassioppi, LLC, 46 None
Year of Birth: 1953 a law firm specializing in
Trustee corporate law, estate planning and
business transactions
(2000-present). Formerly, Executive
Vice President, General Counsel and
Corporate Secretary of Van Kampen
Investments (1982-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald E. Toupin, Jr. Since 2003 Retired. Formerly, Vice President, 43 None
Year of Birth: 1958 Manager and Portfolio Manager of
Trustee Nuveen Asset Management
(1998-1999), Vice President of
Nuveen Investment Advisory Corp.
(1992-1999), Vice President and
Manager of Nuveen Unit Investment
Trusts (1991-1999), and Assistant
Vice President and Portfolio
Manager of Nuveen Unit Investment
Trusts (1988-1999), each of John
Nuveen & Co., Inc. (1982-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford D. Corso+ Since 2003 President of MBIA Asset Management 1 None
113 King Street LLC & MBIA Capital Management
Armonk, NY 10504 Corp.; Chief Investment Officer,
Year of Birth: 1961 MBIA Insurance Corp.
Trustee and President
- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso++ Since 2003 Attorney. Formerly, Senior Managing 43 None
Year of Birth: 1965 Director and Chief Administrative
Trustee Officer (2007-2008) and 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 Investment Company Act of 1940, as amended) 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.
22 | Annual Report | July 31, 2009
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund |
SUPPLEMENTAL INFORMATION (unaudited) continued
PRINCIPAL EXECUTIVE 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 AND
POSITION(S) HELD WITH REGISTRANT LENGTH OF TIME SERVED 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
Year of birth: 1959 Advisors, LLC, Claymore Securities, Inc. and Claymore Group Inc.
Chief Legal Officer (2007-present). 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
Chief Financial Officer, Claymore Group Inc. (2005-2006). Managing Director of Claymore
Chief Accounting Officer Advisors, LLC and Claymore Securities, Inc. (2003-2005).
and Treasurer Treasurer of Henderson Global Funds and Operations Manager for
Henderson Global Investors (North America) Inc., (2002-2003);
Managing Director, FrontPoint Partners LLC (2001-2002); Vice
President, Nuveen Investments (1999-2001); Chief Financial
Officer, Skyline Asset Management LP, (1999); Vice President, Van
Kampen Investments and Assistant Treasurer, Van Kampen mutual
funds (1989-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
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 P.C. (2003-2005).
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce Saxon Since 2006 Vice President - Fund Compliance Officer of Claymore Group, Inc. (2006 -
Year of Birth: 1957 present). Previously, Chief Compliance Officer/Assistant Secretary
Chief Compliance Officer 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 Capital
113 King Street 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.
Annual Report | July 31, 2009 | 23
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Investment Advisory Agreement CONTRACT RE-APPROVAL
On April 20, 2009, the Board of Trustees (the "Board"), including those trustees
who are not interested persons as defined by the Investment Company Act of 1940
(the "Independent Trustees"), of MBIA Capital/Claymore Managed Duration
Investment Grade Municipal Fund (the "Fund") met to consider the renewal of the
investment advisory agreement ("Advisory Agreement") between the Fund and MBIA
Capital Management Corp. (the "Adviser"). The Board 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. The
Board also had previously received, throughout the year, Board meeting
information regarding performance and operating results of the Fund.
In preparation for its 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 that request. In
executive sessions on March 23, 2009 and April 20, 2009, the Independent
Trustees met to discuss the information provided by the Adviser and Claymore. On
the basis of that meeting and in consultation with independent legal counsel,
the Independent Trustees sent a formal request for additional information to the
Adviser and Claymore. The Adviser and Claymore supplemented their initial
responses with additional information to the satisfaction of the Independent
Trustees.
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 of the Fund to a
peer group of closed-end funds selected by the Adviser and Claymore with similar
characteristics to the Fund including, but not limited to, investment objectives
and strategies, effective duration targets, assets under management, the use of
leverage and the lack of a termination date (the "Adviser Performance Peer
Group"); information comparing the advisory fees and expense rations of a group
of funds selected by the Adviser and Claymore with assets under management, the
use of leverage and the lack of a termination date similar to the Fund (the
"Adviser Expense Peer Group"); and information about the Adviser's profitability
and the effectiveness of the compliance program adopted by the Adviser.
Based upon their review, the Independent Trustees and the Board concluded that
it was in the best interests of the Fund to renew the Advisory Agreement. In
reaching this conclusion for the Fund, no single factor was determinative in the
Board's analysis, but rather the Board considered a variety of factors. This
summary describes the most important, but not all, of the factors considered by
the Board.
With respect to the nature, extent and quality of services currently provided by
the Adviser, the Board 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 also considered the key personnel
available to manage the portfolio. The Board 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 current monthly distribution of $0.061 per
share represented an annual distribution rate of 7.34% based on the Fund's
market price as of March 31, 2009 (or 11.30% taxable equivalent yield for
taxpayers in the 35% tax bracket). The Board also noted that the Fund's monthly
distribution rate has been increased twice since September 2007, from $0.0525 to
$0.061, a total increase of 16%.
In considering investment performance, the Board reviewed the Fund's performance
relative to the Barclays General Municipal Index and the Barclays 15 Year
Municipal Index ("Barclays Indices") and the Adviser Performance Peer Group. The
Board reviewed the Fund's total return on a new asset value basis for the six
months ended January 31, 2009 and the one-year, three-year and since inception
periods ended July 31, 2008. It was noted that the Fund underperformed the
Barclays Indices and the Adviser Performance Peer Group for all periods ended
July 31, 2008. In addition, the Board reviewed the Fund's performance during the
period since Mr. Jeffrey MacDonald became a portfolio manager of the Fund.
Specifically, the Board reviewed the Fund's total return on a net asset value
basis for the three-months, six-months and thirteen-months ended March 31, 2009.
The Board noted that the Fund outperformed the Barclays Indices on a net asset
value basis for the three-months ended March 31, 2009 and outperformed the
Adviser Performance Peer Group on a net asset value basis for the three-months,
six-months and thirteen-months ended March 31, 2009.
The Board 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 had used an active hedging
strategy to help protect the portfolio against significant rises in interest
rates (the "Hedging Strategy") before the Hedging Strategy was terminated in
March 2008. The Board noted the Adviser's recommendation that the reinstitution
of the Hedging Strategy was not warranted in the current interest rate
environment. They also noted that the Adviser does not currently anticipate
resuming the Hedging Strategy, although it retains the flexibility to do so.
The Board then considered the Fund's fees and expenses. In reviewing the Fund's
advisory fees, the Board factored in the administration fee paid to Claymore
Advisors and the servicing fee paid to Claymore Securities since those functions
are typically included in the advisory fees of the Adviser Expense Peer Group.
The Board also compared the Fund's administration fees and servicing fees paid
to the Claymore Advisors and Claymore Securities, respectively, to similar fees
received by Claymore from certain of their other institutional clients. The
Board noted that the Adviser does not manage any other institutional accounts
with a mandate similar to that of the Fund. In addition, the Board compared the
administration fee paid to Claymore Advisors to the fees that would be charged
for similar services provided by an alternate service provider. The Board noted
that the Adviser and Claymore Securities were waiving a portion of their
contractual fees until September 1, 2009 and had agreed to additional voluntary
fee waivers. At the request of the Board, the Adviser and Claymore Securities
entered into an agreement with the Fund to extend these waivers until June 2010.
While the contractual fees were higher than the Adviser Expense Peer Group,
after giving effect to these waivers, the Board noted that the combined
advisory, administration and servicing fees were within a reasonable range of
the average advisory fee (net of waivers) of the Adviser Expense Peer Group.
With respect to the profits realized by the Adviser from its relationship with
the Fund, the Board 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. The
Board noted that the Adviser was earning a reasonable profit from its
relationship with the Fund.
With respect to potential economies of scale, the Board noted that, as a
closed-end fund, the Fund was not expected to materially increase in size.
Therefore the Board 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, the Board 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.
24 | Annual Report | July 31, 2009
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, BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA
15252-8015, Phone Number: 866-488-3559.
Annual Report | July 31, 2009 | 25
MZF | MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund
Other INFORMATION |
AMENDMENTS TO BY-LAWS
On October 20, 2008, the Board of Trustees approved amendments to the Fund's
Amended and Restated By-Laws (the "By-Laws"). The By-Laws are attached as an
exhibit to the Fund's amended semi-annual report on Form NSAR filed on June 30,
2009. The amendments address the procedures by which shareholders may bring
shareholder proposals, including trustee nominations, before a shareholder
meeting. Specifically, the By-Laws have been amended to include advance notice
and advance nomination provisions and a requirement that the Board of Trustees
review and approve matters to be submitted to meetings of shareholders. The
amendments also include clarifications on adjournment of meetings and the
creation and powers of committees of the Board of Trustees.
26 | Annual Report | July 31, 2009
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, as a result of his position as an officer
of the Fund's Investment Adviser.
** 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 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.
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/mzf. 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 November 2008, 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 from time to time may purchase
shares of its common and preferred stock in the open market or in private
transactions.
Annual Report | July 31, 2009 | 27
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 $43 billion dollar manager of fixed income products. The parent
company, MBIA, Inc., is listed on the New York Stock Exchange and is a component
stock of the S&P 500 Index.
INVESTMENT PHILOSOPHY
MBIA Capital Management's philosophy is anchored in the conviction that a high
quality municipal portfolio diversified among maturities will provide favorable
risk-adjusted performance over time and through a variety of market cycles. MBIA
Capital Management believes that security selection is enhanced by its large and
dedicated staff of credit analysts. Each analyst has a thorough understanding of
the broad market, but focuses research on a particular segment of the larger
market.
INVESTMENT PROCESS
Investment strategy, including credit quality, yield curve positioning and
duration targets, is set for portfolios at regular strategy meetings with the
firm's chief investment officer, portfolio managers and sector specialists.
Credit quality decisions are based on credit bands established for each of the
portfolios and the current relative value of securities within each of the
credit bands. Duration target decisions are based on duration bands which direct
the overall risk profile of portfolios relative to their benchmarks and the
consensus outlook on the term structure of interest rates. Duration management
is extended to each of the individual market sectors. Using the guidelines
established in the strategy meetings, the municipal portfolio managers work
closely with research analysts. MBIA's rigorous bottom-up process is rooted in
fundamental credit analysis and MBIA's proprietary research.
MBIA CAPITAL MANAGEMENT CORP.
113 King Street
Armonk, NY 10504
(09/09)
CLAYMORE SECURITIES, INC.
2455 Corporate West Drive
Lisle, IL 60532
Member FINRA/SIPC
(09/09)
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
MZF
LISTED
NYSE(R)
MZF-AR-0709
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) The registrant has not amended its Code of Ethics during the period covered
by the report presented in Item 1 hereto.
(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 $34,000 for the
fiscal years ending July 31, 2009 and July 31, 2008, 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 $6,300 for the fiscal
years ending July 31, 2009 and July 31, 2008, 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 $6,000 for the fiscal years ending July 31, 2009 and July 31, 2008,
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, 2009 and July 31,
2008, 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, (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.
(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 $12,300 for the
fiscal years ending July 31, 2009 and July 31, 2008, 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. President of Rivus Bond Fund.
------------------------------- ---------------- ----------------------------------------------------------------
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, 2009:
Registered Investment Other Pooled Investment
Companies Vehicles Other Accounts
---------------------------- ------------------------------- ------------------------------
# of Total Assets # of Total Assets # of Total Assets
Name Accounts Accounts Accounts
Clifford D. Corso 2 $ 285 million - - 75 $ 36.7 billion
Jeffrey S. MacDonald 1 $ 170 million - - 50 $ 3.7 billion
James B. DiChiaro 1 $ 170 million - - 3 $ 0.5 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, 2009, 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, 2009, 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, 2009:
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, 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 second 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 and Section 906
of the Sarbanes-Oxley Act of 2002.
(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, 2009
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, 2009
By: /s/ Steven M. Hill
----------------------------------------------
Name: Steven M. Hill
Title: Treasurer and Chief Financial Officer
Date: October 6, 2009